As filed with the Securities and Exchange Commission on June 29, 2006
Registration No. 333-131948
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A
Amendment No. 1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Nevada 7389 30-0062823
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(State or jurisdiction (Primary Standard (IRS Employer
of incorporation or Industrial Identification
organization) Classification No.)
Code Number)
600 Kenrick, Suite B-12
Houston, Texas 77060
(832) 230-2376
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(Address and telephone number of principal executive offices and principal place
of business or intended principal place of business)
James Ammons, President
600 Kenrick, Suite B-12
Houston, Texas 77060
(832) 230-2376
With copies to:
David M. Loev, John S. Gillies,
David M. Loev, Attorney at Law David M. Loev, Attorney at Law
2777 Allen Parkway, Suite 1000 & 2777 Allen Parkway, Suite 1000
Houston, Texas, 77019 Houston, Texas, 77019 (713) 524-4110 Tel. (713) 524-4110 Tel. (713) 524-4122 Fax (713) 456-7908 Fax |
Approximate date of proposed sale to the public: as soon as practicable after the effective date of this Registration Statement.
If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. (X)
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of earlier effective registration statement for the same offering. ( )
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ( )
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ( )
If delivery of the Prospectus is expected to be made pursuant to Rule 434, check the following box. ( )
CALCULATION OF REGISTRATION FEE Title of Each Amount Proposed Maximum Proposed Maximum Amount of Class of Securities Being Price Per Share(1) Aggregate Price(2) Registration To be Registered Registered Fee ---------------------------------------------------------------------------------------------- Common Stock 38,262,100 $0.10 $3,826,210 $409.41 ============================================================================================== Total 38,262,100 $0.10 $3,826,210 $409.41 |
(1) The offering price is the stated, fixed price of $.10 per share until the securities are quoted on the OTC Bulletin Board for the purpose of calculating the registration fee pursuant to Rule 457.
(2) This amount has been calculated based upon Rule 457 and the amount is only for purposes of determining the registration fee, the actual amount received by a selling shareholder will be based upon fluctuating market prices once the securities are quoted on the OTC Bulletin Board.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
PROSPECTUS
DATA CALL TECHNOLOGIES, INC.
RESALE OF 38,262,100 SHARES OF COMMON STOCK
The selling stockholders listed on page 44 may offer and sell up to 38,262,100 shares of our common stock under this Prospectus for their own account. A current Prospectus must be in effect at the time of the sale of the shares of common stock discussed above. We will not receive any proceeds from the resale of common stock by the selling stockholders. The selling stockholders will be responsible for any commissions or discounts due to brokers or dealers. We will pay all of the other offering expenses.
We currently lack a public market for our common stock. Selling shareholders will sell at a price of $0.10 per share until our shares are quoted on the OTC Bulletin Board and thereafter at prevailing market prices or privately negotiated prices. If before our shares are quoted on the OTC Bulletin Board, and after this Registration Statement becomes effective, selling shareholders wish to sell at a price other than $0.10 per share, we will file a post-effective amendment beforehand.
Each selling stockholder or dealer selling the common stock is required to deliver a current Prospectus upon the sale. In addition, for the purposes of the Securities Act of 1933, selling stockholders may be deemed underwriters.
The information in this Prospectus is not complete and may be changed. We may not sell these securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES
ONLY IF YOU CAN AFFORD A COMPLETE LOSS. WE URGE YOU TO READ THE "RISK FACTORS"
SECTION BEGINNING ON PAGE 10 ALONG WITH THE REST OF THIS PROSPECTUS BEFORE YOU
MAKE YOUR INVESTMENT DECISION.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION ("SEC") NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Prospectus Summary 5
Summary Financial Data 9
Risk Factors 10
Risks Related to Our Business 18
Risks Related to This Offering 18
Use of Proceeds 18
Dividend Policy 18
Legal Proceedings 18
Directors, Executive Officers, Promoters and Control Persons
Security Ownership of Certain 19
Beneficial Owners and Management 23
Interest of Named Experts and Counsel 24
Indemnification of Directors and Officers 24
Description of Business 25
Management Discussion and
Analysis of Financial Condition and Results of Operations 31
Description of Property 37
Certain Relationships and Related Transactions 38
Executive Compensation 40
Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure 42
Descriptions of Capital Stock 42
Shares Available for Future Sale 43
Plan of Distribution and Selling Stockholders
Market for Common Equity and
Related Stockholder Matters 44
Legal Matters 52
Additional Information 52
Financial Statements F-1
Part II 53
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PART I - INFORMATION REQUIRED IN PROSPECTUS
PROSPECTUS SUMMARY
The following summary highlights material information found in more detail elsewhere in the Prospectus. It does not contain all the information you should consider. As such, before you decide to buy our common stock, in addition to the following summary, we urge you to carefully read the entire Prospectus, especially the risks of investing in our common stock as discussed under "Risk Factors." In this Prospectus, the terms "we," "us," "our," and "Data Call," refer to Data Call Technologies, Inc., a Nevada corporation.
We currently lack a public market for our common stock. Selling shareholders will sell at a price of $0.10 per share until our shares are quoted on the OTC Bulletin Board and thereafter at prevailing market prices or privately negotiated prices. Management has estimated that the current fair market value of our common stock is $0.10 per share based on the price we have sold shares of common stock at in the past.
The following summary is qualified in its entirety by the detailed information appearing elsewhere in this Prospectus. The securities offered hereby are speculative and involve a high degree of risk. See "Risk Factors."
Data Call Technologies, Inc. ("Data Call") was founded on April 4, 2002 as "Data Call Wireless." Effective on June 19, 2003, we changed our name to "Data Call Technologies." Effective March 1, 2006, we changed our name to "Data Call Technologies, Inc." We offer digital advertising and marketing services to customers through our Direct Lynk Messenger System, which enables customers to stream text from our website on the Internet onto televisions in their places of business.
We believe that the Direct Lynk System has a variety of uses including displaying food menus, sports scores, financial information, news, and entertainment information, as well as user programmable information and hopes to offer its Direct Lynk System to restaurants, hotels, salons, gas stations, airlines, banks, car dealerships as well as shopping malls. We currently have a small number of customers who pay us subscription fees of approximately $1 per day for each display which uses our Direct Lynk System. These customers range from sports arenas to airlines to restaurants. We do not supply any hardware to our end customers, but only offer them access to streaming information including text, sports scores and financial news over the Internet through our Direct Lynk System. Our information can stream from the Internet to any television attached to a third party video decoder box, which takes the video signal from our website and displays it on the television. Our information can either stream across the bottom, top or sides of the screen, depending on the customers preferences.
We have generated only limited revenues through subscriptions to our Direct Lynk System in the past; have only a small number of subscription agreements with customers for our technology; had a net loss of $1,060,847 for the year ending December 31, 2004; a net loss of $1,075,856 for the year ending December 31, 2005; a net loss of $624,700 for the three months ended March 31, 2006; and an accumulated deficit of $5,019,421 as of March 31, 2006. Additionally, our auditor has expressed substantial doubt about our ability to continue as a going concern. We hope to generate meaningful revenues to support our operations in approximately eight to twelve months, of which there can be no assurance.
Of the 38,262,100 shares of common stock included in this Prospectus, representing approximately 69% of our issued and outstanding common stock, 5,627,600 shares of common stock were issued in connection with services rendered to us, 4,717,000 shares of common stock were transferred in consideration for certain shareholders of QVS Wireless entering into releases with us, and 27,917,500 shares were sold to investors at a price of $0.10 per share.
Our principal executive offices are located at 600 Kenrick, Suite B-12, Houston, Texas 77060. Our telephone number is (832) 230-2376. Our website address is www.datacalltech.com (and includes information we do not intend to include as part of this Prospectus).
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THE OFFERING
COMMON STOCK OFFERED: 38,262,100 shares by selling
stockholders
COMMON STOCK OUTSTANDING
BEFORE THE OFFERING: 55,247,100 shares
COMMON STOCK OUTSTANDING
AFTER THE OFFERING: 55,247,100 shares
USE OF PROCEEDS: We will not receive any proceeds of
the shares offered by the selling
stockholders. See "Use of Proceeds."
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RISK FACTORS: The securities offered hereby involve a high degree of risk, including risks associated with our need for additional financing, with our prohibition from raising additional capital during the "quiet period," with the fact that we have generated only limited revenues from our services in the past, with our reliance on key management, outstanding issues with one of our former officers and Directors, disputes with persons formerly associated with us, with our dependence on the marketing of our products, with potential liability we may have for shares of common stock which may have been sold in violation of federal and/or state securities laws, with our limited operating history, with our software potentially containing bugs, with future government regulation, with our Internet infrastructure, with natural disasters effecting our Internet operations, with our lack of a patent for our technology, with the number of shares of common stock which we may have sold and failed to record or issued, with our ability to issue shares of common and preferred stock under Nevada law, with the fact that our current officers and Directors do not own a majority of the outstanding shares and therefore do not control who our officers and Directors are, with our ability to continue as a going concern, with the potential volatility of our common stock when traded, with the fact that our common stock may never be publicly traded, and the penny stock restrictions on our common stock. See "Risk Factors."
NO MARKET: No assurance is provided that a
market will be created for our
securities in the future, or at all. If
in the future a market does exist for
our securities, it is likely to be
highly illiquid and sporadic.
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SUMMARY FINANCIAL DATA
You should read the summary financial information presented below for the three months ended March 31, 2006, and the year ended December 31, 2005. We derived the summary financial information from our unaudited quarterly financial statements for the three months ended March 31, 2006 and our audited financial statements for the years ended December 31, 2005 and 2004, appearing elsewhere in this Prospectus. You should read this summary financial information in conjunction with our plan of operation, financial statements and related notes to the financial statements, each appearing elsewhere in this Prospectus.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
BALANCE SHEET
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MARCH 31, 2006 DECEMBER 31, 2005
(Unaudited) (Audited)(Restated)
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ASSETS
Cash $ 571,166 $ 671,228
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Total Current Assets 571,166 671,228
Net Property and Equipment 96,935 90,798
Other Assets 5,255 5,255
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Total Assets $ 619,356 $ 767,281
LIABILITIES
Accounts payable and accrued
salaries and expenses 104,552 86,792
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Total Liabilities $ 104,552 $ 86,792
STOCKHOLDER'S EQUITY
Preferred Stock $0.001 par value;
10,000,000 shares authorized -- --
Common Stock $0.001 par value;
200,000,000 shares authorized;
55,312,100 and 50,752,100
shares issued and outstanding
at March 31, 2006 and
December 31, 2005, respectively 55,312 50,752
Additional Paid-in Capital 5,478,913 5,024,258
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Accumulated deficit $ (5,019,421) $ (4,394,721)
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STATEMENT OF OPERATIONS
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THREE MONTHS ENDED YEAR ENDED
MARCH 31, 2006 DECEMBER 31, 2005
(Unaudited) (Audited)
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SALES $ 1,688 $ 365
COST OF SALES - -
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Gross Profit 1,688 365
OPERATING EXPENSES 626,388 1,076,221
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NET LOSS $ (624,700) $ (1,075,856)
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RISK FACTORS
The securities offered herein are highly speculative and should only be purchased by persons who can afford to lose their entire investment in Data Call Technologies, Inc.. You should carefully consider the following risk factors and other information in this Prospectus before deciding to become a holder of our common stock. If any of the following risks actually occurs, our business and financial results could be negatively affected to a significant extent.
Our business is subject to many risk factors, including the following (references to "Data Call," "our," "we," and words of similar meaning in these Risk Factors refer to Data Call):
WE REQUIRE ADDITIONAL FINANCING TO CONTINUE OUR BUSINESS PLAN.
We believe that we can continue our business operations for approximately the next three months, assuming our current rate of monthly expenditure, approximately $75,000 per month (which amount does not include the full amount of our executive officers' salaries, a portion of which is being accrued until such time as we have sufficient funds to pay the full amount of such salaries), our current number of employees remains the same, and other expenses do not increase significantly, due to the approximately $205,000 of cash on hand that we had as of June 15, 2006. We do not have any commitments or identified sources of additional capital from third parties or from our officers, Directors or majority shareholders. We have generated limited revenues to date. Since inception, we have depended mainly on financing raised through the sale of our common stock to support our operations. There is no assurance that additional financing will be available on favorable terms in the future, if at all or that our Direct Lynk System will ever generate enough revenues for us to sustain our operations. If we are unable to raise additional financing in the future or our current rate of expenditure increases significantly, it would have a materially adverse effect upon our ability to fully implement our business plan and/or to continue with our current operations. Any additional financing may involve dilution to our then-existing shareholders, which could result in a decrease in the value of our securities.
WE WILL BE LIMITED IN OUR EFFORTS TO RAISE ADDITIONAL CAPITAL FROM THE TIME WE FILE THIS REGISTRATION STATEMENT UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
The period of time between when we file this Registration Statement and when it is declared effective by the Securities and Exchange Commission ("SEC") is called the "quiet period." During the quiet period, we are generally prohibited from raising any additional funds through the sale of our securities. As a result, we will be forced to depend on the approximately $205,000 of cash on hand which we had as of June 15, 2006, until such time as this Registration Statement is declared effective by the SEC, if at all. While we believe this amount will be sufficient to sustain our operations for approximately the next three months, it may take longer than three months for this Registration Statement to be declared effective by the SEC. In the event that we are not able to obtain effectiveness of this Registration Statement in the next three months, or at all, and/or our current cash does not sustain our operations and expenses during the quiet period, we may be forced to raise additional money through the
sale of our securities, which may delay our Registration Statement from being declared effective with the SEC and/or may force us to withdraw this Registration Statement altogether. As a result, if we do not obtain effectiveness of this Registration Statement in the next three months, our securities could become worthless and we may be forced to curtail and/or abandon our business operations.
WE HAVE GENERATED ONLY LIMITED REVENUES IN THE PAST, AND MAY NOT GENERATE ANY REVENUES IN THE FUTURE.
We have generated only limited revenues through sales of subscriptions to our Direct Lynk System since its implementation and have generated limited total revenues to date. We have offered free trials to numerous companies in the past and continue to offer free trials to companies, which we believe provides those companies an opportunity to try out our products and see how they may be able to implement the Direct Lynk System in their businesses. While we believe that we offer a unique product which has many beneficial marketing uses for potential customers, we cannot provide any assurances that there will be future demand for our products at the prices we may charge, or at all, as we have not sold any subscriptions for our Direct Lynk System in the past. If we are unable to generate significant revenues through the sale of subscriptions for our Direct Lynk System in the future, we will likely be forced to abandon our business operations, causing any investment in us to become worthless.
WE RELY ON KEY MANAGEMENT AND IF KEY MANAGEMENT PERSONNEL ARE LOST, IT WOULD HAVE A MATERIALLY ADVERSE AFFECT ON OUR BUSINESS OPERATIONS.
Our success depends upon the personal efforts and abilities of James Ammons, our Chief Executive Officer, President, Treasurer, Secretary and Director; Larry Mosley our Chief Financial Officer and Director; Timothy Vance our Director of Customer Support and Director; and James Tevis our Chief Technology Officer and Chief Engineer. Our ability to operate and implement our business plan is heavily dependent upon the continued service of Messrs. Ammons, Mosley, Vance and Tevis, as well as our ability to attract, retain and motivate other qualified personnel. Messrs. Mosley, Vance and Tevis entered into three year employment contracts with us (described below) on October 1, 2005, which are renewable upon the mutual acceptance of both parties; and Mr. Ammons entered into a five year employment agreement with us to serve as our Chief Executive Officer and President on February 8, 2006, with an effective date of January 1, 2006. We face aggressive and continued competition for such personnel and we cannot be certain that we will be able to attract, retain and motivate such personnel in the future. The loss of Messrs. Ammons, Mosley, Vance or Tevis, or our inability to hire, retain and motivate qualified sales, marketing and management personnel would have a material adverse effect on our business and operations and would likely result in a decrease in the value of our securities.
WE HAVE OUTSTANDING ISSUES WITH ONE OF OUR FORMER OFFICERS AND DIRECTORS, WHICH COULD FORCE US TO EXPEND SUBSTANTIAL RESOURCES ON LITIGATION AND/OR A SETTLEMENT.
Our former President and Director resigned on June 19, 2003, in connection with a dispute with our current officers and Directors. We recently received correspondence from this individual claiming that he is owed approximately 4,500,000 shares of Data Call's common stock as well as certain other amounts in consideration for services rendered to Data Call. While we have been in
discussions with this individual regarding entering into a Settlement and Release Agreement with us, we have not entered into any settlements or releases with this individual to date. As a result, it is possible that this individual will bring legal claims against us in the future in connection with monies or shares owed and/or other claims against us. While we believe that we have valid counter claims against this individual, which will substantially lower any judgment he would receive against us (described in greater detail under "Legal Proceedings" below), in the event that this individual does bring legal claims against us in the future, we may be forced to expend substantial resources on the defense and/or settlement of such claims and/or the litigation of our counter claims against this individual. Additionally, if brought, these claims would likely divert the attention and resources of our current officers and Directors away from our operations. Additionally, if this individual was to bring claims against us in the future, we could be forced to raise additional finances or issue this individual shares of common stock in settlement of his claims, which may dilute our shareholders, and/or cause us to curtail or abandon our business plan, which could cause any investment in us to become worthless.
WE HAVE HAD DISPUTES WITH PEOPLE AFFILIATED WITH US IN THE PAST AND CANNOT PROVIDE ANY ASSURANCE THAT WE WILL NOT CONTINUE TO HAVE DISPUTES WITH THESE PEOPLE AND/OR NEW PEOPLE AFFILIATED WITH US IN THE FUTURE.
We have had various disputes with our former officers and Directors as well as previous disputes with our current shareholders. A number of our shareholders are former shareholders of QVS Wireless Corporation ("QVS"), with whom we have had disputes with and been in litigation with in the past (see "Description of Business" below). QVS and the majority of QVS's shareholders entered into settlements and releases with us in the past; and while we have received no correspondence nor are we aware that any of our current shareholders have claims against us, we can provide no assurances that the former QVS shareholders will not have disputes with us in the future. If the QVS shareholders, our current shareholders, and/or anyone we are affiliated with have disputes with us in the future, we could be forced to expend substantial additional resources in defense of such disputes, which could force us to curtail or abandon our business operations, and/or divert our resources away from our operations.
WE DEPEND HEAVILY ON OUR ABILITY TO MARKET OUR PRODUCTS TO POTENTIAL CONSUMERS.
We depend on our marketing department, which currently consists of four (4) of our employees, to make consumers and potential customers aware of our products. Since inception we have spent approximately $1,600,000 on research, development and marketing activities associated with our Direct Lynk System. If our marketing department fails to make potential customers aware of our products and the advantages and possibilities we believe they bring to potential customers, it is not likely that we will be able to generate enough revenues to continue with research and development on new products and improve our current products. If this were to happen, it is likely that our products will become stagnant and we will not be able to compete in the market. If you invest in us and we fail to properly market our products, we could be forced to curtail our business plan or discontinue our business operations altogether.
WE MAY HAVE POTENTIAL LIABILITY FOR SHARES OF COMMON STOCK WHICH MAY HAVE BEEN SOLD IN VIOLATION OF FEDERAL AND/OR STATE SECURITIES LAWS.
Certain shares of common stock that were sold by us between October 2003 to December 2005 to non-accredited investors, were not registered under federal or state securities laws, and exemptions from registration provided by these securities laws may not have been available or may not have been perfected due to that fact that some non-accredited shareholders who purchased our shares may not have been provided audited financial statements, risk factors, or a description of our business history and results of operations, with the result that we may be deemed to have violated the registration requirements of these securities laws with respect to the offer and sale of the shares of common stock. In December 2005 and January 2006, we offered rescission to such shareholders, and provided each shareholder pursuant to applicable state laws, at least thirty days to decide whether to accept or reject the rescission offer, and all of the shareholders elected to reject the recession offer and reaffirm their purchases. In connection with the rescission offer, we provided every non-accredited shareholder, who we believed that that time may not have been provided full disclosure documents in connection with the purchase of our shares, audited financial statements, risk factors and business information similar to what information is included in this Prospectus. In total, we offered rescission to 22 shareholders who had subscribed for an aggregate of 2,044,000 of our shares of common stock for aggregate consideration of $204,400 or $0.10 per share. Although all of the shareholders elected to reject rescission, certain state securities laws do not expressly provide that a rescission offer will terminate a purchaser's right to rescind a sale of securities that was not registered under the relevant securities laws as required. As a result, we may continue to be potentially liable under certain securities laws for such sales of common stock even after completing our rescission offer. We anticipate that such liability in aggregate would not exceed the total price of the purchased shares, $204,400.
FUTURE GOVERNMENT REGULATION OF THE INTERNET MAY ADVERSELY IMPACT OUR BUSINESS OPERATIONS.
We are dependent upon the Internet in connection with our business operations. The United States Federal Communications Commission (the "FCC") does not currently regulate companies that provide services over the Internet, as it does common carriers or tele-communications service providers. Notwithstanding the current state of the FCC's rules and regulations, the FCC's potential jurisdiction over the Internet is broad because the Internet relies on wire and radio communications facilities and services over which the FCC has long-standing authority. Compliance with future government regulation of the Internet could result in increased costs which would have a material adverse effect on our business, operating results and financial condition, and which would lower the value of any of our securities which are held by you as an investor.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO FORECAST OUR FUTURE RESULTS, MAKING ANY INVESTMENT IN US HIGHLY SPECULATIVE.
As a result of our limited operating history, our historical financial and operating information is of limited value in predicting our future operating results. We may not accurately forecast customer behavior and recognize or respond to emerging trends, changing preferences or competitive factors facing us, and, therefore, we may fail to make accurate financial forecasts. Our current and future expense levels are based largely on our investment plans and
estimates of future revenue. As a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected revenue shortfall, which could then force us to curtail or cease our business operations.
OUR VULNERABILITY TO SECURITY BREACHES, GLITCHES AND OTHER COMPUTER FAILURES COULD HARM OUR FUTURE CUSTOMER RELATIONSHIPS AND OUR ABILITY TO ESTABLISH OUR FUTURE CUSTOMER BASE.
Because we offer the majority of our services through our Internet website (www.datacalltech.com), the secure transmission of confidential information over public networks is a critical element of our operations. A party who is able to circumvent security measures could misappropriate proprietary information or cause interruptions in our operations. If we are unable to prevent unauthorized access to our users' information and transactions, our customer relationships will be harmed. Although we currently implement security measures, these measures may not prevent future security breaches. Additionally, heavy stress placed on our systems could cause our systems to fail or cause our systems to operate at speeds unacceptable to our users. If this were to happen, we could lose customers and if severe enough, we could be forced to curtail or abandon our business plan, which would decrease the value of any investment you have in us.
WE RELY ON THE INTERNET INFRASTRUCTURE, AND ITS CONTINUED COMMERCIAL VIABILITY, OVER WHICH WE HAVE NO CONTROL AND THE FAILURE OF WHICH COULD SUBSTANTIALLY UNDERMINE OUR BUSINESS STRATEGY.
Our success depends, in large part, on other companies maintaining the Internet system infrastructure, including maintaining a reliable network backbone that provides adequate speed, data capacity and security. If the Internet continues to experience significant growth in the number of users, frequency of use and amount of data transmitted, as well as the number of malicious viruses and worms introduced onto the Internet, the infrastructure of the Internet may be unable to support the demands placed on it, and as a result, the Internet's performance or reliability may suffer. Because we rely heavily on the Internet, this would make our business less profitable and would lead to a decrease in the value of our common stock.
OUR SYSTEMS AND OPERATIONS ARE VULNERABLE TO DAMAGE OR INTERRUPTION FROM FIRE, FLOOD, POWER LOSS, TELECOMMUNICATIONS FAILURE, BREAK-INS, EARTHQUAKE AND SIMILAR EVENTS.
Our website and systems are hosted by a third party. We are dependent on our systems and ability to stream information over the Internet to consumers. If our systems fail or become unavailable, it would harm our reputation, result in a loss of current and potential customers and could cause us to breach existing agreements. Our success depends, in part, on the performance, reliability and availability of our services. Our systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications failure, Internet breakdown, break-in, earthquake and similar events. We would face significant damage as a result of these events. For these reasons, we may be unable to develop or successfully manage the infrastructure necessary to meet current or future demands for reliability and scalability of our systems. If this were to happen, we would likely lose customers and our revenues would decrease, causing any investment in us to decease in value as well.
OUR SOFTWARE COULD CONTAIN BUGS, WHICH COULD CAUSE INTERRUPTIONS IN THE SERVICES WE PROVIDE AND/OR CAUSE OUR SERVICES TO FAIL.
Our Direct Lynk System uses sophisticated software which could be found to contain bugs. These bugs could be costly for us to pinpoint and fix and until such bugs, if any, are fixed, they could cause interruptions in our service, which could cause our reputation to decline and/or cause us to lose clients. If our software is found to contain bugs, our reputation could suffer, leading to the loss of clients, which could eventually force us to curtail or abandon our business plans.
WE HAVE NO ISSUED PATENTS OR PENDING PATENT APPLICATIONS FOR OUR TECHNOLOGY AND THEREFORE CANNOT STOP OTHER COMPANIES FROM LAWFULLY PRACTICING TECHNOLOGY SIMILAR TO OURS AND MAY BE SUED BY COMPANIES IN THE FUTURE CLAIMING OUR ACTIVITIES INFRINGE ON THEIR PATENT RIGHTS.
We have no issued patents or pending patent applications for our technology in the United States or any other country and therefore cannot stop other companies from lawfully practicing technology identical or similar to ours in the future. If we are sued by another company claiming our activities infringe on their patent, we could be forced to abandon using our Direct Lynk System or other technology and/or expend substantial expenses in defending against another company's claims. This could have a severely adverse affect on our revenues and could force us to cease our business operations.
OUR AUDITORS HAVE EXPRESSED A CONCERN ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
Our auditors, in our audited financial statements expressed a concern about our ability to continue as a going concern. We had an accumulated deficit of $4,394,721 as of December 31, 2005, and an accumulated deficit of $5,019,421 as of March 31, 2006, and have generated limited revenues to date. These factors raise substantial doubt as to whether we will be able to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should we be unable to continue as a going concern.
OUR TOTAL AMOUNT OF ISSUED AND OUTSTANDING SHARE AMOUNTS MAY BE INCORRECT, AND WE MAY HAVE OUTSTANDING SHARES WHICH ARE UNACCOUNTED FOR.
While we have recently engaged a transfer agent to keep track of and verify the number of our outstanding shares, we may still have shares for which we have issued stock certificates which may not currently be reflected on our transfer agent's records. The majority of our shares which are held by our non-affiliates were purchased in private transactions, and the purchased shares were then issued and entered into our stock records. Due to the large number of these transactions which have occurred since our inception, we cannot be certain that all shares purchased by shareholders were entered into our stock records, entered correctly and/or that all shareholders who purchased shares received share certificates to evidence their purchases. As a result, we may have a larger number of shares outstanding than we currently show on our shareholders list. This difference, if present, may force us to revise this Registration
Statement prior to or after it becomes effective to include such shares, and may mean that the dilutive effect of the additional shares registered pursuant to the Registration Statement is more than the current number of shares thought to be issued and outstanding and offered through such offering.
NEVADA LAW AND OUR ARTICLES OF INCORPORATION AUTHORIZE US TO ISSUE SHARES OF PREFERRED STOCK, WHICH SHARES MAY HAVE RIGHTS AND PREFERENCES GREATER THAN THE COMMON STOCK OFFERED THROUGH THIS PROSPECTUS.
Pursuant to our Articles of Incorporation, as amended and restated, we have 200,000,000 shares of common stock and 10,000,000 shares of preferred stock authorized. As of the filing of this Registration Statement, we have 55,247,100 shares of common stock issued and outstanding and - 0 - shares of preferred stock issued and outstanding. As a result, our Board of Directors has the ability to issue a large number of additional shares of common stock without shareholder approval, which if issued would cause substantial dilution to our then shareholders. Additionally, shares of preferred stock may be issued by our Board of Directors without shareholder approval with voting powers, and such preferences and relative, participating, optional or other special rights and powers as determined by our Board of Directors. As a result, shares of preferred stock may be issued by our Board of Directors which cause the holders to have super majority voting power over our shares, provide the holders of the preferred stock the right to convert the shares of preferred stock they hold into shares of our common stock, which may cause substantial dilution to our then common stock shareholders and/or have other rights and preferences greater than those of our common stock shareholders. Investors should keep in mind that the Board of Directors has the authority to issue additional shares of common stock and preferred stock, which could cause substantial dilution to our existing shareholders. Additionally, the dilutive effect of any preferred stock, which we may issue may be exacerbated given the fact that such preferred stock may have super majority voting rights and/or other rights or preferences which could provide the preferred shareholders with voting control over us subsequent to this offering and/or provide those holders the power to prevent or cause a change in control. As a result, the issuance of shares of common stock and/or preferred stock may cause the value of our securities to decrease and/or become worthless.
WE FACE A RISK OF A CHANGE IN CONTROL DUE TO THE FACT THAT OUR CURRENT OFFICERS AND DIRECTORS DO NOT OWN A MAJORITY OF OUR OUTSTANDING COMMONS STOCK.
Our current officers and Directors can vote an amount of common stock equal to approximately twenty-four percent (24%) of our outstanding common stock. As a result, our officers and Directors may not exercise majority voting control over us and our shareholders who are not officers and Directors of us may be able to obtain a sufficient number of votes to choose who serves as our Directors. Because of this, the current composition of our Board of Directors may change in the future, which could in turn have an effect on those individuals who currently serve in management positions with us. If that were to happen, our new management could affect a change in our business focus and/or curtail or abandon our business operations, which in turn could cause the value of our securities, if any, to decline.
IF OUR COMMON STOCK IS APPROVED FOR TRADING ON THE OVER-THE-COUNTER BULLETIN BOARD, THERE MAY NOT BE A MARKET FOR OUR COMMON STOCK, AND IF THERE IS A MARKET, IT WILL LIKELY BE LIMITED, SPORADIC, AND VOLATILE.
Subsequent to obtaining effectiveness of this Registration Statement, we hope to have our common stock approved for trading on the Over-The-Counter Bulletin Board ("OTCBB"). If we do obtain approval to trade on the OTCBB, there may not be a market for our common stock, and if there is a market, it will likely be illiquid, highly volatile and not followed by analysts, which could lead to large increases and decreases in the trading value of our common stock, which are not based on our results of operations or the value of our company.
IF OUR COMMON STOCK IS NOT APPROVED FOR TRADING ON THE OVER-THE-COUNTER BULLETIN BOARD, OUR COMMON STOCK MAY NOT BE PUBLICLY TRADED, WHICH COULD MAKE IT DIFFICULT TO SELL SHARES OF OUR COMMON STOCK AND/OR CAUSE THE VALUE OF OUR COMMON STOCK TO DECLINE IN VALUE.
In order to have our common stock traded on the OTCBB, which is our current plan, we will need to first clear our outstanding comments with the Securities and Exchange Commission; then obtain a market maker, who will file a Form 15c2-11 with the National Association of Securities Dealers ("NASD"); and clear NASD comments to obtain a trading symbol on the OTCBB. Assuming we clear SEC comments and assuming we clear NASD comments, of which we can provide no assurances, we anticipate receiving a trading symbol and having our shares of common stock traded on the OTCBB in approximately one (1) to two (2) months after the effectiveness of this Registration Statement. In the event we are unable to have this Registration Statement declared effective by the SEC or our Form 15c2-11 is not approved by the NASD, we plan to file a 15c2-11 to trade our shares of common stock on the Pink Sheets. If we are not cleared for trading on the OTCBB and/or in the event we fail to obtain effectiveness of this Registration Statement, and are not cleared for trading on the Pink Sheets, there will be no public market for our common stock and it could be difficult for our then shareholders to sell shares of common stock which they own. As a result, the value of our common stock will likely be less than it would otherwise due to the difficulty shareholders will have in selling their shares. If we are unable to obtain clearance to trade on the OTCBB and/or the Pink Sheets, it will be difficult for us to raise capital and we could be forced to curtail or abandon our business operations, and as a result, the value of our common stock could become worthless.
INVESTORS MAY FACE SIGNIFICANT RESTRICTIONS ON THE RESALE OF OUR COMMON STOCK DUE TO FEDERAL REGULATIONS OF PENNY STOCKS
Our common stock will likely be subject to the requirements of Rule 15(g)9, promulgated under the Securities Exchange Act as common stock which is considered a "penny stock" under the Securities Exchange Act. Under such rule, broker-dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser's consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional disclosure in connection with any trades involving a stock defined as a penny stock. The required penny stock disclosures include the delivery, prior to any transaction, of a disclosure schedule explaining the penny stock market and the risks associated with it.
Such requirements could severely limit the market liquidity of the securities and the ability of purchasers to sell their securities in the secondary market.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this document contains forward-looking statements within the meaning of the federal securities laws. You should not rely on forward-looking statements in this Registration Statement. Forward-looking statements typically are identified by use of terms such as "anticipate," "believe," "plan," "expect," "future," "intend," "may," "should," "estimate," "predict," "potential," "continue," and similar words, although some forward-looking statements are expressed differently. All forward-looking statements address matters that involve risk and uncertainties, and there are many important risks, uncertainties and other factors that could cause our actual results, as well as those of the markets we serve, levels of activity, performance, achievements and prospects to differ materially from the forward-looking statements contained in this Registration Statement. You should also consider carefully the statements under "Risk Factors" and other section of this Registration Statement, which address additional facts that could cause our actual results to differ from those set forth in the forward-looking statements. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise.
USE OF PROCEEDS
We will not receive any proceeds from the resale of shares of common stock by the Selling Stockholders.
DIVIDEND POLICY
To date, we have not declared or paid any dividends on our outstanding shares. We currently do not anticipate paying any cash dividends in the foreseeable future on our shares of common stock, when issued pursuant to this offering. Although we intend to retain any earnings to finance our operations and future growth, our Board of Directors will have discretion to declare and pay dividends in the future. Payment of dividends in the future will depend upon our earnings, capital requirements and other factors, which our Board of Directors may deem relevant.
LEGAL PROCEEDINGS
Our former President and Director, Richard Clemens, resigned on June 19, 2003, in connection with a dispute with our current officers and Directors. We recently received correspondence from Mr. Clemens claiming that he was owed approximately 4,500,000 shares of Data Call's common stock, as well as certain other amounts in consideration for services rendered to Data Call. While we have had correspondence with this individual, we have not entered into any releases or settlement agreements with Mr. Clemens to date and it is possible that Mr. Clemens will bring legal claims against us in the future in connection with monies or shares owed and/or other claims against us. If Mr. Clemens was to bring legal claims against us, we would assert certain counter claims against him, which may include allegations that during the period Mr. Clemens served as our Chief Executive Officer, he falsified documents, made false and misleading statements to shareholders, allegations that Mr. Clemens may have violated US tax laws in connection with his receipt of payments for services from Data Call,
and that Mr. Clemens diverted company monies for his own personal use in violation fo his duty of loyalty and care which he was to provide to us and our shareholders in connection with his positions as a fiduciary of Data Call. Additionally, our current management believes that Mr. Clemens misappropriated several company computers for his own use prior to his resignation in June 2003, which computers were never returned to the company, despite several requests for their return by Data Call's attorney and current management.
Even though our management believes that any recovery that Mr. Clemens may be awarded if he were to bring legal proceedings against us would be reduced substantially by Mr. Clemens alleged violations of his duty of care and good faith and misappropriations of company resources and funds (described above), we may still be forced to expend substantial resources on the defense and/or settlement of such claims and as a result, we could be forced to raise additional finances to defend such claims and/or issue Mr. Clemens shares of common stock in settlement of his claims, which may dilute our shareholders, and/or cause us to curtail or abandon our business plan, which could cause any investment in us to become worthless.
On March 30, 2006, a Default Judgment was entered against James Ammons, our Chief Executive Officer and Director, "d/b/a as Datacall Wireless Corporation," in the County Court at Law No. 3, in Dallas County, Texas. Press Association, Inc. ("Press Association"), obtained the Default Judgment against Mr. Ammons in the amount of $33,720.50, together with interest at the rate of 6% per annum from February 1, 2005, plus reasonable attorney's fees in the amount of $6,070, plus interest at the rate of 6.5% per annum until paid. The Default Judgment is in connection with an agreement we entered into with Press Association, Inc., a subsidiary of Associated Press, in or around February 2003, which Press Association alleges we owe $33,720.50 in unpaid fees and accrued interest on. Press Association filed their Original Petition alleging their claims against us in the County Court at Law No. 3, Dallas County, Texas, on November 10, 2005. Mr. Ammons failed to file an answer to Press Association's complaint, and as a result, Press Association filed the Motion for Default Judgment against Mr. Ammons in the County Court at Law No. 3, Dallas County, Texas on March 24, 2006, which motion was granted on March 30, 2006. Mr. Ammons has retained counsel and plans to appeal the Default Judgment. Although the lawsuit and judgment is currently only rendered against Mr. Ammons personally, the lawsuit used Data Call's name, and we entered into the agreement with Press Association, not Mr. Ammons personally. As a result, we believe that we may face liability in connection with the Press Association lawsuit in the future.
Additionally, from time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business.
DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS
The following table sets forth the name, age and position of each of our Directors and executive officers. Our officers and Directors are as follows:
NAME AGE POSITION
---- --- --------
James Ammons 53 Chief Executive Officer, Secretary,
Treasurer and Director
19
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Larry Mosley 55 Chief Financial Officer and Director
Timothy Vance 39 Director of Customer Support and
Director
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JAMES AMMONS, CHIEF EXECUTIVE OFFICER AND DIRECTOR
James Ammons has served as our Chief Executive Officer, Secretary, Treasurer and Director since May 2002. From May 2001 to April 2002, Mr. Ammons served as our Vice President. From February 1999 to April 2001, Mr. Ammons was the General Manager of QVS Wireless Corporation. From February 1998 to January 1999, Mr. Ammons was General Manager of Federal Data, a credit card processing company. Mr. Ammons works full-time for Data Call.
LARRY MOSLEY, CHIEF FINANCIAL OFFICER AND DIRECTOR
Mr. Mosley has served as our Chief Financial Officer and Director since October 11, 2004. Since November 1986, Mr. Mosley has been self employed as a Certified Public Accountant. From September 1985 to November 1986, Mr. Mosley was Vice President for Fiscal Affairs of Hargest College in Houston Texas. From July 1983 to September 1985, Mr. Mosley worked as a Management Consultant at Alexander Grant & Co. (now Grant Thornton) in Houston, Texas. From January 1981 to July 1983, he served as an auditor at Ernst & Whitney (Now Ernst & Young) in Houston, Texas. Mr. Mosley received a degree in Business Administration and Accounting from Texas Southern University in 1980. He has been a Certified Public Accountant since 1984. Effective January 1, 2006, we entered into a three year renewable employment contract with Mr. Mosley, as described below under "Employment Agreements." Since January 1, 2006, Mr. Mosley has worked approximately twenty-five hours per week for Data Call. Mr. Mosley filed for Chapter Seven Bankruptcy in the Houston Division of the US Bankruptcy Court for the Southern District of Texas in December 2004. The case and discharged debts were discharged on April 26, 2005.
TIMOTHY VANCE, DIRECTOR
Timothy Vance has served as one of our Directors since June 2003. However, Mr. Vance has been part of the Data Call Technologies, Inc. management team since our inception. Before working for us, from January 2000 through January 2001 Mr. Vance was employed at QVS Wireless Corporation, where his employment consisted of general office duties. From December 1987 to June 2000, Mr. Vance worked at World Ship Supply, as a General Manager. From January 1986 to December 1986, Mr. Vance worked at Xerox Corp. as a service technician. Effective January 1, 2006, we entered into a three year renewable employment contract with Mr. Vance, as described below under "Employment Agreements." Mr. Vance works full time for Data Call. Mr. Vance filed for bankruptcy in October 2002.
Our Directors are elected annually and hold office until our annual meeting of the shareholders and until their successors are elected and qualified. Officers will hold their positions at the pleasure of the Board of Directors, absent any employment agreement. There are no family relationships among our officers and Directors. Our officers and Directors may receive compensation as determined by us from time to time by vote of the Board of Directors. Such compensation might be in the form of stock options. Vacancies in the Board are
filled by majority vote of the remaining Directors. Directors may be reimbursed by us for expenses incurred in attending meetings of the Board of Directors.
EMPLOYMENT AGREEMENTS
Effective October 1, 2005, we entered into employment agreements with Timothy Vance to serve as our Director of Customer Support and Larry Mosley to serve as our Chief Financial Officer. On February 13, 2006, we entered into Addendums to those agreements, to change the effective date of such agreements from October 1, 2005, to January 1, 2006. The employment agreements have a term of three years and are renewable for successive one-year terms at the mutual acceptance of us and each executive. Mr. Mosley is entitled to receive a salary of $75,000 per year that he is employed under his agreement and Mr. Vance is entitled to receive a salary of $80,000 per year that he is employed under his agreement. Additionally, both Mr. Vance and Mr. Mosley are entitled to reimbursement for business expenses incurred in connection with their employment, not to exceed $500, without our prior approval. Additionally, Mr. Vance and Mr. Mosley are entitled to up to $500 per month to be used for car payments on a car to be used in connection with employment under the employment agreements.
While under their employment agreements, Messer's Vance and Mosley are entitled to receive a salary of $80,000 and $75,000 per year, respectively, the full amount of these salaries have not been paid to Messer's Vance and Mosley to date, and the majority of such salaries is being accrued by Data Call until such time as Data Call has sufficient resources and revenues to pay such salaries (and accrued and unpaid amount).
On February 8, 2006, with an effective date of January 1, 2006, we entered into an employment agreement with James Ammons to serve as our Chief Executive Officer and President. Mr. Ammons' employment agreement has a term of five (5) years, and is renewable for successive one-year terms. Mr. Ammons is entitled to a different "Yearly Salary" depending on the year which Mr. Ammons is employed under his employment agreement. Mr. Ammons' first Yearly Salary (for the yearly period from January 1, 2006 to December 31, 2006) is $120,000, and his Yearly Salary increases 5% per year (rounded to the nearest dollar) for each additional year Mr. Ammons is employed pursuant to his employment agreement, for example, Mr. Ammons' Yearly Salary for the second year of his employment agreement (the period from January 1, 2007 to December 31, 2007) is $126,000 ($120,000 + ($120,000 x .05)). In the event Mr. Ammon's employment agreement is automatically renewed for successive one-year periods, Mr. Ammons salary will continue to increase by 5% each year he is employed.
All of the executive employment agreements contain confidentiality clauses, stating that we have ownership rights to any intellectual property created Mr. Vance, Mr. Mosley or Mr. Ammons in connection with their employment under the employment agreements. Additionally, the employment agreements provide that for a period of nine months (12 months under Mr. Ammons agreement) following their termination from employment with us, no executive will directly or indirectly serve in certain capacities with any of our competitors in Harris County, Texas, or any of the surrounding counties.
Additionally, under the executive employment agreements, we agreed to indemnify and hold harmless the executives, their nominees and/or assigns
against any and all losses, claims, damages, obligations, penalties, judgments, awards, liabilities, costs, expenses and disbursements (incurred in any and all actions, suits, proceedings and investigations in respect thereof and any and all legal and other costs, expenses and disbursements in giving testimony or furnishing documents in response to a subpoena or otherwise), including without limitation, the costs, expenses and disbursements, as and when incurred, of investigating, preparing or defending any such action, suit, proceeding or investigation that is in any way related to their employment with us (whether or not in connection with any action in which they are a party). Such indemnification does not apply to acts performed by the executives, which are criminal in nature or a violation of law.
The executive employment agreements terminate:
(a) in the event the executive suffers an injury, illness, or incapacity of such character as to prevent him from performing his duties without reasonable accommodation for a period of more than thirty (30) consecutive days upon us giving at least thirty (30) days written notice of termination to him;
(b) upon the death of the executive;
(c) at any time because of, (i) the conviction of executive of an act or acts constituting a felony or other crime involving moral turpitude, dishonesty or theft or fraud; or (ii) his gross negligence in the performance of his duties hereunder; or
(d) additionally, the executive may terminate his employment for "good reason" by giving us ten (10) days written notice if: (i) he is assigned, without his express written consent, any duties materially inconsistent with his positions, duties, responsibilities, or status with us, or a change in his reporting responsibilities or titles as in effect as of the date hereof; (ii) his compensation is reduced; or (iii) we do not pay any material amount of compensation due hereunder and then fail either to pay such amount within the ten (10) day notice period required for termination hereunder or to contest in good faith such notice.
In the event Mr. Vance's or Mr. Mosley's employment is terminated under (a) through (d) above, either of them is entitled to all compensation earned by him through the date of his termination. Additionally, Mr. Vance may be terminated at any time without cause, provided that we pay him a one-time lump sum payment payable within 30 days of his termination without cause of the total amount of salary remaining to be paid under his employment agreement. Mr. Mosley cannot be terminated without cause.
Mr. Ammons employment agreement may also be terminated without cause, provided that in the event Mr. Ammons employment is terminated with cause or for good reason, Mr. Ammons shall be entitled to receive a lump sum payment of 150% of his Yearly Salary (as defined above) then in effect.
Mr. Ammons employment agreement provides that Mr. Ammons may be provided a car allowance by us, not to exceed $600 per month. In consideration for Mr. Ammons entering into his employment agreement, we agreed to grant him options to purchase 3,000,000 shares of our common stock at $0.10 per share. The options vested immediately upon Mr. Ammons entry into his employment agreement, and
expire on February 8, 2011. The options also contain a cashless exercise provision, whereby Mr. Ammons can pay for the exercise of the options in shares of our common stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table provides the names and addresses of each person known to own directly or beneficially more than a 5% of the outstanding common stock (as determined in accordance with Rule 13d-3 under the Exchange Act) as of June 20, 2006 and by the officers and Directors, individually and as a group. Except as otherwise indicated, all shares are owned directly.
Shares Beneficially Owned
Prior to Offering
Name and Address of ---------------------------
Beneficial Owner Shares Percent(1)
---------------------- ----------- ----------
JAMES AMMONS 12,000,000(2) 20.6%(3)
CEO, Treasurer,
Secretary and Director
600 Kenrick, Suite B-12
Houston, Texas 77060
MILFORD & RUTH MAST 7,466,000 13.4%
466 N. Manor Rd.
Elverson, PA 19520
TERRY BREEDLOVE 5,000,000 9.1%
Employee
600 Kenrick, Suite B-12
Houston, Texas 77060
TIMOTHY VANCE 1,000,000 1.8%
Director of Customer Support
and Director
600 Kenrick, Suite B-12
Houston, Texas 77060
LARRY MOSLEY 1,000,000 1.8%
CFO and Director
600 Kenrick, Suite B-12
Houston, Texas 77060
============================== ============= =========
ALL THE OFFICERS AND DIRECTORS 14,000,000 24.0%(3)
AS A GROUP (3 PERSONS)
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(1) Using 55,247,100 shares outstanding as of June 20, 2006.
(2) Includes 9,000,000 shares of common stock held by Mr. Ammons and 3,000,000 Options for shares of our commons stock held by Mr. Ammons (described above in greater detail under "Directors, Executive Officers and Control Persons").
(3) Using 58,247,100 shares outstanding, which number includes the full exercise of Mr. Ammons 3,000,000 Options.
INTEREST OF NAMED EXPERTS AND COUNSEL
David M. Loev, Attorney at Law who prepared this Form SB-2 Registration Statement, is the beneficial owner of 1,000,000 shares of our common stock.
EXPERTS
Our audited financial statements for the years ending December 31, 2005, and 2004, included in this Prospectus have been prepared by R.E. Bassie and Company, certified public accountants, our independent auditors, as stated in their report appearing herein and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Nevada Revised Statutes and our Articles of Incorporation, as amended, allow us to indemnify our officers and Directors from certain liabilities and our Bylaws state that we shall indemnify every (i) present or former Director, advisory Director or officer of us, (ii) any person who while serving in any of the capacities referred to in clause (i) served at the our request as a Director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, and (iii) any person nominated or designated by (or pursuant to authority granted by) the Board of Directors or any committee thereof to serve in any of the capacities referred to in clauses (i) or (ii) (each an "Indemnitee").
Our Bylaws provide that we shall indemnify an Indemnitee against all judgments, penalties (including excise and similar taxes), fines, amounts paid in settlement and reasonable expenses actually incurred by the Indemnitee in connection with any proceeding in which he was, is or is threatened to be named as defendant or respondent, or in which he was or is a witness without being named a defendant or respondent, by reason, in whole or in part, of his serving or having served, or having been nominated or designated to serve, if it is determined that the Indemnitee (a) conducted himself in good faith, (b) reasonably believed, in the case of conduct in his Official Capacity, that his conduct was in our best interests and, in all other cases, that his conduct was at least not opposed to our best interests, and (c) in the case of any criminal proceeding, had no reasonable cause to believe that his conduct was unlawful; provided, however, that in the event that an Indemnitee is found liable to us or is found liable on the basis that personal benefit was improperly received by the Indemnitee, the indemnification (i) is limited to reasonable expenses actually incurred by the Indemnitee in connection with the Proceeding and (ii) shall not be made in respect of any Proceeding in which the Indemnitee shall have been found liable for willful or intentional misconduct in the performance of his duty to us.
Except as provided above, the Bylaws also provide that no indemnification shall be made in respect to any proceeding in which such Indemnitee has been (a) found liable on the basis that personal benefit was improperly received by him, whether or not the benefit resulted from an action taken in the Indemnitee's official capacity, or (b) found liable to us. The termination of any proceeding by judgment, order, settlement or conviction, or on a plea of nolo contendere or its equivalent, is not of itself determinative that the Indemnitee did not meet the requirements set forth in clauses (a) or (b) above. An Indemnitee shall be deemed to have been found liable in respect of any claim, issue or matter only after the Indemnitee shall have been so adjudged by a court of competent jurisdiction after exhaustion of all appeals therefrom. Reasonable expenses shall, include, without limitation, all court costs and all fees and disbursements of attorneys for the Indemnitee. The indemnification provided shall be applicable whether or not negligence or gross negligence of the Indemnitee is alleged or proven.
DESCRIPTION OF BUSINESS
Data Call Technologies, Inc. ("Data Call," "we," "us") was incorporated on April 4, 2002, as Data Call Wireless. We subsequently filed Articles of Amendment with the Nevada Secretary of State and changed our name to Data Call Technologies on June 19, 2003. On March 1, 2006, we filed Amended and Restated Articles of Incorporation with the Secretary of State of Nevada to change our name to Data Call Technologies, Inc., and to increase the authorized shares of common stock to 200,000,000 shares and to authorize 10,000,000 shares of preferred stock.
Three of our officers and Directors, James Ammons, Timothy Vance and James Tevis, were previously employed by QVS Wireless Corporation, a Nevada corporation ("QVS"), which specialized in wireless data management systems and technology, previous to our formation. Those individuals left QVS to help form Data Call in the spring of 2002. Subsequent to those individuals leaving QVS, QVS filed litigation against us, Mr. Ammons, Mr. Tevis, Mr. Vance and our previous officers and Directors, Richard Clemens and Derek Argo, alleging breach of contract, breach of fiduciary duty, usurping corporate opportunities, fraud, negligent misrepresentation, tortuous interference, and conversion against those individuals and us.
On August 12, 2002, we, Mr. Ammons, Mr. Vance, Mr. Tevis and QVS entered into a "Side Letter Agreement Made August 12, 2002," which provided for us to pay QVS $20,000 in monthly installments of $2,500 per month and to return $38,000 to Dr. Carl Hoffman in connection with his investment in us.
Effective August 12, 2002, we, Mr. Ammons, Mr. Tevis and Mr. Vance entered into a Settlement Agreement and Mutual Release with QVS, whereby the parties agreed to release each other from all claims or causes of action, suits, proceedings, torts, debts, sums of money, accounts, contracts, controversies, damages, known or unknown, then existing and/or thereafter arising. Pursuant to the Settlement Agreement and Mutual Release, the parties agreed to file an Agreed Permanent Injunction in connection with the pending legal suit, we agreed to assign and release to QVS the domain name www.qvswireless.com, refrain from selling, leasing, marketing or distributing QVS's products, communicating with QVS's shareholders regarding matters related to QVS, and soliciting, contacting or communicating with any of QVS's vendors and/or clients. On June 13, 2003, QVS
granted us a Full and Final Release of all claims known or unknown against us and we agreed to pay QVS $2,000 and to assign all of our ownership rights to the "Copy/CallQ-Trac" system to QVS. Additionally, we agreed to issue Dr. Hoffman 500,000 shares of our common stock in lieu of the $38,000 he was owed in connection with the Side Letter Agreement entered into in August 2002. All amounts pursuant to the Settlement Agreement and Mutual Release have been paid to date.
In June 2002, our Chief Executive Officer transferred approximately 40 QVS shareholders an aggregate of approximately 4,610,000 shares of our restricted common stock in consideration for each of those QVS shareholders signing a Release, whereby they agreed to release us, our Chief Executive Officer, James Ammons, and our officers and Directors and employees from any and all claims, rights, obligations, demands and causes of action arising from or relating to QVS.
We currently offer our Direct Lynk Messenger service to customers through the Internet. The Direct Lynk Messenger Service is a streaming Digital Signage product and real-time information service which provides "cafeteria-style" client selection (via our website, www.datacalltech.com) of a wide range of up-to-date information, as well as custom messaging services for display. The Direct Lynk Messenger service is able to work as a stand alone service for customers' displays, and/or to work concurrently with customers' existing digital signage.
Digital Signage is a relatively new and exciting method advertisers can use to promote, inform, educate, and entertain clients and customers about their businesses and products. Through Digital Signage, companies and businesses can use a single television or a series of flat screen televisions to market their services and products on site to their clients and customers in real time. Additionally, because Digital Signage advertising takes place in real time, businesses can change their marketing efforts at a moments notice. We believe this real time advertising better allows companies to tailor their advertising to individual customers, and thereby advertise and sell inventory which appeals to those individual customers, thereby increasing sales and revenues. Benefits to Digital Signage compared to regular print or video advertising include, being able to immediately change a digitally displayed image or advertisement depending on the businesses current clients and customers, and not getting locked into print advertising days or months in advance, which may become stale or obsolete prior to the advertising date of such print advertising.
Data Call specializes in allowing its clients to create their own Digital
Signage advertising on the fly, through a portal on its website,
www.datacalltech.com. Our clients are able to pick and choose which of our text
feeds (described below) they would like to stream from our website, across the
Internet, to television sets at their establishments. The only requirements our
clients must have are 1) a supported third party video decoder box, which
receives the data stream from our website via the Internet and converts that
data stream into video images which are then displayed on a television set and
2) an Internet connection. The Direct Lynk System is supported by various third
party video decoder boxes such as those marketed by MagicBox Aavelin, ChyTV,
Scala, Adaptive LED, 3M Company, Keywest Technologies and Vertigo X Media, which
are about the size of a standard VCR and which convert the digital signal received from the Internet into text and graphics which can be displayed on a standard television screen. Our information can either stream across the bottom, top or sides of the screen, depending on the customers preferences.
Our clients are able to select which of the streaming text feeds they wish to stream from our website to their televisions, which can be displayed at the bottom, top or side of a television screen. Clients can have their televisions on any channel or show video from any source, including VCRs and DVDs, and can add the Direct Lynk stream to the top or bottom of such signal without interrupting the original video being displayed. In this way, the Direct Lynk System adds to information already being displayed on televisions at a client's establishment.
The Direct Lynk System not only allows customers to select from the pre-determined streaming information services described below, but also allows customers to add their own user defined text messages and advertising to the streaming data feed, by picking and choosing what information they would like to stream to their televisions. The client can therefore have any text they would like stream across predefined television screens at a moments notice, and pick which individual locations and which televisions they would like to receive our feeds. For example, an individual who owns a bar may wish to offer a specialized drink special during the final minutes of a football game, and by quickly entering the drink special and message into our website during the game, which caters specifically to the current patrons he has, that individual would be able to broadcast that message to any or all of their televisions almost instantaneously and take advantage of the customers that he has at that moment. Similarly, an individual who owns a supermarket with televisions throughout to advertise items for sale, may notice that certain of his fruit products are nearing their expiration date, and by broadcasting a message over the television sets may be able to sell those fruit products at a discount before they spoil, saving himself money in the long run.
The current types of information, which a client is able to stream through to their televisions through the Direct Lynk System include:
o Headline News top world and national news headlines (six headlines updated every 30 minutes);
o Business News top business headlines (six headlines updated every 30 minutes);
o Financial Highlights world-based financial indicators (ten indicators updated every 30 minutes during NYSE market hours);
o Entertainment News top entertainment headlines (six headlines updated every 30 minutes);
o Science News top science headlines (six headlines updated every 30 minutes);
o Quirky News Bits latest off-beat news headlines (six headlines updated every 30 minutes);
o Sports Headlines top sports headlines (six headlines updated every 30 minutes)
o Latest Sports Lines - latest sports odds for NFL, NBA, NHL, NCAA Football and NCAA Basketball (currently set by Sportsbook.com, but subject to change);
o National Football League latest game schedule (updated once per day) and in-game updates (updated continuously);
o National Basketball Association - latest game schedule (updated once per day) and in-game updates (updated continuously);
o Major League Baseball - latest game schedule (updated once per day) and in-game updates (updated continuously);
o National Hockey League - latest game schedule (updated once per day) and in-game updates (updated continuously);
o NCAA Football - latest game schedule (updated once per day) and in-game updates (updated continuously) ;
o NCAA Men's Basketball - latest game schedule (updated once per day) and in-game updates (updated continuously);
o Professional Golf Association top 10 leaders continuous updated throughout the four-day tournament;
o NASCAR top 10 race positions updated every 20 laps throughout the race;
o Computer industry news;
o Listings of the day's horoscopes;
o Listings of the birthdays of famous persons born on each day;
o Amber alerts;
o Listings of historical events which occurred on each day in history; and
o Localized Weather Forecasts.
In addition to the above information categories and the client-generated messages, we may, at our discretion, include a Public Service Announcement, third-party advertisement (for additional revenue streams) and/or a Data Call tag line to our streaming text advertising in the future.
We receive the information which we stream to our end-users from United Press International ("UPI"), with whom we entered into a "Headlines Distributor Agreement" in July 2005 (the "Distributor Agreement"). The Distributor Agreement grants us a non-exclusive license to use and distribute certain new headlines and other information to our end-users. The effective date of the Distributor
Agreement was July 1, 2005, and the Distributor Agreement had a one (1) year term. Pursuant to the Distributor Agreement, we agreed to pay UPI a $500 monthly fee for use of UPI's information. UPI may cancel the Distributor Agreement at any time, with sixty days notice to us, or within fifteen days of any violation by us of any term of the Distributor Agreement. We also agreed to pay UPI certain royalty payments in connection with the distribution of the information received from UPI pursuant to the Distributor Agreement, which payment we agreed to provide to UPI within thirty days of the end of any month in which we earn subscription fees. These royalty payments are equal to $500 per month, plus $6 per end-user screen per month. The Distributor Agreement is automatically renewed for additional one (1) year terms if we do not provide UPI notice of our intent to not automatically renew such Distributor Agreement prior to sixty (60) days before the end of the current term.
In March 2006, we entered into an agreement with a platform developer, a
company which merges various software applications for use on related existing
applications and devices, in connection with a distribution agreement, which
allows us to transfer our Direct Lynk System streaming text feed to cell phones
equipped with Internet access. The platform developer in turn has agreements
with various cell phone companies, which allows us to provide our streaming text
feed to cell phones equipped with Internet access both in the United States and
Europe. Revenue pursuant to this contract may be generated two different ways,
(1) the cell phone carrier may choose to bill the end user directly for this
service, which monthly fee will be split between the carrier, the platform
developer and us; or (2) the cell phone carrier may choose to contract with the
platform developer and broadcast a small piece of information to all of its
subscribers at a small per customer cost, which fee would then be split between
the platform developer and us. We have no definitive contract with the platform
developer and have not generated any revenues through this agreement to date.
On March 13, 2006, we entered into an End-User Agreement with Arena Media Networks ("Arena"), which provides television and advertising displays and content to various sports arenas around the country, to provide our Direct Lynk System to Arena for a term of one (1) year (renewable for successive one year terms). Arena agreed to pay us approximately $1,350 per month for the use of our feeds in its arenas. Each party is able to terminate the agreement upon the breach of any provision of the agreement, by providing the other party notice and upon the other party's failure to cure such breach within thirty (30) days of the date notice was given. The effective date of the agreement was April 2, 2006.
We entered into a distribution agreement with Midwest Airlines, Inc. ("Midwest"), with an effective date of January 16, 2006, renewable for successive one (1) year periods thereafter. The distribution agreement is able to be terminated by Midwest with thirty (30) days written notice to us. The distribution agreement with Midwest currently provides us approximately $1,000 per year in subscription fees.
DEPENDENCE ON ONE OR A FEW CUSTOMERS
We currently have only a small number of customers who pay to subscribe to the Direct Lynk System; however we also have several companies which are testing the Direct Lynk System. We generally offer these companies free use of the Direct Lynk System in their establishments for approximately thirty to forty-five days, after which time such companies must choose whether to stop
using our trial service or enter into a contract with us and pay us subscription fees to continue to use the Direct Lynk System. We have found this initial free trial period to be effective in educating potential customers of the benefits and uses of our technology.
In the near future, we will depend on a small number of customers for the bulk of our revenues, if any. However, in the future, we plan to depend less on a small number of customers. Instead, we hope to offer our Direct Lynk System to many customers in numerous industries. We hope that the diversification of products in the marketplace will lower the risk that the loss of one customer or decline in any one industry will impact our revenues; however, as we have generated only limited revenues though out Direct Lynk System and have only a small number of companies which pay to subscribe to the Direct Lynk System, we may be forced to depend on a small number of clients in the future.
PATENTS, TRADEMARKS & LICENSES
In July 2004, we filed a U.S. provisional patent application for software used in connection with an earlier version of our product, known at that time as "Infocall." A provisional patent application gives a filer one full year to assess an invention's commercial potential before committing to the higher cost of filing and prosecuting a non-provisional application for a patent. We did not file a non-provisional application and have thus lost any patent rights which were the subject matter of the provisional patent application. The provisional patent filed by us did not automatically become a valid patent and since the one year period has expired, it cannot be extended. In order for us to have a valid legally binding patent on our Direct Lynk Messenger System, we must file a new patent application directed to inventions neither disclosed in the provisional patent application nor which have been on sale, offered for sale, or commercially used over a year prior to its filing date, which must then be granted by the United States Patent and Trademark Office, of which there can be no assurance. No such patent applications have been filed or discussed.
We have no patents, patent applications, trademarks, trademark applications or licenses covering our Direct Lynk Messenger service. We may choose to file a patent application in the future, if our management feels it is in our best interest and raises sufficient capital to pay for the legal costs associated with such filing, but we currently have no plans to file such application. As we have no current patents on our technology, we can provide future investors no assurances that another company does not already have a patent on our technology, that we are not in violation of such patent, if one exists, and/or that we can assert patent rights against another company that utilizes the same technology as us.
EMPLOYEES
We currently employ eight (8) full time employees.
In May 2006, we entered into a Settlement Agreement and Mutual Release ("Settlement"), with a shareholder of Data Call, Sayda Hernandez. Pursuant to the Settlement, Ms. Hernandez agreed to return 200,000 restricted shares of our common stock, which she held, to us for cancellation and we agreed to pay Ms. Hernandez an aggregate of $20,000 ($0.10 per share). We and Ms. Hernandez also
agreed to release, acquit and forever discharge each other, and our agents, servants, representatives, attorneys successors (and in Ms. Hernandez's release of Data Call, Data Call's current and former officers and Directors), from any and all rights, obligations, claims, demands and causes of action, whether in contract, tort, under state and/or federal law, or state and/or federal securities regulation, whether in asserted or unasserted, known or unknown, arising from or relating to Ms. Hernandez's August 30, 2002, subscription in Data Call. We are currently in the process of cancelling the 200,000 restricted shares of common stock formerly held by Ms. Hernandez, and as such, those 200,000 shares have not been included in Data Call's issued and outstanding share amounts listed throughout this report.
On June 19, 2006, with an effective date of June 1, 2006, we entered into an Employment Agreement with Everett Poe, our Vice President of Sales (which is a non-executive position). The Employment Agreement has a term of three years, during which time Mr. Poe is to earn $80,000 per year. The termination terms and conditions of Mr. Poe's Employment Agreement are similar to the terms and conditions of our executive Employment Agreements, described above. In connection with and pursuant to our entry into the Employment Agreement with Mr. Poe, we agreed to grant Mr. Poe warrants to purchase up to 500,000 shares of our common stock, which warrants have an exercise price of $0.10 per share. The warrants vest to Mr. Poe as follows, 166,666 warrants on June 1, 2007; 166,667 warrants on June 1, 2008; and 166,667 warrants on June 1, 2009. The warrants expire upon the earlier of the third anniversary of the date which the warrants vest to Mr. Poe, or upon the expiration of thirty days after the termination as an employee of Data Call.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial statements.
ESTIMATE OF THE AMOUNT SPENT ON RESEARCH AND DEVELOPMENT ACTIVITIES
Since our inception in April 2002, the majority of our expenditures have been on research and development on our Direct Lynk Messenger System, including software and hardware development and testing. The amount spent on this research and development since inception is estimated by us to be approximately $1,500,000.
PLAN OF OPERATIONS
We believe that we can continue our business operations for approximately the next three months, assuming our current rate of monthly expenditure, of approximately $75,000 per month (which amount does not include the full amount of our executive officer's salaries, a portion of which is being accrued until such time as we have sufficient funds to pay the full amount of such salaries), our current number of employees, and our other expenses do not increase significantly, due to the approximately $205,000 of cash on hand that we had as of June 15, 2006 and the fact that a portion of the salaries due to our officers is being accrued until we have sufficient funds to pay such salaries. In the event that our current monthly rate of expenditure, the number of employees we employ and/or any of our other expenses increase, we may be forced to raise additional capital within the next three months. We do not currently have any
plans to increase our monthly expenditures or number of employees. In the event this Registration Statement is not declared effective by the SEC within the next three months, we may need to raise additional capital through the sale of shares of our common stock to support our ongoing operations, of which there can be no assurance.
Assuming we have sufficient capital moving forward, we plan to continue to grow our business and market our Direct Lynk System to potential customers over the course of the next twelve months by marketing our technology to digital signage manufacturers, trade magazines, trade shows and call centers. We will also continue on a limited basis our practice of providing potential customers free trials of the Direct Lynk System, for which we will receive no revenue, in an attempt to build both product awareness for the Direct Lynk System and to potentially lead to sales down the road, which in the opinion of our management has been successful both in building brand awareness for the Direct Lynk System and in bringing in new clients for subscriptions. We have added subscribers for our technology throughout the first quarter of 2006 and hope to build and increase such subscribers moving forward. However, as of the date of this Prospectus, we have generated only minimal revenues through paying subscriptions for the Direct Lynk System, and we can provide no assurances that we will generate any meaningful revenues in the future, that we will be successful in marketing our Direct Lynk System to potential customers or that we will continue to have enough money to continue our business operations and marketing activities in the future. If we are unable to generate sufficient revenues to support our approximately $75,000 per month of expenses subsequent to the effectiveness of this Registration Statement, we may be forced to scale back our marketing efforts. (please see "Risk Factors" above for more detailed descriptions of these and other risks to which we are subject).
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of trade receivables, net of a valuation allowance for doubtful accounts.
INVENTORIES
Inventories are valued at the lower-of-cost or market on a first-in, first-out basis.
INVESTMENT SECURITIES
Data Call accounts for its investments in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Management determines the appropriate classification of its investments in marketable securities at the time of purchase and reevaluates such determination at each balance sheet date. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Debt securities for which Data Call does not have the intent or ability to hold to maturity and equity securities not classified as trading securities are classified as available-for-sale. The cost of investments sold is determined on the specific identification or the first-in, first-out method. Trading securities are reported at fair value with unrealized gains
and losses recognized in earnings, and available-for-sale securities are also reported at fair value but unrealized gains and losses are shown in the caption "unrealized gains (losses) on shares available-for-sale" included in stockholders' equity. Management determines fair value of its investments based on quoted market prices at each balance sheet date.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are recorded at cost less accumulated depreciation. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts, with any resultant gain or loss being recognized as a component of other income or expense. Depreciation is computed over the estimated useful lives of the assets (3-5 years) using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. Maintenance and repairs are charged to operations as incurred.
ADVERTISING COSTS
The cost of advertising is expensed as incurred.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
INCOME TAXES
Data Call is a taxable entity and recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when the temporary differences reverse. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date of the rate change. A valuation allowance is used to reduce deferred tax assets to the amount that is more likely than not to be realized.
THE THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 2005
We had $1,688 of sales revenue for the three months ended March 31, 2006, compared to sales revenue of $-0- for the three months ended March 31, 2005. The $1,688 of sales revenue consisted of subscription fees received in connection with our Direct Lynk System, which fees were received from Midwest Airlines, Inc. and certain resellers in connection with subscriptions for our Direct Lynk System feeds.
We had total expenses of $626,388 for the three months ended March 31, 2006, compared to total expenses of $223,812 for the three months ended March 31, 2005, an increase in expenses of $402,576 or 179.9% from the prior period. The increase in expenses was mainly due to a $329,765 or 258.6% increase in employee compensation (which included $23,250 of salary payable to executive for the three months ended March 31, 2006, which amount has been accrued until such time as Data Call has sufficient funds to pay such salaries), which was due to
the increased salaries of our executive officers in connection with the employment agreements described above, 2,500,000 shares of common stock issued to one of our employees, and 3,000,000 options granted to our Chief Executive Officer, James Ammons; a $41,666 or 833% increase in legal and accounting fees associated with the preparation of this Form SB-2 Registration Statement and audited financial statements for the year ended December 31, 2005, contained herein; a $52,337 or 993% increase in travel fees, in connection with our employees traveling to certain trade shows to display and market our Direct Lynk system; offset by a $19,793 or 45.2% decrease in contractual services expenses; and a $7,007 or 81.5% decrease in office supplies and expenses.
We had a net loss of $624,700 for the three months ended March 31, 2006, compared to a net loss of $223,812 for the three months ended March 31, 2005, an increase in net loss before income taxes of $400,888 or 179% from the prior quarter. The increase in net loss for the three months ended March 31, 2006, compared to the net loss for the three months ended March 31, 2005 was due to the 258.6% increase in employee compensation and the 993% increase in travel expenses, which was not sufficiently offset by the $1,688 increase in sales revenue for the three months ended March 31, 2006.
THE YEAR ENDED DECEMBER 31, 2005 COMPARED TO THE YEAR ENDED DECEMBER 31, 2004
Sales for the year ended December 31, 2005 were $365, a decrease in sales of $16,458 or 97% from the prior period, which sales were attributable to the sale of a subscription feed for our Direct Lynk System during the year ended December 31, 2005, compared to sales of $16,823 for the year ended December 31, 2004, which sales were attributable to sales of flat screen televisions (which was a one-time event). The decrease in sales was attributable to a decrease in sales of flat screen televisions, in connection with our focus on our Direct Lynk System. During the year ended December 31, 2004, we sold certain flat panel televisions to certain of our customers in connection with the use of our technology. These sales occurred on a limited basis and we decided prior to the end of 2004, that such resales were not in our best interest both due to the large initial cost of such purchases, which offset any revenues which we received and because of our decision to focus more of our resources on our digital advertising operations.
Total operating expenses for the year ended December 31, 2005 increased $10,742 or 1%, to $1,076,221, from total operating expenses of $1,065,479 for the year ended December 31, 2004. This increase was due to the following line item increases for the year ended December 31, 2005, compared to the year ended December 31, 2004, an increase of $80,815 or 137% in legal and accounting expenses in connection with our attempt to file a Registration Statement with the Securities and Exchange Commission; an increase of $192,030 or 686% in contractual services; an increase of $8,947 or 13.7% in product development costs associated with our Direct Lynk System; an increase of $69,954 or 368% in travel costs associated with our travel to certain trade shows and to certain corporation's offices to demonstrate our Direct Lynk System; an increase of $3,068 or 14.2% in office and equipment rental in connection with our move to our Houston office space (as described under "Description of Property," herein); increases of $3,517 or 26.9% in telephone expense associated with our purchase of an automated telephone answering system for our Houston office; and increases of $6,233 or 245% in depreciation expense due to the increase in depreciable assets which were purchased during the year ended December 31, 2005, including office furniture, computers and related office equipment.
These increases in total operating expenses were offset by the following decreases in operating expenses for the year ended December 31, 2005, compared to the year ended December 31, 2004; a $322,032 or 41.4% decrease in employee compensation, which was due to the fact that we had more cash on hand to pay employees during the year ended December 31, 2004, compared to the year ended December 31, 2005, due to increased shareholders subscriptions during the year ended December 31, 2004, and as a result, we were able to pay our employees more during the year ended December 31, 2004, than during the year ended December 31, 2005; a $12,991 or 29.6% decrease in office supplies and expenses, due to the fact that for the majority of the fiscal 2005 year we operated without our Dallas office and therefore used less office supplies than we did for the year ended December 31, 2004; a $13,450 or 92.1% decrease in trade show expenses, due to the fact that while we traveled to many trade shows throughout the year ended December 31, 2005, we did not display our Direct Lynk System at any shows; and a $12,234 or 86.8% decrease in other expense.
Net loss for the year ended December 31, 2005 was $1,075,856, which was an increase in net loss of $15,374 or 1.4% from net loss for the year ended December 31, 2004, which was $1,065,479. The increase in net loss was mainly attributable to increases in our legal and accounting expenses and traveling expenses, which were offset by decreases in our consulting expenses and our office supplies and expenses cost.
LIQUIDITY AND CAPITAL RESOURCES
We had current assets of $517,166 as of March 31, 2006, which consisted solely of cash of $517,166, compared to total current assets of $671,228 consisting solely of cash as of December 31, 2005, a decrease of $154,062 or 23% in current assets from the previous quarter.
We had total assets of $619,356, as of March 31, 2006, which consisted of current assets of $517,166; total property and equipment (net of accumulated depreciation of $14,395) of $96,935, which included high end flat screen televisions, computers and software equipment responsible for running our Direct Lynk System which is stored in our Houston and Dallas offices; and other assets of $5,255, which included our deposit on our Houston and Dallas office space.
We had liabilities, consisting solely of current liabilities of $104,552 as of March 31, 2006, which included accounts payable of $61,302, which included $50,000 which was owed to our former legal counsel, $20,000 of accrued expenses, and $23,250 of accrued salaries payable to our executive officers.
We had net working capital of $412,614 and an accumulated deficit of $5,019,421 as of March 31, 2006.
We had $340,732 of cash used in operating activities for the three months ended March 31, 2006, which was mainly due to net loss of $624,700, offset by $261,000 of stock issued for services, which shares were issued to our consultants and employees in connection with services rendered and $23,250 of accrued salaries and related liabilities.
We had $8,330 of cash used in investing activities during the three months ended March 31, 2006, which included $8,330 of purchase of property and equipment.
We had $195,000 in net cash provided by financing activities for the three months ended March 31, 2006, representing proceeds from the sale of 1,950,000 shares of our common stock for $0.10 per share pursuant to a private placement.
Due to the $1,403,400 of net cash raised through the sale of common stock during the year ended December 31, 2005 and the $195,000 of net cash raised through the sale of common stock during the three months ended March 31, 2006, of which approximately $517,166 remained as of March 31, 2006, we believe that with our current rate of monthly expenditures, approximately $75,000 per month (which amount does not include the full amount of our executive officer's salaries, a portion of which is being accrued until such time as we have sufficient funds to pay the full amount of such salaries), we will be able to maintain our operations for approximately the next three months, if we generate no material funds through sales during the next three months, and longer if we are able to generate material sales, of which there can be no assurance.
Although we hope to generate meaningful revenues sufficient to support our operations in the next eight to twelve months, if we are unsuccessful in generating such revenues, we will likely need to take steps to raise equity capital or to borrow additional funds, to continue our operations and meet our upcoming liabilities. There can be no assurance that any new capital will be available to us or that adequate funds for our operations, whether from our financial markets, or other arrangements will be available when needed or on terms satisfactory to us, will be available subsequent to the effectiveness of our registration statement, or prior to such effectiveness. We currently anticipate that our current funds will sustain our operations for approximately the next three months. We have no commitments from officers, Directors or affiliates to provide funding. We plan to raise capital, if needed, through the sale of shares of our common stock to a limited number of accredited investors to support our ongoing operations, of which there can be no assurance. Our failure to obtain adequate additional financing may require us to delay, curtail or scale back some or all of our operations. Additionally, any additional financing may involve dilution to our then-existing shareholders.
Additionally, our quarterly expenses may increase once we become a publicly traded company as we will need to continue filing quarterly and annual reports with the Securities and Exchange Commission, which will need to contain disclosures drafted by our legal counsel and financial statements reviewed and/or audited by our independent auditors. Additionally, we will need to file reports on Form 8-K with the Commission regarding significant contracts and material events in our business operations. However, we do not believe that our current anticipated monthly expense rate of $75,000 per month will be significantly affected by these filing requirements, as we are already paying our legal counsel and independent auditors significant funds on a monthly basis (which costs are included in our anticipated monthly expenses rate) to review and complete this Form SB-2/A filing, and have been paying such auditor and legal counsel for several months in connection with the preparation and filing of this registration statement. We choose to go public at this time to make our stock more attractive to potential partners, who we may choose to pay in shares of common stock in the future. To make our stock more attractive to other companies, which we may seek to acquire in the future using our common stock as consideration, and to make it easier for us to raise additional capital through the sale of debt and/or equity. Additionally, we had previously promised the
shareholders who we sold shares of common stock through our private placements that we would file a registration statement to register their shares. We also believe that by being able to offer potential business partners shares of our common stock in connection with fee arrangements that we will become a more attractive business partner in the digital signage market.
Furthermore, we may face liability for certain shares of common stock that were sold by us between October 2003 to December 2005, which were not registered under federal or state securities laws, and as a result, exemptions from registration provided by these securities laws may not have been available or may not have been perfected due to that fact that some non-accredited shareholders who purchased our shares may not have been provided audited financial statements, risk factors, or a description of our business history and results of operations. As a result, we may be deemed to have violated the registration requirements of these securities laws with respect to the offer and sale of the common stock. In December 2005 and January 2006, we offered rescission to 22 shareholders who had subscribed for an aggregate of 2,044,000 of our shares of common stock for aggregate consideration of $204,400 or $0.10 per share, and provided each shareholder at least thirty days to decide whether to accept or reject the rescission offer, pursuant to state law and all of the shareholders elected to reject the rescission offer and reaffirm their purchases. Although all of the shareholders elected to reject rescission, certain state securities laws do not expressly provide that a rescission offer will terminate a purchaser's right to rescind a sale of securities that was not registered under the relevant securities laws as required. As a result, we may continue to be potentially liable under certain securities laws for such sales of common stock even after completing our rescission offer. We anticipate that such liability in aggregate would not exceed the total price of the purchased shares, $204,400. If we are required to repay this amount, our current estimates of how long we believe we can continue our business activities, without the need for additional funding, currently three months, could be significantly impacted, and we could be forced to raise additional funds through the sale of shares of our common stock to a limited number of investors to repay funds to any rescinding shareholders and/or support our ongoing operations, of which there can be no assurance.
DESCRIPTION OF PROPERTY
We entered into a three year lease on our principal offices at 600 Kenrick, Suite B-12, Houston, Texas 77060, with First Industrial Development Services, Inc., a Maryland corporation ("Landlord"), which became effective on April 1, 2005. The lease covers approximately 2,240 square feet and has a monthly rental cost of $1,120 from April 1, 2005 to March 31, 2006 and $1,164.80 from April 1, 2006 to March 31, 2008. We have the option to terminate the lease on April 1, 2007, provided that we give the Landlord 180 days notice of our intention to terminate the lease and pay $3,365 in penalties.
On January 1, 2006, we entered into a lease on approximately 1,875 square feet of office space, which we plan to use for sales/development at 14683 Midway Road, Suite 150, Addison, Texas 75001. The lease has a three year term, ending on December 31, 2008. The monthly rental fee for the term of the lease is $1,719 per month. Additionally, pursuant to the Addison office space lease, we agreed to reimburse the landlord for any costs associated with utilities, taxes and assessments and casualty and liability insurance in connection with the leased space.
Additionally, we currently rent office space in the house of one of our employees, outside of New Orleans, Louisiana, for which we pay the employee $350 per month, which office space encompasses approximately 10 square feet. We use our New Orleans office space for sales and marketing.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 2002, our Chief Executive Officer, James Ammons was issued 9,000,000 shares of our restricted common stock (valued at $900,000), in consideration for services rendered to us as Chief Executive Officer, our Director Timothy Vance was issued 150,000 shares of our restricted common stock in consideration for services rendered to us in connection with services provided to us as our Director (valued at $15,000), our former Director and officer, Derek Argo was issued 1,000,000 shares of our restricted common stock, in consideration for his services to us as our Director and officer (valued at $100,000) (of which 900,000 shares were subsequently cancelled by Mr. Argo "Recent Sales of Unregistered Securities") in consideration for services rendered to us, and our counsel, David M. Loev was issued 1,000,000 shares in consideration for legal services rendered to us (valued at $100,000), in connection with the drafting of corporate filings, internal corporate governance and various document review.
In June 2002, our Chief Executive Officer transferred approximately 40 QVS shareholders an aggregate of approximately 4,610,000 shares of our restricted common stock (valued at $461,000) in return for each of those QVS shareholders signing a Release, whereby they agreed to release us, our Chief Executive Officer, James Ammons, and our officers and Directors and employees from any and all claims, rights, obligations, demands and causes of action arising from or relating to QVS. Effective September 1, 2004, we issued 4,610,000 shares of our restricted common stock (valued at $461,000) to our Chief Executive Officer, James Ammons in consideration for his transfer of his personal shares to QVS shareholders in consideration for the QVS shareholders release of us, Mr. Ammons, and our officers, Directors and employees from any and all claims, rights, obligations, demands and causes of action arising from or relating to QVS.
In August 2003, we issued 1,000,000 shares of our restricted common stock (valued at $100,000) to Terry Breedlove, an employee and a greater than 5% shareholder of us, in consideration for services rendered to us in connection with our day to day operations and the recording of outstanding shares and share ownership.
In November 2003, we issued 1,250,000 shares of our restricted common stock (valued at $125,000) to Terry Breedlove, an employee and a greater than 5% shareholder of us, in consideration for services rendered to us in connection with our day to day operations and the recording of outstanding shares and share ownership.
In November 2003, our Director, Timothy Vance was issued 750,000 shares of our restricted common stock (valued at $75,000) in consideration for services rendered to us in connection with sales and marketing of our products.
In April 2004, our Director, Timothy Vance was issued 100,000 shares of our restricted common stock (valued at $10,000) in consideration for services rendered to us in connection with sales and marketing of our products.
In June 2004, our Chief Financial Officer and Director, Larry Mosley was issued 50,000 shares of our restricted common stock (valued at $5,000) in consideration for services rendered to us in connection with his positions as our Chief Financial Officer and Director, and in consideration for various accounting services provided to us.
In June 2004, we issued 250,000 shares of our restricted common stock to Terry Breedlove, an employee and a greater than 5% shareholder of us (valued at $25,000), in consideration for services rendered to us in connection with our day to day operations and the recording of outstanding shares and share ownership.
In January 2005, we issued an aggregate of 950,000 shares of our restricted common stock to our Chief Financial Officer and Director, Larry Mosley (valued at $95,000), in consideration for services rendered to us in connection with his positions as our Chief Financial Officer and Director, and in consideration for various accounting services provided to us.
Effective October 1, 2005, we entered into employment agreements with Larry Mosley, our Chief Financial Officer and Timothy Vance, our Director of Customer Support. We later amended the effective date of those agreements to January 1, 2006, pursuant to an "Addendum No. 1 to Executive Employment Agreement" entered into on February 14, 2006, which each of those individuals. The employment agreements are described in greater detail above.
In October 2005, we sold an aggregate of 3,000,000 shares of our restricted common stock to Milford and Ruth Mast, greater than 5% shareholders of us, in consideration for $300,000 (or $0.10 per share).
In November 2005, we sold an aggregate of 3,016,000 shares of our restricted common stock to Milford and Ruth Mast, greater than 5% shareholders of us, in consideration for $301,600 (or $0.10 per share).
In December 2005, we sold 1,450,000 shares of our restricted common stock to Milford and Ruth Mast, greater than 5% shareholders of us, in consideration for $145,000 (or $0.10 per share).
In January 2006, we sold 50,000 shares of our restricted common stock to Milford and Ruth Mast, greater than 5% shareholders of us, in consideration for $5,000 (or $0.10 per share).
In January 2006, we sold 50,000 shares of our restricted common stock to Milford and Ruth Mast, greater than 5% shareholders of us, in consideration for $5,000 (or $0.10 per share).
In February 2006, we sold 950,000 shares of our restricted common stock to Milford and Ruth Mast, greater than 5% shareholders of us, in consideration for $95,000 (or $0.10 per share).
In February 2006, we issued 2,500,000 shares of our restricted common stock to Terry Breedlove, an employee and a greater than 5% shareholder of us (valued at $250,000), in consideration for services rendered to us in connection with our day to day operations and the recording of outstanding shares and share ownership.
In February 2006, our Board of Directors approved a $35,000 bonus to our Chief Executive Officer, James Ammons, in consideration for entering into and agreeing to be bound by the terms of his employment agreement with us (as described below).
On February 8, 2006, we entered into an employment agreement with James Ammons, our Chief Executive Officer, which employment agreement is described in greater detail under "Directors, Executive Officers and Control Persons," above. In connection with the employment agreement, we granted Mr. Ammons options exercisable into 3,000,000 shares of our common stock at $0.10 per share, which options are described in greater detail under "Directors, Executive Officers and Control Persons," above.
All shares of issued common stock above were valued at $0.10 per share, which was the value which shares of our common stock were sold at pursuant to private placements during the years ended December 31, 2003, 2004 and 2005.
EXECUTIVE COMPENSATION
ANNUAL COMPENSATION
------------------------------------------------------------------------------------------------------
NAME AND
PRINCIPAL POSITION FISCAL YEAR SALARY OTHER ANNUAL RESTRICTED OPTIONS
COMPENSATION STOCK AWARDS
James Ammons 2006(2) $ 120,000* $35,000(3) -- 3,000,000(4)
Chief Executive Officer, 2005 $ 78,070 -- -- --
Secretary, Treasurer and 2004 $ 80,500 -- -- --
Director (1) 2003 $ 47,450 -- -- --
Larry Mosley 2006(5) $ 75,000* -- -- --
Chief Financial Officer 2005 $ 30,500 -- $95,000(6) --
and Director 2004 $ 10,525 -- $5,000(7) --
2003 $ 2,750 -- -- --
Terry Breedlove 2006 $ 80,000* -- $250,000(8) --
Employee 2005 $ 67,750 -- -- --
2004 $ 73,500 -- $25,000(9) --
2003 $ 13,000 -- $225,000(10) --
Richard Clemens 2003 $ 5,650 -- -- --
Former Chief Executive
Officer (1)
|
The individuals listed above have not received any LTIP payouts over the past three completed fiscal years as compensation from us.
Salary amounts listed above do not include perquisites and other personal benefits in amounts less than 10% of the total annual salary and other compensation.
Other than the individuals listed above, we have no other executive employees who have received more than $100,000 in compensation, including bonuses and options, during each of the last three (3) fiscal years.
(1) Mr. Clemens served as our Chief Executive Officer, Secretary and Treasurer from the date of our incorporation on April 4, 2002, until June 19, 2003, when James Ammons was elected Chief Executive Officer, Secretary and Treasurer by our Board of Director.
(2) Mr. Ammons salary for 2006 is estimated. In February 2006, we entered into a five year employment agreement with Mr. Ammons, which is to pay him $120,000 for the fiscal year ended 2006, and increase by 5% for each of the additional four years of the agreement. Mr. Ammons' employment agreement, including provisions which take effect upon Mr. Ammons termination, is described in greater detail under "Directors, Executive Officers and Control Persons," above.
(3) Mr. Ammons received a $35,000 bonus in consideration for entering into his employment agreement with us in February 2006.
(4) Mr. Ammons' Options are described in greater detail under "Directors, Executive Officers and Control Persons," above.
(5) Mr. Mosley has served as our Chief Financial Officer since October 11, 2004. He entered into a three year employment agreement with us, with an effective date of October 1, 2005, which effective date was subsequently changed to January 1, 2006 pursuant to an addendum to the employment agreement entered into on February 14, 2006. Mr. Mosley is to be paid $75,000 per year pursuant to his employment agreement, which is described in greater detail under "Directors, Executive Officers and Control Persons," above.
(6) The value of the 950,000 shares of common stock issued to Larry Mosley during the fiscal year ended December 31, 2005 was approximately $95,000, based on the estimated value of $0.10 per share, based on the price that shares of common stock were sold for during the fiscal years ended 2003 through 2005.
(7) The value of the 50,000 shares of common stock issued to Larry Mosley during the fiscal year ended December 31, 2004 was approximately $5,000, based on the estimated value of $0.10 per share, based on the price that shares of common stock were sold for during the fiscal years ended 2003 through 2005.
(8) The value of the 2,500,000 shares of common stock issued to Terry Breedlove as of the date of this filing in fiscal 2006 was approximately $250,000, based on the estimated value of $0.10 per share, based on the price that shares of common stock were sold for during the fiscal years ended 2003 through 2005.
(9) The value of the 250,000 shares of common stock issued to Terry Breedlove during the year ended December 31, 2005 was approximately $25,000, based on the estimated value of $0.10 per share, based on the price that shares of common stock were sold for during the fiscal years ended 2003 through 2005.
(10) The value of the 2,250,000 shares of common stock issued to Terry Breedlove during the year ended December 31, 2003 was approximately $225,000, based on the estimated value of $0.10 per share, based on the price that shares of common stock were sold for during the fiscal years ended 2003 through 2005.
CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of December 31, 2005 (the "Evaluation Date"), have concluded that as of the Evaluation Date, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in internal control over financial reporting. There were no significant changes in our internal control over financial reporting during the last fiscal year and/or up to and including the date of this filing that we believe materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
We are authorized to issue up to 200,000,000 shares of common stock and 10,000,000 shares of preferred stock. As of June 20, 2006, there were 55,247,100 shares of common stock issued and outstanding (which amount does not include the 200,000 shares of common stock which we have received for cancellation from a shareholder in connection with our entry into a Settlement Agreement and Mutual Release, and which shares have not been cancelled to date) and -0- shares of preferred stock issued and outstanding.
The holders of shares of common stock are entitled to one vote per share on each matter submitted to a vote of shareholders. In the event of liquidation, holders of common stock are entitled to share prorata in the distribution of assets remaining after payment of liabilities, if any. Holders of common stock have no cumulative voting rights, and, accordingly, the holders of a majority of the outstanding shares have he ability to elect all of the Directors. Holders of common stock have no preemptive or other rights to subscribe for shares. Holders of common stock are entitled to such dividends as may be declared by the board of Directors out of funds legally available therefore. The outstanding common stock is validly issued, fully paid and non-assessable.
PREFERRED STOCK
We have authorized the issuance of up to 10,000,000 shares of preferred stock, par value of $0.001 per share. We have no present plans for the issuance of such preferred stock. The issuance of such preferred stock could adversely affect the rights of the holders of common stock and, therefore, reduce the value of the common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of the common stock until the board of directors determines the specific rights of the holders of the preferred stock; however, these effects may include:
- Restricting dividends on the common stock;
- Diluting the voting power of the common stock;
- Impairing the liquidation rights of the common stock; and/or
- Delaying or preventing a change in control of the company without
further action by the stockholders.
OPTIONS
We currently have 3,000,000 options outstanding, which options are held by our Chief Executive Officer and President, James Ammons. The options were granted on February 8, 2006, and expire on February 11, 2011. The Options vested immediately and are exercisable for shares of our common stock at $0.10 per share and contain a cashless exercise provision. No options had been exercised by Mr. Ammons as of the date of this Prospectus.
SHARES AVAILABLE FOR FUTURE SALE
As of the filing of this Prospectus, there are 55,247,100 shares of common stock issued and outstanding. Of the 38,262,100 shares of common stock which are being registered pursuant to this Prospectus, 7,466,000 shares of our outstanding common stock offered herein by Milford L. and Ruth L. Mast, will be subject to the resale provisions of Rule 144 upon effectiveness of our Registration Statement and the remaining 30,796,100 shares offered by the selling stockholders will be eligible for immediate resale in the public market if an when any market for our common stock develops.
The remaining 17,015,000 shares of common stock outstanding which are not being registered in this offering will be subject to the resale provisions of Rule 144. Sales of shares of common stock in the public markets may have an adverse effect on prevailing market prices for the common stock.
Rule 144 governs resale of "restricted securities" for the account of any person (other than an issuer), and restricted and unrestricted securities for the account of an "affiliate" of the issuer. Restricted securities generally include any securities acquired directly or indirectly from an issuer or its affiliates which were not issued or sold in connection with a public offering registered under the Securities Act. An affiliate of the issuer is any person who directly or indirectly controls, is controlled by, or is under common control with, the issuer. Affiliates of us may include our Directors, executive officers, and persons directly or indirectly owning 10% or more of our outstanding common stock. Under Rule 144 unregistered resales of restricted common stock cannot be made until it has been held for one year from the later of its acquisition from us or our affiliate.
Thereafter, shares of common stock may be resold without registration subject to Rule 144's volume limitation, aggregation, broker transaction, notice filing requirements, and requirements concerning publicly available information about us ("Applicable Requirements"). Resales by our affiliates of restricted and unrestricted common stock are subject to the Applicable Requirements. The volume limitations provide that a person (or persons who must aggregate their sales) cannot, within any three-month period, sell more than the greater of one percent of the then outstanding shares, or the average weekly reported trading volume during the four calendar weeks preceding each such sale. A non-affiliate may resell restricted common stock which has been held for two years free of the Applicable Requirements.
PLAN OF DISTRIBUTION AND SELLING STOCKHOLDERS
This Prospectus relates to the resale of 38,262,100 shares of common stock by the selling stockholders. The table below sets forth information with respect to the resale of shares of common stock by the selling stockholders. We will not receive any proceeds from the resale of common stock by the selling stockholders for shares currently outstanding. The selling shareholders will sell their common shares at the fixed price of $0.10 per share until our shares are quoted on the OTC Bulletin Board and thereafter, shares will be sold at the prevailing market prices or at privately negotiated prices.
SELLING STOCKHOLDERS
-------------------------------------------------
SHARES OWNED SHARES OWNED
PRIOR TO SUBSEQUENT TO
SHAREHOLDER NAME ISSUE DATE CONSIDERATION* OFFERING OFFERING (1)
---------------- ---------- ------------------------- -------------- ------------
Adams, Blaine H. August - 2005 Cash 100,000 --
Ali Ahmed, Salar (2) August - 2004 Services 100,000 --
Ali Ahmed, Salar (2) March - 2005 Services 50,000 --
Allen, Jeff July - 2005 Cash 200,000 --
Allen, Tim L. July - 2004 Cash 75,000 --
Allen, Tim L. November - 2004 Cash 50,000 --
Ammon, Lance July - 2002 Release (3) 250,000 --
Argo, Derek (4) April - 2002 Services 100,000 --
Arms, Larry October - 2002 Cash 10,000 --
Arms, Larry August - 2002 Release (3) 31,000 --
Arms, Larry (5) February - 2006 Services 10,000 --
Armstrong, Daniel June - 2002 Cash 50,000 --
Armstrong, Donald R. September - 2005 Cash 160,000 --
Armstrong, Sharon (5) November - 2005 Services 50,000 --
Babits, Shawn (5) October - 2004 Services 10,000 --
Bagget, Gary (5) July - 2004 Services 10,000 --
44
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Bagley, Walter June - 2002 Release (3) 250,000 --
Baker, Woody and Lucy July - 2002 Release (3) 10,000 --
Bellewood Corporation (A) September - 2005 Cash 250,000 --
Bellewood Corporation (A) December - 2005 Cash 100,000 --
Benvenuto, Beverly June - 2002 Release (3) 320,000 --
Bette Lynn Ryan Trust (B) February - 2003 Cash 25,000 --
Bette Lynn Ryan Trust (B) June - 2003 Cash 50,000 --
Bette Lynn Ryan Trust (B) June - 2002 Release (3) 6,000 --
Bigler, Vance June - 2002 Release (3) 222,600 --
Blomberg, Robert Jr.
and Robert Sr. September - 2005 Cash 50,000 --
Bloome, Amanda (2) January - 2003 Services 1,000 --
Bloome, Jared & Sara (2) January - 2003 Services 125,000 --
Bloome, Jared (2) August - 2005 Services 25,000 --
Bluemel, Rita M. July - 2002 Release (3) 100,000 --
Bonanza Pacific (C) December - 2003 Cash 100,000 --
Bonanza Pacific (C) October - 2004 Cash 100,000 --
Bonanza Pacific (C) September - 2005 Cash 100,000 --
Bonanza Pacific (C) June - 2002 Release (3) 220,000 --
Bonanza Pacific (5) (C) September - 2005 Services 106,000 --
Braden, Mike (5) October - 2003 Services 13,000 --
Bradshaw, Gary September - 2005 Cash 10,000 --
Bremerman, Keith and Mary February - 2005 Cash 50,000 --
Bremerman, Keith July - 2005 Cash 25,000 --
Brister, Donald R. and Linda September - 2003 Cash 100,000 --
Burghart, Bernard J
&/or Kathryn M. July - 2005 Cash 100,000 --
Busch, Charles April - 2004 Cash 100,000 --
Carlson, Jack and Julianne June - 2002 Release (3) 40,000 --
Carlson, Rick June - 2002 Release (3) 70,000 --
Carrick, Bill May - 2005 Cash 100,000 --
Christian, Maureen June - 2002 Release (3) 100,000 --
Clairmont, Linda June - 2002 Release (3) 16,000 --
Dandamudi, Nagamini May - 2003 Cash 80,000 --
Dandamudi, Nagamini June - 2004 Cash 170,000 --
Davis, Charles April - 2004 Cash 100,000 --
Davis, Lori January - 2003 Release (3) 10,000 --
Divizia, Mary Jo September - 2005 Cash 50,000 --
Divizia, Mary Jo &
Venti, Anthony September - 2005 Cash 50,000 --
Dohle, Julie August - 2002 Cash 200,000 --
Dohle, Ralph June - 2002 Release (3) 60,000 --
Donald Brister IRA February - 2005 Cash 50,000 --
Donald Brister IRA
Charles Schwab & Co., Inc. Cust. March - 2004 Cash 50,000 --
Donovan, John T January - 2003 Cash 90,000 --
Donovan, John T June - 2002 Release (3) 67,000 --
Dunn, Thomas June - 2002 Release (3) 40,000 --
DW Jones Defined Benefit
Pension Plan (D) September - 2005 Cash 100,000 --
DW Jones Defined Benefit
Pension Plan (D) December - 2005 Cash 50,000 --
Ellebracht, Dyan November - 2003 Cash 150,000 --
Ellebracht, Dyan & Robert November - 2002 Cash 50,000 --
Ellebracht, Dyan & Robert April - 2004 Cash 100,000 --
Ellebracht, Dyan & Robert June - 2004 Cash 200,000 --
Elleson, Richard September - 2005 Cash 5,000 --
Feghali, Taline November - 2003 Cash 50,000 --
Flagg, Katherine September - 2005 Cash 110,000 --
Franz, Leon October - 2003 Cash 100,000 --
Franz, Leon December - 2003 Cash 50,000 --
Franz, Leon October - 2004 Cash 50,000 --
French, Ronald L. September - 2004 Cash 30,000 --
French, Ronald L. November - 2004 Cash 50,000 --
French, Ronald L. May - 2005 Cash 30,000 --
French, Ronald L. June - 2002 Release (3) 154,000 --
French, Ronald L. (5) May - 2005 Services 23,000 --
Gadbois, Gordon December - 2005 Cash 100,000 --
Gamble, Pat December - 2003 Release (3) 5,000 --
Gaura, Billie D. and Kevin September - 2005 Cash 200,000 --
Goodrum, Doug April - 2004 Cash 200,000 --
45
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Green, Dr. Bob August - 2005 Cash 25,000 --
Green, Dr. Bob (5) August - 2005 Services 25,000 --
Green, Dr. Bob (5) September - 2005 Services 50,000 --
Hall, William June - 2002 Release (3) 20,000 --
Heberlein, Tom December - 2002 Cash 50,000 --
Heberlein, Tom June - 2002 Release (3) 100,000 --
Helms, Jr. William, F. August - 2004 Cash 150,000 --
Helms, Jr. William, F. November - 2004 Cash 300,000 --
Helms, Jr. William, F. July - 2002 Release (3) 100,000 --
Hiestand, C. James (5) September - 2005 Services 15,000 --
Hiestand, C. James &
Denise A. August - 2005 Cash 300,000 --
Hoffman, Dr. Carl February - 2002 Cash 340,000 --
Hoffman, Dr. Carl April - 2002 Cash 500,000 --
Hoffman, Dr. Carl August - 2003 Cash 160,000 --
Hoffman, Dr. Carl December - 2003 Cash 85,000 --
Hoffman, Dr. Carl November - 2004 Cash 418,500 --
Hoffman, Dr. Carl February - 2005 Cash 71,500 --
Hoffman, Dr. Carl March - 2005 Cash 300,000 --
Hoffman, Dr. Carl (6) February - 2006 Cash 650,000 --
Holland, Curtis (5) November - 2003 Services 100,000 --
House, Garth August - 2002 Release (3) 50,000 --
Hughes, Jim and/or Susan June - 2002 Cash 50,000 --
Iverson, Ordean April - 2002 Cash 50,000 --
Jarrell, Roger and Sandra November - 2002 Cash 100,000 --
Jasnoski, James Thomas Banks August - 2005 Cash 100,000 --
Johnson, Loren G. February - 2006 Cash 250,000 --
Johnson, Marshall February - 2005 Cash 60,000 --
Johnson, Marshall June - 2002 Release (3) 50,000 --
Johnson, Marshall (5) June - 2005 Services 10,000 --
Johnson, Marshall (5) August - 2005 Services 40,000 --
Johnson, Marshall (5) September - 2005 Services 61,000 --
Johnson, Marshall (5) December - 2005 Services 500,000 --
Jones, Jimmy May - 2002 Cash 25,000 --
Jones, Jimmy October - 2004 Cash 50,000 --
Just Holdings, Ltd. (E) June - 2002 Cash 50,000 --
Kaminsky, Larry April - 2003 Cash 100,000 --
Karlin, Gerald, J September - 2003 Cash 50,000 --
Karlin, Gerald, J February - 2004 Cash 50,000 --
Karlin, Gerald, J July - 2004 Cash 50,000 --
Kenney, David April - 2004 Cash 400,000 --
King-Schmidt, Barbara September - 2005 Cash 50,000 --
Kirkland, Harvey September - 2005 Cash 50,000 --
Kroeger, Gaylen October - 2003 Cash 100,000 --
Kroger, Chad May - 2005 Cash 85,000 --
Kuckerman, Larry July - 2004 Cash 50,000 --
Kuckerman, Larry November - 2004 Cash 50,000 --
Lachs, Ellen March - 2005 Cash 100,000 --
Lachs, Ellen September - 2005 Cash 50,000 --
Lamont, Chris April - 2004 Cash 50,000 --
Lamont, Chris December - 2004 Cash 40,000 --
Lapthorn, Colin June - 2002 Release (3) 50,000 --
Linda Brister IRA February - 2005 Cash 50,000 --
Linda Brister IRA Charles
Schwab & Co., Inc. Cust. April - 2002 Cash 50,000 --
Lorol Trust (F) September - 2002 Release (3) 50,000 --
Lynch, Lorraine June - 2002 Release (3) 50,000 --
Magenheim, Jane Ann September - 2005 Cash 50,000 --
Malone, Lisa June - 2002 Cash 50,000 --
Malone, Lisa June - 2002 Release (3) 50,000 --
Manchego, Frank November - 2002 Cash 50,000 --
Manchego, Frank January - 2003 Cash 30,000 --
Manchego, Frank December - 2003 Cash 25,000 --
Manchego, Frank November - 2004 Cash 30,000 --
Manchego, Frank January - 2003 Release (3) 30,000 --
Marks, Lynn G. October - 2002 Cash 275,000 --
Marks, Lynn G. July - 2002 Release (3) 725,000 --
Marshall, Diana (2) August - 2005 Services 25,000 --
Marshall, Diana (2) January - 2003 Services 125,000 --
Mary Alice Novak Trust (G) November - 2004 Cash 200,000 --
Mary G. Tannahill
46
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Living Trust (H) June - 2005 Cash 75,000 --
Mast, Milford L. & Ruth L. November - 2005 Cash 5,016,000 --
Mast, Milford L. & Ruth L. December - 2005 Cash 1,450,000 --
Mast, Milford L. & Ruth L. January - 2006 Cash 50,000 --
Mast, Milford L. & Ruth L. February - 2006 Cash 950,000 --
Mathews, Tom August - 2002 Cash 100,000 --
Mathews, Tom February - 2003 Cash 50,000 --
Mathews, Tom February - 2003 Cash 50,000 --
Mathews, Tom August - 2003 Cash 100,000 --
Mathews, Tom August - 2003 Cash 100,000 --
Mathews, Tom July - 2004 Cash 100,000 --
Mathews, Tom June - 2005 Cash 100,000 --
Mathews, Tom June - 2002 Release (3) 45,000 --
Mathews, Tom (5) March - 2005 Services 25,000 --
Mathews, Tom (5) July - 2005 Services 30,000 --
Mathews, Tom (5) August - 2005 Services 10,000 --
Mathews, Tom (5) September - 2005 Services 67,500 --
Mathews, Tom (5) September - 2005 Services 55,000 --
Mathews, Tom (5) November - 2005 Services 501,600 --
Mathews, Tom (5) December - 2005 Services 75,000 --
Mathews, Tom (5) February - 2006 Services 100,000 --
Mathews, Adrian (5) December - 2005 Services 50,000 --
Mathews, Terry A. (5) December - 2005 Services 50,000 --
Mathews, Thomas III (5) December - 2005 Services 50,000 --
McGugan, Gerald June - 2002 Release (3) 10,000 --
Miller, Marc & Cynthia September - 2005 Cash 50,000 --
Morford, Karla March - 2005 Cash 50,000 --
Morford, Woodrow March - 2005 Cash 100,000 --
Morford, Woodrow and Karla March - 2004 Cash 100,000 --
Murphy, Jennifer August - 2005 Cash 20,000 --
Murphy, Peter (7) December - 2004 Services 250,000 --
Nelson, Joe September - 2005 Cash 50,000 --
Nelson, John W. September - 2005 Cash 300,000 --
Nelson, John W.
and Evelyn M. June - 2005 Cash 200,000 --
Novak, James H. April - 2004 Cash 100,000 --
Novak, James H. September - 2004 Cash 50,000 --
Novak, Jim September - 2005 Cash 50,000 --
Novak, Roger November - 2003 Cash 50,000 --
Novak, Roger February - 2004 Cash 500,000 --
Oben, Marc B. June - 2002 Release (3) 50,000 --
Ourichian, Seta November - 2003 Cash 50,000 --
Parker, Kay & Hicks, Morris August - 2005 Cash 100,000 --
Pasko, Dana June - 2002 Release (3) 10,000 --
Paskus, Stephen September - 2005 Cash 105,000 --
Patterson, Larry April - 2005 Cash 30,000 --
Patterson, Larry June - 2002 Release (3) 20,000 --
Peterson, David, A. June - 2002 Cash 30,000 --
Poe, Everett (10) December - 2005 Services 250,000 --
Porter, Rick (7) May - 2004 Services 90,000 --
Porter, Rick (7) December - 2003 Services 10,000 --
Post, Steven Michael August - 2005 Cash 150,000 --
Powell, Shirley May - 2002 Cash 90,000 --
Powell, Shirley December - 2003 Cash 236,000 --
Powell, Shirley August - 2002 Cash 200,000 --
Powell, Shirley June - 2002 Release (3) 130,000 --
Purcell, Chris January - 2003 Release (3) 20,000 --
Robert C. Knuppel Trust (I) February - 2003 Cash 50,000 --
Robert C. Knuppel Trust (I) June - 2003 Cash 50,000 --
Robert C. Knuppel Trust (I) November - 2003 Cash 50,000 --
Robert C. Knuppel Trust (I) August - 2002 Release (3) 46,000 --
Roger Novak Trust (J) October - 2003 Cash 50,000 --
Roger Novak Trust (J) December - 2003 Cash 50,000 --
Roger Novak Trust (J) July - 2004 Cash 200,000 --
Roger Novak Trust (J) September - 2004 Cash 200,000 --
Roger Novak Trust (J) July - 2005 Cash 100,000 --
Roohinian, Edmond November - 2003 Cash 100,000 --
Roskilly, James D. August - 2005 Cash 245,000 --
Russell, Susan (7) June - 2003 Services 15,000 --
Russell, Susan (7) October - 2003 Services 15,000 --
Russell, Susan (7) October - 2003 Services 10,000 --
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Salvatore, Angela June - 2002 Release (3) 80,000 --
Sampson, Carol June - 2002 Release (3) 519,400 --
Sauer, Karen October - 2003 Cash 50,000 --
Smith, Donald, J. June - 2005 Cash 100,000 --
Smith, Donald, J. June - 2002 Release (3) 120,000 --
Smith, Randy (8) December - 2003 Services 100,000 --
Soeatert, Barbara June - 2002 Cash 50,000 --
Spoor, Conrad August - 2005 Cash 50,000 --
Spoor, Conrad September - 2005 Cash 50,000 --
Spoor, Conrad November - 2005 Cash 200,000 --
Springer, Terry August - 2003 Cash 100,000 --
Springer, Terry August - 2003 Cash 30,000 --
Stafford, Thomas October - 2003 Cash 50,000 --
Steider,Timothy D. September - 2005 Cash 110,000 --
Steider,Timothy D. - IRA September - 2005 Cash 140,000 --
Sun, Der Mean September - 2005 Cash 50,000 --
Sunrise International
Trust (K) October - 2002 Cash 200,000 --
Sunrise International
Trust (K) December - 2004 Cash 475,000 --
Sunrise International
Trust (K) August - 2005 Cash 100,000 --
Sunrise International
Trust (K) July - 2002 Release (3) 200,000 --
Swaren, Brian K January - 2003 Cash 60,000 --
Swaren, Brian K June - 2002 Release (3) 40,000 --
Tevis, Jim (9) April - 2002 Services 500,000 --
Tevis, Jim (9) August - 2003 Services 1,000,000 --
The Irrevocable Trust of
Jenna E. Wilson as Grantor and
Margaret Wilson and
David Wilson as
Co-Trustees September - 2005 Cash 150,000 --
Thomas, Robert E. and
Shirley M. September - 2005 Cash 210,000 --
Thompson, Ryan (5) December - 2005 Services 250,000 --
Tripp, Toby September - 2005 Cash 20,000 --
Turner, Larry August - 2002 Cash 114,000 --
Turner, Michael Lee August - 2005 Cash 75,000 --
U.B.T. Investment (L) April - 2004 Cash 250,000 --
U.B.T. Investment (L) December - 2004 Cash 250,000 --
Uecker, Mike (7) January - 2005 Services 50,000 --
Vance, Jim (11) May - 2005 Services 50,000 --
Vance, Jim (11) November - 2005 Services 50,000 --
Vanepp, John June - 2002 Release (3) 10,000 --
Vanepp, John August - 2003 Release (3) 50,000 --
Veasey, Bud June - 2002 Release (3) 80,000 --
Venti, Anthony J. September - 2005 Cash 50,000 --
Venti, Anthony J. &
Mary T. September - 2005 Cash 50,000 --
Ward, Stephen April - 2004 Cash 150,000 --
Whitley, John November - 2002 Cash 70,000 --
Whitley, John February - 2003 Cash 100,000 --
Whitley, John June - 2003 Cash 400,000 --
Whitley, John August - 2002 Release (3) 40,000 --
Williams, Kent May - 2002 Cash 50,000 --
Williams, Ronald August - 2005 Cash 961,500 --
Williams, Ronald September - 2005 Cash 30,000 --
Wilson, Bradley December - 2005 Cash 100,000 --
Wilson, David September - 2005 Cash 20,000 --
Wilson, James & Margret September - 2005 Cash 95,000 --
Windscheffel, Stephen January - 2003 Cash 100,000 --
Windscheffel, Stephen February - 2003 Cash 100,000 --
Windscheffel, Stephen April - 2003 Cash 100,000 --
Windscheffel, Stephen May - 2003 Cash 100,000 --
Windscheffel, Stephen June - 2003 Cash 100,000 --
Windscheffel, Stephen (5) December - 2004 Services 50,000 --
Windscheffel, Stephen June - 2005 Services 12,500 --
Windscheffel, Stephen July - 2005 Services 10,000 --
Windscheffel, Stephen August - 2005 Services 42,000 --
Windscheffel, Stephen September - 2005 Services 75,000 --
48
|
Windscheffel, Stephen January - 2003 Services 85,000 --
Windscheffel, Stephen November - 2003 Services 40,000 --
Woods, Steven, M. August - 2002 Cash 70,000 --
Wunderlich, Jeff & Mary (5) December - 2005 Services 85,000 --
TOTAL SHARES
REGISTERED 38,262,100
|
* All shares sold for cash were sold for $0.10 per share.
(1) Assuming all Shares offered are sold.
(2) Former attorneys of Data Call.
(3) In June 2002, our Chief Executive Officer, James Ammons, transferred approximately 40 QVS Wireless Corporation ("QVS") shareholders an aggregate of approximately 4,610,000 shares of our restricted common stock in consideration for each of those QVS shareholders signing a Release, whereby they agreed to release us, our Chief Executive Officer, James Ammons, and our officers and Directors and employees from any and all claims, rights, obligations, demands and causes of action arising from or relating to QVS (QVS is explained in greater detail above under "Description of Business").
(4) Derek Argo served as our Director and officer from April 2, 2002 until March 14, 2003, when he resigned.
(5) Individuals who received shares in connection with consulting services rendered.
(6) Dr. Carl Hoffman subscribed for 650,000 shares of our Common Stock for aggregate consideration of $65,000 ($0.10 per share) in February 2006. While this subscription amount was not immediately paid by Mr. Hoffman, he certified to us in writing that he would pay us the $65,000 subscription price by March 31, 2006, and that the payment of such subscription amount was not contingent on any event occurring or dependent on any future occurrence. Dr. Hoffman subsequently paid us the total amount of the $65,000 purchase price on or about March 31, 2006. We have included all 650,000 shares for which Dr. Hoffman subscribed in February 2006 in this Prospectus.
(7) Former employees.
(8) Mr. Smith has served as our patent attorney.
(9) Mr. Tevis is our Director of Customer support.
(10) Everett Poe is our Strategic Accounts Manager.
(11) Jim Vance is one of our employees and is also the father of our Director, Tim Vance.
Other than the shareholders listed below, none of the selling shareholders listed above have had a material relationship with us within the past three years.
(A) The beneficial owner of Bellewood Corporation is its President, Donald W. Jones.
(B) The beneficial owner of the Bette Lynn Ryan Trust is Bette Lynn Ryan, the trustee.
(C) The beneficial owner of Bonanza Pacific is Dick Armstrong.
(D) The beneficial owner of DW Jones Defined Benefit Pension Plan is its Trustee, Donald W. Jones.
(E) The beneficial owner of Just Holdings, Inc. is Steve Nelson.
(F) The beneficial owners of the Lorol Trust are Robert O. Lynch, Sr.
and Lorraine C. Lynch, trustees.
(G) The beneficial owner of the Mary Alice Novak Trust is Mary Alice Novak, the trustee.
(H) The beneficial owner of the Mary G. Tanahill Living Trust is Mary
G. Tanahill, the trustee.
(I) The beneficial owner of the Robert C. Knuppel Trust is Robert C. Knuppel, the trustee.
(J) The beneficial owner of the Roger Novak Trust is Roger Novak, Trustee.
(K) The beneficial owner of Sunrise International Trust is Tom Matthews.
(L) The beneficial owner of UBT Investment is Tim Allen.
Of the 38,262,100 shares of common stock which are being registered pursuant to this Prospectus, 7,466,000 shares of our outstanding common stock offered herein by Milford L. and Ruth L. Mast, will be subject to the resale provisions of Rule 144 upon effectiveness of our Registration Statement and the remaining 30,796,100 shares offered by the selling stockholders pursuant to this Prospectus may be sold upon effectiveness of our Registration Statement by one or more of the following methods, without limitation:
o ordinary brokerage transactions and transactions in which the broker-dealer solicits the purchaser;
o block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
o an exchange distribution in accordance with the rules of the applicable exchange;
o privately-negotiated transactions;
o broker-dealers may agree with the Selling Security Holders to sell a specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The Selling Security Holders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this Prospectus.
We currently lack a public market for our common stock. Selling shareholders who wish to sell their shares prior to or after our Registration Statement is effective with the SEC will sell at a price of $0.10 per share until our shares are quoted on the OTC Bulletin Board and thereafter at prevailing market prices or privately negotiated prices.
The Selling Security Holders may pledge their shares to their brokers under the margin provisions of customer agreements. If a Selling Security Holder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares.
The Selling Security Holders may sell their shares of common stock short and redeliver our common stock to close out such short positions; however, the Selling Security Holders may not use shares of our common stock being registered in the Registration Statement to which this Prospectus is a part to cover any short positions entered into prior to the effectiveness of such Registration Statement. If the Selling Security Holders or others engage in short selling it may adversely affect the market price of our common stock.
Broker-dealers engaged by the Selling Security Holders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Security Holders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. It is not expected that these commissions and discounts will exceed what is customary in the types of transactions involved.
The anti-manipulation provisions of Regulation M under the Securities Exchange Act of 1934 will apply to purchases and sales of shares of common stock by the Selling Security Holders. Additionally, there are restrictions on market-making activities by persons engaged in the distribution of the shares. Under Regulation M, the Selling Security Holders or their agents may not bid for, purchase, or attempt to induce any person to bid for or purchase, shares of our common stock while they are distributing shares covered by this Prospectus.
Accordingly, the Selling Security Holders are not permitted to cover short sales by purchasing shares while the distribution is taking place. We will advise the Selling Security Holders that if a particular offer of common stock is to be made on terms materially different from the information set forth in this Plan of Distribution, then a post-effective amendment to the accompanying registration statement must be filed with the Securities and Exchange Commission.
The Selling Security Holders may be deemed to be an "underwriter" within the meaning of the Securities Act in connection with such sales. Therefore, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration of the shares, including fees and disbursements of counsel to the Selling Security Holders, but excluding brokerage commissions or underwriter discounts. The Selling Security Holders and we have agreed to indemnify each other against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
No established public trading market exists for our common stock. Other than the 3,000,000 Options held by our Chief Executive Officer and President, James Ammons (described above under "Directors, Executive Officers and Control Persons"), we have no shares of common stock subject to outstanding options or warrants to purchase, or securities convertible into, our common stock. Except for this offering, there is no common stock that is being, or has been proposed to be, publicly offered. As of June 20, 2006, we had 55,247,100 shares of common stock outstanding, which shares were held by approximately 178 shareholders of record.
LEGAL MATTERS
Certain legal matters with respect to the issuance of shares of common stock offered hereby will be passed upon by David M. Loev, Attorney at Law, of Houston, Texas. (See "Interests of Named Experts and Counsel" above)
ADDITIONAL INFORMATION
Our fiscal year ends on December 31. In addition, we intend to become a reporting company and file annual, quarterly and current reports, proxy statements, or other information with the SEC. The public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F. Street, N.E., Washington, D.C. 20549. Investors may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC (http://www.sec.gov), where investors can view information we electronically file with the SEC.
[Remainder of page left intentionally blank.]
Data Call's unaudited three months ended March 31, 2006 and March 31, 2005 financial statements and its audited year ended December 31, 2005 financial statements follow on pages F-1 to F-18, and potential investors are encouraged to read that information thoroughly before deciding on whether to invest in us.
March 31, 2006 and 2005 F-1
STATEMENTS OF OPERATIONS -
Three Months ended March 31, 2006 and 2005 F-2
STATEMENTS OF CASH FLOWS -
Three Months ended March 31, 2006 and 2005 F-3
NOTES TO FINANCIAL STATEMENTS F-4
AUDITED YEAR ENDED DECEMBER 31, 2005 AND
DECEMBER 31, 2004 FINANCIAL STATEMENTS
--------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-7
BALANCE SHEETS -
December 31, 2005 and 2004 F-8
STATEMENTS OF OPERATIONS -
Years ended December 31, 2005 and 2004 F-9
STATEMENTS OF STOCKHOLDERS' EQUITY -
Years ended December 31, 2005 and 2004 F-10
STATEMENTS OF CASH FLOWS -
Years ended December 31, 2005 and 2004 F-11
NOTES TO FINANCIAL STATEMENTS F-12
|
DATA CALL TECHNOLOGIES INC.
BALANCE SHEETS
March 31, 2006 and December 31, 2005
(Unaudited)
2006 2005
----------------- -----------------
(Audited)
Current assets:
Cash $ 517,166 $ 671,228
Prepaid expenses - -
----------------- -----------------
Total current assets 517,166 671,228
----------------- -----------------
Property and equipment 111,330 103,000
Less accumulated depreciation 14,395 12,202
----------------- -----------------
Net property and equipment 96,935 90,798
Other assets 5,255 5,255
----------------- -----------------
Total assets $ 619,356 $ 767,281
================= =================
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Accounts payable 61,302 66,792
Accrued expenses 20,000 20,000
Accrued salaries and related liabilities 23,250 -
----------------- -----------------
Total liabilities - current 104,552 86,792
----------------- -----------------
Stockholders' equity:
Preferred stock, $001 par value. Authorized 10,000,000 shares:
None issued. - -
Common stock, $.001 par value. Authorized 200,000,000 shares:
55,312,100 shares issued and outstanding at March 31, 2006,
50,752,100 shares issued and outstanding at December 31, 2005 55,312 50,752
Additional paid-in capital 5,478,913 5,024,458
Deficit accumulated during the development stage (5,019,421) (4,394,721)
----------------- -----------------
Total stockholders' equity 514,804 680,489
Total liabilities and stockholders' equity $ 619,356 $ 767,281
================= =================
|
See accompanying notes to financial statements.
DATA CALL TECHNOLOGIES, INC.
Statements of Operations
Three months ended March 31, 2006 and 2005
(Unaudited)
Cumulative
totals from
inception to
March 31,
2006 2005 2006
-------------------- -------------------- -----------------
Revenues
Sales $ 1,688 $ - $ 18,876
Cost of sales - - 12,191
-------------------- -------------------- -----------------
Gross margin 1,688 - 6,685
-------------------- -------------------- -----------------
Operating expenses:
Employee compensation 457,265 127,500 2,854,035
Contractual services 24,000 43,793 829,760
Legal and accounting 46,666 5,000 479,908
Product development costs 16,095 17,956 285,629
Travel 57,607 5,270 187,747
Office and equipment rental 5,993 9,706 85,927
Office supplies and expenses 1,591 8,598 130,711
Telephone 5,638 811 54,672
Trade show expenses - - 15,750
Advertising 4,976 1,523 26,950
Other 4,364 1,959 60,622
Depreciation expense 2,193 1,696 14,395
-------------------- -------------------- -----------------
Total operating expenses 626,388 223,812 5,026,106
-------------------- -------------------- -----------------
Net loss before income taxes (624,700) (223,812) (5,019,421)
Provision for income taxes - - -
Net loss $ (624,700) $ (223,812) $ (5,019,421)
==================== ==================== =================
Net loss applicable to common shareholders:
Basic and diluted $ (0.01) $ (0.01)
==================== ====================
Weighted average shares
Basic and diluted 53,660,900 34,699,965
==================== ====================
|
See accompanying notes to financial statements.
DATA CALL TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
Three months ended March 31, 2006 and 2005
(Unaudited)
Cumulative
totals from
inception to
March 31,
2006 2005 2006
---------------- ------------------ ---------------
Cash flows from operating activities:
Net loss $ (624,700) $ (223,812) $ (5,019,421)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 2,193 1,696 14,395
Common stock issued for services 261,000 107,500 2,884,360
Stock options issued for services 3,015 - 3,015
(Increase) decrease in operating assets:
Prepaid expenses - 10,537 -
Other assets - (2,241) (5,255)
Increase (decrease) in operating liabilities:
Accounts payable (5,490) - 61,302
Accured expenses - - 20,000
Accrued salaries and related liabilities 23,250 - 23,250
---------------- ------------------ ---------------
Net cash used in operating activities (340,732) (106,320) (2,018,354)
---------------- ------------------ ---------------
Cash flows from investing activities:
Purchase of property and equipment (8,330) (186) (111,330)
---------------- ------------------ ---------------
Net cash used in investing activities (8,330) (186) (111,330)
---------------- ------------------ ---------------
Cash flows from financing activities:
Proceeds from sale of common shares 195,000 83,150 2,646,850
Increase in bank overdrafts - 8,414 -
---------------- ------------------ ---------------
Net cash provided by financing activities 195,000 91,564 2,646,850
---------------- ------------------ ---------------
Net increase (decrease) in cash (154,062) (14,942) 517,166
Cash at beginning of year 671,228 15,122 -
---------------- ------------------ ---------------
Cash at end of period $ 517,166 $ 180 $ 517,166
================ ================== ===============
|
See accompanying notes to financial statements.
DATA CALL TECHNOLOGIES
NOTES TO FINANCIAL STATEMENTS
(1) GENERAL
Data Call Technologies, Inc. (the "Company") (Formerly Data Call Technologies) was incorporated under the laws of the State of Nevada in 2002. The Company's mission is to integrate cutting-edge information delivery solutions that are currently deployed by the media, and put them within the control of retail and commercial enterprises. The Company's software and services put its clients in control of real-time advertising, news, and other content, including emergency alerts, within one building or 10,000, local or thousands of miles away.
The accompanying unaudited financial statements have been prepared in accordance with U. S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months period ended March 31, 2006 are not indicative of the results that may be expected for the year ending December 31, 2006.
As contemplated by the Securities and Exchange Commission (SEC) under Rules of Regulation S-B, the accompanying financial statements and related footnotes have been condensed and do not contain certain information that will be included in the Company's annual financial statements and footnotes thereto. For further information, refer to the Company's audited consolidated financial statements and related footnotes thereto included in the Company's annual report on Form SB-2 for the year ended December 31, 2005.
(2) USE OF ESTIMATES
The preparation of financial statements in conformity with U. S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from those estimates.
(3) RECENT ACCOUNTING PRONOUNCEMENTS
In May 2005, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 154, Accounting Changes and Error Corrections. SFAS No. 154 replaces Accounting Principles Board Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Internal Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 requires retrospective application of changes in accounting principle to prior periods' financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We will adopt SFAS No. 154 on January 1, 2006. Any impact on the Company's consolidated results of operations and earnings per
share will be dependent on the amount of any accounting changes or corrections of errors whenever recognized.
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 153. This statement addresses the measurement of exchanges of nonmonetary assets. The guidance in APB Opinion No. 29, "Accounting for Nonmonetary Transactions," is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged.
The guidance in that opinion; however, included certain exceptions to that principle. This statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges incurred during fiscal years beginning after the date of this statement is issued. Management believes the adoption of this statement will have no impact on the financial statements of the Company.
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 152, which 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," to state 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. This statement is effective for financial statements for fiscal years beginning after June 15, 2005. Management believes the adoption of this statement will have no impact on the financial statements of the Company.
In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 151, "Inventory Costs- an amendment of ARB No. 43, Chapter 4." 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 rehandling costs may be so abnormal as 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. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management does not believe the adoption of this statement will have any immediate material impact on the Company.
The Board of Directors and Stockholders Data Call Technologies:
We have audited the accompanying balance sheets of Data Call Technologies (a development stage company - the Company) as of December 31, 2005 and 2004, and related statements of operations, stockholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Data Call Technologies as of December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 5 to the financial statements, the Company has limited capital. Successful development and marketing of the Company's products and the procurement of additional financing is necessary for the Company to continue as a going concern. These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The financial statements have been restated to properly account for a contingent liability related to shareholders ability to rescind their purchase of shares of the Company stock.
/s/ R. E. Bassie & Co.
Houston, Texas
January 16, 2006, except for note 6, which is
as of May 22, 2006
|
DATA CALL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
December 31, 2005 and 2004
Assets 2005 2004
------ ---- ----
(Restated) (Restated)
---------------- ----------------
Current assets:
Cash $ 671,228 $ 15,122
Prepaid expenses - 10,537
---------------- ----------------
Total current assets 671,228 25,659
---------------- ----------------
Property and equipment 103,000 32,559
Less accumulated depreciation 12,202 3,428
---------------- ----------------
Net property and equipment 90,798 29,131
Other assets 5,255 1,295
---------------- ----------------
Total assets $ 767,281 $ 56,085
================ ================
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Accounts payable $ 66,792 $ 55,000
Accrued expenses 20,000 20,000
---------------- ----------------
Total liabilities - current 86,792 75,000
---------------- ----------------
Stockholders' equity:
Common stock, $.001 par value. Authorized 75,000,000
shares: 50,752,100 shares issued and outstanding
at December 31, 2005, 32,999,500 shares issued
and outstanding at December 31, 2004 50,752 33,000
Additional paid-in capital 5,024,458 3,266,950
Deficit accumulated during the development stage (4,394,721) (3,318,865)
---------------- ----------------
Total stockholders' equity (deficit) 680,489 (18,915)
Commitments and contingencies
Total liabilities and stockholders' equity $ 767,281 $ 56,085
================ ================
|
The accompanying notes are an integral part of these financial statements.
DATA CALL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Years ended December 31, 2005 and 2004
Cumulative
totals from
inception to
December 31,
2005 2004 2005
-------------------- -------------------- ---------------
Revenues
Sales $ 365 $ 16,823 $ 17,188
Cost of sales - 12,191 12,191
-------------------- -------------------- ---------------
Gross margin 365 4,632 4,997
Operating expenses:
Employee compensation 455,787 777,819 2,396,770
Contractual services 220,039 28,009 805,760
Legal and accounting 140,005 59,190 433,242
Product development costs 74,360 65,413 269,534
Travel 88,980 19,026 130,140
Office and equipment rental 24,705 21,637 79,934
Office supplies and expenses 30,952 43,943 129,120
Telephones 16,571 13,054 49,034
Trade show expenses 1,150 14,600 15,750
Advertising 13,032 6,147 21,974
Other 1,866 14,100 56,258
Depreciation expense 8,774 2,541 12,202
-------------------- -------------------- ---------------
Total operating expenses 1,076,221 1,065,479 4,399,718
-------------------- -------------------- ---------------
Net loss before income taxes (1,075,856) (1,060,847) (4,394,721)
Provision for income taxes - - -
Net loss $ (1,075,856) $ (1,060,847) $ (4,394,721)
==================== ==================== ===============
Net loss per common share - basic and diluted:
Net loss applicable to common shareholders $ (0.03) $ (0.04)
==================== ===================
Weighted average common shares - basic and diluted 38,029,357 26,073,580
==================== ====================
|
DATA CALL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY -
Years ended December 31, 2005 and 2004
Total
Additional stockholders'
Common Stock paid in Accumulated equity
shares amount capital deficit (deficit)
------ ------ ---------- ------------- ------------
Balance, December 31, 2001 - $ - $ - $ - $ -
Issuance of common shares under
private placement, as restated 2,486,000 2,486 246,114 - 248,600
Issuance of common shares for services 11,035,000 11,035 1,092,465 - 1,103,500
Net loss - - - (1,420,518) (1,420,518)
---------- ------- --------- ------------- ------------
Balance, December 31, 2002, as restated 13,521,000 13,521 1,338,579 (1,420,518) (68,418)
Issuance of common shares under
private placement 2,600,000 2,600 257,400 - 260,000
Issuance of common shares for services 5,820,000 5,820 576,180 - 582,000
Net loss - - - (837,500) (837,500)
---------- ------ --------- ------------- ------------
Balance, December 31, 2003, as restated 21,941,000 21,941 2,172,159 (2,258,018) (63,918)
Issuance of common shares under
private placement 5,398,500 5,399 534,451 - 539,850
Issuance of common shares for services 5,660,000 5,660 560,340 - 566,000
Net loss - - - (1,060,847) (1,060,847)
---------- ------ --------- ------------- ------------
Balance, December 31, 2004, as restated 32,999,500 33,000 3,266,950 (3,318,865) (18,915)
Issuance of common shares under
private placement 14,034,000 14,034 1,389,366 - 1,403,400
Issuance of common shares for services 3,718,600 3,718 368,142 - 371,860
Net loss - - - (1,075,856) (1,075,856)
---------- ------- ---------- ------------- ------------
Balance, December 31, 2005, as restated 50,752,100 $50,752 $5,024,458 $ (4,394,721) $ 680,489
|
The accompanying notes are an integral part of these financial statements.
DATA CALL TECHNOLOGIES INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Years ended December 31, 2005 and 2004
Cumulative
totals from
inception to
December 31,
2005 2004 2005
--------------- ---------------- ----------------
(Restated)
Cash flows from operating activities:
Net loss $ (1,075,856) $ (1,060,847) $ (4,394,721)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation expense 8,774 2,541 12,202
Stock issued for services 371,860 566,000 2,623,360
(Increase) decrease in operating assets:
Prepaid expenses 10,537 (10,537) -
Other assets (3,960) (1,295) (5,255)
Increase (decrease) in operating liabilities:
Accounts payable 11,792 5,000 66,792
Accrued expenses - - 20,000
--------------- ---------------- ----------------
Net cash used in operating activities (676,853) (499,138) (1,677,622)
--------------- ---------------- ----------------
Cash flows from investing activities
Capital expenditure for equipment (70,441) (28,657) (103,000)
--------------- ---------------- ----------------
Net cash used in investing activities (70,441) (28,657) (103,000)
--------------- ---------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of common shares under private placement 1,403,400 539,850 2,451,850
--------------- ---------------- ----------------
Net cash provided by financing activities 1,403,400 539,850 2,451,850
--------------- ---------------- ----------------
Net increase in cash 656,106 12,055 671,228
Cash at beginning of year 15,122 3,067 -
--------------- ---------------- ----------------
Cash at end of year $ 671,228 $ 15,122 $ 671,228
=============== ================ ================
|
The accompanying notes are an integral part of these financial statements.
DATA CALL TECHNOLOGIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENT
December 31, 2005 and 2004
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION, OWNERSHIP AND BUSINESS
Data Call Technologies (the "Company") was incorporated under the laws of the State of Nevada in 2002. The Company's mission is to integrate cutting-edge information delivery solutions that are currently deployed by the media, and put them within the control of retail and commercial enterprises. The Company's software and services put its clients in control of real-time advertising, news, and other content, including emergency alerts, within one building or 10,000, local or thousands of miles away. The Company is as development stage company.
ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of trade receivables, net of a valuation allowance for doubtful accounts.
INVENTORIES
Inventories are valued at the lower-of-cost or market on a first-in, first-out basis.
INVESTMENT SECURITIES
The Company accounts for its investments in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Management determines the appropriate classification of its investments in marketable securities at the time of purchase and reevaluates such determination at each balance sheet date. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Debt securities for which the Company does not have the intent or ability to hold to maturity and equity securities not classified as trading securities are classified as available-for-sale. The cost of investments sold is determined on the specific identification or the first-in, first-out method. Trading securities are reported at fair value with unrealized gains and losses recognized in earnings, and available-for-sale securities are also reported at fair value but unrealized gains and losses are shown in the caption "unrealized gains (losses) on shares available-for-sale" included in stockholders' equity. Management determines fair value of its investments based on quoted market prices at each balance sheet date.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are recorded at cost less accumulated depreciation. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts, with any resultant gain or loss being recognized as a component of other income or expense. Depreciation is computed over the estimated useful lives of the assets (3-5 years) using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. Maintenance and repairs are charged to operations as incurred.
ADVERTISING COSTS
The cost of advertising is expensed as incurred.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
PRODUCT DEVELOPMENT COSTS
Product development costs consist of cost incurred to develop the Company's website and software for internal and external use. All product development costs are expensed as incurred.
INCOME TAXES
The Company is a taxable entity and recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when the temporary differences reverse. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date of the rate change. A valuation allowance is used to reduce deferred tax assets to the amount that is more likely than not to be realized.
MANAGEMENT'S ESTIMATES AND ASSUMPTIONS
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 at the date of the financial statements, and the reported amounts of revenues and expenses. Actual results could differ from these estimates.
STOCK-BASED COMPENSATION
The Company has chosen to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations and to elect the disclosure option of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, compensation cost for stock options issued to employees is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock.
From inception to date, the Company common stock has not had an active trading market with market quotes of the current value of its common stock. However, there have been twenty-two different investors, who during the
life of the Company, have all purchased stock at the price of $.10 per share (see note 6). Therefore, that amount has been determined by the Company to be an appropriate value for all stock based compensation. In addition, the Company believes valuation using that method is consistent with what would have been paid in cash for similar services. Therefore, common stock issued to employees as compensation for services performed and to non-employees for services performed were valued at the same price that the Company was selling stock in private placements.
Stock issued to consultants in consideration for services rendered is accounted for in accordance with Emerging Issue Task Force Issues Numbers 96-18 and 00-18, expenses are amortized over the term of the consultant agreements, with the measurement date generally being the date of the agreements
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of its financial instruments using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the Company estimates of fair value are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumption and/or estimation methodologies may have a material effect on the estimated fair value amounts. The interest rates payable by the Company on its notes payable approximate market rates. The Company believes that the fair value of its financial instruments comprising accounts receivable, notes receivable, accounts payable, and notes payable approximate their carrying amounts.
NEW PRONOUNCEMENTS
In May 2005, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 154, Accounting Changes and Error Corrections. SFAS No. 154 replaces Accounting Principles Board Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Internal Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 requires retrospective application of changes in accounting principle to prior periods' financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We will adopt SFAS No. 154 on January 1, 2006. Any impact on the Company's consolidated results of operations and earnings per share will be dependent on the amount of any accounting changes or corrections of errors whenever recognized.
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 153. This statement addresses the measurement of exchanges of nonmonetary assets. The guidance in APB Opinion No. 29, "Accounting for Nonmonetary Transactions," is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged.
The guidance in that opinion; however, included certain exceptions to that principle. This statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges incurred during fiscal years beginning after the date of this statement is issued. Management believes the adoption of this statement will have no impact on the financial statements of the Company.
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 152, which 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," to state 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. This statement is effective for financial statements for fiscal years beginning after June 15, 2005. Management believes the adoption of this statement will have no impact on the financial statements of the Company.
In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 151, "Inventory Costs- an amendment of ARB No. 43, Chapter 4." 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 rehandling costs may be so abnormal as 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. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management does not believe the adoption of this statement will have any immediate material impact on the Company.
(2) RELATED PARTY TRANSACTIONS
During the year ended December 31, 2005, the Company issued 950,000 shares of the Company's restricted common stock to an officer/director of the Company for services rendered. The shares issued were valued at $95,000.
During the year ended December 31, 2004, the Company issued 4,760,000 shares of the Company's restricted common stock to officers and directors of the Company for services rendered. The shares issued were valued at $476,000.
During the year ended December 31, 2003, the Company issued 750,000 shares of the Company's restricted common stock to an officer/director of the Company for services rendered. The shares issued were valued at $75,000.
During the year ended December 31, 2002, the Company issued 4,540,000 shares of the Company's restricted common stock to officers and directors of the Company for services rendered. The shares issued were valued at $454,000.
(3) INCOME TAXES
A reconciliation of income taxes at the federal statutory rate to amounts provided for the years ended December 31, 2005 and 2004 is as follows:
December 31
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2005 2004
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Tax expense/(benefit) computed at statutory rate for
continuing operations $ (363,000) $ (360,000)
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Tax effect (benefit) of operating loss carryforwards 363,000 360,000
----------- -----------
Tax expense/(benefit) for continuing operations $ - $ -
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The Company has current net operating loss carryforwards in excess of $4,386,000 as of December 31, 2005, to offset future taxable income, which expire 2025.
Deferred taxes are determined based on the temporary differences between the financial statement and income tax bases of assets and liabilities as measured by the enacted tax rates, which will be in effect when these differences reverse. The components of deferred income tax assets are as follows:
December 31
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2005 2004
----------- ----------
Deferred tax assets: $ 1,491,000 $1,128,000
Net operating loss ----------- ----------
Total deferred tax asset 1,491,000 1,128,000
Valuation allowance (1,491,000) (1,128,000)
----------- ----------
Net deferred asset $ - $ -
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At December 31, 2005, the Company provided a 100% valuation allowance for the deferred tax asset because given the volatility of the current economic climate, it could not be determined whether it was more likely than not that the deferred tax asset/(liability) would be realized.
(4) LEASE AGREEMENT
The Company leases office space under a noncancellable-operating lease which expires in March 2008. Future minimum lease payments under the operating lease are as follows:
Year
December 31, Amount
------------- --------
2006 $ 34,471
2007 34,606
2008 24,122
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$ 93,199
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(5) GOING CONCERN
The Company is a development stage corporation with limited capital. Successful development and marketing of the Company's products and the procurement of additional financing is necessary for the Company to continue as a going concern.
In view of these matters, realization of a major portion of the assets in the accompanying balance sheet is dependent upon continued operations of the Company. Management believes that actions presently being taken to obtain additional equity financing will provide the opportunity to continue as a going concern.
(6) COMMITMENTS, CONTINGENCIES AND RESTATEMENT
The Company is in settlement negotiations with a former officer who resigned from of his position with the Company in June 2003. The officer claims that the Company owes him 4,500,000 shares of the Company's common stock as well certain other amounts in consideration for services rendered to the Company. The former officer has not pursued a legal claim against the Company; however, he may do so. Management of the Company disputes this individual's claim; therefore, no amount has been accrued for this contingent liability.
Certain shares of common stock that were sold by the Company between October 2003 and December 2005 were no registered under federal or state securities laws. Because the question arose regarding whether or not the purchase of these shares had received appropriate disclosure in connection with their purhcases of these shares had received appropriate disclosure in connection with their purchases, in December 2005, the Company offered rescission to twenty-three (22) shareholders to whom the Company sold 2,044,000 shares of common stock. All of the shareholders, who were provided additional information and were offered the chance to rescind their purchases, decided to reject the rescission offer. Therefore, the Company did not consider it necessary to establish a liability for the twenty-two (22) shareholders offered the ability to rescind there acquisition of shares. However, one shareholder who was not included in the rescission offer did request a recission of the 200,000 shares that was purchased in 2002; therefore, the Company established a liability in the amount of $20,000 (200,000 shares at $0.10 per share) as of December 31, 2002. The 2005 and 2004 financial statements have been restated to reflect the $20,000 liability and reduce stockholders equity for the same amount.
CAPTION>
2005 2004
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As Previously As Previously
Reported As Restated Reported As Restated
December 31:
Accrued expenses - 20,000 - 20,000
Total liabilities - current 66,672 86,792 55,000 75,000
Common stock 50,952 50,752 33,200 33,000
Additional paid-in capital 5,044,258 5,024,458 3,286,750 3,266,950
Total stockholders' equity (deficit) 700,489 680,489 1,085 (18,915)
Number of shares outstanding 50,952,100 50,752,100 33,199,500 32,999,500
For the years ended December 31:
Number of shares outstanding 38,229,357 38,029,357 26,273,580 26,073,580
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PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
See Indemnification of Directors and Officers above.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses in connection with this registration statement. All of such expenses are estimates, other than the filing fees payable to the Securities and Exchange Commission.
Description Amount to be Paid
----------------------------------------------- --------------
Filing Fee - Securities and Exchange Commission $ 409.41*
Attorney's fees and expenses $ 45,000.00*
Accountant's fees and expenses $ 15,000.00*
Transfer agent's and registrar fees and expenses $ 1,500.00*
Printing and engraving expenses $ 1,500.00*
Miscellaneous expenses $ 5,000.00*
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Total $ 68,409.41*
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* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In April 2002, we issued an aggregate of 10,200,000 shares of our restricted common stock, valued at $1,200,000 or $0.10 per share, as follows, our Chief Executive Officer, James Ammons was issued 9,000,000 shares of our restricted common stock, , in consideration for services rendered to us as Chief Executive Officer, our Director Timothy Vance was issued 150,000 shares of our restricted common stock in connection with services provided to us as our Director, an employee was issued 500,000 shares of our restricted common stock, in consideration for services rendered to us in connection with creation and refinement of our technology, and our attorney, David M. Loev, was issued 1,000,000 shares of our restricted common stock in consideration for services rendered to us in connection with the drafting of corporate filings, internal corporate governance and various document review.
In April 2002, we issued our former Director and officer Derek Argo 1,000,000 shares of our restricted common stock, valued at $100,000 or $0.10 per share, in consideration for his services to us as our Director and officer. Mr. Argo later returned 900,000 of those shares to us and they were cancelled. In October 2005, Mr. Argo and us entered into a Settlement Agreement and Mutual Release, whereby we agreed to release, acquit and forever discharge each other and Mr. Argo's current and former agents, servants representatives, successors and assigns and Mr. Argo agreed to release our current and former agents, officers, Directors, servants, representatives, successors, employees and assigns from any and all rights, obligations, claims, demands and causes of
action, whether in contract, tort, or state and/or federal securities
regulations including all obligations arising therefrom, and omissions and/or
conduct of each other. We claim an exemption from registration afforded by
Section 4(2) of the Act since the foregoing issuance did not involve a public
offering, the recipients took the shares for investment and not resale and we
took appropriate measures to restrict transfer. No underwriters or agents were
involved in the foregoing issuance and no underwriting discounts or commissions
were paid by us.
From April 2003 to February 2006, we sold an aggregate of 27,917,500 restricted shares of our common stock to approximately eighty-one (81) accredited and approximately twenty-six (26) non-accredited investors pursuant to private placements of our common stock, in consideration for $2,791,750 or $0.10 per share. We claim an exemption from registration afforded by Rule 506 of Regulation D under the Act, for the issuances of these shares (see also our December 2005 Rescission Offer below).
In June 2002, our Chief Executive Officer, James Ammons transferred approximately 40 QVS Wireless ("QVS") shareholders an aggregate of approximately 4,610,000 shares of our restricted common stock, valued at $461,000 or $0.10 a share, in return for each of those QVS shareholder signing a Release, whereby they agreed to release us, our Chief Executive Officer, James Ammons, and our officers, Directors and employees from any and all claims, rights, obligations, demands and causes of action arising from or relating to QVS (see "Description of Business" section above for a more detailed description of QVS). We claim an exemption from registration afforded by Rule 506 of Regulation D under the Act, for the issuances of these shares. Effective September 1, 2004, we issued 4,610,000 shares of our restricted common stock to our Chief Executive Officer, James Ammons, valued at $461,000 or $0.10 per share, in consideration for his personal shares issued to QVS shareholders in consideration for the QVS shareholders release of us, Mr. Ammons, and our officers, Directors and employees from any and all claims, rights, obligations, demands and causes of action arising from or relating to QVS (as described above). We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuance did not involve a public offering, the recipients took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuance and no underwriting discounts or commissions were paid by us.
In January 2003, we issued an aggregate of 251,000 restricted shares of common stock, valued at $25,100 or $0.10 per share, to two of our former attorneys, in consideration for services rendered to us as our attorneys in connection with their representation of us certain legal proceedings. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuances did not involve a public offering, the recipients took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuances and no underwriting discounts or commissions were paid by us.
In January 2003, we issued 85,000 restricted shares of common stock, valued at $8,500 or $0.10 per share, to a consultant in connection with the referral of individuals who purchased shares of our common stock in our private placement offering. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuance did not involve a public offering, the recipient took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuance and no underwriting discounts or commissions were paid by us.
In June 2003, we issued 15,000 restricted shares of common stock, valued at $1,500 or $0.10 per share, to an employee in consideration for services rendered to us in connection with services provided to us in connection with the sale of our technology. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuance did not involve a public offering, the recipients took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuance and no underwriting discounts or commissions were paid by us.
In August 2003, we issued 2,000,000 shares of our restricted common stock, valued at $200,000 or $0.10 per share, to employees of us, in consideration for services rendered to us in connection with the creation and refinement of our technology and with our day to day operations. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuances did not involve a public offering, the recipients took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuances and no underwriting discounts or commissions were paid by us.
In October 2003, we issued 13,000 restricted shares of common stock to a
consultant in consideration for services provided to us in connection with the
sale of our technology, valued at $1,300 or $0.10 per share, in consideration
for services rendered to us. We claim an exemption from registration afforded by
Section 4(2) of the Act since the foregoing issuance did not involve a public
offering, the recipient took the shares for investment and not resale and we
took appropriate measures to restrict transfer. No underwriters or agents were
involved in the foregoing issuance and no underwriting discounts or commissions
were paid by us.
In October 2003, we issued 25,000 restricted shares of common stock to an employee, valued at $2,500 or $0.10 per share, in consideration for administrative services provided to us. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuance did not involve a public offering, the recipient took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuance and no underwriting discounts or commissions were paid by us.
In November 2003, we issued 40,000 restricted shares of common stock to a consultant, valued at $4,000 or $0.10 per share, in consideration for services rendered to us in connection with the referral of individuals who purchased shares of our common stock in our private placement offering. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuance did not involve a public offering, the recipient took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuance and no underwriting discounts or commissions were paid by us.
In December 2003, we issued 100,000 restricted shares of common stock, valued at $10,000 or $0.10 per share, to a patent attorney in consideration for services rendered to us in connection with the filing of documents with the United States Patent and Trademark Office. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuance did not involve a public offering, the recipient took the shares for investment
and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuance and no underwriting discounts or commissions were paid by us.
In November 2003, we issued 750,000 shares of our restricted common stock
to our employee and Director, Timothy Vance, valued at $75,000 or $0.10 per
share in consideration for marketing services rendered to us in connection with
our technology; and 1,250,000 shares of our restricted common stock to our
employee, Terry Breedlove, valued at $125,000 or $0.10 per share, in
consideration for services rendered to us in connection with the day to day
operations of the company. We claim an exemption from registration afforded by
Section 4(2) of the Act since the foregoing issuances did not involve a public
offering, the recipients took the shares for investment and not resale and we
took appropriate measures to restrict transfer. No underwriters or agents were
involved in the foregoing issuances and no underwriting discounts or commissions
were paid by us.
In December 2003, we issued 10,000 restricted shares of common stock, valued at $10,000 or $0.10 per share, to an employee in consideration for services performed for us in connection with the showing of our technology at a road show during the year ended December 31, 2003. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuance did not involve a public offering, the recipient took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuance and no underwriting discounts or commissions were paid by us.
In April 2004, we issued 100,000 shares of our restricted common stock to our employee and Director, Timothy Vance, valued at $10,000 or $0.10 per share, in consideration for marketing services rendered to us in connection with our technology. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuance did not involve a public offering, the recipient took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuance and no underwriting discounts or commissions were paid by us.
In May 2004, we issued 90,000 restricted shares of common stock to an
employee, valued at $9,000 or $0.10 per share, in consideration for services
rendered to us in connection with in connection with the showing of our
technology at a road show. We claim an exemption from registration afforded by
Section 4(2) of the Act since the foregoing issuance did not involve a public
offering, the recipient took the shares for investment and not resale and we
took appropriate measures to restrict transfer. No underwriters or agents were
involved in the foregoing issuance and no underwriting discounts or commissions
were paid by us.
In June 2004, our Chief Financial Officer and Director, Larry Mosley was issued 50,000 shares of our restricted common stock, valued at $5,000 or $0.10 per share, in consideration for accounting services rendered to us in connection with his position as Chief Financial Officer of us. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuance did not involve a public offering, the recipient took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuance and no underwriting discounts or commissions were paid by us.
In June 2004, we issued 250,000 shares of our restricted common stock to an employee, valued at $25,000 or $0.10 per share, in consideration of services rendered to us in connection with our day to day operations. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuance did not involve a public offering, the recipient took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuance and no underwriting discounts or commissions were paid by us.
In July 2004, we issued 10,000 restricted shares of common stock to a consultant, valued at $1,000 or $0.10 per share, in consideration for services rendered to us in connection with services rendered to us in connection with the flashing of memory chips in connection with our technology. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuance did not involve a public offering, the recipient took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuance and no underwriting discounts or commissions were paid by us.
In August 2004, we issued 100,000 restricted shares of common stock to an
attorney, valued at $10,000 or $0.10 per share, in consideration for legal
services rendered to us. We claim an exemption from registration afforded by
Section 4(2) of the Act since the foregoing issuance did not involve a public
offering, the recipient took the shares for investment and not resale and we
took appropriate measures to restrict transfer. No underwriters or agents were
involved in the foregoing issuance and no underwriting discounts or commissions
were paid by us.
In October 2004, we issued 10,000 restricted shares of common stock to a consultant, valued at $1,000 or $0.10 per share, in consideration for services rendered to us in connection with the referral of one of our previous customers. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuance did not involve a public offering, the recipient took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuance and no underwriting discounts or commissions were paid by us.
In December 2004, we issued 250,000 restricted shares of common stock to an employee, valued at $25,000 or $0.10 per share, in consideration for services rendered to us in connection with services rendered to us in connection with sales strategy and sales consulting. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuance did not involve a public offering, the recipient took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuance and no underwriting discounts or commissions were paid by us.
In December 2004, we issued 50,000 restricted shares of common stock to a consultant, valued at $5,000 or $0.10 per share, in consideration for services rendered to us in connection with the referral of individuals who purchased shares of our common stock in our private placement offering. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuance did not involve a public offering, the recipient took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuance and no underwriting discounts or commissions were paid by us.
In January 2005, we issued 50,000 restricted shares of common stock to an employee, valued at $5,000 or $0.10 per share, in consideration for services rendered to us in connection with services rendered to us in connection with sales strategy and sales consulting. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuance did not involve a public offering, the recipient took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuance and no underwriting discounts or commissions were paid by us.
In January 2005, we issued an aggregate of 950,000 shares of our restricted common stock, valued at $95,000 or $0.10 per share, to our Chief Financial Officer and Director, Larry Mosley, in consideration for accounting services rendered to us in connection with his position as our Chief Financial Officer. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuance did not involve a public offering, the recipient took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuance and no underwriting discounts or commissions were paid by us.
In March 2005, we issued 50,000 restricted shares of common stock to an
attorney, valued at $5,000 or $0.10 per share, in consideration for legal
services rendered to us. We claim an exemption from registration afforded by
Section 4(2) of the Act since the foregoing issuance did not involve a public
offering, the recipient took the shares for investment and not resale and we
took appropriate measures to restrict transfer. No underwriters or agents were
involved in the foregoing issuance and no underwriting discounts or commissions
were paid by us.
In March 2005, we issued 25,000 restricted shares of common stock to a consultant, valued at $2,500 or $0.10 per share, in consideration for services rendered to us in connection with the referral of individuals who purchased shares of our common stock in our private placement offering. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuance did not involve a public offering, the recipient took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuance and no underwriting discounts or commissions were paid by us.
In May 2005, we issued 23,000 restricted shares of common stock to a consultant, valued at $2,300 or $0.10 per share, in consideration for services rendered to us in connection with the referral of a customer. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuance did not involve a public offering, the recipient took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuance and no underwriting discounts or commissions were paid by us.
In May 2005, we issued 50,000 restricted shares of common stock to our employee and Director, Timothy Vance, valued at $5,000 or $0.10 per share, in consideration for marketing services rendered to us in connection with our technology. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuance did not involve a public offering, the recipient took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuance and no underwriting discounts or commissions were paid by us.
In June 2005, we issued an aggregate of 22,500 restricted shares of common stock to two (2) consultants, valued at $2,250 or $0.10 per share, in consideration for services rendered to us in connection with the referral of individuals who purchased shares of our common stock in our private placement offering. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuances did not involve a public offering, the recipients took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuances and no underwriting discounts or commissions were paid by us.
In July 2005, we issued an aggregate of 40,000 restricted shares of common stock to two (2) consultants, valued at $4,000 or $0.10 per share, in consideration for services rendered to us in connection with the referral of individuals who purchased shares of our common stock in our private placement offering. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuances did not involve a public offering, the recipients took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuances and no underwriting discounts or commissions were paid by us.
In August 2005, we issued an aggregate of 117,000 restricted shares of common stock to four (4) consultants, valued at $11,700 or $0.10 per share, in consideration for services rendered to us in connection with the referral of individuals who purchased shares of our common stock in our private placement offering. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuances did not involve a public offering, the recipients took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuances and no underwriting discounts or commissions were paid by us.
In August 2005, we issued an aggregate of 50,000 restricted shares of common stock to two (2) of our former attorneys, valued at $5,000 or $0.10 per share, in consideration for legal services rendered to us. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuances did not involve a public offering, the recipients took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuances and no underwriting discounts or commissions were paid by us.
In September 2005, we issued an aggregate of 479,500 restricted shares of common stock to eight (8) consultants, valued at $47,950 or $0.10 per share, in consideration for services rendered to us in connection with the referral of individuals who purchased shares of our common stock in our private placement offering. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuances did not involve a public offering, the recipients took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuances and no underwriting discounts or commissions were paid by us.
In November 2005, we issued 50,000 restricted shares of common stock to a
consultant, valued at $5,000 or $0.10 per share, in consideration for marketing
services rendered to us. We claim an exemption from registration afforded by
Section 4(2) of the Act since the foregoing issuance did not involve a public
offering, the recipients took the shares for investment and not resale and we
took appropriate measures to restrict transfer. No underwriters or agents were
involved in the foregoing issuance and no underwriting discounts or commissions
were paid by us.
In November 2005, we issued 50,000 restricted shares of common stock to a consultant, valued at $5,000 or $0.10 per share, in consideration for services rendered to us in connection with sales and research regarding our Direct Lynk technology. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuance did not involve a public offering, the recipients took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuance and no underwriting discounts or commissions were paid by us.
In November 2005, we issued an individual 501,600 restricted shares of common stock, valued at $51,600 or $0.10 per share, in consideration for services rendered to us in connection with the referral of individuals who purchased shares of our common stock in our private placement offering. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuances did not involve a public offering, the recipients took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuances and no underwriting discounts or commissions were paid by us.
In December 2005, we offered rescission to twenty-two (22) shareholders to whom we sold approximately 2,044,000 shares of common stock from April 2002 to September 2005. Those shareholders purchased shares pursuant to private placements of our common stock, in consideration for $204,400 or $0.10 per share, and may not have received appropriate disclosure in connection with such purchases. All of the shareholders who were offered the chance to rescind their purchases decided to reject the rescission offer. We claim an exemption from registration for the rescission offer afforded by Rule 506 of Regulation D under the Act.
In December 2005, we issued an aggregate of 1,310,000 shares of our restricted common stock to consultants, valued at $131,000 or $0.10 per share, in consideration for services rendered to us in connection with shareholder relations, sign on bonuses and web development. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuances did not involve a public offering, the recipients took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuances and no underwriting discounts or commissions were paid by us.
In February 2006, we issued 2,500,000 shares of our restricted common stock to one of our employees, Terry, Breedlove, valued at $250,000 or $0.10 per share, in consideration for services rendered to us in connection with our day to day operations and an aggregate of 110,000 shares of our common stock to two consultants, valued at $11,000 or $0.10 per share, for services rendered to us in connection with the referral of individuals who purchased shares of our common stock in our private placement offering. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing issuances did not involve a public offering, the recipients took the shares for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing issuances and no underwriting discounts or commissions were paid by us.
In February 2006, we issued 3,000,000 options to our Chief Executive Officer and President, James Ammons, valued at $300,000 or $0.10 per share, in consideration for Mr. Ammons entering into and agreeing to be bound by a five year employment agreement with us. The Options are exercisable for $0.10 per share and are described in greater detail under "Directors, Executive Officers
and Control Persons," above. We claim an exemption from registration afforded by
Section 4(2) of the Act since the foregoing grant did not involve a public
offering, the recipient took the options for investment and not resale and we
took appropriate measures to restrict transfer. No underwriters or agents were
involved in the foregoing grant and no underwriting discounts or commissions
were paid by us.
On June 19, 2006, with an effective date of June 1, 2006, we entered into an Employment Agreement with Everett Poe, our Vice President of Sales (a non-executive position). In connection with and pursuant to our entry into the Employment Agreement with Mr. Poe, we agreed to grant Mr. Poe warrants to purchase up to 500,000 shares of our common stock, which warrants have an exercise price of $0.10 per share. The warrants vest to Mr. Poe as follows, 166,666 warrants on June 1, 2007; 166,667 warrants on June 1, 2008; and 166,667 warrants on June 1, 2009. The warrants expire upon the earlier of the third anniversary of the date which the Warrants vest to Mr. Poe, or upon the expiration of thirty days after the termination as an employee of Data Call. We claim an exemption from registration afforded by Section 4(2) of the Act since the foregoing grant did not involve a public offering, the recipient took the warrants for investment and not resale and we took appropriate measures to restrict transfer. No underwriters or agents were involved in the foregoing grant and no underwriting discounts or commissions were paid by us.
ITEM 27. EXHIBITS
Exhibit 3.1(1) Articles of Incorporation
Exhibit 3.2(1) Certificate of Amendment to Articles of Incorporation
Exhibit 3.3* Amended and Restated Articles of Incorporation
Exhibit 3.4(1) Amended Bylaws
Exhibit 5.1* Opinion and consent of David M. Loev, Attorney at Law
re: the legality of the shares being registered
Exhibit 10.1(1) James Ammons Employment Agreement
Exhibit 10.2(1) James Ammons Option Agreement
Exhibit 10.3(1) Larry Mosley Employment Agreement
Exhibit 10.4(1) Addendum to Larry Mosley's Employment Agreement
Exhibit 10.5(1) Tim Vance Employment Agreement
Exhibit 10.6(1) Addendum to Tim Vance's Employment Agreement
Exhibit 10.7* Agreement with United Press International
Exhibit 10.8* Data Call Technologies, Inc. Office Space Lease
Exhibit 23.1* Consent of R.E. Bassie and Company, Certified Public
Accountants
Exhibit 23.2* Consent of David M. Loev, Attorney at Law (included in
Exhibit 5.1)
|
* Filed herein.
(1) Filed as exhibits to our Form SB-2 Registration Statement filed with the Commission on February 21, 2006, and incorporated herein by reference.
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a post effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of the Securities Act;
(b) To reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and rise represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and
(c) To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material changes to such information in the Registration Statement.
2. For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.
3. To file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.
4. For determining liability of the undersigned small business issuer under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned small business issuer undertakes that in a primary offering of securities of the undersigned small business issuer pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned small business issuer will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
i. Any preliminary prospectus or prospectus of the undersigned
small business issuer relating to the offering required to be filed pursuant to Rule 424;
ii. Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned small business issuer or used or referred to by the undersigned small business issuer;
iii. The portion of any other free writing prospectus relating to the offering containing material information about the undersigned small business issuer or its securities provided by or on behalf of the undersigned small business issuer; and
iv. Any other communication that is an offer in the offering made by the undersigned small business issuer to the purchaser.
5. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer of controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
6. For determining any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant under Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part of this registration statement as of the time the Commission declared it effective.
7. For determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities.
8. That, for the purpose of determining liability under the Securities Act to any purchaser:
a). If the small business issuer is relying on Rule 430B:
1. Each prospectus filed by the undersigned small business issuer pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
2. Each prospectus required to be filed pursuant to Rule
424(b)(2), (b)(5), or (b)(7) as part of a registration statement
in reliance on Rule 430B relating to an offering made pursuant to
Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the
information required by section 10(a) of the Securities Act shall
be deemed to be part of and included in the registration
statement as of the earlier of the date such form of prospectus
is first used after effectiveness or the date of the first
contract of sale of securities in the offering described in the
prospectus. As provided in Rule 430B, for liability purposes of
the issuer and any person that is at that date an underwriter,
such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the
registration statement to which that prospectus relates, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof. Provided, however, that
no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such effective date, supersede or
modify any statement that was made in the registration statement
or prospectus that was part of the registration statement or made
in any such document immediately prior to such effective date; or
b). If the small business issuer is subject to Rule 430C:
Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements of filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned in the City of Houston, State of Texas, June 29, 2006.
DATA CALL TECHNOLOGIES, INC.
By: /s/ James Ammons -------------------- JAMES AMMONS |
In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities and on the dates stated.
By: /s/ James Ammons June 29, 2006 ------------------------------------- JAMES AMMONS, Chief Executive Officer, President, Secretary and Treasurer By: /s/ Larry Mosley June 29, 2006 ------------------------------------- LARRY MOSLEY, Chief Financial Officer, and Principal Accounting Officer |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James Ammons his true and lawful attorney-in-fact and agent, with full power of substitution and revocation, for him and in his name, place and stead, in any and all capacities (until revoked in writing), to sign any and all amendments (including post-effective amendments) to this Registration Statement and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or is substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been duly signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ James Ammons Chief Executive Officer, ---------------- President, Secretary, James Ammons Treasurer and Director June 29, 2006 /s/ Larry Mosley Chief Financial Officer, ----------------- Principal Accounting Officer, Larry Mosley and Director June 29, 2006 /s/ Tim Vance -------------- Director June 29, 2006 Tim Vance |
Exhibit 3.3
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
DATA CALL TECHNOLOGIES
ARTICLE I.
The name of the corporation (hereinafter called the "Corporation") is:
DATA CALL TECHNOLOGIES, INC.
ARTICLE II.
The resident agent and registered office of the Corporation within the State of Nevada is Incorp Services, Inc., 3155 East Patrick Lane - Suite 1, Las Vegas, Nevada, 89120-3481.
ARTICLE III.
The nature of the business of the Corporation and the objects or the purposes to be transacted, promoted, or carried on by it are as follows:
To engage in any lawful activity for which Corporations may be incorporated under the Nevada General Corporation Law.
ARTICLE IV.
The total number of shares of stock that the Corporation shall have authority to issue is 210,000,000, consisting of 200,000,000 shares of common stock, par value $.001 per share ("Common Stock"), and 10,000,000 shares of preferred stock par value $.001 per share ("Preferred Stock").
Shares of Preferred Stock of the Corporation may be issued from time to time in one or more series, each of which shall have such distinctive designation or title as shall be determined by the Board of Directors of the Corporation ("Board of Directors") prior to the issuance of any shares thereof. Preferred Stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated in such resolution or resolutions providing for the issue of such class or series of Preferred Stock as may be adopted from time to time by
the Board of Directors prior to the issuance of any shares thereof. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all the then outstanding shares of the capital stock of the corporation entitle d to vote generally in the election of the directors (the "Voting Stock"), voting together as a single class, without a separate vote of the holders of the Preferred Stock, or any series thereof, unless a vote of any such holders is required pursuant to any Preferred Stock Designation.
ARTICLE V.
The governing Board of the Corporation shall be styled as a "Board of Directors," and any member of said Board shall be styled as a "director."
The number of directors of the Corporation may be increased or decreased in the manner provided in the Bylaws of the Corporation; provided, that the number of directors shall never be less than one. In the interim between elections of directors by stockholders entitled to vote, all vacancies, including vacancies caused by an increase in the number of directors and including vacancies resulting from the removal of directors by the stockholders entitled to vote which are not filled by said stockholders, may be filled by the remaining directors, though less than a quorum.
ARTICLE VI.
No fully paid shares of any class of stock of the Corporation shall be subject to any further call or assessment in any manner or for any cause. The good faith determination of the Board of Directors of the Corporation shall be final as to the value received in consideration of the issuance of fully paid shares.
ARTICLE VII.
The Corporation shall have perpetual existence.
ARTICLE VIII.
The holders of a majority of the outstanding shares of stock which have voting power shall constitute a quorum at a meeting of stockholders for the transaction of any business unless the action to be taken at the meeting shall require a greater proportion.
In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to fix the amount to be reserved
as working capital over and above its paid-in capital stock, and to authorize and cause to be executed, mortgages and liens upon the real and personal property of the Corporation.
ARTICLE IX.
The personal liability of the directors of the Corporation is hereby eliminated to the fullest extent permitted by the Nevada General Corporation Law, as the same may be amended and supplemented.
ARTICLE X.
The Corporation shall, to the fullest extent permitted by the Nevada General Corporation Law, as the same may be amended and supplemented, indemnify any an all persons whom it shall have power to indemnify under said Law from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said Law, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.
ARTICLE XI.
The Corporation reserves the right to amend, alter, change, or repeal any provision contained in these Articles of Incorporation in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
ARTICLE XII.
Shareholders of the Corporation shall not have cumulative voting rights nor preemptive rights.
Signed this 1st day of March, 2006
DATA CALL TECHNOLOGIES, INC.
By: /s/ James Ammons ----------------------------------------- James Ammons, Chief Executive Officer |
Exhibit 5.1
David M. Loev,
Attorney at Law
2777 Allen Parkway
Suite 1000
Houston, Texas 77019
713-524-4110 PHONE
713-524-4122 FACSIMILE
June 29, 2006
Data Call Technologies, Inc.
600 Kenrick, Suite B-12
Houston, Texas 77060
Re: Form SB-2 Registration Statement
Gentlemen:
You have requested that we furnished you our legal opinion with respect to the legality of the following described securities of Data Call Technologies, Inc. (the "Company") covered by a Form SB-2 Registration Statement, (the "Registration Statement"), filed with the Securities and Exchange Commission for the purpose of registering such securities under the Securities Act of 1933:
1. 38,262,100 shares of common stock, $.001 par value (the "Shares").
In connection with this opinion, we have examined the corporate records of the Company, including the Company's Articles of Incorporation; as amended, Bylaws, and the Minutes of its Board of Directors, the Registration Statement, and such other documents and records as we deemed relevant in order to render this opinion.
Based on the foregoing, it is our opinion that the Shares are validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Securities and Exchange Commission as an exhibit to the Registration Statement and further consent to statements made therein regarding our firm and use of our name under the heading "Legal Matters" in the Prospectus constituting a part of such Registration Statement.
Sincerely, David M. Loev
/s/ David M. Loev, Attorney at Law |
Exhibit 10.7
HEADLINES DISTRIBUTOR AGREEMENT
DISTRIBUTOR INFORMATION
CORPORATE NAME: Data Call Technologies, Inc
ADDRESS:
PRIMARY CONTACT:
TITLE:
PHONE:
MOBILE:
FAX:
EMAIL:
WEBSITE:
1. GRANT OE LICENSE: Subject to compliance by Distributor with all of the terms of this Agreement, United Press International ("UPI") grants to Distributor a limited, non-exclusive, non-transferable license to market, distribute, and license the UPI News Track Headlines (hereinafter referred to as the "Headlines') solely in the United States, for the Uses set forth in this Agreement. Any other use of the Headlines except as expressly set forth in this Agreement is expressly prohibited.
UPI reserves and retains all rights not expressly granted herein. Distributor acknowledges that all intellectual property rights, copyrights and trade secret rights, tangible and intangible, in the Headlines, other than data in the public domain, belong to UPI.
Specifically, Distributor acknowledges that UP! is the copyright owner of the Headlines and holds the exclusive rights to publish and sell the Headlines under its own name and under other imprints or trade names during the full term of copyright and all renewals thereof,
Any time any part of the Headlines is published, displayed or reproduced in any form, the following notice shall be included in the Headlines: "(C) UPI."
As the owner of the Headlines, UPI has the exclusive right to register the copyrights to the Headlines in UPI's name or any other name in all countries. Distributor acknowledges that Distributor is a licensee of the rights in the Headlines and Distributor agrees not to take any action that would compromise any of Distributor's and/or UPI's rights in the Headlines. Distributor agrees that the Headlines are to be used only by the named Distributor, except all parties to whom the Distributor directly licenses the Headlines, who shall be End-Users for purposes of this Agreement.
3. RATE: Distributor shall pay UPI a minimum monthly rate of $500 for the Distributor's licensing of the Headlines. This monthly fee shall increase in accordance with Exhibit 1 when Distributor distributes the Headlines to End Users. UPI shall invoice the Distributor for the monthly minimum rate in advance of each month, and Distributor shall, on or before the first day of each month, pay UPI in advance the minimum monthly rates for such month. B.In addition to the minimum monthly rate, throughout the entire term of the Agreement, Distributor shall pay additional fees to UPI based on the attached royalty schedule in Exhibit 1. Distributor shall pay any royalty fees pursuant to the provisions set forth in Section 11.
4. OBLIGATIONS OF DISTRIBUTOR:
A. LICENSING: Distributor shall use its best efforts to license the
Headlines.
B. PRICING: Distributor shall not license the Headlines for a price
below the pricing set by UPI without prior written approval from UPI.
C. MARKETING: Distributor shall market the Headlines, at a minimum,
at the same extent and degree to which Distributor markets similar
products that the Distributor licenses or otherwise receives from any
entity or person.
D. AVAILABILITY: Distributor shall make the Headlines available to
its End-User(s), at the latest, at the same time Distributor makes
similar products available to any End-User or Distributor customer.
E. PROTECTING: Distributor shall have the right to make all
Headlines available for licensing to End Users and/or Distributor
customers on its own database or system, provided the Headlines are
protected from copyright infringement, theft, or any unauthorized
activity, at a minimum, to the same extent and degree to which
Distributor protects similar products.
5. SCHEDULES: UPI NEWS TRACK HEADLINES
UPI reserves the right to, at any time, change, modify, or discontinue any or all of the Headlines and to amend the foregoing Schedule. Additionally, UPI may, but is not obligated to, add additional Headlines to the Schedule, which then may be used as provided herein, except changes in Headlines may be subject to additional terms and conditions, including price modifications.
6. DELIVERY: UPI shall deliver the Headlines by the appropriate UPI delivery system, meaning any delivery system that UPI, in its sole discretion, determines is an acceptable way of delivering the Headlines. Distributor shall provide the equipment necessary to receive UPI Headlines.
7. LIMITATIONS ON LICENSE: Distributor's license to market, distribute, and
license the Headlines shall be subject to the following conditions:
A. The Headlines shall solely be licensed for display purposes on digital
signage devices that reside at the End-User's business location, and in no other
medium, and in no other location whatsoever.
B. Distributor will not edit, abridge, rewrite, or in any way alter the
content of the Headlines except with the prior written consent of UPI. If UPI
alters or revises the content of their Headlines in any way, Distributor shall
remove the earlier version of the Product from their system, and use the revised
version, as soon as Distributor receives the revised version or as soon as
Distributor is instructed by UPI to remove the earlier version, whichever is
earlier.
C. Distributor shall not permit the use of the Headlines, in any way that
compromises the integrity thereof or which infringes any copyrights or
proprietary interests Distributor shall carry UPI copyright and UPI credit lines
on all Headlines, as set out in Paragraph One, above. Distributor also shall
cooperate with UPI in protecting UPI's copyright in the Headlines.
D. Distributor shall respect all release pledges on advance and embargoed
matter and may not publicly comment, verbally or in writing, on such matter
until the release time and date.
E. Distributor shall not distribute or in any way make available the
Headlines to any entity or any party whose intent is to resell, redistribute, or
republish all or any elements of the Headlines except with the prior written
consent of UPIDistributor shall stop any distributions to the unauthorized
entities, mentioned above in this sub-section, immediately after such
unauthorized use becomes reasonably known. Distributor shall make a reasonable
effort to know whether the above-mentioned entities are using the Headlines
without authorization.
F. Distributor shall not separate any Product from the original edition in
which the Product was published by UPI in order to republish product separately
or in connection with a work other than the work in which it was first published
G. Distributor shall incorporate into its agreement with all End-Users the
obligations and conditions of this Agreement, as applicable.
H. Distributor may make and retain file copies of the Headlines solely for
internal business use or archive purposes only. Distributor however, may only
archive UPI Headlines for a period of fourteen (14) days.
I. During the term of this Agreement, Distributor may use the UPI trade
names, including UPI and United Press International ["the Marks], to market the
Headlines, UPI shall at all times retain the right to inspect all uses of the
Marks by Distributor and make any changes to such uses as may be required by
UPI, in its sole discretion, to protect the Marks. Distributor acknowledges that
UPI is the sole and exclusive owner of the Marks and agrees to take no action
inconsistent with or that would, in the opinion of UPI, impair UPI's ownership
in the Marks. Any usage of the UPI and United Press International marks by
Distributor will include the federal trademark "R" symbol displayed beside the
Marks.
J. Distributor agrees to comply and cooperate with any request by UPI to
remove any Product(s), or any portion thereof; from the Distributor's database,
software and/or host system, and any UPI request to cease distributing any
Product(s).
8. END-USER AGREEMENT PROVISIONS: Distributor shall obtain from all parties to
whom the Distributor directly licenses, sells or otherwise distributes the
information ("End-Users"), a signed, written agreement that contains the
provisions set forth in this Paragraph, Paragraph 7 or provisions substantially
equivalent to but no less protective of UPI than the provisions set forth in
this section:
A. End-Users shall not license, sell, or otherwise distribute any UPI
Headlines to any third party.
B. End-Users shall carry UPI copyright on all UPI Headlines, as set forth
in Section l of this Agreement.
C. End-Users may make and retain file copies of the Headlines solely for
internal business use or archive purposes only, however End-Users may not
archive UPI Headlines for more than fourteen (14) days.
D. End-Users shall not edit, rewrite or in any way alter the content of UPI
Headlines except with the prior written consent qf UPL.
E. End-Users acknowledge that this Agreement does not transfer to Users any
proprietary right, title or interest, including copyright, in the content made
available through any UPI Headlines.
F. End-Users may not assign their Agreement with Distributor for any
reason, to anyone, including but not limited to any parent, affiliated, or
subsidiary organization, except with prior written permission from UPI.
9. ASSIGNMENT: This Agreement may be assigned by UPI at any time. This Agreement may be assigned by Distributor, subject to the prior written consent of UPI and upon the written assumption of the successor entity to all the terms and conditions of this Agreement. Prior written consent to such assignment shall not release a party from obligations and liabilities accrued under this Agreement.
In the event of an assignment, sale or transfer, either in whole or in part of co-owned and co-operated entities covered by this Agreement, Distributor shall cause each purchaser or successor entity to agree, in writing, to enter into a new agreement with UPI, such agreement to contain the same general terms and conditions as are contained in this Agreement; provided, however, that the Rates in Paragraph 3 of this Agreement and any such subsequent agreement shall be modified to conform to the then-current rate policy for such Distributors.
10. CONTRACT CANCELLATION AND RENEWAL: UPI may cancel this Agreement, at any time, by giving sixty (60) days written notice to Distributor, provided, however, that UPI may declare this Agreement immediately cancelled if Distributor violates any provision of this Agreement. Notwithstanding the foregoing, this Agreement shall continue for successive terms of twelve (12) months each, unless, Distributor provides a written notice of cancellation to UPI at least sixty (60) days before the end of the current Term. Upon cancellation of this Agreement, Distributor shall cease to market, distribute, and license the Headlines, shall remove and destroy any Headlines from their database or host system, and all tights granted herein shall revert to UPI. All payments that have accrued prior to the cancellation of this Agreement will be payable in frill within thirty (30) days of the cancellation.
11. DISTRIBUTOR PAYMENTS: Distributor shall pay UPI any minimum monthly rate on or before the first day of each month. Distributor shall pay UPI for any royalties earned under this Agreement, within within thirty (30) days following the end of the month in which they are earned. Such royalty payments shall be accompanied by a royalty report setting forth the following details for each End User; (A) End-User name, (B) End-User's business address, (C) Date End-User licensed the Headlines, (D) Number of Screens Displaying Headlines, and (E) Total Royalty Amount Owed. Distributor must send the royalty report along with the payment. If the monthly royalty report is not received within fourteen (14) days after the payment due date,, UPI may suspend delivery of the Headlines until such documentation is provided, or terminate delivery of the Headlines. Distributor shall be responsible for paying UPI any amounts hereunder that are un-collectible from End-Users.
Payments and any required forms or reports shall be submitted to United Press International, 1510 H Street, NW., Washington, D.C. 20005, Attention: Accounts Receivable (or such other address as may be specified by UPI from time to time).
12. UPI ACCESS AND AUDIT: Distributor shall provide UPI reasonable access to its system, including the provision of an account, if appropriate, for the sole purpose of allowing UPI to monitor and review the use of the Headlines on the Distributor's system, at no charge to UPI, except for paying third party communication charges needed to connect UPI to the Distributor's system. In addition, UPI or its chosen representative shall have the right to audit Distributor's End-User and revenue records at any time during the workday at UPI's expense, upon one (1) week's advance notice to Distributor. UPI shall have free and full access to the End-User and revenue records and may make copies of these records, In the event that inspection of the End-User and/or revenue records reveals an underpayment by Distributor of the actual payments owed to UP!, Distributor shall pay the difference, plus interest calculated at the rate of 1.5% per month. All End-User and revenue records relative to Distributor's obligations under this Agreement shall be maintained and made accessible to UPI for inspection, for at least three (3) years after the cancellation, termination, or expiration of this Agreement.
13. DEFAULT OF DISTRIBUTOR: The following events shall be a Default of
Distributor under this Agreement:
A. Distributor fails to make timely payments when due and owing under this
Agreement;
B. Distributor assigns this Agreement or any of its rights hereunder
(except as permitted under the terms of this Agreement);
C. Distributor fails to cure a violation of any provision of this Agreement
within thirty (30) days of having received notice of such violation from UPI; or
D. A receiver, trustee in bankruptcy or similar officer is appointed to
take charge of all or a part of Distributor's property; or Distributor seeks the
protection of any bankruptcy law or is involuntarily placed into bankruptcy and
is unable to dismiss the petition within thirty (30) days.
14. DEFAULT OF UPI: Subject to the provision regarding force majeure, in Paragraph 16, UPI's failure to deliver the Headlines to Distributor within thirty (30) days of written notice by Distributor of UPI's failure to deliver shall constitute a Default of UPI In the event of force rnajeure, UPI shall give prompt notice of the event of force majeure to Distributor and shall be excused from performing its obligations for the duration of the event of force majeure and a reasonable period thereafter; provided, however that any resulting failure of UPI to deliver the Headlines shall not relieve Distributor of its duty to make any or all payments required under this Agreement for Headlines delivered and shall not terminate or give either party the right to terminate this Agreement-
15. SUSPENSION OF DELIVERY. UPI shall have the right to suspend delivery of the Headlines:
A. upon Distributor's failure to make a payment required in excess of sixty
(60) days (in addition to the right to charge interest on overdue amounts),
until such payment is received by UP!; or
B, upon Distributor's failure to deliver to UPI a report for End-User
count, if applicable, provided for above within fourteen (14) days of the due
date, until such report is received by UPI.
In the event UPI suspends delivery of Headlines pursuant to this Paragraph,
Distributor shall not thereby be relieved of any of its duties and obligations
under this Agreement.
16. REMEDIES UPON DEFAULT:
A. Upon the occurrence of a Default of Distributor, UPI may terminate this
Agreement and delivery of the Headlines upon fifteen (15) days prior written
notice and recover from Distributor:
1. any payments due hereunder;
2. the total of Distributor's then current monthly Rate (as
defined in Paragraph 3) multiplied by the number of months
between termination of delivery and the date of expiration of the
then current Term (as defined in Paragraph 2) less savings UPI
realizes by canceling delivery of the Headlines to Distributor;
3. all costs and expenses of collection, including reasonable
attorneys' fees; and
4. any and all damages available under law.
B. Should Distributor fail to pay any Rates or fees when due, UPI shall
have the right to invoice Distributor for a late payment charge equal to the
lesser of 1.5% per month or the lawful maximum rate on the unpaid balance from
the date due until the date paid. UPI's exercise or non-exercise of any remedy
shall not he exclusive or preclude the exercise of any other remedy, including
without limitation, a suspension of delivery of the Headlines as permitted under
this Agreement.
C. Upon the occurrence of a Default of UPI, Distributor must provide written notice of UPI's default and if such default is not cured by UPI within thirty (30) days, Distributor may then terminate this Agreement,
17. FORCE MAJEURE: UPI shall not be liable for damages for any delay or default in its obligations under this agreement, if such delay or default is caused by third parties and/or conditions beyond its control (including but not limited to acts of God, catastrophes, government restrictions, wars, insurrections, strikes, fires, floods, or work stoppages).
18. LIMITED LIABILITY: EXCEPT FOR THE INDEMNIFICATIONS OBLIGATIONS HEREIN, UPI, AND ITS EMPLOYEES, OFFICERS, DIRECTORS, SHAREHOLDERS, AGENTS, PARENT COMPANY, AND AFFILIATED COMPANIES', SHALL NOT IN ANY EVENT BE LIABLE TO DISTRIBUTOR OR ANY USER FOR ANY DIRECT, INDIRECT, SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OR LOSSES, OR FOR ANY LOSS OF BUSINESS OR PROFITS, WHETHER OR NOT FORESEEABLE, WHETHER OR NOT ALLEGED TO BE BASED ON BREACH OF WARRANTY OR CONTRACT OR NEGLIGENCE, ARISING OUT OF OR IN CONNECTION WITH THE HEADLINES, THE CONTENT OF THE HEADLINES, ANY FAILURE TO DELIVER OR DISTRIBUTE THE HEADLINES, OR ANY INTERRUPTION IN DELIVERY OR DISTRIBUTION THEREOF.
19. REPRESENTATIONS & WARRANTIES:
A. Distributor represents and warrants that its entry into this Agreement
(i) does not violate any agreement between Distributor and any third party, and
(ii) does not interfere with any obligation Distributor has to any third party.
Distributor further represents and warrants that Distributor shall not edit,
alter, manipulate, or adapt the Headlines in any way that would violate the
rights of any entity or person.
B. UPI represents and warrants that its entry into this Agreement (I) does not violate any agreement between UPI and any third party, and (ii) does not interfere with any obligation UPI has to any third party.
20. DISCLAIMER OF ALL OTHER WARRANTIES: UPI AND DISTRIBUTOR AGREE THAT EXCEPT FOR THE WARRANTIES SET FORTH IN SECTION 19 ABOVE, EACH PARTY DISCLAIMS ALL OTHER WARRANTIES EXPRESS OR IMPLIED, INCLUDING WJTHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
21. INDEMNIFICATION: Each party shall indemnify and hold the other party harmless against any claim, damage, loss liability or expense arising out of(a) in the case of the Distributor, the Distributor's distribution or licensing of the Headlines contrary to this Agreement or instructions by UPI; or (b) in the case of either party, a material breach by such party of its representations, and warranties. The obligations of the parties under this Paragraph shall continue notwithstanding any termination of this Agreement.
22. OTHER AGREEMENTS; Oral representations or agreements not embodied in this Agreement are not binding, and this Agreement may only be modified in writing signed by both parties. This Agreement supersedes and abrogates, as of ITS effective date, any preceding agreement between the parties relating to the Headlines and terminates and cancels all obligations and liabilities which may exist thereunder, except (a) Distributors obligation to pay for Headlines rendered under such agreement prior to the effective date of this Agreement or commencement of delivery of the Headlines provided for herein, whichever is later; or (b) any prior written obligation that, by its terms, survives the termination of such prior agreement,
23. WAIVER: No waiver by any party of any breach of any provision of this Agreement shall constitute a waiver of any other breach of that or any other provision of this Agreement, except by a waiver in writing and signed by a duly authorized representative of the waiving party. Failure by a party to enforce any provision of this Agreement shall not affect the validity of such party's right of subsequent enforcement of that or any other provision of this Agreement. A party's acceptance of any full or partial payment due hereunder during the continuance of any Default or breach shall not constitute a waiver of such Default or breach.
24. GOVERNING LAW: The parties agree that this Agreement is entered into in the District of Columbia. This Agreement shall be governed by and construed in accordance with the laws of the District of Columbia without regard to its principles of conflicts of laws. Subject to the provision for arbitration, the parties to this Agreement consent and agree to be subject to the jurisdiction of any court of record in the District of Columbia for the adjudication or resolution of any matter or right in connection with this Agreement, and agree that venue in such jurisdiction is proper.
25. ARBITRATION; Any dispute or controversy arising out of this Agreement, except regarding the collection of payments or for any matter requiring injunctive relief, shall be resolved by arbitration under the then applicable rules for commercial arbitration of the American Arbitration Association. Arbitration shall be held in Washington, D.C. and the proceedings shall be conducted in English. Any award rendered in any such arbitration shall be final and binding on each party and judgment may be entered thereon in a court of competent jurisdiction.
26. SEVERABILITY: If any provision of this Agreement shall be declared void, invalid, or illegal, the validity or legality of any other provisions and of the entire Agreement shall not be affected thereby. However, the parties agree that, if any such provisions shall be declared void, invalid, or illegal, the parties will, in good faith, negotiate mutually agreeable substitute provisions in as similar in terms to the severed provisions.
27. CONFIDENTIALITY: The terms of this Agreement are confidential and neither party shall disclose the contents, or any other confidential information obtained as a result of such party's performance under this Agreement, to any third party. This confidentiality shall survive termination of the Agreement and be binding upon the parties.
28. INDEPENDENT CONTRACTORS; Distributor's relationship with UPI shall be that of an independent contractor and nothing in this Agreement should be construed to create a partnership, joint venture, or employer-employee relationship. Except as explicitly set forth herein and subject to all restrictions herein, Distributor is not the agent of UPI and is not authorized to make any representation, contract, or commitment on behalf of UPI.
29. NOTICE: Any notice required or provided herein shall be delivered in writing by (a)certified or registered mail, first class air-postage prepaid, return receipt requested, (b) facsimile transmission followed immediately by certified mail, (c) or overnight courier service to the addresses and facsimile numbers set forth above. Notices shall be deemed to have been given (i) five (5) days after deposit in the mail, (ii) when transmitted by facsimile transmission, or (iii) upon receipt by overnight courier service; provided however, that, in the case of international mail, they shall be deemed to have been given when actually delivered at the last given address of the addressee. For UPI, notice should be submitted to; United Press International, 1510 H Street, NW, Washington, DC 20005, Attention: Legal Department. For Distributor, Notice should be submitted to:
30. HEADINGS: The headings contained in this Agreement have been inserted for the convenience of reference only, and neither such headings nor the placements of any term hereof under any particular heading shall in any way restrict or modify any of the terms or provisions hereof
31. COUNTERPARTS: This Agreement may be executed in counterparts, and by telefax transmission, each copy of which shall be deemed an original and all of which, taken together, shall constitute one and the same instrument, but this Agreement shall not be binding upon UPI and Distributor until it has been signed by both parties. UPI and Distributor agree that facsimile signatures on a copy of this Agreement shall be effective and enforceable as if they were original signatures.
I HEREBY CERTIFY THAT I HAVE READ AND AGREE TO BE BOUND BY ALL TERMS AND CONDITIONS CONTAINED IN THIS AGREEMENT. THE FINAL TERMS AND CONDITIONS OF THIS AGREEMENT SHALL NOT BE FULLY ACCEPTED AND BINDING UNTIL ACCEPTED BY A DULY AUTHORIZED REPRESENTATIVE OF UPI.
/s/ Terry Breedlove ------------------------------------ Authorized Signature for Distributor |
/s/ Kami Ardnot -------------------------------------- Accepted By (Authorized UPI Signature) |
Exhibit 10.8
1.1. Date of Lease: _____________________ (for Landlord's completion)
1.2. Landlord: First Industrial Development Services, Inc., a Maryland corporation
1.3. Tenant: DATACALL TECHNOLOGIES
1.4. Premises: Approximately 2,240 rentable square feet in the building commonly known as
600 Kenrick, Suite B-12, Houston, Texas 77060 (the
"BUILDING").
1.5. Property: See EXHIBIT A.
1.6. Lease Term: Three (3) years Three (3) days ("TERM"), commencing March 29, 2005 ("COMMENCEMENT DATE") and ending March 3 1 2008, subject to Section 2.3 below, ("EXPIRATION DATE").
1.7. Permitted Uses: (See SECTION 4.1) SOFTWARE AND TECHNOLOGIES PROVIDER.
1.8. TENANT'S GUARANTOR: None.
1.9. Brokers:
(A) Tenant's Broker: None.
(B) Landlord's Broker: First Industrial Realty
Trust, Inc. (Brock Wilson)
1.10. Security/Damage Deposit: (See Section 4.4) $1,120.00
1.11. Initial Estimated Additional Rent Payable by Tenant:
$333.76 per month
1.12. Tenant's Proportionate Share: 1.44% of the Project.
1.13. Exhibits to Lease: The following exhibits are attached to and made a part of this Lease.
(A, A-I, B, C, D, E, F, G & H)
LEASE PERIOD MONTHLY NET BASE ESTIMATED TOTAL ESTIMATED
------------ ---------------- --------- ---------------
RENT ADDITIONAL RENT MONTHLY RENT
--------------- ------------
March 29, 2005 - March 31, 2005 $0.00 $0.00 $0.00
April 1, 2005 - March 31, 2006 $786.24 $333.76 $1,120.00
April 1, 2006 - March 31, 2008 $831.04 $333.76 $1,164.80
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Tenant shall also pay Tenant's Proportionate Share (as set forth in Section 1.12) of Operating Expenses (as hereinafter defined), Tenant's Proportionate Share of any and all Reserve Expenses (as hereinafter defined) and any other amounts owed by Tenant hereunder [collectively, "ADDITIONAL RENT"]. In the event any monthly installment of Base Rent or Additional Rent, or both, is not paid within 10 days of the date when due, a late charge in an amount equal to 5% of the then delinquent installment of Base Rent and/or Additional Rent [the "LATE CHARGE"; the Late Charge, Default Interest (as defined in Section 22.3 below), Base Rent and Additional Rent shall collectively be referred to as "RENT"] shall be paid by Tenant to Landlord, FR Development Services, Inc., 75 Remittance Drive, Suite 1066, Chicago, Illinois 60675-1066 or if sent by overnight courier, FR Development Services, Inc., 350 N. Orleans St., Receipt & Dispatch - 8th Floor, Suite #1066 Chicago, IL 60654 Attention: FR Development Services, Inc., Suite 1066 (or such other entity designated as Landlord's management agent, if any, and if Landlord so appoints such a management agent, the "Agent"), or pursuant to such other directions as Landlord shall designate in this Lease or otherwise in writing.
frequent than annual, basis ("RESERVE EXPENSES") will establish a reserve (the "MAINTENANCE RESERVE") to which Tenant, simultaneously with the payment of Estimated Additional Rent each month, shall contribute a monthly deposit in an amount reasonably determined by Landlord. Such deposits shall be applied on account of Reserve Expenses incurred by Landlord during the Term; any deficit shall be paid by Tenant to Landlord upon demand. Upon the expiration or sooner termination of the Lease, Landlord shall retain such deposits to fund Reserve Expenses incurred after the Term. No interest shall be payable to Tenant on account of payments of Estimated Additional Rent or deposits to the Maintenance Reserve, and such payments may be commingled.
of business entity, whether effectuated in one or more
transactions, as if such transfer were an assignment of this
Lease; but said provisions shall not apply to such a transfer,
provided, in any of such events, the successor to Tenant (or any
party remaining liable for the obligations of Tenant hereunder):
(i) has a net worth at least equal to the net worth of Tenant as
of the Commencement Date or (ii) is capable of satisfying
Tenant's obligations hereunder, in Landlord's reasonable
judgment. Any such permitted transferee shall execute and deliver
to Landlord any and all documentation reasonably required by
Landlord in order to evidence assignee's assumption of all
obligations of Tenant hereunder. Notwithstanding anything to the
contrary contained in this Section 8.3, in no event may Tenant
assign, mortgage, transfer, pledge or sublease this Lease to any
entity whatsoever if, at the time of such assignment, mortgage,
transfer, pledge or sublease, Tenant is in default under this
Lease.
water or soil to demonstrate that Tenant complies with all
applicable laws, rules or permits relating in any way to the
generation, transport, storage, use, treatment, disposal or
presence of Hazardous Materials on, at, in or from all or any
portion of either or both of the Premises and the Property. This
Section 9.2 does not authorize the generation, transportation,
storage, use, treatment or disposal of any Hazardous Materials
at, to, from, on or in the Premises in contravention of this
Section 9. Tenant covenants to investigate, clean up and
otherwise remediate, at Tenant's sole expense, any release of
Hazardous Materials caused, contributed to, or created by any or
all of (A) Tenant and (B) any or all of Tenant's officers,
directors, members, managers, partners, invitees, agents,
employees, contractors or representatives ("TENANT PARTIES")
during the Term. Such investigation and remediation shall be
performed only after Tenant has obtained Landlord's prior written
consent; provided, however, that Tenant shall be entitled to
respond immediately to an emergency without first obtaining such
consent. All remediation shall be performed in strict compliance
with Environmental Laws and to the reasonable satisfaction of
Landlord. Tenant shall be liable for any and all conditions
covered hereby, and for all costs relating thereto, that are
caused or created by any or all of Tenant and any or all of
Tenant's Parties. Tenant shall not enter into any settlement
agreement, consent decree or other compromise with respect to any
claims relating to any Hazardous Materials in any way connected
to the Premises without first obtaining Landlord's written
consent (which consent may be given or withheld in Landlord's
sole, but reasonable, discretion) and affording Landlord the
reasonable opportunity to participate in any such proceedings. As
used herein, the term (x) "ENVIRONMENTAL LAWS" shall mean any and
all laws pertaining to Hazardous Materials or that otherwise deal
with, or relate to, air or water quality, air emissions, soil or
ground conditions or other environmental matters of any kind; and
(y) "HAZARDOUS Materials" shall mean any waste, material or
substance (whether in the form of liquids, solids or gases, and
whether or not airborne) that is or may be deemed to be or
include a pesticide, petroleum, asbestos, polychlorinated
biphenyl, radioactive material, urea formaldehyde or any other
pollutant or contaminant that is or may be deemed to be
hazardous, toxic, ignitable, reactive, corrosive, dangerous,
harmful or injurious, or that presents a risk to public health or
to the environment, and that is or becomes regulated by any
Environmental Law. The undertakings, covenants and obligations
imposed on Tenant under this Section 9.2 shall survive the
termination or expiration of this Lease.
In addition to Tenant's obligations under (i) and (ii) above, Tenant shall also be responsible for all costs and expenses incurred to perform any and all repairs and replacements (whether structural or non-structural; interior or exterior; and ordinary or extraordinary), in and to the Premises and the Property and the facilities and systems thereof, if and to the extent that the need for such repairs or replacements arises directly or indirectly from any or all of: (a) the performance or existence of any Alterations, (b) the installation, use or operation of Tenant's Property in the Premises, (c) the moving of Tenant's Property in or out of the Property, and (d) any act, omission, misuse, or neglect of Tenant, any of its subtenants, or others entering into the Premises by act or omission of Tenant or any subtenant. Any repairs or replacements required to be made by Tenant to any or all of the structural components of the Property and the mechanical, electrical, sanitary, HVAC, or other systems of the Property or Premises shall be performed by appropriately licensed contractors approved by Landlord, which approval shall not be unreasonably withheld. All such repairs or replacements shall be subject to the supervision and control of Landlord, and all repairs and replacements shall be made with materials of equal or better quality than the items being repaired or replaced.
Tenant and without any reduction or modification of Tenant's covenants and obligations hereunder; provided, however, that Landlord shall use reasonable efforts to limit interference with Tenant's business operations and Tenant's occupancy and use of the Premises. During the period of six months prior to the Expiration Date (or at any time, if Tenant has vacated or abandoned the Premises or is otherwise in default under this Lease), Landlord and its agents may exhibit the Premises to prospective tenants. Additionally, Landlord and Agent shall have the following rights with respect to the Premises, exercisable without notice to Tenant, without liability to Tenant, and without being deemed an eviction or disturbance of Tenant's use or possession of the Premises or giving rise to any claim for setoff or abatement of Rent: (i) to designate and approve, prior to installation, all types of signs; (ii) to have pass keys, access cards, or both, to the Premises; and (iii) to decorate, remodel, repair, alter or otherwise prepare the Premises for reoccupancy at any time after Tenant vacates or abandons the Premises for more than 30 consecutive days or without notice to Landlord of Tenant's intention to reoccupy the Premises.
disposed of or recycled in, at, near or under all or any portion of the Premises as a result of the acts or omissions of any or all of Tenant and Tenant's Parties; and (k) the violation of any Environmental Law or any permit, application or consent required in connection with any Environmental Law by any or all of Tenant and Tenant's Parties with respect to the Premises during the Term, excluding, however, any violation of any Environmental Law resulting directly from the acts or omissions of Landlord and Landlord's employees, agents and contractors (collectively, "TENANT'S INDEMNIFIED MATTERS"). In case any action or proceeding is brought against any or all of Landlord and the Landlord Indemnified Parties by reason of any of Tenant's Indemnified Matters, Tenant, upon notice from any or all of Landlord, Agent or any Superior Party (defined below), shall resist and defend such action or proceeding by counsel reasonably satisfactory to, or selected by, Landlord. The term "Losses" shall mean all claims, demands, expenses, actions, judgments, damages (actual, but not consequential), penalties, fines, liabilities, losses of every kind and nature (including, without limitation, property damage, diminution in value of Landlord's interest in the Premises or the Property, damages for the loss or restriction on use of any space or amenity within the Premises or the Property, damages arising from any adverse impact on marketing space in the Property, sums paid in settlement of claims and any costs and expenses associated with injury, illness or death to or of any person), suits, administrative proceedings, costs and fees, including, without limitation attorneys' and consultants' reasonable fees and expenses, and the costs of cleanup, remediation, removal and restoration, that are in any way related to any matter covered by the foregoing indemnity. The provisions of this Section 17.2.1 shall survive the expiration or termination of this Lease.
In the event that either or both of the Premises and the Property are not repaired or reconstructed, all proceeds of insurance (excluding any proceeds covering Tenant's Property), whether carried by Landlord or Tenant, shall be payable to Landlord. Landlord's duty to repair the Premises and the Property (excluding Tenant's Property) is limited to repairing the Premises to the condition existing immediately prior to such fire or other casualty.
action or inaction, to timely comply with, or satisfy, any or all of
the obligations imposed on Tenant under this Lease (other than the
obligation to pay Rent) for a period of 30 days after Landlord's
delivery to Tenant of written notice of such default under this
Section 21.2(b); provided, however, that if the default cannot, by its
nature, be cured within such 30 day period, but Tenant commences and
diligently pursues a cure of such default promptly within the initial
30 day cure period, then Landlord shall not exercise its remedies
under Section 22 unless such default remains uncured for more than 60
days after the initial delivery of Landlord's original default notice;
or (c) Tenant vacates or abandons the Premises during the Term.
without terminating this Lease, Landlord may, at Landlord's option, enter into the Premises, remove Tenant's Property, Tenant's signs and other evidences of tenancy, and take and hold possession thereof, as provided in Section 20 hereof; provided, however, that such entry and possession shall not terminate this Lease or release Tenant, in whole or in part, from Tenant's obligation to pay the Base Rent and Additional Rent reserved hereunder for the full Term, or from any other obligation of Tenant under this Lease. Any and all property that may be removed from the Premises by Landlord pursuant to the authority of the Lease or of law, to which Tenant is or may be entitled, may be handled, removed or stored by Landlord at the sole risk, cost and expense of Tenant, and in no event or circumstance shall Landlord be responsible for the value, preservation or safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all expenses incurred in such removal and all storage charges against such property so long as the same shall be in Landlord's possession or under Landlord's control. Any such property of Tenant not retaken from storage by Tenant within 30 days after the end of the Term, however terminated, shall be conclusively presumed to have been conveyed by Tenant to Landlord under this Lease as in a bill of sale, without further payment or credit by Landlord to Tenant.
Express or other comparable commercial overnight delivery service, addressed to the other party at the addresses set forth below (or to such other address as Landlord or Tenant may designate to each other from time to time by written notice), and shall be deemed to have been given, rendered or made on the day so delivered or on the first business day after having been deposited with the courier service:
If to Landlord: First Industrial Development Services, Inc.
3 Il South Wacker Drive, Suite 4000
Chicago, Illinois 60606
Attn: Executive Vice
President-Operations
With a copy to: First Industrial Realty Trust, Inc.
8850 Jameel Road, Suite 100
Houston, Texas 77040
Attn: Regional Manager
With a copy to: Barack Ferrazzano Kirschbaum Perlman
& Nagelberg LLC
333 West Wacker Drive
Suite 2700
Chicago, Illinois 60606
Attn: Suzanne Bessette-Smith
If to Tenant: DATACALL TECHNOLOGIES
23918 Pea Ridge Drive
Spring, Texas 77373
Attn: James Ammons
With a copy to: DATACALL TECHNOLOGIES
600 Kenrick, Suite B-12
Houston, Texas 77060
Attn: James Ammons
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nature or under the circumstances, can only be, or by the provisions of this Lease, may be performed after such expiration or other termination.
24.9. Time. Time is of the essence for this Lease. If the time for performance hereunder falls on a Saturday, Sunday or a day that is recognized as a holiday in the state in which the Property is located, then such time shall be deemed extended to the next day that is not a Saturday, Sunday or holiday in said state.
[Signature Page to Follow]
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the day and year first above written.
FIRST INDUSTRIAL DEVELOPMENT SERVICES, INC.,
A MARYLAND CORPORATION
WITNESS: By:
------------------ ---------------------------
Troy MacMane
Regional Manager
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DATACALL TECHNOLOGIES
WITNESS: By: /s/ James Ammons
------------------ --------------------------
James Ammons
President
Date: 3/23/05
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TAX lD#:
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EXHIBIT A
Legal Description
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Being 10.6885 acres of land out of and a part of the Unrestricted Reserve "C" of Greenbriar North, Section Two, a subdivision recorded in Volume 225, Page 62 in the Harris County Map Records, Harris County, Texas, said tract also being out of the William Savoy Survey, Abstract No. 699, Harris County, Texas and being more particularly described by metes and bounds as follows:
BEGINNING at a found 5/8 inch iron rod marking the more northerly northeast cutback corner, at the intersection of the east right-of-way line of Hedgecroft Drive (60 feet wide) and the south right-of-way line of Kenrick Drive (60 feet wide), said point being the north most west corner of the herein described tract;
THENCE, N 87' 32' 7" E, along the south right-of-way line said Kenrick Drive, a distance of 1165.00 feet to a found 5/8 inch iron rod for a point of curvature;
THENCE, along a curve to the left, and the south right-of-way line of said Kenrick Drive, said curve having a radius of 1176.00 feet, a delta of 77' 00' 40", and an arc length of 349.15 feet, said curve also having a tangency of 175.87 feet and a long chord bearing of curvature;
THENCE, N 70' 31' 27" E, along the south right-of-way line of said Kenrick Drive, a distance of 11.27 feet to a found 5/8 inch iron rod for corner said paint also lying on the more westerly southwest cutback corner for the intersection of the south right-of-way line of said Kenrick Drive and the west right-of-way line of West Hardy Road (varying width);
THENCE, S 65' 22' 48" E, along the more westerly Southwest cutback corner for the intersection of the south right-of-way line of said Kenrick Drive and the west right-pf-way line of said West Hardy Road, a distance of 14.36 feet to a found 5/8 Inch Iron rod for corner, said point lying on the west right-of-way line of said West Hardy Road;
THENCE, S 21' 17' 05" F, along the west right-of-way line of said West Hardy Road, a distance of 352.03 feet to a found 5/8 inch iron rod;
THENCE 5 87' 32' 07" W, a distance of 1656.17 feet to a found 5/8 inch iron rod for a corner, said point lying on the east right-of-way line of said Hedgecroft Drive;
THENCE, N 02' 27' 54" W, along the east right-of-way line of said Hedgecroft Drive, a distance of 275.00 feet to a found 5/8 Inch Iron rod for corner, said portion lying on the more easterly southeast outback corner at the intersection of the east right-of-way line of said Hedgecroft Drive and the south right-of-way line of said Kenrick Drive;
THENCE, N 42' 32' 07" E, along said southeast cutback line a distance of 14.14 feet to a found 5/8 Inch Iron rod for corner, said point being the POINT OF BEGINNING, and containing 10.6885 acres of land.
EXHIBIT A-I
Space Plan
EXHIBIT B
Landlord's Repairs & Improvements
Tenant accepts the space "As-Is" with the exception of the following, which Landlord agrees to perform at its sole cost and expense:
I. Service the HVAC units; clean units and change filters.
2. Certify that all plumbing fixtures are in good and working order within fifteen (15) days of the Lease Commencement Date.
EXHIBIT C
Tenant Move-Out Responsibilities
- First Industrial does not permit decals, stickers or other material to he affixed to the storefront glass. Should any have been displayed, they should he removed, without damage to, or residue remaining upon, the glass or reflective film. Tenant must remove all signs on building.
- All exterior and interior locks and all door hardware should be in good repair and operating condition. If tenant has rekeyed so that current locks are not compatible with our master keying system, we will need to rekey the exterior locks to our master system. at tenant's expense. Also, keys are needed for each interior lock, including doors. a/c thermostat boxes, towel holders, etc.
- Interior glass, mullions, sills and mini-blinds should he cleaned. Damaged blinds should he repaired, or replaced, if required.
- Alarm system hardware, including control panels, keypads and sensors, should he deactivated and removed, and any wall or other damage from mounting should he repaired.
- Air conditioning systems should be in good operating order and free of any immediate maintenance or repair needs. Air conditioning filters should be replaced within thirty (30) days prior to vacancy. Tenant must supply landlord with maintenance records.
- All plumbing should be operational, including hot water heaters, and free from leaks or stoppages. Fixtures should not he dented, cracked or chipped.
- All ceiling lights should he fully operational.
- All ceiling tile and grid should be complete, intact and undamaged.
- Wall surfaces should be free of mounting brackets, or holes therefrom. Water or impact damage to walls should he repaired. Patchwork should be neat, to blend in with existing wall finish. Holes in doors or trim should he similarly repaired.
- Vinyl or other wood base or molding should he complete, intact and free from damage.
- Carpets should he thoroughly vacuumed. If heavily soiled, carpet will require shampooing or other soil-extraction treatment. If stains can be "spot removed," this may he acceptable. Vinyl or other floor tile should he cleaned.
- Restrooms should he thoroughly cleaned, as in the normal housekeeping routine for the suite. This includes fixtures, mirrors, vanity and cabinet tops and interiors.
- All mechanical equipment should be in good operating order. This includes sump pumps, hoists and lifts, dock levelers. motorized dampers and exhaust fans.
- Warehouse, shop. plant and other concrete floors should be cleaned of any sediment adhering to the surface, and then swept clean.
- Holes in warehouse walls should he patched.
- Roll-up doors should he in good repair and operation. interior surfaces should be reasonably clean and free from dirt or other sediment.
- Any shelving, partitions or other structures within the warehouse must be in good condition, meeting all building and safety codes, or else he repaired or removed, at the option of FIRST INDUSTRIAL.
- Cobwebs should be removed from all office and warehouse areas.
- All EXIT and emergency lighting should be fully operational.
- All fire extinguishers should be fully charged, and mounted as per code.
- All debris must he removed from interior and exterior of suite and properly disposed of by tenant.
- Any damage tot he exterior of the suite, including the building structure, light fixtures, dock bumpers, stairs, truck wells, guardrails, bollards, or air conditioning equipment, caused by the tenant, its agents or employees, will be repaired by FIRSI INDUSTRIAL at tenant's expense.
- No fixtures of' any type may he removed from the suite without written permission from FIRST INDUSTRIAL. This includes all fixtures, whether provided by the landlord or tenant. A Fixture is anything that is attached to the building or premises.
- Any and all tenant-provided improvements must meet building code requirements as well as FIRST INDUSTRIAL standards fur construction, be brought to meet same, or be demolished and removed and the premises restored, at FIRST INDUSIRIAL'S option.
APPROXIMATE ANNUAL STORAGE CONTAINER(S)
QUANTITY USED OR (I.E. DRUMS, CARTONS, TOTES,
CHEMICALLWASTE GENERATED BAGS, ASTS, USTS, ETC)
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EXHIBIT D
EXHIBIT E
Rules and Regulations
1. Landlord agrees to furnish Tenant two keys without charge. Additional keys will be furnished at a nominal charge.
2. Tenant will refer all contractors, contractor's representatives and installation technicians rendering any service on or to the leased premises for Tenant, to Landlord for Landlord's approval and supervision before performance of any contractual service. This provision shall apply to all work performed on or about the leased premises or project, including installation of telephones, telegraph equipment, electrical devices and attachments and installations of any nature affecting floors, walls, woodwork, trim, windows, ceilings and equipment or any other physical portion of the leased premises or project.
3. Tenant shall not at any time occupy any part of the leased premises or project as sleeping or lodging quarters.
4. Tenant shall not place, install or operate on the leased premises or in any part of the building, any engine, stove or machinery, or conduct mechanical operations or cook thereon or therein, or place or use in or about the leased premises or project any explosives, gasoline, kerosene, oil, acids, caustics, or any flammable, explosive or hazardous material without written consent of Landlord.
5. Landlord will not be responsible for lost or stolen personal property, equipment, money or jewelry from the leased premises or the project regardless of whether such loss occurs when the area is locked against entry or not.
6. No dogs, cats, fowl, or other animals shall be brought into or kept in or about the leased premises or project.
7. Employees of Landlord shall not receive or carry messages for or to any Tenant or other person, nor contract with or render free or paid services to any Tenant or Tenant's agents, employees or invitees.
8. None of the parking plaza, recreation or lawn areas, entries, passages, doors, elevators, hallways or stairways shall be blocked or obstructed or any rubbish, litter, trash, or material of any nature placed, emptied or thrown into these areas or such area be used by Tenant's agents, employees or invitees at any time for purposes inconsistent with their designation by Landlord.
9. The water closets and other water fixtures shall not he used for any purpose other than those for which they were constructed, and any damage resulting to them from misuse, or by the defacing or injury of any part of the building shall be borne by the person who shall occasion it. No person shall waste water by interfering with the faucets or otherwise.
10. No person shall disturb occupants of the building by the use of any radios, record players, tape recorders, musical instruments, the making of unseemly noises, or any unreasonable use.
11. Nothing shall be thrown out of the windows of the building or down the stairways or other passages.
12. Notwithstanding anything contained herein pertaining to use, Landlord agrees that Tenant will utilize the building for office administration, package sorting, and will drive and store delivery vehicles within the warehouse portion of the building.
EXHIBIT F
Termination Option
Provided Tenant has not been in default during the term of this Lease, Tenant shall have a one-time option to terminate this Lease effective on April 1, 2007. This termination option shall be null and void, and of no further force, unless Tenant complies with the following provisions for the exercise of this option: i) at least 180 days prior to the date on which the early termination would be effective, Tenant shall deliver to Landlord, in the manner of delivery specified in this Lease for notices, a letter notifying Landlord of Tenant's intent to terminate; and ii) such letter shall be accompanied by a check in the amount of $3,365.00 as a penalty which includes two (2) months of Rent and Operating Expenses and reimbursement of unamortized Commissions.
EXHIBIT G
Signage
Pursuant to and in addition to Section 4.3. (Signage), the sign specifications for 600 Kenrick are as follows:
2'X 3', 1" flange, 4" radius corners, PMS 5655C background PMS 343C border and flange
Material:
Aluminum Pan Sign
Aluminum angle iron bracketed to the wall (1" aluminum)
Approved Sign Companies:
First Industrial's approved vendors are 4D Graphics and Art Office Signs.
Contact:
Joel Cecil
Art Office Signs
201 West 2nd Street
Taylor, Texas 76574
Phone: (713) 862-2994
Fax: (713) 862-2997
Contact:
Sandy Gaitz
4D Graphics
2010 Pech Road
Houston, Texas 77055
Phone: (713) 984-2010
Fax: (713) 984-8064
EXHIBIT H
Tenant Contact Information
GENERAL/MARKETING CONTACT
EXHIBIT 23.1
To the Board of Directors:
Data Call Technologies, Inc.
600 Kenrick, Suite B-12
Houston, Texas 77060
We hereby consent to use in this Form SB-2 Registration Statement of our report dated January 16, 2006, except for note 6, which is as of May 22, 2006, relating to Data Call Technologies, Inc. which is part of this Registration Statement. We also consent to the reference to our firm under the caption "Experts."
June 29, 2006
/s/ R.E. Bassie & Co. --------------------- R.E. BASSIE & CO. |