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EX-31.2 - WebSafety, Inc.v167506_ex31-2.htm
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EX-32.1 - WebSafety, Inc.v167506_ex32-1.htm
EX-32.2 - WebSafety, Inc.v167506_ex32-2.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the quarterly period ended:  September 30, 2009
 
Or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File No. 333-140378
 
WEBSAFETY, INC.
(Exact name of small business issuer as specified in its charter)

Nevada
(State or other jurisdiction of incorporation or
organization)
20-5150818
(I.R.S. Employer Identification No.)

1 Hampshire Court, Newport Beach, California 92660
(Address of Principal Executive Offices)
 
(949) 642-7816
(Issuer’s telephone number)
 
BLINDSPOT ALERT, INC.
(Former name, former address and former fiscal year, if changed since last report)
 
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.
 
¨  Large accelerated filer
 
¨  Accelerated filer
       
 
¨  Non-accelerated filer
 
x  Small reporting company
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes ¨     No x
 
State the number of shares outstanding of each of the issuer’s classes of common equity, as of November 15, 2009:
 
Class
 
Outstanding shares as of November 15, 2009
Common Stock, $0.001 par value
 
54,895,714

 
 

 
 
INDEX
 
Page
     
PART 1-FINANCIAL INFORMATION
 
3
     
Item 1.  Financial Statements
 
3
Balance Sheets as of September 30, 2009 (unaudited) and December 31, 2008
 
F-1
     
Statements of Operations (unaudited) for the three and Nine Months ended September 30, 2009 and September 30, 2008 and the period from inception (July 3, 2006) to September 30, 2009.
 
F-2
     
Statements of Cash Flows (unaudited) for the Nine  months ended September 30, 2009 and September 30, 2008 and the period from inception (July 3, 2006) to September 30, 2009
 
F-3
     
Statement of Stockholders Equity (Deficit) from inception (July 3, 2006) to September 30, 2009
 
F-4
     
Notes to Financial Statements
 
F-5
     
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
4
     
Item 3.  Quantitative and Qualitative Disclosures about Market Risk
 
6
     
Item 4.  Control and Procedures
 
6
     
PART 11-OTHER INFORMATION
 
7
     
Item 1.  Legal Proceedings
 
7
     
Item 1A.  Risk Factors
 
7
     
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
9
     
Item 6.  Exhibits
 
9
     
SIGNATURES
 
11

 
2

 
 
PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements

FINANCIAL STATEMENTS

Table of Contents

   
PAGE
     
BALANCE SHEETS
 
F-1
     
INTERIM STATEMENTS OF OPERATIONS
 
F-2
     
STATEMENTS OF CASH FLOWS
 
F-3
     
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
 
F-4
     
FOOTNOTES TO FINANCIAL STATEMENTS
 
F-5

 
3

 
 
WEBSAFETY, Inc.
Formerly Known as BlindSpot Alert, Inc.
A Development Stage Company
CONDENSED BALANCE SHEETS
 
   
Unaudited
       
   
September 30,
   
December 31,
 
 
 
2009
   
2008
 
 ASSETS
           
             
Current assets:
           
Cash
  $ 120,346     $ 224,269  
Accounts receivable
    4,625       -  
Prepaid expense
    -       7,137  
Total current assets
    124,971       231,406  
                 
Property and Equipment
               
Computer equipment and computer software
    11,125       -  
Software license and website development
    273,778       450,963  
Total property and equipment
    284,903       450,963  
                 
Other Assets
               
Deposits
    2,297       -  
Investment in WebSafety Technology
    2,700,000       -  
Option to acquire
    -       95,000  
Total other assets
    2,702,297       95,000  
                 
    $ 3,112,171     $ 777,369  
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
Current liabilities:
               
Advance from shareholder
  $ -     $ 1,104  
Accounts payable
    75,754       37,116  
Accrued expense
    13,874       57  
Deferred revenue
    41,371       -  
Liability to issue shares
    190,000       -  
Total current liabilities
    320,999       38,277  
                 
Stockholders' equity:
               
Preferred stock; $.001 par value, 25,000,000 shares
               
authorized, 4,230,002 and 3,833,335  shares issued and
               
outstanding respectively
    4,230       3,832  
                 
Common stock; $.001 par value, 300,000,000 shares
               
authorized, 54,352,857 and 22,300,000  shares issued and
               
outstanding, respectively
    54,353       22,300  
                 
Subscription receivable
    -       (200 )
                 
Additional paid in capital
    4,616,100       1,357,968  
Deficit accumulated during development stage
    (1,883,511 )     (644,808 )
Total stockholders' equity
    2,791,172       739,092  
                 
    $ 3,112,171     $ 777,369  
 
The accompanying notes are an integral part of these financial statements.

 
F-1

 
 
WebSafety, Inc.
Formerly Known as BlindSpot Alert, Inc.
A Development Stage Company
CONDENSED STATEMENTS OF OPERATIONS
For the three and nine months ended September 30, 2009, 2008 and the period
from inception July 3, 2006 to September 30, 2009
 
                           
July 3, 2006
 
   
Unaudited
   
Unaudited
   
(Date of inception)
 
   
For The Three Months Ended Sept 30
   
For The Nine Months Ended Sept 30
   
to
 
   
2009
   
2008
   
2009
   
2008
   
9/30/2009
 
                               
Revenue
  $ 4,788     $ -     $ 4,788     $ -     $ 236,324  
                                         
Operating expenses:
                                       
Cost of Operations
    -       -       -       5,757       127,977  
General and administrative expenses
    364,271       128,431       693,820       204,968       1,434,200  
Impairment loss
    300,000               300,000               300,000  
Stock Compensation Expense
    4,083       -       4,083       -       4,083  
Depreciation and amortization expense
    588       -       588       -       4,066  
Total operating expenses
    668,942       128,431       998,491       210,725       1,870,326  
                                         
(Loss) from operations
    (664,154 )     (128,431 )     (993,703 )     (210,725 )     (1,634,002 )
                                         
Other income (expense):
                                       
Interest income
    -       -       -       -       109  
Loss on option acquire
    -       -       (245,000 )     -       (245,000 )
Loss on sale of equipment
    -       (1,305 )     -       (5,216 )     (5,216 )
Other income
    -       -       -       6,000       6,000  
Interest expense
    -       -       -       (21 )     (5,402 )
Total other income (expense)
    -       (1,305 )     (245,000 )     763       (249,509 )
                                         
(Loss) before provision for income taxes
    (664,154 )     (129,736 )     (1,238,703 )     (209,962 )     (1,883,511 )
Provision for income taxes
    -       -       -       -       -  
                                         
Net (loss)
  $ (664,154 )   $ (129,736 )   $ (1,238,703 )   $ (209,962 )   $ (1,883,511 )
                                         
Basic and diluted loss per share
    (0.022 )     (0.006 )     (0.050 )     (0.007 )     (0.073 )
                                         
Basic and diluted weighted average
                                       
common shares outstanding
    30,065,714       20,753,261       24,917,017       30,779,487       25,684,341  
 
The accompanying notes are an integral part of these financial statements.

 
F-2

 
Websafety, Inc.
Formerly Known as BlindSpot Alert, Inc.
A Development Stage Company
CONDENSED STATEMENTS OF CASH FLOWS
For the Three Months  Ended September 30, 2009, 2008 and the period from
inception, July 3, 2006 to September 30, 2009

               
July 3, 2006
 
   
Unaudited
   
(Date of inception)
 
   
Nine Months Ended September 30,
   
to
 
   
2009
   
2008
   
September 30, 2009
 
Operating activities:
                 
Net loss
  $ (1,238,703 )   $ (209,962 )   $ (1,883,511 )
Adjustments to reconcile net loss to
                       
Net cash used in operating activities:
                       
Depreciation expense
    588       -       4,066  
Stock Compensation Expense
    4,083               4,083  
Stock issued for services
    32,500       2,400       34,900  
Impairment charge for WQN License
    300,000       -       300,000  
Loss on option expiration
    245,000       -       245,000  
Loss on sale of equipment
    -       5,216       5,216  
Changes in operating assets and liabilities:
                       
Decrease (Increase) in accounts receivable
    (4,625 )     -       (4,625 )
Decrease  in prepaid expense
    7,137       -       -  
Decrease in subscriptions receivable
    200       -       200  
Decrease in advance to shareholder
    -       1,593       -  
Increase in Deposit
    (2,297 )     -       (2,297 )
Increase(decrease) in advance from shareholder
    (1,104 )     -       -  
Increase  in accounts payable
    38,636       16,485       75,753  
Decrease in short-term borrowing
    -       3,009       -  
(Decrease) in lease payable
    -       -       -  
Increase  in Deferred revenue
    41,372       -       41,372  
Increase in accrued expense
    13,818       (6,904 )     13,874  
Net cash (used in) operating activities
    (563,395 )     (188,163 )     (1,165,969 )
                         
Investing activities:
                       
Purchase of long term assets- net
    (134,528 )     (363,811 )     (689,185 )
Increase(decrease) investment in option to acquire
    (150,000 )     -       (150,000 )
                         
Net cash (used in) investing activities
    (284,528 )     (363,811 )     (839,185 )
                         
Financing activities:
                       
Proceeds from borrowing
    -       -       20,000  
Proceeds from sale of equipment
    -       5,026       5,026  
Proceeds from cancellation of advance from shareholder
    -       -       25,000  
Proceeds from stock sales
    744,000       839,600       2,075,474  
Net cash provided by financing activities
    744,000       844,626       2,125,500  
                         
Net changes in cash
    (103,923 )     292,652       120,346  
                         
Cash, beginning of period
    224,269       314       -  
                         
Cash, end of period
  $ 120,346     $ 292,966     $ 120,346  
                         
Interest paid
    90       5,022       10,380  
Tax paid
    -       -       -  
                         
Non Cash Investing and Financing Activities:
                       
Issuance of common stock for services
  $ 32,500     $ 2,400     $ 34,900  
Common stock issued for equipment
  $ -     $ -     $ 9,800  
Common stock issued for software/technology
  $ 2,700,000     $ -     $ 2,700,000  

The accompanying notes are an integral part of these financial statements.

 
F-3

 

WEBSAFETY, INC.
Formerly Known as BlindSpot Alert, Inc.
A Development Stage Company
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the period from July 3, 2006 (inception) through September 30, 2009

                                       
Accumulated
       
                                       
(Deficit)
       
                                 
Additional
   
during
   
Total
 
   
Preferred Stock
   
Common Stock
   
Subscription
   
Paid-in
   
development
   
Stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Receivable
   
Capital
   
stage
   
Equity (Deficit)
 
Balance at July 3, 2006
                                               
(Date of Inception)
    -       -       -       -             -       -       -  
                                                               
Shares issued in connection with the recapitalization
    -       -       14,700,000     $ 14,700           $ 173,600     $ -     $ 188,300  
                                                               
Net loss for the period ended December 31, 2006
    -       -       -       -             -       (19,057 )     (19,057 )
                                                               
Balances December 31, 2006
    -       -       14,700,000       14,700             173,600       (19,057 )     169,243  
                                                               
Net loss for the period ended December 31, 2007
    -       -       -       -             -       (188,094 )     (188,094 )
                                                               
Balances  December 31, 2007
    -       -       14,700,000       14,700             173,600       (207,151 )     (18,851 )
                                                               
Issuance of preferred stock for cash
                                                             
June 20, 2008 six issuances at $0.30
    2,083,336       2,083                             622,917               625,000  
July 2, 2008 one issuance at $0.30
    666,667       667                             199,333               200,000  
November 6, 2008 one issuance at $0.30
    333,333       333                             99,667               100,000  
November 13, 2008 one issuance at $0.30
    83,333       83                             24,917               25,000  
December 17, 2008 two issuances at $0.30
    666,666       666                             199,334               200,000  
                                                               
Issuance of common stock for cash
                                          -               -  
May 1, 2008 six issuances at $0.001
                    2,525,000       2,525             -               2,525  
June 30, 2008 two issuances at $0.001
                    1,175,000       1,175             -               1,175  
Acquisition of Cash in Connection with Recapitalization
                                          13,200               13,200  
July 11, 2008 one issuance at $0.001 for services
                    2,400,000       2,400                             2,400  
July 15, 2008 one issuance at $0.001
                    100,000       100             -               100  
September 18, 2008 two issuances at $0.001
                    1,200,000       1,200             -               1,200  
December 5, 2008 one issuance at $0.001
                    200,000       200       (200 )     -               -  
Voluntary conversion of shareholder advance to paid in capital
                                            25,000               25,000  
                                                                 
Net loss for the period ended December 31, 2008
                                                    (437,657 )     (437,657 )
                                                                 
Balances  December 31, 2008
    3,833,335     $ 3,832       22,300,000     $ 22,300     $ (200 )   $ 1,357,968     $ (644,808 )   $ 739,092  
                                                                 
Subscription receivable paid
                                    200                       200  
                                                                 
Net loss for the period ended March 31, 2009
                                                    (417,785 )     (417,785 )
                                                                 
Balances  March 31, 2009
    3,833,335     $ 3,832       22,300,000     $ 22,300     $ -     $ 1,357,968     $ (1,062,593 )   $ 321,507  
                                                                 
Subscription receivable paid
                                    -                       -  
Issuance of preferred stock for cash
                                                               
May 8, 2009 one issuance at $0.30
    133,334       134                               39,866               40,000  
May 11, 2009 one issuance at $0.30
    56,667       57                               16,943               17,000  
June 4, 2009 four issuances at $0.30
    40,000       40                               11,960               12,000  
                                                              -  
                                                                 
Net loss for the period ended June 30, 2009
                                                    (156,764 )     (156,764 )
                                                                 
Balances  June 30, 2009
    4,063,336     $ 4,063       22,300,000     $ 22,300     $ -     $ 1,426,737     $ (1,219,357 )   $ 233,743  
                                                                 
                                      -                       -  
Issuance of preferred stock for cash
                                                               
September 14, 2009 one issuance at $0.30
    166,666       167                               49,833               50,000  
                                                                 
Issuance of common stock for services
                                                               
July 9, 2009 one issuance at $0.01
                    1,800,000     $ 1,800               16,200               18,000  
July 9, 2009 one issuance at $0.01
                    1,000,000     $ 1,000               9,000               10,000  
September 14, 2009 one issuance at $0.001
                    1,000,000     $ 1,000               -               1,000  
September 14, 2009 one issuance at $0.10
                    27,000,000     $ 27,000               2,673,000               2,700,000  
September 14, 2009 one issuance at $0.35
                    10,000     $ 10               3,490               3,500  
                                                                 
Issuance of common stock for cash
                                                               
August 31, 2009 one issuance at $0.35
                    1,000,000     $ 1,000               349,000               350,000  
September 14, 2009 one issuance at $0.35
                    100,000     $ 100               34,900               35,000  
September 14, 2009 one issuance at $0.35
                    142,857     $ 143               49,857               50,000  
Stock Compensation Expense
                                            4,083               4,083  
                                                                 
Net loss for the period ended September 30, 2009
                                                    (664,154 )     (664,154 )
                                                                 
Balances  September 30, 2009
    4,230,002     $ 4,230       54,352,857     $ 54,353     $ -     $ 4,616,100     $ (1,883,511 )   $ 2,791,172  

The accompanying notes are an integral part of these financial statements.

 
F-4

 

WEBSAFETY, INC.
Formerly Known as BlindSpot Alert, Inc.
 (A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2009

 
Note 1.  Condensed Financial Statement
 
The accompanying financial statements have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at September 30, 2009, and for all periods presented herein, have been made.
 
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2008 audited financial statements.  The results of operations for the three months ended and the nine months ended September 30, 2009 are not necessarily indicative of the operating results that can be anticipated for a complete operating period.
 
In connection with preparation of the condensed financial statements and in accordance with the recently issued FASB ASC 855-10 (Prior authoritative literature: FASB Statement No. 165, “Subsequent Events”), management has evaluated subsequent events through November 14, 2009 (the financial statement issue date).
 
Note 2. Significant Accounting Policies
 
Going Concern
 
The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The Company has incurred cumulative net losses of approximately $1,883,511 from the period of July 3, 2006 (Inception) through September 30, 2009 and has used significant cash in support of its operating activities raising substantial doubt about the Company’s ability to continue as a going concern.  The Company in 2009 has raised additional capital and will seek additional sources of capital through the issuance of debt or equity financing, but there can be no assurance the Company will be successful in accomplishing its objectives.
 
The ability of the Company to continue as a going concern is dependent on additional sources of capital and the success of the Company’s plan.  The financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
Use of Estimates
 
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  The Company is subject to uncertainty of future events, economic, environmental and political factors and changes in the Company’s business environment; therefore, actual results could differ from these estimates.  Accordingly, accounting estimates used in the preparation of the Company’s financial statements will change as new events occur; more experience is acquired, as additional information is obtained and as the Company’s operating environment changes.  Changes are made in estimates as circumstances warrant.  Such changes in estimates and refinement of estimation methodologies are reflected in the statements.
 
Earnings per Share:

Basic earnings per common share is computed by dividing net earnings by the weighted average number of common shares outstanding during each year presented. Diluted earnings per common share give the effect to the assumed exercise of stock options when dilutive. In a loss year, the calculation for basic and diluted earnings per share is considered to be to be the same, as the impact of potential common shares is anti-dilutive. September 30, 2009, there were 700,000 stock options issued and outstanding that could dilute future earnings.

 
F-5

 

WEBSAFETY, INC.
Formerly Known as BlindSpot Alert, Inc.
 (A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2009

 
Stock-Based Compensation:  In December 2004, FASB issued FASB ASC 718 (Previously SFAS No. 123R, Share-Based Payment.)   FASB ASC 718 establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services.  It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.  FASB ASC 718  focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions.  FASB ASC 718  requires that the compensation cost relating to share-based payment transactions be recognized in the financial statements.  That cost will be measured based on the fair value of the equity or liability instruments issued.

The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of EITF 96-18, “Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and EITF 00-18, “Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees.”  The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.  Stock-based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services, which ever is more readily determinable in accordance with SFAS 123R.
 
 Fair Value of Financial Instruments

The fair value of the Company’s financial instruments is determined by using available market information and appropriate valuation methodologies. The Company’s principal financial instruments are cash, accounts receivable, accounts payable, common stock and preferred stock. At September 30, 2009 and December 31, 2008, cash, accounts receivable, and accounts payable, due to their short maturities, and liquidity, are carried at amounts which reasonably approximate fair value.

The Company measures the fair value of its financial instruments using the procedures set forth below for all assets and liabilities measured at fair value that were previously carried at fair value pursuant to other accounting guidelines.

Under FASB ASC 820(Prior authoritative literature: SFAS No. 157, “Fair Value Measurements”), fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

FASB ASC 820 establishes a three-level hierarchy for disclosure to show the extent and level of judgment used to estimate fair value measurements.

Level 1 — Uses unadjusted quoted prices that are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 — Uses inputs, other than Level 1, that are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data. Instruments in this category include non-exchange-traded derivatives, including interest rate swaps.

Level 3 — Uses inputs that are unobservable and are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

 
F-6

 
 
WEBSAFETY, INC.
Formerly Known as BlindSpot Alert, Inc.
 (A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2009

The table below sets forth our financial assets and liabilities that were accounted for at fair value as of September 30, 2009 and December 31, 2008. The table does not include cash on hand or assets and liabilities that are measured at historical cost or any basis other than fair value.
 
   
September 30, 2009
   
December 31, 2008
 
   
Level 1
   
Level 2
   
Level 3
   
Level 1
   
Level 2
   
Level 3
 
It Measured at fair value at date of purchase:
                                   
Investment in WebSafety Technology
 
$
2,700,000
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
 
Note 3. Property and Equipment
 
Property and equipment consist of the following at September 30, 2009:

Computer Equipment
  $ 11,125  
Web Site Development
    273,778  
Total
  $ 284,903  

In July of 2009 we expensed the  $300,000 license fee paid to WQN in June 30, 2008 to license the WebSafety Technology.  The license would have entitled WebSafety, Inc to receive license revenue from WQN, Inc for potential sales of WebSafety Technolgy by WQN, Inc.  On July 2, 2009 the Company closed on an asset acquisition agreement with WQN, Inc. Under the agreement we acquired all of the technology known as The WebSafety Technology and Software for 27,000,000 shares of our common stock.  The Company no longer has any future royalty revenues due from WQN under the June 30, 2008 license agreement.  Currently, all revenue (less commissions paid to direct sales agents) from the sale of WebSafety software is the property of WebSafety, Inc.  Consequently, we recorded a $300,000 license fee write-off in operating expenses as an impairment charge for the period ended September 30, 2009 in accordance with FASB ASC 360-10 (Prior authoritative literature: FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets).

The Company has incurred website development costs as part of web site application and infrastructure development activities. Specifically, activities include coordination of design, engineering, initial integration and design modifications, script writing, web site designs and revisions, application side designs, pre-video production build/test flash prototype for oversize video browser scaling, eCommerce engine, etc.   All of these development costs were capitalized in accordance with FASB ASC 350-50 (Prior authoritative literature: FASB EITF 00-2, “Accounting for Web Site Development Costs”) (see Exhibit 00-2A section a to f within Website Application and Infrastructure Development Stage).

The intended write-off does not include web site development costs of $273,778. The Company plans to utilize the web site to launch the WebSafety software products and expects to generate revenues in the future. The purchase of WebSafety assets from WQN, Inc. did not change the recoverability of the carrying amount of the capitalized website development cost and therefore is not considered impaired in accordance with FASB ASC 360-10 (Prior authoritative literature: FASB Statement No. 144, paragraph 8).  The website development costs will be amortized over its useful life once the WebSafety software products are put in use in accordance with FASB ASC 350-30-50 (Prior authoritative literature: FASB Statement No. 142, “Goodwill and Other Intangible Assets”).

Note 4. Option to acquire and expiration
 
In November 2008 the Company entered into an option agreement with Auburg Adams LLC (AA) a Texas limited liability company to acquire certain software licensing rights it had contracted for pursuant to a licensing agreement entered into with Essential Security Software, Inc. the developer. The option would have allowed the Company to secure the rights of Auburg Adams once a payment of $270,000 has been made. Any payments made pursuant to the terms of the option to acquire were to be credited to the overall price of the licensing had the option been exercised. The rights that Auburg Adams has been granted are for the marketing and sales of software that provides for total digital rights management enabling users to exercise complete control over email transmissions and any attachments related to those transmissions to include restriction of forwarding and timed removal from a recipient computer.  This licensing was to be for an initial five- year period and would be automatically renewable for periods thereafter. The overall cost for the rights is $270,000.

 
F-7

 

WEBSAFETY, INC.
Formerly Known as BlindSpot Alert, Inc.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2009


The option expired on April 1, 2009 without the final payment of $25,000 being made or the option being renewed or extended notwithstanding the April 1, 2009 expiration date of the original option. The accounting treatment is in recognition of the substance of the occurrence.  Management remains in discussion with principals of Auberg Adams and ESS.  A principal of Auburg Adams LLC is a minority shareholder in WebSafety, Inc.

Note 5. Ownership change

On June 20, 2008, The Company issued 13,200,000 shares of its common stock to Texas Atlantic Capital Partners, LLC. (“Texas Atlantic”). The issuance of these shares represented approximately 62% of the then outstanding stock. The issuance resulted in a change of control and meets the definition of a business combination under paragraph 9, of Statement of Financial Accounting Standards No 141, Business Combinations (FAS 141).  Concurrent with the issuance of the shares to Texas Atlantic, the shareholders elected to cancel certain shares in order to effect the desired post change in control ownership ratio.

The business combination was accounted for under the purchase method of accounting followed by a recapitalization of the company. The issuance of the 13,200,000 shares and the cancellation of the 35,500,000 shares of common stock will be retroactively presented in the statement of stockholders equity as if the  transaction with Texas Atlantic had occurred as of the earliest period presented.
 
Note 6. Stock Issuances
 
During the Nine-Month period ended September 30, 2009 we had the following preferred stock issuances.

Preferred Stock-All issuance were for cash at $.30 per share
           
Date
 
Number of Shares
   
Value
 
May 2009
    190,001     $ 57,000  
June 2009
    40,000     $ 12,000  
September 2009
    166,666     $ 50,000  
Total Preferred Issuances
    396,667     $ 119,000  

In addition to the preferred stock issued above, during the Nine-Month period ended September 30, 2009 we also recorded $190,000 of common stock cash receipts that at September 30, 2009 had not been issued.  These receipts are recorded as a current liability at September 30, 2009 and will be issued in the fourth quarter of 2009.  Also, in the Nine-Month period ended September 30, 2009 we committed to issue $28,000 (2,800,000 shares) of common stock for services.  These shares were issued on July 9, 2009.

Note 7. Related party transactions

In the aggregate, during the Nine Month period ended September 30, 2009, the Company paid to related parties $284,472 for consulting, legal and marketing services as reflected below.

Paid To
 
Consulting
   
Legal Services
   
Marketing
   
Accounting
 
                         
Texas Atlantic Capital Partners LLC
  $ 65,000                    
Rowland W. Day II
  $ 18,000     $ 151,223              
Robertson Schwartz Agency
                  $ 30,000        
Robert J Salluzzo
                          $ 15,000  
John Williams
                          $ 5,249  
 
 
F-8

 

WEBSAFETY, INC.
Formerly Known as BlindSpot Alert, Inc.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2009


Texas Atlantic Capital Partners LLC (Texas Atlantic) and Rowland W. Day II and Rusty Robertson are affiliates in that Texas Atlantic is a more than 10% shareholder in the Company, Mr. Day is our CEO and a director; and Rusty Robertson is a director and a principal in Robertson Schwartz Agency.  Robert J Salluzzo is a shareholder in the Company and the former CFO.  John Williams is the contract Treasurer and CFO of the Company and is the Chief Accounting Officer of WQN, Inc.
The services that were provided are outlined below.

Consulting- Consulting services consisted of the coordination of web design and marketing efforts aimed at product launch to include the evaluation of the appropriate merchant service agencies to be used as well as working with management relating to general corporate matters associated with business plan implementation.

Legal- Rowland Day is the Company’s legal counsel. The amount listed in the above table for Legal Services includes $28,786 for expense reimbursement.

Marketing- Marketing fees paid relate to the development of a comprehensive marketing plan whose objective is to build brand and product awareness through planned media and other exposures.

Accounting- Accounting fees paid relates to the review of financial records and preparation of all financial reporting to SEC including audits and preparation of tax returns.

On July 2, 2009 the Company entered into an asset purchase agreement with WQN, Inc. E. Denton Jones, who is also a director of the Company, beneficially owns 335,000 shares of common stock in WQN, Inc. Also, in connection with the transactions contemplated by the Purchase Agreement, B. Michael Adler entered into an employment agreement with the Company to serve as the Company’s Chairman of the Board of Directors. Mr. Adler still serves as the Chief Executive Officer of WQN, Inc. In addition the Company appointed David W. Sasnett, a director of WQN, Inc, as a director; and hired John Williams, Chief Financial Officer of the WQN, Inc., as the contract Treasurer and Chief Financial Officer. Neither Mr. Sasnett nor Mr. Williams has resigned from their positions with WQN, Inc.

Concurrent  with the asset purchase from WQN which was effective on September 14, 2009, the Company appointed a stockholder of WQN as the Chairman of the Board. In connection with the appointment the Company entered into an employment agreement whereby the appointee is to receive a salary upon the achievement of a certain level of revenue. Additionally, he is to receive 1,500,000 shares of the Company’s with 100,000 being vested upon the effective date of the agreement, and the remaining 1,400,000 being vested with the achievement of certain levels of revenue. The term of the agreement ends December 31, 2010.

Note 8. Facilities

The Company’s corporate headquarters are presently located in Newport Beach, California and the Company has opened an office in Dallas, Texas.

Note 9. WebSafety Asset Purchase

On July 2, 2009, The Company entered into an agreement with WQN, Inc. to acquire the software technology, known as “WebSafety”. Pursuant to the terms of the Purchase Agreement, the Company acquired all of WQN, Inc’s rights, title and interest in the Assets.  The acquisition was an arms-length purchase with an unrelated party.  The closing of the asset acquisition was contingent upon WQN, delivering the technology as well as satisfying certain other conditions pursuant to the agreement. WQN shall deliver to the Company a fully executed Asset Purchase Agreement, a fully executed Bill of Sale, fully executed third party consents and/or approvals, and Title to and possession of the purchased assets. The acquisition was limited to the intellectual property surrounding this asset. On September 14, 2009, all conditions of the acquisition were satisfied and accordingly, the Company paid the consideration of 27,000,000 shares of its common stock and gained all rights of ownership to the WebSafety software technology. The acquisition was recorded as a purchase of an asset in the financial statements as of September 30, 2009.

 
F-9

 

WEBSAFETY, INC.
Formerly Known as BlindSpot Alert, Inc.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2009


The Company also entered into employment agreements with the Chief Operating Officer and its Chief Technology Officer, effective on September 14, 2009. The agreements grant the employees the right to receive salaries as well as being granted 600,000 stock options each having a 5-year term in which the options vest at the end of each 12 month period.

On September 10, 2009 the Board of Directors, resolved to issue 478,000 shares of its common stock to non-employee consultants. Additionally, the Board of Directors granted 100,000 stock options to the Chief Financial Officer . The term of the options are for a 5 year period in which the options vest at the end of each 12 month period.

Note 10. Sales and Marketing Program
 
Management has developed direct selling multi-level-marketing channels for the sales of the WebSafety PC and Cellular products. This channel allows the sales of our services through a person-to-person transaction, away from a fixed retail location. All of the individuals offering our services are independent salespeople.

Note 11. Revenue Recognition
 
In August of 2009 the Company began recognizing revenue from the sales of WebSafety products.  WebSafety is a comprehensive software package that gives parents the capability to monitor and protect children against potentially dangerous emergency situations.  Customers purchase annual subscriber memberships to the WebSafety service.  Customers may request a full refund (within 30 days from the date of purchase) for the service if they are not satisfied.  Since revenue is earned over a 12-month period, the company recognizes 1/12 of sales in the month of sale.  The remaining 11/12 of revenue is deferred and recognized equally over an 11-month period.
 
Note 12. Newly issued pronouncements
 
In June 2009, the FASB issued FASB ASC 105-10 (Prior authoritative literature: Statement No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162”), to formally establish the FASB Accounting Standards Codification as the single source of authoritative, nongovernmental U.S. GAAP, in addition to guidance issued by the SEC. On the effective date, the Codification will supersede existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification becomes nonauthoritative. Therefore, from the effective date of the Codification, there will no longer be levels of authoritative GAAP, rather there will only be authoritative and nonauthoritative GAAP. All content within the Codification carries the same level of authority. The Statement makes the Codification effective for interim and annual periods ending after September 15, 2009.  The Company does not expect the impact of FASB ASC 105-10 to have a material effect on its financial statements.

In May 2009, the FASB issued FASB ASC 855-10 (Prior authoritative literature: Statement No. 165, “Subsequent Events”). FASB ASC 855-10 established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. FASB ASC 855-10 will be effective in the second quarter of fiscal 2009. The adoption of FASB ASC 855-10 did not have a material effect on our financial position, cash flows, or results of operations.

Note 13.  Off-balance sheet arrangements

At September 30, 2009, we did not have any material commitments for capital expenditures or have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

Note 14.   Legal Proceedings

On August 25, 2009, the Company terminated its President Clifton Jolley for cause.  In late October 2009, the Company and Mr. Jolley agreed to go to arbitration which the Company believes should occur by the end of the First Quarter of 2010.
 
 
F-10

 

Note 15-Stock Based Compensation

In November , the Board of Directors and Shareholders adopted the 2008 Stock Option Plan providing for the issuance of up to 10,000,000 shares to Company officers, directors, employees and to independent contractors who provide services to the Company.

Options granted under the 2008 Stock Option Plan vest as determined by the Board of Directors set up to act as a compensation committee of the Board of Directors and terminate after the earliest of the following events: expiration of the option as provided in the option agreement, 90 days subsequent to the date of termination of the employee, or ten years from the date of grant (five years from the date of grant for incentive options granted to an employee who owns more than 10% of the total combined voting power of all classes  stock at the date of grant).  In some instances, granted stock options are immediately exercisable into restricted shares of common stock, which vest in accordance with the original terms of the related options. The Company recognizes compensation expense ratably over the requisite service period.

The option price of each share of common stock shall be determined by the Board of Directors or compensation committee (when one is established), provided that with respect to incentive stock options, the option price per share shall in all cases be equal to or greater than 100% of the fair value of a share of common stock on the date of the grant, except an incentive option granted under the 2009 Stock Option Plan to a shareholder that owns more than 10% of the total combined voting power of all classes of Optex Systems Holdings stock, shall have an exercise price of not less than 110% of the fair value of a share of common stock on the date of grant. No participant may be granted incentive stock options, which would result in shares with an aggregate fair value of more than $10,000,000 first becoming exercisable in one calendar year. 

In September  2009, 700,000 stock options with an exercise prices ranging from of $0.10 to $0.35 were granted to an officers of the Company which  vest as follows: 20% at the conclusion of each 12 month period from the 5-year term.  These options carry a grant expiration date of 5 years after issuance.  As of September 30, 2009 11,669 of the stock options had vested.

For the three months and nine months ended September 30, 2009, the Company recorded compensation costs for options and shares granted under the plan amounting to $4,083.  There were no stock options or shares granted or outstanding prior to September 30, 2008, therefore no compensation expense was recorded in 2008.  A deduction is not allowed for income tax purposes until nonqualified options are exercised. The amount of this deduction will be the difference between the fair value of the Company’s common stock and the exercise price at the date of exercise. The tax effect of the income tax deduction in excess of the financial statement expense, if any, will be recorded as an increase to additional paid-in capital.  No tax deduction is allowed for incentive stock options. Accordingly no deferred tax asset is recorded for GAAP expense related to these options.

Management has valued the options at their date of grant utilizing the Black Scholes Merton option pricing model.  The fair value of the underlying shares was determined based on the closing price of the Company’s publicly-traded shares as of date of the grant.   Further, the expected volatility was calculated using the historical volatility of a Company’s stock.  

 The risk-free interest rate is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options depending on the date of the grant and expected life of the options.  The expected life of options used was based on the contractual life of the option granted.  The Company determined the expected dividend rate based on the assumption and expectation that earnings generated from operations are not expected to be adequate to allow for the payment of dividends in the near future. The following weighted-average assumptions were utilized in the fair value calculations for options granted:

  
 
Nine months Ended
 
  
 
September 30, 2009
 
       
Expected dividend yield
    0 %
Expected stock price volatility
    330 %
Risk-free interest rate  (1)
    2.37 %
 
 
F-11

 
 
The Company has granted stock options to officers and employees as follows:

Date of
 
Shares
   
Exercise
   
Shares Outstanding
   
Expiration
   
Vesting
 
Grant
 
Granted
   
Price
   
As of 9/30/09
   
Date
   
Date
 
                               
9/10/09
    100,000     $ 0.35       100,000    
9/10/2014
   
9/102010
 
9/14/09
    100,000       0.10       100,000    
9/14/2014
   
9/14/2010
 
9/14/09
    500,000       0.10       500,000    
9/14/2014
   
9/14/2010
 
                                     
Total
                    700,000              

The following table summarizes the status of The Company aggregate stock options granted under the incentive stock option plan:
 
  
 
Number
   
Weighted
             
  
 
of Shares
   
Average
   
Weighted
       
  
 
Remaining
   
Intrinsic
   
Average
   
Aggregate
 
Subject to Exercise 
 
Options
   
Price
   
Life (Years)
   
Value
 
                         
Outstanding as of September, 2008
    -     $ -       -       -  
Granted – 2009
    700,000     $ 0.21       5.00     $ 150,000  
Forfeited – 2009
    -     $ -       -       -  
Exercised – 2009
    -     $ -       -       -  
Outstanding as of September 30, 2009
    700,000     $ 0.21       5.00     $ 150,000  
                                 
Exercisable as of September 30,2009
    0     $ -       -     $ -  

The weighted-average grant date fair value of options granted during the nine months ended September 30, 2009 was $034. The total intrinsic value of options exercised during the nine months September 30, 2009 was $ 0.0

The following table summarizes the status of The Company aggregate non-vested shares granted under the 2008 Stock Option Plan.

  
 
Number of
Non-
vested
Shares
Subject to
Options
   
Weighted-
Average
Grant-
Date
Fair Value
 
Non-vested as of September 30, 2009
    -     $    
Non-vested granted — nine months ended September 30, 2009
    700,000     $ 0.354  
Vested — nine months ended September 30, 2009
    -     $ 0.00  
Forfeited — nine months ended September 30, 2009
    -        
Non-vested as of September 30, 2009
    700,000     $ 0.35  

As of September 30, 2009, the unrecognized compensation cost related to non-vested share based compensation arrangements granted under the plan that was approximately $695,917.  These costs are expected to be recognized on a straight line basis from September 10, 2009 through September 14, 2014. The total fair value of options and shares vested during the year period ended September 30, 2009 was $0.0.

 
F-12

 

Note 16. Subsequent Events
 
In connection with the preparation of the condensed financial statements and in accordance with the recently issued Financial Accounting Standards Board (“FASB”) ASC 855-10 (Prior authoritative literature: FASB Statement No. 165, “Subsequent Events”, management has evaluated subsequent events through November 20, 2009 (the financial statement issue date).
 
The Company has no subsequent events following the end of current period, September 30, 2009

 
F-13

 

 
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes, and the other financial information included in this report.
 
Forward-Looking Statements
 
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities for existing products, plans and objectives of management, markets for stock of WebSafety, Inc., and other matters. Statements in this report that are not historical facts are “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Exchange Act and Section 27A of the Securities Act. Such forward-looking statements, including, without limitation, those relating to the future business prospects, revenues, and income of WebSafety, Inc., wherever they occur, are necessarily estimates reflecting the best judgment of the senior management of WebSafety, Inc. on the date on which they were made, or if no date is stated, as of the date of this report. These forward-looking statements are subject to risks, uncertainties and assumptions, including those described in the “Risk Factors” described below, that may affect the operations, performance, development, and results of our business. Because the factors discussed in this report could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any such forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
 
Plan of Operation

WebSafety, Inc., a development stage company, formerly known as BlindSpot Alert, Inc., commenced a corporate redirection in June 2008 with the objective of marketing and selling through the internet a range of software applications and services for computers and cell phones that allow parents or other caregivers to monitor and be notified of occurrences of predator advances, cyber bullying and pornography received on children’s computers. The cell phone application would also restrict text messaging while driving and provide location information to parents using GPS technology. In June 2008 we acquired for $300,000 a worldwide non-exclusive license that permits the Company to sell the proprietary software that identifies the threats from predators, cyber bullies and transmitters of pornography. The license also allows for selective exclusivity within certain markets. We acquired this license from WQN, Inc.

In November 2008 we executed an option to acquire licensing rights to software that provides digital rights management to email and other data transmitted over the internet. We had intended to begin selling this proprietary software in 2009, however, the option to acquire the rights expired on April 1, 2009 and an expense in the amount of $245,000 was recorded as of March 31, 2009 to reflect the substance of the expiration as of that date.

On July 2, 2009 the Company closed on an asset acquisition agreement with WQN, Inc. Under the agreement we acquired all of the technology known as The WebSafety Technology and Software for approximately 27,000,000 shares of our common stock. Consequently, the Company no longer has any royalty commitments to WQN under the June 30, 2008 license agreement Management believes that our products are a timely solution to the dangers that come with the unprecedented access to information and people that the internet and cell phones provide.

From June 2008 through September 30, 2009 we have refined our website and we commenced revenue activity in the third quarter of 2009.  We also intend to market our products and services through relationships developed with “trusted” sources consisting child protection advocacy groups including church, school and civic organizations. We intend to also explore opportunities to enter into strategic revenue sharing partnerships with companies having synergy with our products.  These partners may include auto insurers and cell phone manufacturers.

Cumulatively through September 30, 2009 we have raised $1,724,600 through the sale of common and preferred stock the proceeds of which are being used to implement WebSafety’s plan of operations. This funding has been utilized in the furtherance of our plan of operations. Future funding is intended to be used in the commercialization process.

 
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Results of Operations
 
Three month period ended September 30, 2009 compared to September 30, 2008

Revenues were $4,788 during the three months ended September 30, 2009. We did not record any revenues for the three months ended September 30, 2008. For the three months ended September 30, 2009 we sustained a net operating loss of $664,154 compared to a net operating loss of $129,736 for the three months ended September 30, 2008. The $534,418 net operating loss increase was mainly due to higher general and administrative expenses and impairment loss of $300,000. General and administrative expenses totaled $364,271 for the quarter ended September 30, 2009 as compared to $128,431 for the same quarter in 2008 reflecting increased disbursements in 2009 for marketing, legal, professional and other costs relating to the implementation of the operating plan.   Also, $300,000 of the increase in operating expenses was attributable to a one-time impairment charge for a license fee paid to WQN in June 30, 2008 to license the WebSafety Technology.
We intend to become fully operational in late 2009.
 
Nine Month period ended September 30, 2009 compared to September 30, 2008

Revenues were $4,788 during the nine months ended September 30, 2009. We did not record any revenues for the nine months ended September 30, 2008. For the Nine Months ended September 30, 2009 we sustained a net operating loss of $1,238,703 compared to a net operating loss of $209,962 for the nine months ended September 30, 2008.  The $1,028,741 net operating loss increase was mainly due to higher general and administrative expense, an impairment loss of $300,000 (see Note 5. “Property and Equipment”), along with an “other expense” $250,000 loss on option to acquire (see Note 6 Option to acquire and expiration”).

Operating expenses totaled $994,491 for the nine months ended September 30, 2009 as compared to $210,725 for the same period in 2008.  As noted above, operating expenses included a one-time impairment loss of $300,000 (see Note 5. “Property and Equipment”).  The remaining $487,766 increase in operating expenses was attributable to increased disbursements in 2009 for marketing, legal, professional and other costs relating to the implementation of the operating plan.

We intend to become fully operational in late 2009.
 
Financial Condition
 
Cash on hand at September 30, 2009 was $120,346 and working capital (the excess of current assets over current liabilities) was a negative $196,028 compared with $224,269 and $193,130, respectively, at December 31, 2008. The decrease in cash on hand and working capital is primarily attributable to increased disbursements in 2009 for marketing, legal, professional and other costs relating to the implementation of the operating plan.

Other assets increased to $2,702,000 at September 30, 2009 from $95,000 at December 31, 2008.  The increase in other asset was a result of the $2,700,000 purchase of WebSafety Technology less the $95,000 write-of the option to acquire.
Total current liabilities increase to $320,999 at September 30, 2009 from $38,276.  The increase was due to a $190,000 liability to issue share at September 30, 2009 along with increased payables for marketing, legal, professional and other costs relating to the implementation of the operating plan

Stockholders’ equity was $2,791,172 at September 30, 2009 compared to $739,093 at December 31, 2008.  The $2,052,079 increase was due to the issuance of $2,700,000 of common shares to WQN, Inc for the purchase of the WebSafety Technology, plus and additional $586,699 of sales and issuance of common and preferred shares for cash and services, less net operating  losses of $1,238,703 for the nine months ended September 30, 2009.
 
Liquidity
 
Through September 30, 2009 the Company had raised $1,724,600 in new equity to support planned operations in 2009 and beyond; additional capital will be required. In that regard it is management’s intent to continue fund raising efforts to generate the capital required to support expanding operations.  There can be no assurance that we will be able to raise any more additional capital on terms that are beneficial to us.

 
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Critical Accounting Policies and Estimates
 
The discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  Generally accepted accounting principles require management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities.  We base our estimates on experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that may not be readily apparent from other sources.  Our actual results may differ from those estimates.
 
Off-balance sheet arrangements
 
At September 30, 2009, we did not have any material commitments for capital expenditures or have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have not entered into, and do not expect to enter into, financial instruments for trading or hedging purposes.
 
ITEM 4. CONTROLS AND PROCEDURES
 
Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of the end of such period, are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

There have been no significant changes in our internal controls over financial reporting during the third quarter ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

This Quarterly Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Quarterly Report. 
 
Management Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act. Those rules define internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

·
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
·
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and the receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the Company; and

 
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·
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of September 30, 2009. In making this assessment, our management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
 
Changes in Internal Control

There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
 
 
 
On August 25, 2009, the Company terminated its President Clifton Jolley for cause.  In late October 2009, the Company and Mr. Jolley agreed to go to arbitration which the Company believes should occur by the end of the First Quarter of 2010.
 
Item 1.A. Risk Factors
 
RISK FACTORS

The Company was organized during 2006, is at an early stage of operation and has no substantial revenue.  The Company has recently ceased its operations in order to devote its full resources toward marketing, selling and distributing the licensed software products.  The earliest date the Company anticipates receiving revenue from sales of the licensed software is during the second half of 2009.  The Company will need to generate significant revenues to overcome an accumulated deficit and obtain profitability. The Company may never achieve profitability. If revenues grow more slowly than anticipated, or if operating expenses exceed expectations the Company’s business, results of operations, and financial condition could be materially adversely affected.

RISKS RELATING TO OUR BUSINESS

THE COMPANY HAS A LIMITED OPERATING HISTORY AND FACE SIGNIFICANT RISKS AND CHALLENGES IN BUILDING THE BUSINESS

As a result of the Company’s limited operating history, to achieve profitability, the Company must successfully and timely market and sell the CYBERSAFETY software. Although the Company has very concrete and specific marketing and sales programs to be implemented, the Company cannot guarantee the success of such programs and alternately, more expensive marketing and sales programs may need to be implemented.  Additionally, although the Company believes that a strong market exists for the CYBERSAFETY software, the Company has conducted no scientific, reliable market surveys but has only performed its own research and due diligence to ascertain the security concerns of parents and others responsible for the safety of children.  A more scientific analysis could prove that no market exists for the CYBERSAFETY software that the Company intends to market and sell; or, if the market exits, the Company may not be able to reach the market with the Company’s limited financial resources and marketing budget. There can be no assurance that the Company will be able to successfully generate revenues.  The Company has no significant historical basis to assess how it might respond to competitive, economic, regulatory, or technological challenges.  The Company’s business must be considered in light of the risks and uncertainties frequently encountered by companies in the very early stages of development, particularly companies that operate in new and rapidly developing industries and marketplaces.  The Company’s failure to adequately address these risks and uncertainties and rapidly respond to adverse developments as they occur could materially impact the Company’s ability to achieve profitability and, if profitability is achieved, to sustain a level of operations that will cause profitability to be sustained.  Although the Company intends to hire numerous people to implement the business of the Company, there is no assurance that the Company will hire the right people or that future changes will not have to be made to find the right people to implement the Company’s business strategy.  There is no assurance that the Company’s business strategy or marketing plans will achieve success.

 
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THE COMPANY’S RELIANCE ON THE CAPABILITIES OF THE CYBERSAFETY/WEBSAFETY SOFTWARE

The Company is heavily dependent upon the capabilities of the CYBERSAFETY/WEBSAFETY SOFTWARE (see Note 11. “WebSafety Asset Purchase”) and its ability to provide technical and other support of the software.  The failure of the software to accomplish the objectives as represented will hamper if not destroy the Company’s marketing efforts as well as any inability to capably provide technical support for the software.
 
COMPANY’S RELIANCE UPON EXECUTIVES AND CONSULTANTS

The Company’s success is highly dependent upon executive officers and key consultants identified in this report for critical management decisions and to implement and pursue the Company’s business and marketing plan.  A loss of any of the executives or consultants through incapacity or for any other reason could materially adversely impact the ability of the Company to complete its business and marketing plan and would require the Company to seek the assistance of other qualified personnel who may not be available.
 
CHALLENGES FROM COMPETITION

Although the Company is unaware of an available product that contains all the characteristics, features and capabilities of the WEBSAFETY software, in the dynamic, ever changing field of technology, many companies of all sizes and capabilities are constantly engaged in software development.  With the notoriety given to child molesters, pedophiles and others causing harm and sometimes death to children, a reasonable assumption is that many companies are currently engaged in software development activities that will possess many of the characteristics and capabilities possessed by WEBSAFETY software.  In the event another company successfully develops and markets a competitive product before the Company can establish a significant presence in its target markets; the Company may never be able to achieve a level of revenue to sustain the Company’s operations
 
RISKS RELATED TO OUR COMMON STOCK

IF MARKET FOR OUR COMMON STOCK DOES NOT DEVELOP, OUR STOCKHOLDERS MAY BE UNABLE TO SELL THEIR SHARES.

There is currently a limited market for our common stock and we can provide no assurance that a more liquid market will develop. If a liquid market does not develop for our shares, it will be difficult for stockholders to sell their stock.  In such a case, stockholders may find that they are unable to achieve benefits from their investment.
 
IF A MARKET FOR OUR COMMON STOCK DEVELOPS, OUR STOCK PRICE MAY BE VOLATILE.

If a market for our common stock develops, the price at which our common stock will trade may be highly volatile and may fluctuate as a result of a number of factors, including the number of shares available for sale in the market, quarterly variations in our operating results, actual or anticipated announcements of new data, studies, products or services by us or competitors, regulatory investigations or determinations, acquisitions or strategic alliances by us or our competitors, recruitment or departures of key personnel, the gain or loss of significant customers, changes in the estimates of our operating performance, market conditions in our industry and the economy as a whole.

 
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APPROXIMATELY 49% OF OUR COMMON STOCK IS CONTROLLED BY A SINGLE STOCKHOLDER WHO HAS THE ABILITY TO SUBSTANTIALLY INFLUENCE THE ELECTION OF DIRECTORS AND THE OUTCOME OF MATTERS SUBMITTED TO STOCKHOLDERS.

As of November 15, 2009, WQN, Inc. directly owns 27,000,000 shares, which represents approximately 49% of our 54,895,714 shares of outstanding common stock.  As a result, WQN presently and is expected to continue to have the ability to determine the outcome of issues submitted to our stockholders.  The interests of this stockholder may not always coincide with our interests or the interests of other stockholders, and it may act in a manner that advances its best interests and not necessarily those of other stockholders.  One consequence of this substantial stockholder’s interest is that it may be difficult for investors to remove management of the Company.  It could also deter unsolicited takeovers, including transactions in which stockholders might otherwise receive a premium for their shares over then current market prices.

INVESTORS’ INTERESTS IN OUR COMPANY WILL BE DILUTED AND INVESTORS MAY SUFFER DILUTION IN THEIR NET BOOK VALUE PER SHARE IF WE ISSUE ADDITIONAL SHARES OR RAISE FUNDS THROUGH THE SALE OF EQUITY SECURITIES.

In the event that we are required to issue any additional shares or enter into private placements to raise financing through the sale of equity securities, investors’ interests in our Company will be diluted and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold.  If we issue any such additional shares, such issuances also will cause a reduction in the proportionate ownership and voting power of all other stockholders.  Further, any such issuance may result in a change in our control.
 
WE HAVE NEVER PAID CASH DIVIDENDS AND DO NOT INTEND TO DO SO.

We have never declared or paid cash dividends on our common stock.  We currently plan to retain any earnings to finance the growth of our business rather than to pay cash dividends.  Payments of any cash dividends in the future will depend on our financial condition, results of operations and capital requirements, as well as other factors deemed relevant by our board of directors.
 
WE WILL NEED ADDITIONAL FINANCING.

We will need additional financing to maintain and expand its business, and such financing may not be available on favorable terms, if at all.  We intend to finance our business through the private placement and public offering of equity and debt securities.  Additional financing may not be available on favorable terms, if at all.  If we need funds and cannot raise them on acceptable terms, we may not be able to execute our business plan, and our shareholders may lose substantially all of their investment.

TERRORIST ATTACKS, CONTINUED WAR OR OTHER CIVIL DISTURBANCES COULD LEAD TO FURTHER ECONOMIC INSTABILITY AND ADVERSELY AFFECT OUR BUSINESS

On September 11, 2001, the United States was the target of terrorist attacks of unprecedented scope.  The United States is currently engaged in war with Iraq.  These attacks and this war have caused instability in the marketplace and contributed to a downturn in the global economy.  In the future, there may be armed hostilities, continued war, further acts of terrorism and civil disturbances in the United States or elsewhere, which may further contribute to economic instability in the United States. Additionally, such disturbances could have a material adverse effect on our business, financial condition and operating results.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

For the period ending September 30, 2009, the Company sold 785,714 shares of its unregistered common stock to various accredited investors for proceeds of $275,000.  The sales were exempt from registration pursuant to the Securities Act of 1933.  The proceeds were used for working capital.
 
 
No. 
Description of Exhibit
 
31.1 
Rule 13a-14(a) Certification of Chief Executive Officer
 
31.2 
Rule 13e-14(a) Certification of Chief Financial Officer

 
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32.1 
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
32.2 
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
WEBSAFETY, INC.
Date:
November 23, 2009
By:
/s/ Rowland W. Day II
 
Rowland W. Day II,
   
 
Principal Executive Officer
   
 
 
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