As filed with the U.S. Securities and Exchange Commission on September 3, 2013
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
_______________
FORM 10
_______________
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
VALUESETTERS, INC.
(Exact name of registrant as specified in its charter)
Utah | 87-0409951 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
430 North Street, White Plains, New York | 10605 | |
(Address of principal executive offices) | Zip Code |
(914) 750-9339 | ||
(Registrant’s telephone number, including area code) |
Copies to:
Mr. Manuel Teixeira
Chairman of the Board and Chief Executive Officer
ValueSetters, Inc.
430 North Street
White Plains, New York 10605
Tel.: (914) 750-9339
-and-
Greenberg Traurig, LLP
MetLife Building
200 Park Avenue, 15 th Floor
New York, New York 10166
Attn.: Spencer G. Feldman, Esq.
Tel.: (212) 801-9200
Fax: (212) 801-6400
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X]
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VALUESETTERS, INC.
TABLE OF CONTENTS
Page
Item 1. - Business | 4 | |||
Item 1a. - Risk Factors | 6 | |||
Item 2. - Financial Information | 11 | |||
Item 3. - Properties | 16 | |||
Item 4. - Security Ownership of Certain Beneficial Owners and Management | 16 | |||
Item 5. - Directors and Executive Officers | 16 | |||
Item 6. - Executive Compensation | 19 | |||
Item 7. - Certain Relationships and Related Transactions, and Director Independence | 19 | |||
Item 8. - Legal Proceedings | 20 | |||
Item 9. - Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters | 20 | |||
Item 10. - Recent Sales of Unregistered Securities | 21 | |||
Item 11. - Description of Registrant’s Securities to be Registered | 21 | |||
Item 12. - Indemnification of Directors and Officers | 21 | |||
Item 13. - Financial Statements and Supplementary Data | 22 | |||
Item 14. - Changes In and Disagreements With Accountants on Accounting and Financial Disclosure | 22 |
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EXPLANATORY NOTE
We are voluntarily filing this General Form for Registration of Securities on Form 10 to register our common stock, par value $0.001 per share (the “Common Stock”), pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Once this registration statement is deemed effective, we will be subject to the requirements of Regulation 13A under the Exchange Act, which will require us to file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and we will be required to comply with all other obligations of the Exchange Act applicable to issuers filing registration statements pursuant to Section 12(g) of the Exchange Act.
Throughout this registration statement, unless otherwise indicated by the context, references herein to the “Company,” “ValueSetters,” “we,” “us,” “our” or the “Registrant” means ValueSetters, Inc., a Utah corporation, and its corporate subsidiaries and predecessors.
FORWARD-LOOKING STATEMENTS
We caution readers that this registration statement contains forward-looking statements as that term is defined in Section 21E of the Exchange Act. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. We hereby qualify all our forward-looking statements by the following cautionary statements. Forward-looking statements are predictions and not guarantees of future performance or events. Forward-looking statements are based on current expectations rather than historical facts and relate to future events or future financial performance. Such statements are based on currently available financial and competitive information and are subject to various risks and uncertainties that could cause actual results to differ materially from historical experience and present expectations. Our actual results could differ materially from those stated or implied by such forward-looking statements due to risks and uncertainties associated with our business. Undue reliance should not be placed on forward-looking statements as such statements speak only as of the date on which they are made. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Some of the factors that could affect our financial performance, cause actual results to differ from our estimates, or underlie such forward-looking statements, are set forth below and in various places in this registration statement, including under the headings Item 1. “Business” and Item 1A. “Risk Factors” in this registration statement. These factors include:
- | general economic conditions; |
- | our future capital needs and our ability to obtain financing; |
- | anticipated and unanticipated trends and conditions in our industry, including the impact of recent or future regulatory environment; |
- | recent and future economic conditions, including turmoil in the financial and credit markets; |
- | the effectiveness of our marketing to maintain existing and attract new customers; |
- | our ability to contain costs; |
- | our ability to predict consumer preferences and changes in trends, technology and consumer acceptance of both new designs and newly introduced products; |
- | changes in the costs of labor and advertising; |
- | our ability to carry out our business strategies; |
- | the level of consumer spending for gaming and entertainment; |
- | our ability to compete; and |
- | other factors set forth in this registration statement. |
You are cautioned that all forward-looking statements involve risks and uncertainties. We undertake no obligation to amend this
registration statement or revise publicly these forward-looking statements (other than pursuant to reporting obligations imposed
on registrants pursuant to applicable federal securities laws) to reflect subsequent events or circumstances.
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ITEM 1. BUSINESS.
Business and Operations
We are an Internet-based game company that seeks free subscribers and revenue-generating subscribers. We allow subscribers to play games of chess for free and not receive rankings. We charge a fee to play the game against advanced players and to receive a ranking. We operate on an automated basis. We believe that Internet operations, customer sign-ups and game playing should occur without human intervention so that they can scale rapidly in the event the number of subscribers of the game begins to rapidly grow on a viral basis. We rely significantly on the programs we purchased, including the assets of NetGames.com, and we intend to acquire other Internet-based games and programs that can generate revenue with a minimum of personnel.
The games on our website use software technology that provides easy-to-use graphics, and allows real time interactivity with a competitor. Our one operational website is www.chess.net, which allows a person to play chess online, without typing any words, unless the person wants to use the website’s chat feature. People have the option of loading and playing games through their web browser with no downloading, or a person may download our chess software in order to play rated games and enter tournaments. Once the necessary software has been downloaded, a customer is required to provide certain personal and financial information, including a user name, password and bank or credit card information, in order to open an account. A person need not open an account to browse the website or play pick-up games. In order to enter chess tournaments and develop a track record that allows a person to be ranked against other players, a person must purchase a monthly, quarterly or annual membership. We sell memberships for $4.00 per month, $10.00 per quarter and $30.00 per year.
We plan to develop other interactive Internet-based games, including ones that are designed for smart phone users. We design our websites to be an entertaining, interactive, real time playing experience that provides maximum privacy and security to the customer. With respect to customer privacy and security, we do not disclose any personal information relating to any customer, but certain customers who use our on-line chat feature may decide to reveal their identities to other customers, or exchange email addresses or telephone numbers.
Corporate History
We were incorporated in the State of Utah in April 1984 under our previous name, DBS Investments, Inc. A change of control of our company occurred in December 2003 and we changed our name to ValueSetters, Inc., when we, in conjunction with a plan of reorganization, merged with ValueSetters L.L.C., an Arizona limited liability corporation. Another change of control of our company occurred on November 23, 2010 when a contract of sale was signed that required us to issue or cause to be issued from existing shareholders an aggregate of 417,048,000 shares of Common Stock to acquire the assets of NetGames.com.
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After the merger, the founders of ValueSetters L.L.C. held 75% of the shares of the merged business, the shareholders of DBS Investments held 6% of the shares and new investors acquired 19% of the shares. ValueSetters launched its business with a unique consumer goods distribution model that was designed to:
- | provide manufacturers and importers with access to profitable incremental sales to small-store and non-store resellers, |
- | provide small-store and non-store resellers with cost-effective access to products from large manufacturers and importers, and |
- | utilize its proprietary computer-Internet based system to allow the Company to efficiently receive small orders from individual resellers, consolidate them and process them to large manufacturers and importers who would not otherwise find it economically feasible to deal with small retailers and vice versa, |
When the operations of ValueSetters failed to generate enough revenue to sustain its business, we terminated operations and looked to invest in another business. In order to take advantage of the increasing game activities on the Internet, on November 23, 2010, we signed a contract to purchase all the assets of NetGames.com, a company that owned several websites and operated a small Internet-based chess game known as Chess.net. Our operations now consist of the revenue provided by the website at www.chess.net. In conjunction with the purchase of this website, VaxStar LLC became the majority owner of our company.
Since our acquisition of Chess.net, we have upgraded the website, improved the graphical layout and changed the payment system. New programming techniques and features were applied to the former chess.net website, to create a modern, reliable and functionally effective and attractive design. The upgrade in the payment system follows the new trends of international payment gateways. We intend to continue to increase our marketing and administrative activities, and to increase other operating expenses as required to build our business.
Competition
We compete with a number of public and private companies, which provide electronic commerce and/or Internet games. Most of our competitors have significant financial resources, and occupy entrenched position in the market and name-brand recognition. We also face challenges from new Internet sites that aim to attract subscribers who seek to play interactive games and obtain ratings and status for superior playing skills. Such companies may be able to attract significantly more subscribers than us because of new marketing ideas and new game concepts.
The barriers to entry into most Internet markets are relatively low, making them accessible to a large number of entities and individuals. We believe the principal competitive factors in our industry that create certain barriers to entry include but are not limited to reputation, technology, financial stability and resources, proven track record of successful operations, critical mass independent oversight and transparency of business practices. While these barriers will limit those able to enter or compete effectively in the market, it is likely that new competitors as well as laws and regulations of governmental authority will be established in the future, in addition to our known current competitors.
Increased competition from current and future competitors may in the future materially adversely affect our business, revenues, operating results and financial condition.
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Industry Regulation
We are subject, both directly and indirectly, to various laws and regulations relating to our business. If any of the laws are amended, compliance could become more expensive and directly affect our income. We intend to comply with such laws, but new restrictions may arise that could materially adversely affect our Company.
Research and Development
We do not currently have a budget specifically allocated for research and development purposes.
Employees
As of July 31, 2013, we had no full-time employees and one part-time employee (Manuel Teixeira, our Chairman and Chief Executive Officer). Mr. Teixeira is engaged in outside business activities and we anticipate he will continue to devote 8 hours per week to our business until we develop or acquire additional games.
Corporate Information
Our principal executive office is located at 430 North Street, White Plains, New York 10605. This location is adequate for our current needs. Our telephone number is (914) 750-9339 and our facsimile is (914) 517-1632. We maintain a website at http://www.chess.net.
Reports to Security Holders
We are currently not required to deliver an annual report to security holders, and at this time do not anticipate the distribution of such a report.
We will voluntarily file reports with the SEC, be a reporting company and comply with the requirements of the Exchange Act. Upon effectiveness of the Form 10, the Company will be subject to the reporting requirements under Section 13(a) of the Exchange Act and Rules 13a-l and 13a-13 thereunder.
The public may read and copy any materials we file with the SEC in the SEC's Public Reference Section, Room 1580, 100 F Street N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Section 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, which can be found at http://www.sec.gov.
Item 1A. RISK FACTORS.
An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and the other information in this registration statement before investing in our common stock. If any of the following risks occur, our business, operating results and financial condition could be seriously harmed.
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We have a limited operating history that you can use to evaluate us, and the likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small developing company.
We were incorporated in the State of Utah in April 1984. We have no significant financial resources and limited revenues to date. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small developing company starting a new business enterprise and the highly competitive environment in which we will operate. Since we have a limited operating history, we cannot assure you that our business will be profitable or that we will ever generate sufficient revenues to meet our expenses and support our anticipated activities.
We will require financing to achieve our current business strategy and our inability to obtain such financing could prohibit us from executing our business plan and cause us to slow down our expansion of operations.
We will need to raise additional funds through public or private debt or sale of equity to achieve our current business strategy.
Such financing may not be available when needed. Even if such financing is available, it may be on terms that are materially adverse
to your interests with respect to dilution of book value, dividend preferences, liquidation preferences, or other terms. We estimate
our capital requirements to implement our business strategy will be approximately $250,000. Moreover, in addition to monies needed
to continue operations over the next twelve months, we anticipate requiring additional funds in order to implement our plan of
operations. No assurance can be given that such funds will be available or, if available, will be on commercially reasonable terms
satisfactory to us. There can be no assurance that we will be able to obtain financing if and when it is needed on terms we deem
acceptable. If we are unable to obtain financing on reasonable terms, we could be forced to delay or scale back our plans for
expansion. In addition, such inability to obtain financing on reasonable terms could have a material adverse effect on our business,
operating results, or financial condition.
Our auditor has expressed substantial doubt as to our ability to continue as a going concern .
Based on our financial history since inception, our auditor has expressed substantial doubt as to our ability to continue as a
going concern. At April 30, 2013, we had not yet achieved profitable operations, and had accumulated losses of $1,603,494. We
expect to incur further losses in the development of our business, all of which casts substantial doubt about our ability to continue
as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate future profitable operations
and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations
when they come due. Management anticipates that additional funding will be in the form of equity financing from the sale of common
stock. Management may also seek to obtain short-term loans from the directors of our company or from our majority shareholder.
There are no current arrangements in place for equity funding and our majority shareholder may not be able to provide us with
enough working capital via short-term loans. If we cannot generate sufficient revenues from our services or seek additional funding
we may have to delay the implementation of our business plan.
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The adoption of new laws or changes to or the application of existing laws relating to Internet commerce may affect the growth of our business.
We may become subject to any number of laws and regulations that may be adopted with respect to the Internet and electronic commerce. New laws and regulations that address issues such as user privacy, pricing, online content regulation, taxation, advertising, intellectual property, information security, and the characteristics and quality of online products and services may be enacted. As well, current laws, which predate or are incompatible with the Internet and electronic commerce, may be applied and enforced in a manner that restricts the electronic commerce market. The application of such pre-existing laws regulating communications or commerce in the context of the Internet and electronic commerce is uncertain. Moreover, it may take years to determine the extent to which existing laws relating to issues such as intellectual property ownership and infringement, libel and personal privacy are applicable to the Internet.
The adoption of new laws or regulations relating to the Internet, or particular applications or interpretations of existing laws, could decrease the growth in the use of the Internet, decrease the demand for our products and services, increase our cost of doing business or could otherwise have a material adverse affect on our business, revenues, operating results and financial condition.
Many major economies are in a recession and unless these economies improve it will adversely impact our business.
We sell a form of entertainment for individual consumers throughout the world, and consequently the ability to successfully deploy our business model is heavily dependent upon the general state of the economy. If consumers have limited discretionary income, we may not be able to attract enough paying subscribers to make our chess business profitable or to generate new Internet games that consumers are willing to purchase and play. We cannot assure you that favorable conditions will exist in the future. A continued long-term economic recession in several countries could have a serious adverse economic impact on us and our ability to obtain funding and generate projected revenues.
Our business depends on the reliability of the infrastructure that supports the Internet and the viability of the Internet.
The growth of Internet usage has caused frequent interruptions and delays in processing and transmitting data over the Internet. There can be no assurance that the Internet infrastructure or the Company’s own network systems will continue to be able to support the demands placed on it by the continued growth of the Internet, the overall online gaming industry or that of our customers.
The Internet’s viability could be affected if the necessary infrastructure is not sufficient, or if other technologies and technological devices eclipse the Internet as a viable channel.
End-users of our software depend on Internet Service Providers (“ISPs”), online service providers and our system infrastructure for access to the Internet sites that we operate. Many of these services have experienced service outages in the past and could experience service outages, delays and other difficulties due to system failures, stability or interruption. As a result, we may not be able to meet a level of service that we have promised to our subscribers, and we may be in breach of our contractual commitments, which could materially adversely affect our business, revenues, operating results and financial condition.
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Game playing on the Internet is a developing industry and, therefore, we do not know if the market will continue to develop and our products and services will continue to be in demand.
The Internet continues to evolve rapidly and is characterized by an increasing number of market entrants. The demand and acceptance for new products and services are subject to a level of uncertainty and growing competition, and if our games do not receive market acceptance, our business, revenues, operating results and financial condition could be materially adversely affected.
Our game software, the Internet and electronic commerce services are subject to security risks, which may inhibit the growth of the industry and the acceptance of our products and services.
Our game software, the Internet and electronic commerce services are reliant on technologies and network systems to securely handle transactions and user information over the Internet, which may be vulnerable to system intrusions, unauthorized access or manipulation. As users become increasingly sophisticated and devise new ways to commit fraud, our security and network systems may be tested and subject to attack.
We implement and plan to continue to implement measures to protect against these intrusions. However, there is no assurance that all such intrusions or attacks will or can be prevented in the future, and any system intrusion/attack may cause a delay, interruption or financial loss, which could have a material adverse effect on our business, revenue, operating results and financial condition.
We compete with a number of public and private companies, which provide electronic commerce and/or Internet games. Most of our competitors have significant financial resources, and occupy entrenched position in the market and name-brand recognition. We also face challenges from new Internet sites that aim to attract subscribers who seek to play interactive games and obtain ratings and status for superior playing skills. Such companies may be able to attract significantly more subscribers than us because of new marketing ideas and new game concepts.
The barriers to entry into most Internet markets are relatively low, making them accessible to a large number of entities and individuals. We believe the principal competitive factors in our industry that create certain barriers to entry include but are not limited to reputation, technology, financial stability and resources, proven track record of successful operations, critical mass independent oversight and transparency of business practices. While these barriers will limit those able to enter or compete effectively in the market, it is likely that new competitors as well as laws and regulations of governmental authority will be established in the future, in addition to our known current competitors.
Increased competition from current and future competitors may in the future materially adversely affect our business, revenues, operating results and financial condition.
We may make acquisitions or form joint ventures that are unsuccessful.
Our ability to grow is dependent on our ability to successfully acquire other companies, which creates substantial risk. In order to pursue a growth by acquisition strategy successfully, we must identify suitable candidates for these transactions; however, because of our limited funds, we may not be able to purchase those companies that we have identified as potential acquisition candidates. Additionally, we may have difficulty managing post-closing issues such as the integration into our corporate structure. Integration issues are complex, time consuming and expensive and, without proper planning and implementation, could significantly disrupt our business, including, but not limited to, the diversion of management's attention, the loss of key business and/or personnel from the acquired company, unanticipated events, and legal liabilities.
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We do not expect to pay dividends and investors should not buy our common stock expecting to receive dividends.
We have not paid any dividends on our common stock in the past, and do not anticipate that we will declare or pay any dividends in the foreseeable future. Consequently, you will only realize an economic gain on your investment in our common stock if the price appreciates. You should not purchase our common stock expecting to receive cash dividends. Since we do not pay dividends, and if we are not successful in having our shares listed or quoted on an exchange, then you may have a limited ability to liquidate or receive any payment on your investment. Therefore our failure to pay dividends may cause you to not see any return on your investment even if we are successful in our business operations. In addition, because we do not pay dividends we may have trouble raising additional funds, which could affect our ability to expand our business operations.
Our common stock is considered a penny stock, which is subject to restrictions on marketability, so you may not be able to sell your shares.
The trading of our stock is subject to the penny stock rules adopted by the Securities and Exchange Commission that require brokers to provide extensive disclosure to their customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our common stock, which in all likelihood would make it difficult for our shareholders to sell their securities.
Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system). Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit their market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.
We must be able to develop and implement an expansion strategy and manage our growth.
Our success depends in part on our ability to grow and take advantage of efficiencies of scale. To accomplish our growth strategy, we may be required to raise and invest additional capital and resources and expand our geographic markets. We cannot be assured that we will be successful in raising the required capital.
Our future growth depends on our ability to develop and retain customers.
Our future growth depends to a large extent on our ability to effectively anticipate and adapt to customer requirements and offer services that meet customer demands. If we are unable to attract new customers and/or retain new customers, our business, results of operations and financial condition may be materially adversely affected.
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We will need to attract, train and retain additional highly qualified senior executives and technical and managerial personnel in the future.
We continue to seek technical and managerial staff members. There is a high demand for highly trained and managerial staff members. If we are not able to fill these positions, it may have an adverse affect on our business.
We may conduct future offerings of our common stock and pay debt obligations with our common and preferred stock which may diminish our investors’ pro rata ownership and depress our stock price.
We reserve the right to make future offers and sales, either public or private, of our securities, including shares of our common stock or securities convertible into common stock at prices differing from the price of the common stock previously issued. In the event that any such future sales of securities are affected or we use our common stock to pay principal or interest on our debt obligations, an investor’s pro rata ownership interest may be reduced to the extent of any such future sales.
ITEM 2. FINANCIAL INFORMATION.
This registration statement contains forward-looking statements that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. Future filings with the SEC future press releases and future oral or written statements made by us or with our approval, which are not statements of historical fact, may also contain forward-looking statements. Because such statements include risks and uncertainties, many of which are beyond our control, actual results may differ materially from those expressed or implied by such forward-looking statements. Some of the factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements are set forth in the section entitled “Financial Information” and elsewhere throughout this registration statement.
Readers are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements speak only as of the date on which they are made and, except as required by applicable federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.
The following financial data is referenced to, and should be read in conjunction with, the Company’s Financial Statements and related Notes thereto for the respective periods, contained elsewhere in this report.
Overview
We were incorporated in the State of Utah in April 1984 under our previous name, DBS Investments, Inc. A change of control of our company occurred in December 2003 and we changed our name to ValueSetters, Inc., when we, in conjunction with a plan of reorganization, merged with ValueSetters L.L.C., an Arizona limited liability corporation.
After the merger, the founders of ValueSetters L.L.C. held 75% of the shares of the merged business, the shareholders of DBS Investments held 6% of the shares and new investors acquired 19% of the shares.
ValueSetters launched its business with a unique consumer goods distribution model that was designed to:
- | provide manufacturers and importers with access to profitable incremental sales to small-store and non-store resellers, |
- | provide small-store and non-store resellers with cost-effective access to products from large manufacturers and importers, and |
- | utilize its proprietary computer-Internet based system to allow the Company to efficiently receive small orders from individual resellers, consolidate them and process them to large manufacturers and importers who would not otherwise find it economically feasible to deal with small retailers and vice versa, |
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When the operations of ValueSetters failed to generate enough revenue to sustain its business, we terminated operations and looked to invest in another business. In order to take advantage of the increasing game activities on the Internet, on November 23, 2010, we signed a contract to purchase all the assets of NetGames.com, a company that owned several websites and operated a small Internet-based chess game known as Chess.net. Our operations now consist of the revenue provided by the website at www.chess.net. In conjunction with the purchase of this website, VaxStar LLC became the majority owner of the Company.
Since our acquisition of Chess.net, we have upgraded the website, improved the graphical layout and changed the payment system. New programming techniques and features were applied to the former chess.net website, to create a modern, reliable and functionally effective and attractive design. The upgrade in the payment system follows the new trends of international payment gateways. We intend to continue to increase our marketing and administrative activities, and to increase other operating expenses as required to build our business.
We have incurred losses and negative cash flows from operations in every fiscal period since inception due to the initial research, technology infrastructure development, starting and realignment of our business. Our revenues have not been sufficient to cover our expenses to date. In order to significantly increase revenues we will be required to incur significant advertising and promotional expenses. None of our officers or directors is compensated due to our lack of funding. We intend to employ personnel in such areas as sales, technical support and finance. These actual and proposed increases in personnel will significantly increase our selling, general and administrative expenses.
Our limited operating history and the uncertain nature of our future operations and the markets we address or intend to address make prediction of our future results of operations difficult. Our operations may never generate significant revenues, and we may never achieve profitable operations. Our quarterly and annual operating results are likely to fluctuate significantly in the future due to a variety of factors, including the seasonal effects of other entertainment venues, or holiday seasons, which are outside our control.
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes to the financial statements included elsewhere in this registration statement. This discussion contains forward-looking statements that relate to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Overview
We are an Internet-based game company that seeks free subscribers and revenue-generating subscribers. We allow subscribers to play games of chess for free and not receive rankings. We charge a fee to play the game against advanced players and to receive a ranking. We operate on an automated basis. We believe that Internet operations, customer sign-ups and game playing should occur without human intervention so that they can scale rapidly in the event the number of subscribers of the game begins to rapidly grow on a viral basis. We rely significantly on the programs we purchased, including the assets of NetGames.com, and we intend to acquire other Internet-based games and programs that can generate revenue with a minimum of personnel.
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Results of Operations
Fiscal Year 2013 Compared to Fiscal Year 2012
Our revenues for fiscal 2013 increased by $1,373, or approximately 20%, to $8,167 as compared to $6,813 reported for fiscal 2012. The increase in revenues was from referrals, as we did no advertising or spending to attract new users.
Selling, general and administrative expenses (“SG&A”) decreased by $2,798, or approximately 8%, to $33,690 for fiscal 2013 from $36,488 reported in the prior year fiscal period. The decrease is primarily attributable to a decrease in professional fees.
Interest expense increased by $2,348 to $18,874 for the year ended April 30, 2013, as compared to $16,526 for the prior fiscal year. Increased borrowings in fiscal 2013 accounted for the increase in interest expense.
Liquidity and Capital Resources
At April 30, 2013, we had cash and cash equivalents of $3,075 and negative working capital of $682,526 as compared to cash and cash equivalents of $1,944 and negative working capital of $656,156 at April 30, 2012.
Net cash used in operating activities aggregated approximately $16,890 and $17,388 in fiscal 2013 and 2012, respectively. The principal use of cash from operating activities in 2013 was the loss for the year of $26,370. The use of cash was offset in part by an increase in current liabilities of $9,480. The principal use of cash from operating activities in fiscal 2012 was the loss for the year of $30,630. The use of cash was offset in part by an increase in current liabilities of 13,242.
There was no investing activity in fiscal 2012 or in fiscal 2011.
Net cash provided by financing activities aggregated $18,021 and $18,087 in fiscal 2013 and 2012, respectively. The principal sources of cash from financing activities were net proceeds from the working capital line provided by our majority stockholder.
In fiscal 2013 and 2012, there were no expenditures for capital assets. We do not anticipate any capital expenditures in fiscal 2014 to enhance or expand our existing business that is provided on the chess.net website.
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of our company as a going concern. However, we have sustained net losses from operations during the last several years, and we have very limited liquidity. Management anticipates that we will be dependent, for the near future, on additional capital to fund our operating expenses and anticipated growth and the report of our independent registered public accounting firm expresses doubt about our ability to continue as a going concern. Our operating losses have been funded through borrowings under a line of credit from our majority shareholder.
Although we are not yet profitable and we are not generating cash from operations, we believe we have short-term financing available from our majority shareholder to fund our monthly cash-flow deficit. While we continually look for other financing sources, in the current economic environment, the procurement of outside funding is extremely difficult and there can be no assurance that such financing will be available, or, if available, that such financing will be at a price that will be acceptable to us. Failure to generate sufficient revenues or raise additional capital will have an adverse impact on our ability to achieve our longer-term business objectives, and will adversely affect our ability to continue operating as a going concern.
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New Accounting Standards
The new accounting pronouncements in Note 1 to our consolidated financial statements, which are included in this Report, are incorporated herein by reference thereto.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The most significant estimates include:
- | revenue recognition and estimating allowance for doubtful accounts; |
- | valuation of long-lived assets; and |
- | income tax valuation allowance. |
We continually evaluate our accounting policies and the estimates we use to prepare our consolidated financial statements. In general, the estimates are based on historical experience, on information from third party professionals and on various other sources and assumptions that are believed to be reasonable under the facts and circumstances at the time such estimates are made. Management considers an accounting estimate to be critical if:
- | it requires assumptions to be made that were uncertain at the time the estimate was made; and |
- | changes in the estimate, or the use of different estimating methods, could have a material impact on our consolidated results of operations or financial condition. |
Actual results could differ from those estimates. Significant accounting policies are described in Note 1 to our consolidated financial statements, which are included in this Report. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.
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Certain of our accounting policies are deemed “critical”, as they require management's highest degree of judgment, estimates and assumptions. The following critical accounting policies are not intended to be a comprehensive list of all of our accounting policies or estimates:
Revenue Recognition
We recognize revenue from Internet-based games in the period that the service is subscribed to. We offer no refunds for early termination of subscriptions and our policies are that once you pay for the service it is fully earned. Service is sold at a price of $4 per month. Quarterly and annual subscriptions are also available. Annual subscriptions cost $30. When subscribers sign up for Chess.net, they also agree to automatic renewals, and it is the customer’s responsibility to opt out of the automatic renewal process.
Allowance for Doubtful Accounts
In fiscal 2013 and 2012, we do not maintain allowances for doubtful accounts for estimated losses that result from the inability or unwillingness of our customers to make required payments. We have not carried any accounts receivable in either fiscal year, as we have required our customers to make a non-refundable prepayment for our services.
Impairment of Long-Lived Assets
Financial Accounting Standards Board (“FASB”) authoritative guidance requires that certain assets be reviewed for impairment and, if impaired, remeasured at fair value whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Impairment loss estimates are primarily based upon management’s analysis and review of the carrying value of long-lived assets at each balance sheet date, utilizing an undiscounted future cash flow calculation. During fiscal 2010, we recognized an impairment loss as we concluded the carrying amount of the assets purchased when we acquired Chess.net was not recoverable. No impairment losses were recognized in fiscal 2013 and 2012, as we no longer have a carrying amount for long-lived assets recorded on our books.
Income Taxes
We estimate the degree to which tax assets and loss carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined that such assets will more likely than not go unused. If it becomes more likely than not that a tax asset or loss carry-forward will be used, the related valuation allowance on such assets is reversed. If actual future taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary. At April 30, 2013 and 2012, we have recorded a full valuation on our deferred tax assets.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Information About Market Risk
We are not subject to fluctuations in interest rates, currency exchange rates or other financial market risks. We have not made any sales, purchases or commitments with foreign entities which would expose us to currency risks.
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ITEM 3. PROPERTIES.
We maintain minimal office space in White Plains, New York that we share with an unaffiliated company. This space is provided to us by TelcoSoftware.com Corp. on a rent-free basis, and it is anticipated that this arrangement will remain in place until such time as we require and can afford a larger space. Management believes that this arrangement will meet our needs for the foreseeable future. We currently have no rental agreement and have not paid rent during the past two fiscal years.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of August 22, 2013, the number of shares of common stock owned of record and beneficially by our executive officers, directors, our executive officers and directors as a group, and persons who beneficially own 5% or more of the outstanding shares of our common stock.
Name and Address | Amount of Shares and Nature | |||||||
of Beneficial Owner (1) | of Beneficial Ownership | Percent of Class* | ||||||
VaxStar LLC | 328,219,103 | 65.6 | % | |||||
Sean F. Lee(3) | 50,600,000 | 10.1 | % | |||||
Steven Geary (3) | 20,600,000 | 4.1 | % | |||||
Avi Liss (2,3) | 25,000,000 | 5.0 | % | |||||
Manuel Teixeira (2,3) | 25,000,000 | 5.0 | % | |||||
Tom Carmody (3) | 5,000,000 | 1.0 | % | |||||
Officers and Directors as a group (5 persons) | 121,700,000 | 25.2 | % |
* Based on 500,000,000 shares of common stock outstanding as of August 22, 2013.
(1) | Unless otherwise noted, the business address of each member of our Board of Directors is c/o Valuesetters, Inc., 430 North Street, White Plains, NY 10605. |
(2) | Mr. Teixeira is our Chairman of the Board and Chief Executive Officer, and Mr. Liss is our Secretary. |
(3) | Such individual is a member of the Board of Directors. |
Changes in Control
We are not aware of any arrangements that may result in a change in control of the Company.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The following table and biographical summaries set forth information, including principal occupation and business experience, about our directors and executive officers at August 22, 2013.
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Our executive officers and directors are as follows:
Name | Age | Position | Director Since | |
Manuel Teixeira | 47 | Chairman of the Board and Chief Executive Officer | August 2010 | |
Thomas H. Carmody | 67 | Director | August 2010 | |
Avi Liss | 34 | Secretary and Director | August 2010 | |
Sean F. Lee | 72 | Director | June 2003 | |
Steven Geary | 46 | Director | June 2006 |
Our directors serve in such capacity until the first annual meeting of our shareholders and until their successors have been elected and qualified. Our officers serve at the discretion of our board of directors, until their death, or until they resign or have been removed from office.
Executive Officers and Directors
Manuel Teixeira, Chairman of the Board and Chief Executive Officer
Manuel Teixeira has served as the Chairman of the Board and Chief Executive Officer of the Company since August 2010. From 2007 to 2010 he was the founder and Chief Executive Officer of Financira Services Inc. , a consumer debt settlement company. As the Chairman and Chief Executive , Mr. Teixeira leads the board and guides the company. Mr. Teixeira brings a deep background in technology growth companies, mergers and acquisitions, and capital market activities.
Thomas H. Carmody, Director
Thomas Carmody has served as a Director of the Company since August 2010. He has over 40 years experience as a marketing executive. For the past five years he has worked for Summit International LLC, a sports marketing and distribution company he founded in 1999. He currently serves on the Board of Directors of Continental Materials Corporation, a publicly-traded industrial company, and serves on that company’s audit committee. He has also served as the Chairman of the Board of Ameridream, a charitable organization providing housing down payment assistance for qualifying individuals, since 2003. Mr. Carmody has also served as Vice President of U.S. Operations and Vice President of the sports division of a publicly traded footwear, apparel and fitness company. The Board has concluded that Mr. Carmody adds invaluable and extensive marketing and business experience, as well as adding an entrepreneurial approach to situations that the company has faced may or may face in the future.
Avi Liss, Director and Secretary
Avi Liss has served as a Director of the Company since August 2010. Since August 2009 , he has served as the President of Liss Law, LLC, a law firm specializing in real estate conveyances. Prior to founding Liss Law, he worked as a judicial law clerk for the Hon. Stephen S. Mitchell, a bankruptcy court judge for the Eastern District of Virginia. Mr. Liss is well qualified to serve as a director of the company due to his knowledge and working experience with legal governance matters.
Sean F. Lee, Director
Sean F. Lee has served as a Director of the Company since June 2003. He is the founder and has been Chief Executive Officer of ImproveSmart, Inc., an online wholesale supplier to remodelers and contractors, since 2009. He founded ValueSetters, our company in 2003 and served as our Chief Executive Officer until August 2010. Mr. Lee’s prior operational leadership of our company and other technology companies makes him well qualified as a member of the board.
Steven Geary, Director
Steven Geary has served as a Director of the Company since June 2006. Since 2009 he as served in several management positions at Statera, an IT services provider, and is currently the Vice Present of Strategy and Business Development. From 2008 to 2009 he was the Chief Executive Officer of ImproveSmart, Inc. From April 2006 to June 2008 he served as our President and Chief Operating Officer. Mr. Geary provides extensive experience in managing technology and business development operations in quickly evolving industries making him well qualified as a member of our board.
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Involvement in Certain Legal Proceedings
Our directors, executive officers and control persons have not been involved in any of the following events during the past five years:
· | Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
· | Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
· | Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and |
· | Being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated. |
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ITEM 6. EXECUTIVE COMPENSATION.
Summary Executive Compensation Table
Change in | |||||||||
pension value | |||||||||
and | |||||||||
Non-equity | nonqualified | ||||||||
Name | incentive | deferred | |||||||
and | Stock | Option | plan | compensation | All other | ||||
principal | Salary | Bonus | awards | awards | compensation | earnings | compensation | Total | |
position | Year | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) |
Manuel Teixieira, CEO | 2013 | 0 | 0 | 0 | 0 | 0 | 0 | 1,000 | 1,000 |
2012 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
2011 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
Avi Liss, Secretary | 2013 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
2012 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
2011 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Our executive officers have agreed to work without compensation until our annual revenues exceed $1,000,000. We believe the equity positions held by such officers provides them with significant incentive to remain with us as we build the company.
We have no retirement, pension, profit sharing, stock option or insurance programs or other similar programs for the benefit of our officers and directors, and we have no regular salaried employees.
Compensation of Directors
We currently do not compensate our directors for their services as directors.
Employment Agreements
We currently have no employment agreements in place. At a later date we may enter into employment agreements with our executive officers.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Our majority shareholder, VaxStar LLC, is also our working capital lender. As of April 30, 2013 and 2012, the company owed its majority shareholder, under a secured lending agreement, $69,254 and $51,233, respectively. The maximum amount of the loan is $250,000, and the loan is payable on demand. The majority shareholder owns 328,219,103 shares of common stock, or 56% of the shares issued and outstanding.
Sean F. Lee, a director of our company and founder of ValueSetters, L.L.C., which merged with the Company in December 2003, has personally guaranteed bank debt of $50,229 as of April 30, 2013 and 2012, and credit card debt of $28,298 and 31,859 as of April 30, 2013 and 2012, respectively. In addition to the personal guarantees, the Company owes him $419,895 and $412,454 as of April 30, 2013 and 2012, respectively, for loans, interest payable and unpaid expenses. The Company owes Steven Geary, a director, $31,680 as of April 30, 2013 and 2012.
Director Independence
The Board has determined that the following directors are "independent" as defined under Marketplace Rule 5605(a)(2) of the listing rules of the NASDAQ Stock Market ("NASDAQ"): Thomas Carmody and Steven Geary. For a director to be considered independent, the Board must determine that the director does not have any direct or indirect material relationship with us that would impair his or her independence. The Board has established guidelines to assist it in determining director independence, which conform to the independence requirements in the NASDAQ listing rules. The Board has concluded that there are no business relationships that are material or that would interfere with the exercise of independent judgment by any of the independent directors in their service on the Board or its committees.
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ITEM 8. LEGAL PROCEEDINGS.
There are no legal proceedings pending or threatened by or against us. From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise that may harm our business.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Price
Our common stock is currently quoted on the OTC marketplace under the symbol VSTR. The high and low closing price for each quarterly period of our last two fiscal years are listed below.
The following table sets forth the high and low trade information for our common stock for each quarter during the past two fiscal years. The prices reflect inter-dealer quotations, do not include retail mark-ups, markdowns or commissions and do not necessarily reflect actual transactions.
Fiscal Quarter ended | High Price | Low Price | ||||
1 st Quarter - May – July 2011 | $ | 0.005 | $ | 0.0001 | ||
2 nd Quarter – August - October 2011 | $ | 0.005 | $ | 0.002 | ||
3 rd Quarter – November 2011 - January 2012 | $ | 0.0026 | $ | 0.001 | ||
4 th Quarter – February – April 2012 | $ | 0.007 | $ | 0.0015 | ||
1 st Quarter – May – July 2012 | $ | 0.02 | $ | 0.0028 | ||
2 nd Quarter – August – October 2012 | $ | 0.05 | $ | 0.014 | ||
3 rd Quarter – November 2012 – January 2013 | $ | 0.025 | $ | 0.006 | ||
4 th Quarter – February – April 2013 | $ | 0.0063 | $ | 0.005 |
The quotations set forth in the table above reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.
On August 21, 2013, the closing price of our shares were quoted at $0.017 per share.
Holders
There are 234 shareholders of record of our Common Stock.
Dividends
We have never paid dividends on our Common Stock and do not expect to do so in the foreseeable future.
Equity Compensation Plan Information
We currently have no equity compensation plan either approved or not approved by security holders, and there are no securities currently authorized for issuance under any equity compensation plan. However, our Board of Directors has previously approved share-based compensation in lieu of cash compensation to various consultants and employees. Such share-based compensation is recognized at the time of grant equal to the fair value of the stock award at the time of the grant as the awards generally do not require a service or vesting period.
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ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
We have not sold any unregistered securities within the past 14 fiscal quarters.
ITEM 11. DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED.
Capital Stock
We are authorized by our Articles of Incorporation to issue an aggregate of 500,000,000 shares of capital stock, all of which shares are designated as common stock, par value $0.001 per share (the “Common Stock”). We currently have no authorized preferred stock.
As of July 31, 2013, all 500,000,000 shares of Common Stock were issued and outstanding. We intend to amend our Articles of Incorporation in the future to provide for additional authorized, unissued shares of common stock, subject to shareholder approval.
Common Stock
All outstanding shares of Common Stock are of the same class and have equal rights and attributes. Holders of Common Stock are entitled to one vote per share on all matters submitted to a vote of shareholders of our company. All shareholders are entitled to share equally in dividends, if any, as may be declared from time to time by our Board of Directors out of funds legally available. In the event of liquidation, the holders of our Common Stock are entitled to share ratably in all assets remaining after payment of all liabilities and liquidation preferences of preferred stockholders. Our shareholders do not have cumulative or preemptive rights.
Warrants and Stock Options
As of July 31, 2013, we had no warrants, stock options or other convertible securities authorized or outstanding.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our directors and officers are indemnified as provided by the Utah corporate law and our Bylaws. We have agreed to indemnify each of our directors and certain officers against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Act”). Insofar as indemnification for liabilities arising under the Act may be permitted to our directors, officers and controlling persons pursuant to the provisions described above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person 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, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
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ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our audited financial statements appear at the end of this registration statement. See Index to Financial Statements on page F-1.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with accountants on accounting or financial disclosure matters.
ITEM 15. | FINANCIAL STATEMENTS AND EXHIBITS. | |
Exhibit | ||
Number | Description | |
2.1 | Asset Purchase Agreement, dated November 23, 2010, between ValueSetters, Inc. and NetGames.com. | |
3.1 | Articles of Incorporation of ValueSetters, Inc. filed on April 25, 1984. | |
3.2 | Amendment to Articles of Incorporation of ValueSetters, Inc. filed on September 7, 1999. | |
3.3 | Amendment to Articles of Incorporation of ValueSetters, Inc. filed on December 4, 2003. | |
3.4 | By-Laws of ValueSetters, Inc. | |
10.1 | Secured Lending Agreement between ValueSetters, Inc. and VaxStar LLC. | |
23.1 | Consent of Silberstein Ungar, PLLC, independent registered public accountants. | |
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 30, 2013 | VALUESETTERS, INC. | |
By: | /s/ Manuel Teixeira | |
Manuel Teixeira
Chairman of the Board and Chief Executive Officer |
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Phone (248) 203-0080
Fax (248) 281-0940
30600 Telegraph Road, Suite 2175
Bingham Farms, MI 48025-4586
www.sucpas.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Valuesetters Inc.
Hingham, MA
We have audited the accompanying balance sheets of Valuesetters, Inc. as of April 30, 2013 and 2012, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended. 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. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the 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 Valuesetters, Inc. as of April 30, 2013 and 2012 and the results of its operations and cash flows for the periods then ended, in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that Valuesetters Inc. will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred losses from operations, has limited working capital, and is in need of additional capital to grow its operations so that it can become profitable. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with regard to these matters are described in Note 2. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Silberstein Ungar, PLLC
Silberstein Ungar, PLLC
Bingham Farms, Michigan
August 30, 2013
VALUESETTERS, INC. |
(A Development Stage Company) |
Balance Sheet |
April 30, | April 30, | |||||||
2013 | 2012 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 3,075 | $ | 1,944 | ||||
Total current assets | 3,075 | 1,944 | ||||||
Total assets | $ | 3,075 | $ | 1,944 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY DEFICIT | ||||||||
Current liabilities | ||||||||
Accounts payable | ||||||||
Trade | $ | 79,943 | $ | 83,504 | ||||
Related parties | 103,509 | 96,068 | ||||||
Accrued expenses | 19,600 | 29,000 | ||||||
Secured note payable to related party | 69,254 | 51,233 | ||||||
Notes payable – related parties | 348,066 | 348,066 | ||||||
Loan payable - bank | 50,229 | 50,229 | ||||||
Demand note payable | 15,000 | — | ||||||
Total Current Liabilities | 685,601 | 658,100 | ||||||
Stockholders’ equity deficit | ||||||||
Common stock, $.001 par value, 500,000,0000 shares authorized; | ||||||||
500,000,0000 issued and outstanding in 2013 and 2012 | 500,000 | 500,000 | ||||||
Capital in excess of par value | 420,968 | 420,968 | ||||||
Accumulated deficit through November 23, 2010* | (1,514,037 | ) | (1,514,037 | ) | ||||
Accumulated deficit during the development stage | (89,457 | ) | (63,087 | ) | ||||
Total stockholders' equity deficit | (682,526 | ) | (656,156 | ) | ||||
Total liabilities and stockholders' equity deficit | $ | 3,075 | $ | 1,944 |
See Accompanying Notes to the Financial Statements
* Commencement of Development Stage
VALUESETTERS, INC. |
(A Development Stage Company) |
Statements of Loss |
Years Ended | ||||||||||||
April 30, 2013 | April 30, 2012 | Period from Nov. 23, 2010 (inception) to April 30, 2013 | ||||||||||
Revenues | $ | 8,127 | $ | 6,511 | $ | 15,118 | ||||||
Cost and expenses: | ||||||||||||
Costs of services | 806 | 652 | 1,458 | |||||||||
Selling, general and administrative | 33,690 | 36,489 | 103,117 | |||||||||
Total costs and expenses | 34,496 | 37,141 | 104,575 | |||||||||
Net loss before income taxes | (26,370 | ) | (30,630 | ) | (89,457 | ) | ||||||
Income taxes | - | - | - | |||||||||
Net loss | $ | (26,370 | ) | $ | (30,630 | ) | $ | (89,457 | ) | |||
Basic and diluted loss per share | $ | 0.00 | $ | 0.00 | ||||||||
Weighted average number of shares outstanding | 500,000,000 | 500,000,000 | ||||||||||
See Accompanying Notes to the Financial Statements
VALUESETTERS, INC. |
(A Development Stage Company) |
Statements of Comprehensive Loss |
Period From | ||||||||||||
Nov. 23, 2010 | ||||||||||||
Years Ended April 30, | (inception) to | |||||||||||
2013 | 2012 | April 30, 2013 | ||||||||||
Net loss | $ | (26,370 | ) | $ | (30,630 | ) | $ | (89,457 | ) | |||
Other comprehensive income | - | - | - | |||||||||
Comprehensive loss | $ | (26,370 | ) | $ | (3,0630 | ) | $ | (89,457 | ) |
See Accompanying Notes to the Financial Statements
VALUESETTERS, INC. |
(A Development Stage Company) |
Statements of Stockholders' Equity Deficit |
Period From November 23, 2010 (Inception) to April 30, 2013 |
Accumulated | Accumulated | |||||||||||||||||||||||
Deficit | Deficit | |||||||||||||||||||||||
Common Stock | Capital in | Through | During the | |||||||||||||||||||||
Shares | Amount | Excess of Par Value | November 23, 2010* | Development Stage | Total | |||||||||||||||||||
Balance November 23, 2010 | 500,000,000 | $ | 500,000 | $ | 420,968 | $ | (1,514,037 | ) | $ | — | $ | (593,069 | ) | |||||||||||
Net loss and comprehensive loss, April 30, 2011 | — | — | — | — | (32,457 | ) | (32,457 | ) | ||||||||||||||||
Balance April 30, 2011 | 500,000,000 | 500,000 | 420,968 | (1,514,037 | ) | (32,457 | ) | (625,526 | ) | |||||||||||||||
Net loss and comprehensive loss, April 30, 2012 | — | — | — | — | (30,630 | ) | (30,630 | ) | ||||||||||||||||
Balance, April 30, 2012 | 500,000,000 | 500,000 | 420,968 | (1,514,037 | ) | (63,087 | ) | (656,156 | ) | |||||||||||||||
Net loss and comprehensive loss, April 30, 2013 | — | — | — | — | (26,370 | ) | (26,370 | ) | ||||||||||||||||
Balance, April 30, 2013 | 500,000,000 | $ | 500,000 | $ | 420,968 | $ | (1,514,037 | ) | $ | (89,457 | ) | $ | (682,526 | ) |
See Accompanying Notes to the Financial Statements
* Commencement of Development Stage
VALUESETTERS, INC. |
(A Development Stage Company) |
Statements of Cash Flows |
Year Ended | Year Ended | Period from November | ||||||||||
April 30, | April 30, | 23, 2010 (inception) | ||||||||||
2013 | 2012 | to April 30, 2013 | ||||||||||
Operating activities | ||||||||||||
Net loss | $ | (26,370 | ) | $ | (30,630 | ) | $ | (89,457 | ) | |||
Changes in non-cash working capital balances | ||||||||||||
Accounts payable | 3,880 | 2,241 | 8,933 | |||||||||
Accrued liabilities | 5,600 | 11,000 | 30,600 | |||||||||
Cash provided by (used in) operating activities | (16,890 | ) | (17,389 | ) | (49,923 | ) | ||||||
Financing activities | ||||||||||||
Notes payable – related party | 18,021 | 18,087 | 41,848 | |||||||||
Cash provided by financing activities | 18,021 | 18,087 | 41,848 | |||||||||
Increase (decrease) in cash and cash equivalents during the period | 1,131 | 698 | (8075 | ) | ||||||||
Cash and cash equivalents, beginning of the period | 1,944 | 1,246 | 11,150 | |||||||||
Cash and cash equivalents, end of the period | $ | 3,075 | $ | 1,944 | $ | 3,075 | ||||||
Cash paid for: | ||||||||||||
Interest | $ | 6,812 | $ | 5,468 | ||||||||
Income taxes | $ | — | $ | — |
See Accompanying Notes to the Financial Statements
VALUESETTERS, INC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED APRIL 30, 2013 AND 2012
1. Description of Business and Summary of Accounting Principles
Description of Business and Concentrations
Valuesetters, Inc. (“Valuesetters”, or the “Company”) is a provider of subscription services, advertising and digital goods using technology distribution platforms like the Internet and mobile devices in the media and entertainment markets. Most of the Company’s revenues are derived from customers worldwide who subscribe to a chess website that allows them to play ranked chess games against international competitors.
The financial statements are presented in United States dollars and have been prepared in accordance with generally accepted accounting principles in the United States of America related to development stage companies. The inception of our development stage began on November 23, 2010 with the purchase of the assets of an online games business. A development stage company is one in which planned principal operations have not commenced or if its operations have commenced, there has been no significant revenues there from. The Company’s fiscal year end is April 30.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible. A valuation allowance has been established to eliminate the Company’s deferred tax assets as it is more likely than not that none of the deferred tax assets will be realized.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the tax authorities. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest expense and penalties in income tax expense. The Company has determined that it had no significant uncertain tax positions requiring recognition or disclosure.
1. Description of Business and Summary of Accounting Principles (Continued)
Revenue Recognition
Revenues from services are recognized in the period in which subscribers pay for the related services. The Company does not offer any partial refunds and all revenues are earned when the subscriber approves an online payment to the Company. Most subscribers pay on a monthly basis. In order to receive a discount for annual services a subscriber agrees that services are earned upon payment and are non-refundable.
Costs of Services
Costs of services consist of direct costs that we pay to third parties in order to maintain our online sites that generate revenue.
Loss Per Share
Basic loss per share is computed by dividing net loss by the weighted-average number of shares outstanding. To the extent that stock options and warrants are anti-dilutive, they are excluded from the calculation of diluted loss per share. For 2013 and 2012, the Company had no potentially dilutive securities.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company did not have any cash equivalents during 2013 and 2012.
Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. The most significant estimates relates to the accruals for unbilled legal services and income tax valuation allowance. On a continual basis, management reviews its estimates, utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.
1. Description of Business and Summary of Accounting Principles (Continued)
Determination of Fair Value
Cash and cash equivalents, accounts receivable, and accounts payable
In general, carrying amounts approximate fair value because of the short maturity of these instruments.
Debt
At April 30, 2013 and 2012, long-term debt was carried at its face value plus accrued interest due to the fact that the debt is fully callable by the lender. Based on the financial condition of the Company, it is impracticable for the Company to estimate the fair value of the short and long-term debt.
The Company has no instruments with significant off balance sheet risk.
Recent Accounting Pronouncements
The Company does not expect any recent accounting pronouncements to have a significant impact on its financial position, results of operations, or cash flows.
2. Going Concern Matters and Realization of Assets
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the ordinary course of business. However, the Company has sustained recurring losses from its continuing operations and as of April 30, 2013, had negative working capital and a stockholders’ equity deficit of $682,526. In addition, the Company is unable to meet its obligations as they become due and sustain its operations. The Company believes that its existing cash resources are not sufficient to fund its continuing operating losses, capital expenditures, lease and debt payments and working capital requirements.
The Company may not be able to raise sufficient additional debt, equity or other cash on acceptable terms, if at all. Failure to generate sufficient revenues, achieve certain other business plan objectives or raise additional funds could have a material adverse effect on the Company’s results of operations, cash flows and financial position, including its ability to continue as a going concern, and may require it to significantly reduce, reorganize, discontinue or shut down its operations.
2. Going Concern Matters and Realization of Assets (Continued)
In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company which, in turn, is dependent upon the Company’s ability to meet its financing requirements on a continuing basis, and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in its existence. Management’s plans include:
1. Seek to raise debt or equity for working capital purposes and to pay off existing debt balances. With sufficient additional cash available to the Company, it can begin to make marketing expenditures and hire people to generate more revenues, and consequently cut monthly operating losses.
2. Continue to look for software niches and other digital products that can be sold via an Internet-based store. Various acquisition opportunities may help us generate the revenues we are seeking and be a quicker path to profitability than organic growth.
There can be no assurance that the Company will be able to achieve or maintain cash-flow-positive operating results. If the Company is unable to generate adequate funds from operations or raise sufficient additional funds, the Company may not be able to repay its existing debt, continue to operate its business network, respond to competitive pressures or fund its operations. As a result, the Company may be required to significantly reduce, reorganize, discontinue or shut down its operations. The financial statements do not include any adjustments that might result from this uncertainty.
3. Debt
The following table summarizes components debt as of April 30, 2013 and 2012:
2013 | 2012 | Interest Rate | ||||||||||
Secured lender (majority shareholder) | $ | 69,254 | $ | 51,233 | 8.00 | % | ||||||
Demand note payable – related parties | 348,066 | 348,066 | 2.5 | % | ||||||||
Demand note payable | 15,000 | — | 0 | % | ||||||||
Due to bank | 50,229 | 50,229 | 5.5 | % | ||||||||
Total Debt | $ | 482,549 | $ | 449,528 |
3. Debt (Continued)
As of April 30, 2013 and 2012, the Company owed its principal lender (“Lender”) $69,2540 and $51,233, respectively, under a revolving loan and security agreement (“Loan”) dated April 28, 2011. The maximum amount of the Loan is $250,000, and the Loan is payable on demand by its Lender. The Lender is also the majority shareholder of the Company, owning 328,219,103 shares of common stock, or 56% of the 500,000,000 shares issued and outstanding.
In connection with the financing, the Company has agreed to certain restrictive covenants, including, among others, that the Company may not convey, sell lease, transfer or otherwise dispose of any part of its business or property, except as permitted in the agreement, dissolve, liquidate or merge with any other party unless, in the case of a merger, the Company is the surviving entity, incur any indebtedness except as defined in the agreement, create or allow an lien on any of its assets or collateral that has been pledge to the Lender, make any loans to any person, except for prepaid items or deposits incurred in the ordinary course of business, or make any material capital expenditures
To secure the payment of all obligations to the lender, the Company granted to the lender a continuing security interest and first lien on all of the assets of the Company.
As of April 30, 2013 and 2012, the Company owed a board member $314,000 in a demand note payable dated April 30, 2011. The note represents monies lent to the Company by the board member under a home equity line of credit and the Company accrues interest payable to the board member for the actual interest charged under the home equity line of credit. The same board member has personally guaranteed a bank line of credit under which the Company has borrowed $50,000, and owes $50,229 as of April 30, 2013 and 2012. The Company pays the monthly interest expense on the bank line of credit.
4. Fair Value Measurements
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures of financial instruments on a recurring basis.
4. Fair Value Measurements (Continued)
Fair Value Hierarchy
The Fair Value Measurements Topic of the FASB Accounting Standards Codification establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 inputs are unobservable inputs for the asset or liability.
Determination of Fair Value
Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the Company bases its fair value on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy. Fair value measurements for assets and liabilities where there exists limited or no observable market data and, therefore, are based primarily upon management’s own estimates, are often calculated based on current pricing policy, the economic and competitive environment, the characteristics of the asset or liability and other such factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, that could significantly affect the results of current or future value.
See Note 1 for a description of valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value where it is practicable to do so for financial instruments not recorded at fair value (disclosures required by the Fair Value Measurements Topic of the FASB Accounting Standards Codification).
5. Income Taxes
At April 30, 2013, the Company had net operating loss carryforwards for Federal income tax purposes of approximately $1,032,000 expiring in the years of 2014 through 2029. Utilization of the net operating losses may be subject to annual limitations provided by Section 382 of the Internal Revenue Code and similar State provisions.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of April 30, 2013 and 2012 were as follows:
2013 | 2012 | |||||||
Deferred tax assets, net: | ||||||||
Net operating loss carryforwards | $ | 351,000 | $ | 342,000 | ||||
Valuation allowance | 351,000 | 342,000 | ||||||
Net deferred assets | $ | — | $ | — |
The valuation allowance increased to $351,000 at April 30, 2013 from $342,000 at April 30, 2012.
The following is a reconciliation of the tax provisions for the years ended April 30, 2013 and 2012 with the statutory Federal income tax rates:
Percentage of Pre-Tax Income |
||||||
2013 | 2012 | |||||
Statutory Federal income tax rate | (34.0)% | (34.0)% | ||||
Loss generating no tax benefit | 34.0 | 34.0 | ||||
Effective tax rate | - | - | ||||
The Company did not have any material unrecognized tax benefits as of April 30, 2013 and 2012. The Company does not expect the unrecognized tax benefits to significantly increase or decrease within the next twelve months. The Company recorded no interest and penalties relating to unrecognized tax benefits as of and during the years ended April 30, 2013 and 2012. The Company is subject to U.S. federal income tax, as well as taxes by various state jurisdictions. The Company is currently open to audit under the statute of limitations by the federal and state jurisdictions for the years ending April 30, 2010 through 2013.
6. Commitments and Contingencies
Litigation
The Company is subject to legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability, if any, is not likely to have a material effect on the financial condition, results of operations or liquidity of the Company. However, as the outcome of litigation or legal claims is difficult to predict, significant changes in the estimated exposures could occur.
7. Stockholders’ Equity (Deficit)
The Company is authorized to issue 500,000,000 shares of its common stock, par value $0.001. 500,000,000 shares were outstanding as of April 30, 2013 and 2012, and no shares were issued during the fiscal years ended April 30, 2013 or 2012. No warrant, options or other convertible securities are outstanding at April 30, 2013 and 2012.
8. Loss Per Common Share
Loss per common share data was computed as follows:
2013 | 2012 | |||||||
Net loss | $ | (26,370) | $ | (30,630) | ||||
Weighted average common shares outstanding | 500,000,000 | 500,000,000 | ||||||
Effect of dilutive securities | — | — | ||||||
Weighted average dilutive common shares outstanding | 500,000,000 | 500,000,000 | ||||||
Loss per common share – basic | $ | (.00) | $ | (.00) | ||||
Loss per common share – diluted | $ | (.00) | $ | (.00) |
9. Related Party Transactions
The Company’s majority shareholder is also its principal lender. As of April 30, 2013 and 2012, the Company owed its majority shareholder, under a secured lending agreement, $69,2540 and $51,233, respectively. The maximum amount of the loan is $250,000, and the loan is payable on demand. The majority shareholder of the Company owns 328,219,103 shares of common stock, or 56% of the 500,000,000 shares issued and outstanding.
A director of the Company and founder of Valuesetters, Inc., which merged with the Company in December 2003, has personally guaranteed bank debt of $50,229, as of April 30, 2013 and 2012 and credit card debt of $28,298 and $31,859, as of April 30, 2013 and 2012, respectively. In addition to the personal guarantees, the Company owes him $419,895 and $412,454 as of April 30, 2013 and 2012, respectively, for loans, interest payable and unpaid expenses.
The Company owes a second director $31,680 as of April 30, 2013 and 2012.
10. Subsequent Events
The Company has analyzed its operations subsequent to April 30, 2013 through the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose.
Exhibit 2. 1
CONTRACT OF SALE
The parties to this Contract of Sale (the "Agreement") are Netcapital.com LLC
P. O. Box 277, Hingham Ma 02043, hereinafter referred to as "Seller", Valuesetters Inc. (Pink Sheets: VSTR) , hereinafter referred to as "Buyer" and Sean Lee and Steve Geary, hereinafter referred to as the "Individuals".
WHEREAS, Seller owns certain assets operated on the Internet under the trade name Netgames.com. These assets hereinafter sometimes referred to as the "Business".
WHEREAS FURTHER, Buyer desires to buy the assets of the Seller under the terms and conditions as hereinafter expressed.
NOW, THEREFORE, for and in consideration of the mutual covenants as herein contained and based on the foregoing, the parties hereto agree as follows:
1. The Total Consideration and Allocation. In consideration of the transfer of (a) netgames.com, chess.net, cards.net, backgammon.net, (b) all the software needed to operate the sites, (c) all patents, trademarks, trades names, licensed names, corporate names, intellectual property, software, customer lists, and any and all goodwill associated therewith (collectively the "Intellectual Property") and (d) 100% interest in and to all of the hard assets of seller not listed above, including but not limited to any computer equipment, repair equipment, spare parts printed material and other items, it being understood that at such time such hard assets shall be substantially the same in quality as they are on the date hereof (collectively the "Equipment"), a-d above being hereinafter referred to as the "Assets", Buyer shall purchase the Assets for an aggregate consideration of ONE MILLION EIGHT HUNDRED THOUSAND DOLLARS ($1,800,000.00). The total purchase price shall be remitted by the Buyer’s issuance of 250,000,000 shares of its common stock, par value $0.001 (“Common Stock”), to Seller or to entities designated in writing by the Seller. Buyer will additionally cause shareholders affiliated with Godzich, Darrow, Geary and Lee (“Shareholders”) to transfer to Seller 167,048,000 of Common Stock to Seller as further consideration for this transaction. Shareholders shall transfer their shares of Common Stock as directed in writing by Seller.
Buyer does not assume and Seller warrants that Buyer will not be responsible for any liabilities of Seller except as specifically provided in this Agreement. Further, the parties agree that they will use the above allocation of total consideration when filing the Internal Revenue Service form 8594 with their tax return for this year.
II. | Bill of Sale . Attached hereto as Exhibit “A” is a Bill of Sale which fully and finally transfers all of the Assets described in such Bill of Sale from Seller to Buyer. |
III. | Agreements as to Closing Date. The parties intend that the "Closing Date" as that term is used in this Agreement and the effective date of the transfer and transactions contemplated by this Agreement shall be the date of this Agreement. |
IV. | Representations and Warranties of Seller. Seller hereby represents and warrants, jointly and severally, to Buyer as follows: |
A. | The Seller is an incorporated business in the state of Delaware. |
B. | This Agreement and all transactions contemplated hereby will not result in any violation of any of the terms and provisions of any indenture or other agreement to which Seller and/or the Individuals is/are a party or by which Seller or the Individuals may otherwise be bound, or of any law, rule, license, regulation, judgment, order or decree governing or affecting the operation of the Business of Seller. |
C. | All authorizations, approvals and consents necessary for execution and delivery by Seller of this Agreement and for the consummation by Seller of the transactions contemplated hereby have been given, which if not given would have a materially adverse affect on Seller and/or the Business. |
D. | Some developers associated with the Seller have agreed to supply their services to the Buyer and will be available to Buyer telephonically on a consulting basis, as needed for a period of fifteen (15) days immediately following the Closing Date during normal business hours, for the price as is set forth in Article I of this Agreement, for the purpose of training Buyer in the detailed operations of the Business and assisting in a smooth and orderly transition of the Business from Seller to Buyer. |
E. | Seller has, and there shall vest in Buyer, good, indefeasible and marketable title to the Assets free and clear of all debts, claims, liens, encumbrances, charges, equities, restrictions, or any other imperfections of title whatsoever (including without limitation any federal, state, or municipal tax liens for taxes). |
F. | This Agreement and the other agreements contemplated hereby are legal, valid and binding obligations of the Seller enforceable against it in accordance with their respective terms. |
G. | As of the Closing Date, all tangible Assets listed on Exhibit “A,” the Bill of Sale, are in reasonable working condition given their age, appearance and prior use. Buyer understands that the Seller is not a merchant of any of the Assets and that the Assets are used goods and many of the Assets are intangible. |
H. | There are no actions, suits, audits, proceedings, judgments or investigations pending or to the knowledge of Seller, threatened against or affecting Seller or the Seller's Assets to be transferred. |
I. | No representation or warranty made by Seller in this Agreement, and no statement contained in any exhibit hereto furnished by the Seller or in any certificate or other instrument to be furnished by Seller in connection with this Agreement, or the transactions contemplated hereby, on or before the Closing Date, contains or will contain any untrue statement of a material fact, or omits or will omit to state all material facts which are necessary in order to make the statements contained therein not misleading. |
J. | Seller’s Assets are in substantial compliance, provided that no lack of compliance has or will have any materially adverse effect, in respect of Seller's operations, equipment, other property, practices and all other aspects of its Business, with all laws, ordinances, regulations, orders, judgments, rules and decrees of all governmental authorities, including but not limited to those relating to zoning, solid waste management, protection of the environment, and occupational safety and health, which have any application to the operations of Seller, and Seller has obtained and possesses all permits and licenses necessary for it to conduct its Business as heretofore conducted. |
K. | From the date on which the Buyer first contacted the Seller about the sale of the Assets, as of the date of this Agreement and through the Closing Date, pending consummation of the sale and purchase described in this Agreement, the Seller and has, and if the effective date of this Agreement is any date after the date of this Agreement, the Seller will continue to operate the Business in the same manner as it has been operated by Seller in the past and no materially adverse change has occurred, or will be known to the Seller that will be about to occur as of the Closing Date, which in the knowledge of the Seller might adversely affect the Business or its Assets. Without limiting the foregoing, the Seller agrees, warrants, and covenants that from the date on which the Buyer first contacted the Seller about the sale of the Assets and pending the signing of this Agreement, the Seller not made any substantial changes in the operation of the Business. |
V. | Representations and Warranties of Buyer and the Individuals. Each of Buyer and the Individuals hereby represents and warrants to Seller as follows: |
A. | The Buyer is a corporation, duly organized and validly existing under the laws of the State of Utah. |
B. | This Agreement and all transactions contemplated hereby will not result in any violation of any of the terms and provisions of any indenture, or other agreement to which Buyer is a party or to which Buyer may otherwise be bound, or of any law, rule, license, regulation, judgment, order or decree governing or affecting Buyer. |
C. | All authorizations, approvals and consents necessary for the execution and delivery by Buyer of this Agreement and for the consummation by Buyer of the transactions contemplated hereby have been given, which if not given would have a materially adverse affect on Seller and/or Buyer. |
D. | Buyer has inspected the physical and intangible assets of Seller and is satisfied with such inspections considering all relevant information including the age, prior use and appearance of the physical assets of Seller to be transferred to Buyer. Notwithstanding anything in this paragraph to the contrary, Buyer does not release Seller from any of Seller's representations and warranties by reason of Buyer's inspections. |
E. | Buyer understands and agrees that Seller has made no representations or warranties regarding future profitability of the Business, general business prospects for the Business, retention of customers, supply sources, business prospects in general or general economic conditions relative to the Business. |
F. | There are no actions, suits, audits, proceedings, judgments or investigations (whether or not purportedly on behalf of Buyer or the Individuals) pending or to the knowledge of Buyer or the Individuals, threatened against or affecting Buyer or the Buyer's common stock to be transferred. |
G. | No representation or warranty made by Buyer or the Individuals in this Agreement, and no statement contained in any exhibit hereto furnished by the Buyer or the Individuals in any certificate or other instrument to be furnished by Buyer in connection with this Agreement, or the transactions contemplated hereby, on or before the Closing Date, contains or will contain any untrue statement of a material fact, or omits or will omit to state all material facts which are necessary in order to make the statements contained therein not misleading. |
H. | Buyer guarantees that its equity is no less than negative $588,590 at the time of closing. Buyer and Individuals represent that the financial statements attached in Exhibit B are free from material error and that the financial statements include all assets liabilities of the Buyer, recorded in accordance with generally accepted accounting principles. |
VI. | Prorations. In the event that the parties hereto have not prorated all costs, expenses, and other items necessary at or before the Closing Date, the parties hereto agree that all costs, expenses and other liability items shall be prorated to the Closing Date with Seller being responsible for any and all costs, expenses or other liability items up including the Closing Date and Buyer being responsible for all costs, expenses and other items from and after the Closing Date into the future, except as otherwise specifically provided for in this Agreement to the contrary. The parties have agreed to prorate all items not handled at or before the Closing Date in accordance with the foregoing statements outside of closing. |
VII. | Taxes. Each party also agrees that Seller will remain responsible for any type of taxes or special governmental assessments accruing regarding the Business up to the Closing Date and that the Buyer will be responsible for such taxes after the Closing Date. |
VIII. | Nature and Survival of Representations, Etc. All statements contained in any certificates or other instrument delivered on behalf of any party hereto in connection with this Agreement, or in connection with the transactions contemplated herein shall be deemed representations and warranties by such party. All representations, warranties, agreements and covenants in this Agreement shall be deemed restated as of, and shall survive the Closing Date. |
IX. | Brokerage Commission . Seller and Buyer acknowledges that there is no broker or other third party to which a commission is due for help in negotiating and procuring the Buyer as is set forth in this Agreement. |
X. | Notices. All notices, consents, requests, demands or other communications hereunder shall be in writing and shall be deemed to have been duly given or delivered, if delivered personally or mailed by registered, overnight or certified mail, return receipt requested, with the first class postage prepaid as follows: |
TO BUYER :
Sean Lee
TO SELLER :
Netcapital.com Inc
Box 277 Hingham Ma 02043
Any change in the above addresses shall be deemed effective if made in accordance with this article.
XI. | Modification. This Agreement shall not be modified or amended except by instrument in writing signed by or on behalf of the parties hereto. |
XII. | Law to Govern. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware Massachusetts. The choice of law provision of this Agreement shall be applied with no effect given to the principles of conflicts of law, and without regard to the Choice of Law rules of the State of Massachusetts. |
XIII. | Assignment. This Agreement may not be assigned by any party without the written consent of the other parties. Nothing in this Agreement is intended to confer upon any person, other than the parties hereto and their successors, any rights or remedies under or by reason of this Agreement. All assignments or attempted assignments shall be deemed valid only if in writing. |
XIV. | Exhibits . All Exhibits to this Agreement shall be deemed to be part of this Agreement and are hereby intended to be incorporated herein by reference as if set out verbatim. |
XV. | Entire Agreement . This instrument, including all exhibits attached hereto, contains the entire agreement of the parties. Any and all prior agreements, written or oral are hereby superseded by this Agreement. |
XVI. | Attorney's Fees. Should any party deem it necessary to obtain the services of legal counsel to assist with respect to any dispute arising between the parties concerning this Agreement, or with respect to the resolution of any dispute pursuant to this Agreement, then the prevailing party shall be entitled to reimbursement for any such reasonable attorney's fees, costs and expenses. |
XVII. | Headings. The article paragraph headings of this Agreement are for administrative convenience only and shall not be construed in interpreting this Agreement. |
XVIII. | Further Assurances. The parties to this Agreement mutually, both individually and collectively covenant and agree that they will do any and all things reasonably necessary after the date of this Agreement in order to effectuate all the terms and conditions of this Agreement. Each party agrees to cooperate with the other including but not limited to signing any and all documents necessary in order to pass title to the Assets and effectuate the other terms and conditions of this Agreement. However, Seller shall in no way be required to expend any other sums of money in order to effectuate the provisions of this paragraph. |
XIX. | Assumed Name. The parties to this Agreement acknowledge and agree that the trade name “Netgames” to be transferred as one of the Assets to be sold/purchased pursuant to the terms of this Agreement. |
XXI. | Remedies Not Exclusive. The remedies provided for in this Agreement are not exclusive of any other remedy available to any party, that is, they are not in lieu of, but are in addition to any other remedy available to any party at law or in equity. |
XXII. | Binding Nature. This Agreement shall be binding on and shall inure to the benefit of the heirs, executors, administrators, successors, and assigns of the parties hereto, that nothing contained in this paragraph shall be construed as a consent to any assignment of this Agreement or the duties and obligations under this Agreement by either Buyer or Seller. |
XXIII. | Invalidity or Unenforceable Nature. In the event that any provision or part thereof is deemed to be invalid, illegal or unenforceable for any reason, then the parties to this Agreement hereby mutually acknowledge and agree that it is their intention to have any such invalid, illegal or unenforceable provision or part thereof be deleted from this Agreement as if it had never been included in this Agreement, so that the remainder of this Agreement is valid, binding and enforceable in accordance with its terms. |
XXIV. | Indemnities of the Parties . Each of Seller and the Individuals agrees to and does indemnify and hold harmless Buyer and Buyer's employees, agents and assigns from and against any and all liabilities, claims, damages, taxes, actions, demands, losses, costs, penalties, violations of law and expenses, including reasonable attorneys' fees, ("Losses") arising out of Seller's conduct of Seller's Business on or prior to the Closing Date, including to mean an indemnification for the negligent acts of the Seller, or resulting from any misrepresentation or breach of warranties contained herein or in the Exhibits attached hereto or any material default by Seller or the Individuals in the performance of the covenants and agreements made by Seller or the Individuals herein or in the Exhibits attached hereto. |
XXV. | Settlement of Disputes. The following agreements are made with respect to the settlement of disputes arising under the terms and conditions of this Agreement: |
A. | If a dispute arises out of or relates to this Agreement, including to mean any of its Exhibits, or the breach or default of this Agreement, the parties shall first, in good faith, attempt to negotiate a settlement of that dispute, breach or default. |
B. | If the dispute, breach or default cannot be settled through negotiation, the parties agree and shall proceed to binding arbitration through the American Arbitration Association in accordance with its Commercial Arbitration Rules under the Federal Arbitration Act, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. |
C. | Any provisional remedy (including injunctive relief) which a party to this Agreement may want to elect, shall be available notwithstanding the provisions relating to arbitration of disputes. Any party may seek such provisional remedy from the appropriate court of law pending arbitration, and such proceeding in which the provisional remedy was sought will then be stayed pending the final award of the arbitration. |
D. | The expenses of arbitration conducted pursuant to this paragraph shall be born by the parties in such proportions as the arbitrator(s) shall decide. |
IN WITNESS WHEREOF, the parties have signed this Agreement to be effective on November __, 2009.
SELLER: | Netcapital.com Inc . | |
By: | /s/ John Fanning | |
John
Fanning
Chariman |
BUYER: | Valuesetters, Inc . | |
By: | /s/ Sean Lee | |
Sean Lee
CEO |
EXHIBIT LIST
Exhibit “A” – Bill of Sale
Exhibit “B” – Financial Statements of Buyer
Exhibit 3.1
ARTICLES OF INCORPORATION OF
DBS INVESTMENTS, INC
We, the undersigned natural persons of the age of twenty-one years or more, acting as incorporators of the corporation under the provisions of the Utah Business Corporation Act (hereinafter called the “Act”), do hereby adopt the following Articles of Incorporation for such Corporation.
Article I
Name. The name of the corporation (hereinafter called the “Corporation”) is DBS INVESTMENTS, INC.
Article II
Period of duration. The period of duration of the Corporation is perpetual.
Article III
Purpose and Powers. The purpose for which this Corporation is organized is to invest in any new products, properties or businesses which may have a profit.
Article IV
Capitalization. The Corporation shall have the authority to issue 50,000,000 (fifty million) shares of stock each having a par value of one-tenth of one cent ($0.001). All stock of the Corporation shall be of the same class and shall have the same rights and preferences. Fully paid stock of this Corporation shall not be liable for further call or assessment. The authorized trading shares shall be issued at the discretion of the Directors.
Article V
Incorporators. The name and psot office address of each incorporator is: Dale Z. Darling, 691 West Main, Lehi, Utah 84043; Robert B. Simkins, 38 West 700 South, Lehi, Utah 8404; and Barclay F. Burns, 1248 East 4130 South, Salt Lake City, Utah, 84117.
Article VI
Directors. The Corporation shall be governed by a Board of Directors consisting of no less than three (3) and no more than nine (9) directors. Directors need not be stockholders of the Corporation. The number of Directors constituting the initial Board of Directors is three(3) and the names and post office addresses of the persons who shall serve as Directors until their successors are elected and qualified are: : Dale Z. Darling, 691 West Main, Lehi, Utah 84043; Robert B. Simkins, 38 West 700 South, Lehi, Utah 8404; and Barclay F. Burns, 1248 East 4130 South, Salt Lake City, Utah, 84117.
Article VII
Commencement of Business. The Corporation shall not commence business until at least One Thousand Dollars ($1,000) has been received by the Corporation as consideration for the issuance of its shares.
Article VIII
Preemptive Rights. There shall be no preemptive rights to acquire unissued and/or treasury shares of the stock of the Corporation.
Article IX
Voting of Shares. Each outstanding share of common stock of the Corporation shall be entitled to one vote on each matter submitted to a vote at the meeting of the stockholders. Each stockholder shall be entitled to vote his or its shares in person or by proxy, executed in writing by such stockholders, or by his duly authorized attorney-in-fact. At each election of Directors, every stockholder entitled to vote in such election shall have the right to vote, in person or by proxy, the number of shares owned by him or it for as many person as there are Directors to be elected and for whose election he or it has the right to vote, but the Shareholder shall have no right to accumulate his or its votes with regard to such election.
Article X
Initial Registered Office and Initial Registered Agent. The address of the initial registered office of the Corporation is 691 West Main, Lehi, Utah 84043 and the initial registered Agent at such office is Dale Z. Darling.
Exhibit 3.2
FIRST AMENDMENT TO
ARTICLES OF INCORPORATION OF
DBS INVESTMENTS, INC
Pursuant to section 16-10a-1003 of the Utah Revised Business Corporation Act, DBS Investments, Inc. (the “Corporation”) hereby adopts the following First Amendment to its Articles of Incorporation.
1. The Articles of Incorporation of the Corporation are herby amended by inserting the following new provision as Article IV-A:
Article IV-A
Reverse Stock Split. At the effective time of this Amendment, the Corporation shall effect a reverse split in its issued and outstanding shares of Common Stock so that the 11,922,790 shares currently issued and outstanding shall be reverse split, or consolidated, on a 1-for-10 basis, and stockholders shall receive one share of the Corporation’s post-split Common Stock for each 10 shares of Common Stock, $0.001 par value, held by them on the effective date of the reverse split. No scrip or fractional shares will be issued in connection with the reverse split and any fractional interests will be rounded to the nearest whole share. The reverse split will not result in any modification of the rights of shareholders, and will have no effect on the shareholders’ equity in the Corporation. All shares returned to the Corporation as a result of the reverse split will be canceled and returned to the status of authorized and unissued shares.
2. The Articles of Incorporation of the Corporation are herby amended by inserting the following new provision as Article XI:
Article XI
Action Without Shareholders’ Meeting. Pursuant to and in accordance with the requirements of section 16-10a-704 of the Utah Revised Business Corporation Act, any action which may be taken at any annual or special meeting of the shareholders may be taken without a meeting and without prior notice, if one or more consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote thereon were present and voted, subject to the provision of such notices as may be required by section 16-10a-704 of the Utah Revised Business Corporation Act.
3. The Articles of Incorporation of the Corporation are herby amended by inserting the following new provision as Article XII:
Article XII
Limitation on Liability of Directors. A director of the Corporation shall have no personal liability to the Corporation or its stockholders for monetary damages for any action taken or failure to take any action, as a director, except (i) the amount of a financial benefit received by a director to which he is not entitled, (ii) the intentional infliction of harm on the Corporation or the shareholders, (iii) for liability arising from any action under section 16-10a-842 of the Utah Revised Business Corporation Act as it may from time to time be amended or any successor provision thereto, or (iv) an intentional violation of criminal law.
4. Except as specifically provided herein, the Corporation’s Articles of Incorporation shall remain unamended and shall continue in full force and effect.
5. By execution of this First Amendment to Articles of Incorporation, the president and secretary of the Corporation do hereby certify that the foregoing First Amendment to Articles of Incorporation of DBS Investments, Inc. was duly authorized and adopted by the shareholders of the Corporation at a special meeting held September 7, 1999, at which a total of 7,435,000 shares of the Corporation’s shares of common stock were represented in person or by proxy and of which 7,200,000 shares of 60.4% of the 11,922,790 shares of the Company’s common stock issued and outstanding shares on the record date, voted in favor of this Amendment and 5,000 shares voted against the Amendment.
Dated as of the 7 th day of September, 1999
DBS Investments, Inc |
By: /s/ Bruce Whaley |
Bruce Whaley
President |
DBS Investments, Inc |
By: /s/ Lynn M. Bushman |
Lynn M. Bushman
Secretary |
Exhibit 3.3
AMENDMENT TO ARTICLES OF INCORPORATION OF
DBS INVESTMENTS, INC
Pursuant to section 16-10a part 10 of the Utah Revised Business Corporation Act, DBS Investments, Inc. (the “Corporation”) hereby adopts the following Amendment to its Articles of Incorporation.
1. The name of the corporation is DBS Investments, Inc.
2. The date the following amendment was adopted: December 4, 2003
3. The new name of the corporation is ValueSetters Inc.
Article I is hereby amended to read in its entirety as follows:
“The name of the corporation is ValueSetters, Inc. “
At a special meeting of the shareholders the number of votes cast for the amendment by each voting group entitled to vote separately in the amendment was sufficient for approval by that voting group, and such amendment was adopted by the shareholders.
Under penalties of perjury, I declare that this Amendment of Articles of Incorporation has been examined by me and is, to the best of my knowledge and belief, true, correct and complete.
Dated as of the 7 th day of September, 1999
By: /s/ Robert D. Arken |
Robert D. Arken,
President |
Exhibit 3.4
BY-LAWS
OF
VALUESETTERS INC.
ARTICLE I
OFFICES
SECTION 1. The PRINCIPAL office of the corporation in the State of Utah shall be located in the City of Lehi, County of Utah. The corporation may have other offices, either in or outside of the State of Incorporation, as the Board of Directors may designate or as the business of the corporation may from time to time require.
ARTICLE II
STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. – The annual meeting of the stockholders shall be held one year from the date of incorporation, beginning with the year 1985, at the hour of one o’clock p.m., and annually on that date thereafter for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day.
SECTION 2. SPECIAL MEETINGS. – Special meetings of the stockholders for any purpose, unless otherwise prescribed by statute other than the election of directors may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting.
SECTION 3. PLACE OF MEETING. – The directors may designate any place, either within or without the State unless otherwise prescribed by statute, as the place of meeting for any annual meeting or for any special meeting called by the directors. A waiver of notice signed by all stockholders entitled to vote at a meeting may designate any place, either within or without the State unless otherwise prescribed by statute, the place for holding such meeting. If no designation is made, or if a special meeting be otherwise called, the place of the meeting shall be the principal office of the corporation.
SECTION 4. NOTICE OF MEETINGS. - Written or printed notice, stating the place, dau and hour of the meeting, and in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered, not less than ten nor more than fifty days before the date of the meeting, either personally or by mail., by or at discretion of the president, or the secretary, of the officer or persons calling the meeting, to each stockholder of record entitled to vote at the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid.
SECTION 5. CLOSING OF TRANSFER BOOKSOF FIXING OF RECORD DATE. –
For the purpose of determining stockholders entitled to notice of or vote at any meeting of stockholders or any adjournment thereof, or stockholders entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other purpose, the directors of the corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in case, fifty days. If the stock transfer books shall be closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting at a meeting of stockholders, such books shall be closed for at least ten days immediately preceding such meeting. In lieu of closing the stock transfer books, the directors may fix in advance a date as the record date for any such determination of stockholders. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof.
SECTION 6. VOTING LISTS. – The officer of agent having charge of the stock transfer books for shares of the corporation shall make, at least ten days before each meeting of stockholders, a complete list of stockholders entitled to vote at such meeting, or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten days prior to such meeting, shall be kept on file at the principal office of the corporation and shall be subject to inspection by any stockholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The original stock transfer book shall be prima facie evidence as to who are the stockholders entitled to examine such list of transfer books or to vote at the meeting of stockholders.
SECTION 7. QUORUM. - At any meeting of stockholders a majority of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If less than said number of outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
SECTION 8. PROXIES. - At all meetings of stockholders, a stockholder may vote by proxy executed in writing by the stockholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting.
SECTION 9. VOTING. - Each stockholder entitled to vote in accordance with the terms
and provisions of the Certificate of Incorporation and these Bylaws shall be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such stockholders. Upon the demand of any stockholders, the vote for directors and upon any question before the meeting, shall be by ballot. All elections for directors shall be decided by majority vote except as otherwise provided by the Certificate of Incorporation or the laws of the state.
SECTION 10. ORDER OF BUSINESS. – The order of business at all meetings of the stockholders shall be as follows:
1. | Roll Call |
2. | Proof of notice of meeting or waiver of notice |
3. | Reading of minutes of preceding meeting |
4. | Reports of Officers |
5. | Reports of Committees |
6. | Election of Directors |
7. | Unfinished Business |
8. | New Business |
SECTION 11. INFORMAL ACTION BY STOCKHOLDERS. – Unless otherwise provided by law, any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. – The business and affairs of the corporation shall be managed by the Board of Directors. The directors shall in all cases act as a board, and they may adopt such rules and regulations for the conduct of their meetings and the management of the corporation, as they may deem proper, not inconsistent with these By-laws and the laws of the State.
SECTION 2. NUMBER TENURE AND QUALIFICATIONS. - The number of directors shall not be more than nine (9) or less than three (3). Each director shall hold office until the next annual meeting of the stockholders and until his successor shall be elected and shall qualified.
SECTION 3. REGULAR MEETINGS. – A regular meeting of the directors shall be held without other notice than the by-law immediately after, and at the same place as, the annual meeting of stockholders. The directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution.
SECTION 4. SPECIAL MEETINGS. – Special meetings of the directors may be called by or at the request of the president or any two directors. The person or persons authorized to call special meetings of the directors may fix the place for holding any special meeting of the directors called by them.
SECTION 5. NOTICE. – Notice of any special meetings shall be given at least two days previously thereto by written notice delivered personally or by telegram or mailed to each director at his business address. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened.
SECTION 6. QUORUM. – At any meeting of the directors a majority shall constitute quorum for the transaction of business, but if less than said number is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice.
SECTION 7. MANNER OF ACTING. – The act of the majority of the directors present at a meeting at which a quorum is presnt shall be the act of the directors.
SECTION 8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. – Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the board for any reason except the removal of directors without cause may be filled by a vote of the majority of directors then in office, although less than a quorum exists. Vacancies occurring by reason of the removal of directors without cause shall be filled by vote of the stockholders. A director elected to fill a vacancy caused by resignation, death or removal shall be elected to hold office for the unexpired term of his predecessor.
SECTION 9. REMOVAL OF DIRECTORS. – Any or all of the directors may be removed for cause by vote of the stockholders or by action of the board. Directors may be removed without notice only by vote of the stockholders.
SECTION 10. RESIGNATION. – A director may resign at any time by giving written notice to the board, the president or the secretary of the corporations. Unless otherwise spcefified in the notice, the resignation shll take effect upon receipt thereof by the board or such officer, and the acceptance of the resignation shall not be necessary to make it effective.
SECTION 11. COMPENSATION. – No compensation shall be paid to directors, as such, for their services, but by resolution of the board a fixed sum and expenses for actual attendance at each regular meeting of the board may be authorized. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefore.
SECTION 12. PRESUMPTION OF ASSENT. – A director of the coporation who is present at a meeting of the directors at which action on any corporation matter is then taken shall be presumed to have asserted to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file written dissent to such action with the person acting as secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after the Adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action.
SECTION 13. EXECUTIVE AND OTHER COMMITTEES. – The board, by resolution, may designate from among its members an executive committee, each consisting of three or more directors. Each such committee shall serve at the pleasure of the board.
SECTION 14. ACTION WITHOUT A MEETING. – Any action that may be taken by the Board of Directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so to be taken, shall be signed before such action by all the directors.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER. - The officers of the corporation shall be a president, two vice-presidents, a secretary and a Treasurer, each of whom shall be elected by the directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the directors.
SECTION 2. ELECTION AND TERM OF OFFICE. – The officers of the corporation to be elected by the directors shall be elected annually at the first meeting of the directors held after each annual meeting of the stockholders. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided.
SECTION 3. REMOVAL. – Any officer or agent elected or appointed by the directors may be removed by the directors whenever in their judgment the best interest of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed.
SECTION 4. VACANCIES. – A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the directors for the unexpiored portion of the term.
SECTION 5. PRESIDENT. - The President shall be the principal executive officer of the corporation and, subject to the control of the directors, shall in general supervise and control all of the business and affairs of the corporation. He shall, when present, preside at all meetings of the stockholders and of the directors. He may sign, with the secretary or any other p[roper officer of the corporation thereunto authorized by the directors, certificates for shares of the corporation, any deeds, mortgages, bonds, contracts, or other instruments which the directors have authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the directors or by these By-laws to some other officer or agent of the corporation, or shall be required b law to be otherwise signed or executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the directors from time to time.
SECTION 6. VICE-PRESIDENT. - In the absence of the president, or in the event of his death, inability or refusal to act, the vice-president shall perform the duties of the president, and when so acting, shall have all powers of and be subject to all the restrictions upon the president. The vice-president shall perform such other duties as from time to time may be assigned to him by the president or by the directors.
SECTION 7. SECRETARY. - The Secretary shall keep the minutes of the stockholders’ and of the directors’ meetings in one or more books provided for that purpose so that all notices are duly given in accordance with the provisions of these By-laws or as required, be custodian of the corporate records and of the seal of the corporation and keep a register of the post office address of each stockholder which shall be furnished to the secretary by such stockholders, have general charge of the stock transfer books of the corporation and in general perform all duties incident to the office of secretary and such other duties from time to time may be assigned to him by the president or by the directors.
SECTION 8. TREASURER. – If required by the directors, the treasurer shall give a bond for the faithful discharge of his duties in such sum with such surety or sureties as the directors shall determine. He shall have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for monies due and payable to the corporation from any source whatsoever, and deposit all such monies in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with these By-laws and in general perform all of the duties incident to the office of the treasurer and such other duties from time to time may be assigned to him by the president or by the directors.
SECTION 9. SALARIES. - The salaries of the officers shall be fixed from time to time by the directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation.
ARTICLE V CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. - The directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances.
SECTION 2. LOANS. – No loans shall be contracted on behalf of the corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the directors. Such authority may be general or confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. - All checks, drafts or other orders fro the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer of officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the directors.
SECTION 4. DEPOSITS. – All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the directors may select.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. - Certificates representing shares of the corporation shall be in such form as shall be determined by the directors. Such certificates shall be signed by the president and by the secretary or by such other officers authorized by law and by the directors. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the stockholders, the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefore upon such terms and indemnity to the corporation as the directors may prescribe.
SECTION 2. TRANSFER OF SHARES.
(a) | Upon surrender to the corporation of the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, and cancel the old certificate; every such transfer shall be entered on the transfer book of the corporation which shall be kept at its principal office. |
(b) | The corporation shall be entitled to treat the holder of record of any share as the holder in fact thereof, and, accordingly, shall not be bound to recognize an equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, except as expressly provided by the laws of this State. |
ARTICLE VII
FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of May in each year.
ARTICLE VIII
DIVIDENDS
The directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law.
ARTICLE IX
SEAL
The directors may provide a corporate seal, which shall be circular in form and shall have inscribed thereon the name of the corporation, the state of incorporation, year of incorporation and the words, “Corporate Seal.”
ARTICLE X
WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be given to any stockholder or director of the corporation under the provisions of these By-laws or under the provisions of the Article of Incorporation, a waiver to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.
ARTICLE XI
AMENDMENTS
These By-laws may be altered, amended or repealed and new By-laws may be adopted by a vote of the stockholders representing a majority of all the shares issued and outstanding, at an annual stockholders’ meeting or at any special stockholders’ meeting when the proposed amendment has been set out in the notice of such meeting.
Exhibit 10.1
REVOLVING LOAN AND SECURITY AGREEMENT
THIS REVOLVING LOAN AND SECURITY AGREEMENT (this “ Agreement ”), dated as of July 31, 2013 (the “ Effective Date ”) is entered into by and between Valusetters Inc., a Utah corporation the “ Borrower ”), and VaxStar LLC, a Delaware limited liability company (“ Lender ”).
RECITALS
WHEREAS, Lender is a shareholder of Valuesetters Inc. and has purchased the debt previously owed to a secured lender under a revolving loan and security agreement dated April 28, 2011;
WHEREAS , Borrower has requested that Lender make advances to Borrower from time to time on a revolving basis in an aggregate principal amount at any time thereof not to exceed two hundred fifty thousand dollars ($250,000) (the “ Maximum Principal Amount ”); and
WHEREAS , Lender is willing to make such advances to Borrower on the terms and subject to the conditions set forth herein.
AGREEMENT
NOW , THEREFORE , in consideration of the premises and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Lender, intending to be legally bound, hereby agree as follows:
1. Loans and Promissory Note .
(a) | Commitment to Lend . Subject to the terms and conditions set forth in this Agreement, Lender hereby agrees to make advances to Borrower (each a “ Loan Advance ” and collectively, the “ Loan Advances ”) from time to time, during the period beginning on the date hereof and ending on the Maturity Date (the “ Draw Period ”), in an amount up to, but not to exceed, the Maximum Principal Amount in the aggregate outstanding at any time, for the purposes stated herein only. During the Draw Period, subject to the terms and condition of this Agreement, Borrower may borrow, repay, and re-borrow amounts up to the Maximum Principal Amount at any time and from time to time. |
(b) | Promissory Note . The Loan Advances made by Lender hereunder shall be evidenced by the duly executed Revolving Promissory Note of Borrower to Lender, dated as of the date hereof in an original principal amount equal to the Maximum Principal Amount and in the form attached hereto as Exhibit A (as amended, modified, extended, renewed or replaced from time to time, the “ Note ”). |
(c) | Repayments . Borrower shall pay in full any remaining outstanding principal amount, all accrued but unpaid interest, and all other Obligations on the Maturity Date. |
(d) | Payment of Interest . |
(i) | Subject to Section 7(b)(ii), the principal amount outstanding under the Loan Advances shall accrue interest from the date of issuance until the Maturity Date at the rate of eight percent (8%) per annum, compounding daily. The initial payment of accrued interest shall be made on August 31, 2013, and payment of accrued interest shall be made on the first calendar day of each month thereafter. Should Borrower not make a monthly interest payment, the payment amount will be added to the principal balance due under this Agreement. |
(ii) | Interest will be computed on the basis of a year deemed to consist of 360 days and shall be paid for the actual number of days elapsed. |
2. Creation of a Security Interest .
(a) | Grant of Security Interest . |
(i) | Borrower hereby grants to Lender, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Lender, all of Borrower’s right, title and interest in, to and under all the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times be a first priority perfected security interest in the Collateral other than with respect to Permitted Liens. If Borrower shall acquire a commercial tort claim, Borrower shall promptly notify Lender in writing of the general details thereof and grant to Lender a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Lender. |
(ii) | If this Agreement is terminated, Lender’s security interest in the Collateral shall continue until the Obligations are repaid in full in cash. Upon payment in full in cash of the Obligations and at such time as Lender’s obligation to make Loan Advances has terminated, Lender shall, at Borrower’s sole cost and expense, release its security interest in the Collateral and all rights therein shall revert to Borrower. |
(b) | Authorization to File Financing Statements . Borrower hereby authorizes Lender to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Lender’s interest or rights hereunder. Such financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in Lender’s discretion. Lender shall promptly provide Borrower with a copy of any such financing statements following filing. |
3. Conditions of Loans .
(a) | Conditions Precedent to Loan Advances . Lender’s obligation to make each Loan Advance is subject to satisfaction of the following conditions: |
(i) | Receipt of an executed Notice of Borrowing (as defined below); |
(ii) | The representations and warranties in Section 4 shall be true in all material respects on the date of the Notice of Borrowing and the Loan Date (as defined below); |
(iii) | No Event of Default shall have occurred and be continuing or result from such Loan Advance; |
(iv) | There shall not have occurred, in Lender’s sole discretion, any Material Adverse Change. |
(b) | Procedure for Borrowing . Subject to the prior or simultaneous satisfaction of the conditions set forth in Section 3(a), to obtain a Loan Advance, Borrower shall give written notice to Lender in the form attached as Exhibit B (a “ Notice of Borrowing ”) not later than the tenth (10 th ) Business Day prior to the date of the proposed Loan Advance (the “ Loan Date ”). Each Notice of Borrowing shall be in writing and shall specify (a) the Loan Date; (b) the account of Borrower to be funded and the wire instructions applicable thereto; (c) the purpose for which such Loan Advance shall be used; and (d) the amount of such proposed Loan Advance. Each Loan Advance shall be made to Borrower following Lender’s receipt of a Notice of Borrowing and satisfaction of the other conditions set forth in Section 3(a), Lender shall deliver the applicable Loan Advance to Borrower on the Loan Date by ACH transfer of immediately available funds to the account specified by Borrower. |
4. Representations and Warranties of Borrower .
Borrower hereby represents and warrants to Lender as of the date hereof as follows:
(a) | Binding Agreement . The Loan Documents constitute or will constitute, when issued and delivered, valid and binding obligations of Borrower, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency and other similar laws affecting the enforcement of creditors’ rights in general, and general principles of equity. |
(b) | Organization; Power; Authorization . Borrower is a Registered Organization duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation or incorporation, as the case may be. Borrower has all requisite power and authority (corporate and otherwise) to execute, deliver and perform the Loan Documents and to consummate the transactions contemplated thereby. The execution, delivery and performance by Borrower of the Loan Documents and the consummation of the transactions contemplated thereby have been duly authorized by all necessary action on the part of Borrower. |
(c) | Non-Contravention . Neither the execution and the delivery of the Loan Documents, nor the consummation of the transactions contemplated hereby, will (a) violate any injunction, judgment, order, decree, ruling, charge or any provision of Borrower’s charter documents, or, to Borrower’s knowledge, any restriction of any government, governmental agency, or court to which Borrower is subject, or (b) conflict with, result in a material breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, any material agreement, contract, lease, license, instrument, or other arrangement to which Borrower is a party or by which it is bound or to which any of its assets are subject. |
(d) | Collateral . |
(i) | Borrower has good title to, has rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens. The security interests and Liens granted to Lender under this Agreement and the other Loan Documents to which Borrower is a party constitute valid and perfected first priority liens and security interests in and upon the Collateral to which Borrower now has or hereafter acquires rights other than with respect to Permitted Liens. The Accounts are bona fide, existing obligations of the Account Debtors. |
(ii) | All Inventory is in all material respects of good and marketable quality, free from material defects. |
(iii) | Borrower is the owner of its intellectual property, except for non-exclusive licenses granted to its customers in the ordinary course of business. Each patent is valid and enforceable and no part of the intellectual property of the Borrower has been judged invalid or unenforceable, in whole or in part, and to the best of Borrower’s knowledge, no claim has been made that any part of the intellectual property violates the rights of any third party. |
(iv) | Borrower is not a party to, nor is bound by, any material license or other agreement with respect to which Borrower is the licensee (A) that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property, or (B) for which a default under or termination of could interfere with Lender’s right to sell any Collateral. Borrower shall provide written notice to Lender within ten (10) days of entering or becoming bound by any such license or agreement which is reasonably likely to have a material impact on Borrower’s business or financial condition (other than over-the-counter software that is commercially available to the public). Borrower shall take such steps as Lender requests to obtain the consent of, or waiver by, any Person whose consent or waiver is necessary for (Y) all such licenses or agreements to be deemed “Collateral” and for Lender to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such license or agreement, whether now existing or entered into in the future, and (Z) Lender to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Lender’s rights and remedies under this Agreement and the other Loan Documents. |
(e) | Tax Returns and Payments . Borrower has filed, or caused to be filed, in a timely manner all material tax returns, reports and declarations which are required to be filed by it (without requests for extension except as previously disclosed in writing to Lender). All information in such tax returns, reports and declarations is complete and accurate in all material respects. Borrower has paid or caused to be paid prior to delinquency all taxes due and payable or claimed due and payable in any assessment received by it, except taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower and with respect to which adequate reserves have been set aside on its books. Adequate provision has been made by Borrower for the payment of all accrued and unpaid federal, state, county, local, foreign and other taxes whether or not yet due and payable and whether or not disputed. |
5. Covenants .
(a) | Affirmative Covenants . |
(i) | Maintenance of Properties . Borrower shall maintain all tangible property included in the Collateral in good order and repair, subject to normal wear and tear, and make all needed and proper repairs to its properties so that Borrower’s business may be properly and advantageously conducted at all times in accordance with prudent business management and in compliance with all governmental requirements and regulations; |
(ii) | Use of Proceeds . Borrower shall use the proceeds of the Loan Advances solely as working capital and to fund its general business requirements and not for personal, family, household or agricultural purposes; |
(iii) | Insurance . Borrower shall, at all times, maintain with financially sound and reputable insurers insurance with respect to the Collateral against loss or damage and all other insurance of the kinds and in the amounts customarily insured against or carried by corporations of established reputation engaged in the same or similar businesses and similarly situated. |
(iv) | Further Assurances . Borrower shall execute any further instruments and take further action as Lender reasonably requests to perfect or continue Lender’s security interest in the Collateral or to otherwise effect the purposes of this Agreement. |
(b) | Negative Covenants . Borrower shall not, without Lender’s prior written consent: |
(i) | Dispositions . Convey, sell, lease, transfer or otherwise dispose of (collectively, “ Transfer ”), or permit any of its subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out or obsolete Equipment; (c) in connection with Permitted Liens; and (d) of non-exclusive licenses for the use of the property of Borrower or its subsidiaries in the ordinary course of business; |
(ii) | Mergers or Acquisitions . Merge or consolidate, or permit any of its subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its subsidiaries to acquire, all or substantially all of the capital stock or property of another Person. A subsidiary may merge or consolidate into another subsidiary or into Borrower; provided that, in the case of a merger of a subsidiary into Borrower, Borrower shall remain the surviving entity. |
(iii) | Indebtedness . Borrow money or engage in any other financing transaction for borrowed money except under this Agreement and except for trade payables incurred in the ordinary course of Borrower’s business; |
(iv) | Encumbrances . Create, incur, allow, or suffer any Lien on any Collateral, or assign or convey any right to receive income or permit any of Borrower’s subsidiaries to do so, or permit any Collateral not to be subject to the first priority security interest granted herein, in each case, other than with respect to Permitted Liens; |
(v) | Loans . Make any loan to any Person except receivable, prepaid items or deposits incurred in the ordinary course of business; or |
(vi) | Capital Expenditures . Make nor agree to make any material capital expenditures. |
6. Representations and Warranties of Lender .
(a) | Binding Agreement . This Agreement constitutes or will constitute, when issued and delivered, a valid and binding obligation of Lender, enforceable in accordance with its terms, subject to bankruptcy, insolvency and other similar laws affecting the enforcement of creditors’ rights in general, and general principles of equity. |
(b) | Organization; Power; Authorization . Lender is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. Lender has full limited liability company power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance by Lender of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary limited liability company action. |
(c) | Non-Contravention . Neither the execution and the delivery of the Loan Documents, nor the consummation of the transactions contemplated hereby, will (a) violate any injunction, judgment, order, decree, ruling, charge or any provision of Lender’s charter documents, or, to Lender’s knowledge, any restriction of any government, governmental agency, or court to which Lender is subject, or (b) conflict with, result in a material breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, any material agreement, contract, lease, license, instrument, or other arrangement to which Lender is a party or by which it is bound or to which any of its assets are subject |
7. Events of Default; Remedies Upon Default .
(a) | Events of Default . The occurrence of any of the following events shall constitute an event of default (each, an “ Event of Default ”) hereunder: |
(i) | Borrower fails to pay timely any of the principal and any accrued interest or other amounts due under the Loan Documents when the same becomes due and payable; |
(ii) | Borrower (A) files any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law, or any other law for the relief of, or relating to, debtors, now or hereafter in effect; (B) applies for or consents to the appointment of a custodian, receiver, trustee, sequestrator, conservator or similar official for Borrower or for a substantial part of Borrower’s assets; (C) makes a general assignment for the benefit of creditors; (D) becomes unable to, or admits in writing its inability to, pay its debts generally as they come due; or (E) takes any corporate action in furtherance of any of the foregoing; |
(iii) | An involuntary petition is filed against Borrower (unless such petition is dismissed or discharged within sixty (60) days) under any bankruptcy statute now or hereafter in effect, or a custodian, receiver, trustee, sequestrator, conservator, assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of any property of Borrower; |
(iv) | One or more final and non-appealable judgments for the payment of money in an amount, individually or in the aggregate, of at least $100,000 (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) are entered by a court of competent jurisdiction against Borrower which judgment remains undischarged, unsatisfied, unvacated or unstayed for a period of ten (10) days after such judgment becomes final and non-appealable (and Lender shall not be required to make any Loan Advances prior to the satisfaction, vacation or stay of such judgment, order or decree); |
(v) | A default or breach occurs under any agreement between Borrower and any creditor of Borrower that signed a subordination, intercreditor, or other similar agreement with Lender, or any creditor that has signed such an agreement with Lender breaches any terms of such agreement; |
(vi) | Any representation, warranty or other statement made by Borrower in the Loan Documents, or any other agreement or other document delivered in connection with any of the Loan Documents, shall prove to have been false or misleading in any material respect when made; |
(vii) | Borrower violates any covenant set forth in Section 5 hereof; or |
(viii) | After the date hereof, Borrower grants any Person, other than Lender, any Lien or other encumbrance on all or any substantial part of its assets, other than (A) with respect to Permitted Liens or (B) with respect to any Lien or other encumbrance that is junior in priority to the Lien created by Section 2 hereof. |
(b) | Remedies Upon Default . |
(i) | Upon the occurrence of an Event of Default hereunder: |
(A) | all unpaid principal, accrued interest and other amounts owing hereunder shall, at the option of Lender, be immediately due and payable by Borrower; |
(B) | Lender may terminate its commitment to make additional Loan Advances; and |
(C) | Lender may proceed to protect and enforce its right by suit in the specific performance of any covenant or agreement contained in the Loan Documents or in aid of the exercise of any power granted in the Loan Documents or may proceed to enforce the payment of the Loan Documents or to enforce any other legal or equitable rights as Lender may have, including exercising any right or remedies available to Lender under the Loan Documents and under the Code (including disposal of the Collateral pursuant to the terms thereof). |
(ii) | Any and all amounts (including principal, unpaid interest and all reasonable costs and expenses of collection, including reasonable attorneys’ fees) outstanding hereunder after an Event of Default shall bear interest from the date due until paid at the rate of fifteen percent (15%) per annum. |
(c) | Power of Attorney . Borrower hereby irrevocably appoints Lender as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or security; (b) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Lender determines reasonable; (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Lender or a third party as the Code permits. |
(d) | Application of Payments and Proceeds . If an Event of Default has occurred and is continuing, Borrower shall have no right to specify the order or the accounts to which Lender shall allocate or apply any payments required to be made by Borrower to Lender or otherwise received by Lender under this Agreement when any such allocation or application is not specified elsewhere in this Agreement. If an Event of Default has occurred and is continuing, Lender may apply any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations in such order as Lender shall determine in its sole discretion. If Lender, in its good faith business judgment, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Lender shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Lender of cash therefor. |
(e) | Lender’s Liability for the Collateral . So long as Lender complies with reasonable practices regarding the safekeeping of the Collateral in the possession or under the control of Lender, Lender shall not be liable or responsible for: (i) any loss or damage to the Collateral; (ii) any diminution in the value of the Collateral; or (iii) any act or default of any carrier, warehouseman, bailee, or other Person. So long as Lender complies with reasonable practices regarding the safekeeping of the Collateral in the possession or under the control of Lender, Borrower bears all risk of loss, damage or destruction of the Collateral. |
8. Other Provisions .
(a) | Demand Waiver; Representations and Expenses . Borrower waives presentment, notice of dishonor, protest and notice of protest of this Agreement and the Note and all other notices or demands in connection with the delivery, acceptance, performance, default or endorsement of the Loan Documents, and shall pay reasonable out-of-pocket costs and expenses of collection when incurred by Lender, including, without limitation, reasonable attorneys’ fees and expenses |
(b) | Waivers by Lender; Remedies Cumulative . Lender’s failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Lender thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by Lender and then is only effective for the specific instance and purpose for which it is given. Lender’s rights and remedies under this Agreement and the other Loan Documents are cumulative. Lender has all rights and remedies provided under the Code, by law, or in equity. Lender’s exercise of one right or remedy is not an election, and Lender’s waiver of any Event of Default is not a continuing waiver. Any delay in exercising any remedy by Lender is not a waiver, election, or acquiescence. |
(c) | Binding Agreement; Governing Law . This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. This Agreement shall be governed by and construed in accordance with the internal and substantive laws of the State of Delaware and without regard to any conflicts of laws concepts which would apply the substantive law of some other jurisdiction. |
(d) | Further Assurances . The parties hereto agree to execute and deliver all such other papers and documents and to take such other further actions that may be reasonably necessary or appropriate to carry out the terms of this Agreement. |
(e) | Entire Agreement; Amendment . The Loan Documents contain the entire agreement among the parties with respect to the subject matter hereof and there are no agreements, understandings, representations, or warranties regarding the subject matter hereof that are not set forth herein. This Agreement may not be amended or revised except by a writing signed by Borrower and Lender. |
(f) | Notices . Any notices required or permitted to be sent to Borrower or Lender shall be delivered to the address of Borrower or Lender, as applicable, as set forth below. All notices required or permitted hereunder, to be effective, shall be in writing and shall be deemed effectively given: (i) when sent by confirmed facsimile if sent during normal business hours of the recipient, and if not, then on the next Business Day, (ii) three (3) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iii) one (1) Business Day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. |
If to Borrower, to:
Manuel Teixeira
Valuesetters Inc.
430 North Street
White Plains, NY 10605
If to Lender, to:
VaxStar LLC
P. O. Box 277, Hingham Ma 02043
(g) | Counterparts . This Agreement may be executed in one or more counterparts, all of which when taken together shall constitute but one instrument, and in the event any signature is delivered by facsimile or “.pdf” transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” were an original thereof. |
(h) | Severability . The provisions of this Agreement are severable, and the invalidity of any provision shall not affect the validity or enforceability of any other provision hereof. |
(i) | Captions . The captions herein have been inserted solely for convenience of reference and in no way define, limit, or describe the scope or substance of any provision of this Agreement. |
(j) | Interpretation . All pronouns used herein shall include the masculine, feminine, and neuter gender as the context requires. All defined terms shall include both the plural and singular case as the context requires. |
(k) | Restriction on Assignment . Notwithstanding anything herein to the contrary, Borrower shall not assign this Agreement without obtaining the prior written approval of Lender. Lender may assign or transfer any of its rights or obligations under the Loan Documents without the consent of Borrower, and the provisions of the Loan Documents shall be binding upon and inure to the benefit of such assignee or transferee. Any attempted assignment in violation of this Section 8(k) shall be void and the other party hereto shall not recognize any such purported assignment. |
(l) | Borrower Matters . Borrower may request a Loan Advance hereunder. Borrower acknowledges that Loan Advances totaling $31,148 have already been made to it and such advances shall be governed by this agreement. Borrower hereunder shall be obligated to repay all Loan Advances made hereunder. Borrower waives any suretyship defenses available to it under the Code or any other applicable law. Borrower waives any right to require Lender to: (i) proceed against any Borrower or any other Person; (ii) proceed against or exhaust any security; or (iii) pursue any other remedy. Lender may exercise or not exercise any right or remedy it has against Borrower or any security it holds (including the right to foreclose by judicial or non-judicial sale) without affecting any Borrower’s liability hereunder. Notwithstanding any other provision of this Agreement or any other Loan Document, Borrower irrevocably waives all rights that it may have at law or in equity (including, without limitation, any law subrogating Borrower to the rights of Lender under this Agreement) to seek contribution, indemnification or any other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by Borrower with respect to the Obligations in connection with this Agreement, any other Loan Document or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise. Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section 8(l) shall be null and void. If any payment is made to a Borrower in contravention of this Section 8(l), such Borrower shall hold such payment in trust for Lender and such payment shall be promptly delivered to Lender for application to the Obligations, whether matured or unmatured. |
9.
Definitions
. As
used in this Agreement:
(a) | “ Account ” means all present and future rights of Borrower to payment for goods sold or leased or for services rendered, which are not evidenced by instruments or chattel paper, and whether or not earned by performance. |
(b) | “ Account Debtor ” is any “account debtor” as defined in the Code with such additions to such term as may hereafter be made. |
(c) | “ Business Day ” means any day except Saturday, Sunday and any day which shall be a federal legal holiday or a day on which banking institutions in the State of Delaware are authorized or required by law or governmental action to close. |
(d) | “ Code ” means the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of Delaware; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Lender’s security interest in any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of Delaware, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes on the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions. |
(e) | “ Collateral ” is any and all properties, rights and assets of Borrower described on Exhibit C . |
(f) | “ Equipment ” is all “equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing. |
(g) | “ Inventory ” means all “inventory” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above. |
(h) | “ Lien ” means any claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property. |
(i) | “ Loan Documents ” means this Agreement and the Note, each as amended, restated, or otherwise modified. |
(j) | “ Material Adverse Change ” means (i) any impairment in the perfection or priority of Lender’s security interest in the Collateral, other than with respect to any Permitted Lien, or in the value of such Collateral; (ii) a material adverse change in the business, operations or condition (financial or otherwise) of Borrower; or (iii) a material impairment in the prospect of repayment of any portion of the Obligations. |
(k) | “ Maturity Date ” means June 30, 2015. |
(l) | “ Obligations ” means Borrower’s obligation to pay when due any debts, principal, interest, and other amounts Borrower owes Lender now or later under the Loan Documents. |
(m) | “ Permitted Liens ” means (i) Liens for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which Borrower maintains adequate reserves on its books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the treasury regulations adopted thereunder; (ii) purchase money Liens (A) on Equipment acquired or held by Borrower incurred for financing the acquisition of Equipment securing no more than One Hundred Thousand Dollars ($100,000) in the aggregate amount outstanding, or (B) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment; (iii) statutory Liens securing claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other Persons imposed without action of such parties; provided that, the aggregate amount of such Liens does not at any time exceed One Hundred Thousand Dollars ($100,000.00); and (iv) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (i) through (ii), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase. |
(n) | “ Person ” means an individual, corporation association, partnership, limited liability company, joint venture, trust, government, agency department or any other entity. |
(o) | “ Records ” means all of Borrower’s present and future books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and other data relating to the Collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of Borrower with respect to the foregoing maintained with or by any other person). |
(p) | “ Registered Organization ” means any “registered organization” as defined in the Code with such additions to such term as may hereafter be made. |
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed this Revolving Loan and Security Agreement as of the date first above written.
BORROWER:
VALUESETTERS, INC.
By: Name: Title: Authorized Signatory
|
LENDER:
VAXSTAR LLC
By: Name: Title: Chairman |
Exhibit A
Form of Promissory Note
REVOLVING PROMISSORY NOTE
Up to $250,000 | July 31, 2013 |
FOR VALUE RECEIVED, VALUESETTERS INC. , a Delaware corporation, (the “ Borrower ”), hereby absolutely, irrevocably, unconditionally to pay to the order of NETCAPITAL.COM LLC , a Delaware limited liability company (“ Lender ”), in United States dollars and in immediately available funds, the principal sum of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) , or such lesser amount as may be advanced by Lender to the Borrower from time to time in accordance with that certain Revolving Loan and Security Agreement dated as of July 31, 2013, between the Borrower and Lender (as it may be amended, modified, extended or restated from time to time, the “ Loan Agreement ”), together with interest thereon, as provided in the Loan Agreement. Notwithstanding the foregoing, the aggregate principal amount outstanding under this Revolving Promissory Note (this “ Note ”) shall not exceed two hundred fifty thousand dollars ($250,000). This Note is subject to all of the terms and conditions set forth in, and such terms and conditions are hereby incorporated herein by reference to, the Loan Agreement. All capitalized terms not otherwise defined herein shall have the meanings set forth in the Loan Agreement. In the event of any conflict between the provisions of this Note and the Loan Agreement, the provisions of the Loan Agreement shall prevail.
The obligations of the Borrower evidenced by this Note are secured as set forth in the Loan Agreement.
Except as otherwise provided in the Loan Documents, all outstanding principal and interest with respect to Loan Advances shall be due and payable in full in cash on the Maturity Date. The daily unpaid principal balance outstanding under this Note shall bear interest at the rate(s) set forth in the Loan Agreement. The Loan Advances may be prepaid in whole or in part at any time without premium or penalty and amounts repaid may be re-borrowed in accordance with the provisions of the Loan Agreement.
Upon the occurrence of an Event of Default, Lender shall have, and shall be entitled to exercise, all of the rights and remedies set forth in the Loan Documents.
All payments in respect of amounts outstanding under this Note shall be paid in immediately available funds to the account(s) specified by Lender from time to time. Any payment due in respect of this Note which falls due on a day other than a Business Day shall be made on the next Business Day.
The Borrower hereby waives presentment and demand for payment, notice of dishonor, protest and notice of protest of this Note. No release of any security for the payment of this Note or extension of time for payment of this Note, and no alteration, amendment or waiver of any provision of this Note made by agreement between Lender and any other Person shall release, discharge, modify, change or affect the liability of the Borrower under this Note.
Each right, power and remedy of Lender under this Note, the Loan Agreement, any other Loan Document, or under applicable laws shall be cumulative and concurrent, and the exercise of any one or more of them shall not preclude the simultaneous or later exercise by Lender of any or all such other rights, powers or remedies. No failure or delay by Lender to insist upon the strict performance of any one or more provisions of this Note, the Loan Agreement, any other Loan Document, or to exercise any right, power or remedy consequent upon an Event of Default shall constitute a waiver thereof, or preclude Lender from exercising any such right, power or remedy. No modification, change, waiver or amendment of this Note shall be deemed to be made unless in writing signed by the Borrower and Lender. This Note shall inure to the benefit of and be binding upon the Borrower and Lender and their respective successors and assigns; provided that except as set forth in the Loan Agreement, the Borrower shall have no right to assign any of its rights or delegate any of its obligations under this Note and provided further there shall be no restrictions of any nature on Lender’s right to assign this Note or its rights hereunder. The invalidity, illegality or unenforceability of any provision of this Note shall not affect or impair the validity, legality or enforceability of any other provision. This Note shall be deemed to be made in, and shall be governed by the laws of, the State of Delaware (without regard to its conflicts of laws principles).
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, this Revolving Promissory Note has been duly executed by the undersigned as of the day and year first above written.
BORROWER:
VALUESETTERS, INC.
By: Name: Title: Authorized Signatory
|
Exhibit B
Form of Notice of Borrowing/Loan Advance Request
NOTICE OF BORROWING/LOAN ADVANCE REQUEST
Date:
VaxStar LLC
P. O. Box 277
Hingham Ma 02043
Attention:
Advance Request: Revolving Loan and Security Agreement
Dear Gentlemen:
Reference is made to that certain Revolving Loan and Security Agreement (as from time to time amended, varied, supplemented or otherwise modified, the “ Loan Agreement ”), dated as of April 28, 2011, by and between Valuesetters Inc (the “ Borrower ”), and (ii) NetCapital.com LLC, a Delaware limited liability company (“ Lender ”).
This is a Notice of Borrowing. All capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Loan Agreement.
1. LOAN ADVANCE REQUEST
In accordance with the Loan Agreement, the undersigned hereby requests that Lender make a Loan Advance as follows:
a. | Loan Date: July 31, 2013 |
b. | Amount of Loan Advance: US $_________________ to be disbursed as follows: |
Valuesetters Inc
Account Information
ABA # Account #
c. | Purpose for which Loan Advance will be used: |
2. CERTIFICATION.
The Borrower hereby certifies that (a) the representations and warranties in Section 4 of the Loan Agreement are true in all material respects as of the date hereof, (b) no Event of Default (i) has occurred that is continuing as of the date hereof and (ii) will result from the Loan Advance requested hereunder and (c) no Material Adverse Change has occurred.
Sincerely,
Valuesetters Inc.
Exhibit C
Description of Collateral
The Collateral consists of all of Borrower’s right, title and interest in and to the following personal property:
1. All Accounts and other indebtedness owed to Borrower;
2. All present and future contract rights, general intangibles (including, but not limited to, tax and duty refunds, intellectual property, registered and unregistered patents, trademarks, service marks, copyrights, trade names, applications for the foregoing, technology, software, know-how, designs, trade secrets, goodwill, processes, drawings, blueprints, customer lists, mailing lists, licenses, whether as licensor or licensee, choses in action and other claims and existing and future leasehold interests in equipment, real estate and fixtures), chattel paper, documents, instruments, securities, investment property, letters of credit, proceeds of letters of credit, bankers’ acceptances and guaranties;
3. All present and future monies, securities, credit balances, deposits, deposit accounts and other property of Borrower now or hereafter held or received by or in transit to Lender, any Lender or any of their respective affiliates or at any other depository or other institution from or for the account of Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all present and future Liens, security interests, rights, remedies, title and interest in, to and in respect of Accounts and other Collateral, including, without limitation, (a) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (b) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, (c) goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, Accounts or other Collateral, including, without limitation, returned, repossessed and reclaimed goods, and (d) deposits by and property of Account Debtors or other Persons securing the obligations of Account Debtors;
4. All Inventory;
5. All Equipment;
6. All Records; and
7. All products and proceeds of the foregoing, in any form, including, without limitation, insurance proceeds and any claims against third parties for loss or damage to or destruction of any or all of the foregoing.
Exhibit 23.1
Independent Registered Public Accounting Firm’s Consent
We consent to the use in this Registration Statement of Valuesetters, Inc. (a development stage company) on Form 10 of our report dated August 30, 2013 with respect to our audit of the financial statements of Valuesetters, Inc. as of April 30, 2013 and 2012 and for the years ended April 30, 2013 and 2012, which report is included in this Registration Statement on Form 10 of Valuesetters Inc. for the years ended April 30, 2013 and 2012.
Silberstein Ungar, PLLC
Bingham Farms, Michigan
August 30, 2013