Attached files
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EX-23.2 - EXHIBIT 23.2 - Network Cadence, Inc. | verecloud_ex23x2.htm |
EX-23.1 - EXHIBIT 23.1 - Network Cadence, Inc. | verecloud_ex23x1.htm |
EX-10.4 - EXHIBIT 10.4 - Network Cadence, Inc. | verecloud_ex10x4.htm |
As filed with the Securities and Exchange
Commission on February 2, 2010
Registration
No. 333-163685
UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C.
20549
|
||
Amendment
No. 2
to
Form
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
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||
VERECLOUD,
INC.
(Exact
name of registrant as specified in its charter)
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||
Nevada
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7371
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26-0578268
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(State
or other jurisdiction of incorporation or organization)
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(Primary
Standard Industrial Classification Code Number)
|
(IRS
Employer Identification No.)
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6560
South Greenwood Plaza Boulevard, Number 400
Englewood,
Colorado 80111
Phone:
(877) 711-6492
Fax:
(303) 265-9534
(Address,
including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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||
John
F. McCawley
Chief
Executive Officer
Verecloud,
Inc.
6560
South Greenwood Plaza Boulevard, Number 400
Englewood,
Colorado 80111
Phone:
(877) 711-6492
Fax:
(303) 265-9534
(Name,
address, including zip code, and telephone number, including are code, of
agent for service)
with
a copy to:
Adam
J. Agron, Esq.
David
A. Rontal, Esq.
Brownstein
Hyatt Farber Schreck, LLP
410
17th
Street, Suite 2200
Denver,
Colorado 80202
Phone:
(303) 223-1100
Fax: (303)
223-0975
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||
Approximate Date of Commencement of
Proposed Sale to the Public: As soon as practicable after the
effective date of this registration statement.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 (the
“Securities Act”), check the following box: x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering: o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering: o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Securities Exchange Act of 1934 (the “Exchange Act”). (Check
one):
Large
accelerated filer
|
o
|
Accelerated
filer
|
o
|
|
Non-accelerated
filer
|
o
|
(Do
not check if a smaller reporting company)
|
Smaller
reporting company
|
x
|
CALCULATION
OF REGISTRATION FEE
Title
of each class of securities to be registered
|
Amount
to
be
registered
|
Proposed
maximum offering
price
per share (1)
|
Proposed
maximum
aggregate
offering price
|
Amount
of
registration
fee
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||||||
Common
stock, $0.001 par value
|
14,080,000
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$0.07
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$ |
991,200
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$55.31
(2)
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|||||
(1)
|
The
shares will be sold at this fixed price of $0.07 until our common stock is
quoted on the Over-the-Counter Bulletin Board or listed on a securities
exchange.
|
(2)
|
This
amount has been previously
paid.
|
The
Registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this registration statement on
Form S-1 shall thereafter become effective in accordance with Section 8(a)
of the Securities Act or until the registration statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The
information in this prospectus is not complete and may be changed. The selling
stockholders may not sell these securities until this prospectus filed with the
Securities and Exchange Commission (“SEC”) is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT
TO COMPLETION, dated February 2, 2010
VERECLOUD,
INC.
6560
South Greenwood Plaza Boulevard, Number 400
Englewood,
Colorado 80111
(877)
711-6492
14,080,000 shares of Common Stock
This
prospectus relates to the sale of 14,080,000 shares of our common stock, par
value of $0.001, by certain individuals and entities who beneficially own the
shares for their own accounts. We will not receive any proceeds from
the sale of the shares. The offering price per share is a fixed price of $0.07.
The shares will be sold at this fixed price of $0.07 until our common stock is
quoted on the Over-the-Counter Bulletin Board (the “OTC Bulletin Board”) or
listed on a securities exchange. There is no assurance that our
common stock will be quoted on the OTC Bulletin Board or listed on a securities
exchange.
The
number of shares being registered for resale under this registration statement
on Form S-1 consists of an aggregate of 3,680,000 shares of common stock held by
stockholders who acquired the shares from us prior to our August 2009 share
exchange and 10,400,000 shares received by our President and Chief Executive
Officer. The selling stockholders acquired the shares at different
times in private transactions exempt from registration under the Securities Act
of 1933 (the “Securities Act”). We are registering the offer and sale
of the shares to satisfy registration rights we have granted to the selling
stockholders. See “Selling Stockholders.”
INVESTING
IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE “RISK FACTORS” BEGINNING
ON PAGE 6 TO READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR
COMMON STOCK.
NEITHER
THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE
INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT ON FORM S-1 FILED WITH
THE SEC IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THE OFFER OR SALE IS NOT PERMITTED.
The date
of this prospectus is __________________, 2010
TABLE
OF CONTENTS
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|
PROSPECTUS
SUMMARY
|
5 |
The
Company
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5 |
The
Offering
|
5 |
RISK
FACTORS
|
6 |
Risks
Related to Our Business
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6 |
Risks
Related to Our Company
|
8 |
Risks
Related to Our Common Stock
|
11 |
FORWARD
LOOKING STATEMENTS
|
15 |
USE
OF PROCEEDS
|
16 |
MARKET
PRICE OF AND DIVIDENDS ON OUR COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
|
16 |
Market
Information
|
16 |
Determination
of Offering Price
|
16 |
Stockholders
|
16 |
Dividends
|
16 |
Securities
Authorized for Issuance Under Equity Compensation Plans
|
16 |
DILUTION
|
17 |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
17 |
Overview
|
17 |
Going
Concern
|
18 |
Significant Accounting
Policies
|
19 |
Recent
Pronouncements
|
21 |
Outlook
|
22 |
Results
of Operations
|
22 |
Impact
of Inflation
|
24 |
Liquidity
and Capital Resources
|
24 |
Off-Balance
Sheet Arrangements
|
25 |
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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25 |
Interest
Rates
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25 |
2
OUR
BUSINESS
|
25 |
Industry
Background
|
25 |
Market
Environment
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26 |
Our
Business Strategy
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27 |
Market
Strategy
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28 |
Competition
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28 |
Customers
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29 |
Intellectual
Property and Property Rights
|
29 |
Employees
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29 |
Properties
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29 |
Litigation
|
29 |
DIRECTORS
AND EXECUTIVE OFFICERS
|
30 |
Our
Directors and Executive Officers
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30 |
Director
Independence
|
31 |
Family
Relationships
|
31 |
Legal
Proceedings
|
31 |
EXECUTIVE
COMPENSATION
|
31 |
Summary
Compensation Table
|
31 |
Compensation
Committee Interlocks and Insider Participation
|
32 |
Elements
of Compensation
|
32 |
Outstanding
Equity Awards at February 2,
2010
|
33 |
Director
Compensation
|
33 |
Employment
Agreements
|
33 |
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
34 |
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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35 |
3
DESCRIPTION
OF CAPITAL STOCK
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35 |
General
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35 |
Common
Stock
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35 |
Preferred
Stock
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35 |
Warrants
|
35 |
Change
in Control Provisions
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35 |
SELLING
STOCKHOLDERS
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36 |
PLAN
OF DISTRIBUTION
|
38 |
EXPERTS
|
39 |
VALIDITY
OF SECURITIES
|
39 |
INTERESTS
OF NAMED EXPERTS AND COUNSEL
|
39 |
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
|
39 |
AVAILABLE
INFORMATION
|
40 |
FINANCIAL
STATEMENTS OF VERECLOUD, INC.
|
F-1
|
4
PROSPECTUS
SUMMARY
This
summary highlights selected information contained elsewhere in this prospectus.
This summary does not contain all the information that you should consider
before investing in the common stock. You should carefully read the entire
prospectus, including “Risk Factors,” “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and the Financial Statements,
before making an investment decision.
The
Company
On July
19, 2007, Sage Interactive, Inc. (“Sage”) was incorporated in Nevada as a web
development services company.
On August
31, 2009, Sage consummated a share exchange with the sole member of Cadence II,
LLC, a Colorado limited liability company (“Cadence II”), pursuant to which it
acquired all of the membership interests of Cadence II in exchange for the
issuance to the sole member of Cadence II of 42,320,000 shares of our common
stock representing at that time, 92.0% of our issued and outstanding common
stock (the “Share Exchange”). After the Share Exchange, our business operations
consist of those of Cadence II. Upon the closing of the Share
Exchange, we amended our Articles of Incorporation to change our name to Network
Cadence, Inc. and Cadence II became our wholly owned subsidiary. On January 25,
2010, we conducted a four-for-one forward split of our common stock, in which
each share of our issued and outstanding common stock as of January 25, 2010 was
converted into four shares of our common stock. Accordingly, all
share amounts referenced herein are calculated on a post-split basis
notwithstanding that certain grants or issuances were made prior to the date of
the forward split. In addition, on January 25, 2010, we amended our
Articles of Incorporation to change our name to Verecloud, Inc. (the “Company”
or “Verecloud”).
The
Company is headquartered in Englewood, Colorado and, through its wholly owned
subsidiary, Cadence II, provides transformation solutions to the
telecommunications industry. Specifically, the Company creates and implements
functional architectural designs intended to solve the problems related to the
high costs of integration for communication service providers (“CSPs”). Through
its Service Lifecycle Management methodology (“SLM”), the Company enables CSPs
to dramatically improve performance in deploying new services while reducing
their operation costs. On January 11, 2010, we entered into a Master
Services Agreement with GigaSpaces Technologies, Inc. pursuant to which we will
provide these services. Although it is anticipated that these
professional services will drive the short-term revenue growth for the Company,
Verecloud is in the process of developing and rolling out a cloud-based
computing system known as Nimbus. On November 2, 2009, the Company
received a contract termination notice from its largest customer, SkyTerra
Communications (“SkyTerra”). As a result of the SkyTerra termination,
the Company lost 95% of its revenue and cut 50% of its
workforce. Accordingly, the Company’s financial statements have been
prepared on the basis on accounting principles applicable to a going
concern. The Company’s ability to continue as a going concern is
dependent on securing outside financing in 2010. The
Company needs approximately $10 million to execute on its business plan for
Nimbus and related overhead and working capital requirements within the next
twelve months and an additional $10 million for 2011. If the Company
is unable to secure this financing or develop and sell a functional and
effective cloud-based computing system, this may prevent the Company’s business
plan for Nimbus from materializing.
The
address of our principal office is 6560 South Greenwood Plaza Boulevard, Number
400, Englewood, Colorado 80111 and our telephone number
at that address is 877-714-6492. Out Internet website is located at
WWW.VERECLOUD.COM. The information contained on our website is not
incorporated by reference in this prospectus and should not be considered part
of this prospectus.
The
Offering
Securities
Covered Hereby
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14,080,000
shares of common stock owned by the selling
stockholders
|
|
Common
Stock Outstanding Prior to the Offering
|
51,391,252
shares of common stock (1)
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|
Common
Stock to be Outstanding After the Offering
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51,391,252
shares of common stock (1)
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|
Use
of Proceeds
|
We
will not receive any of the proceeds from the sale of the shares offered
in this prospectus by the selling stockholders. Rather, the selling
stockholders will receive those proceeds
directly.
|
Terms
of the Offering
|
The
selling stockholders will determine the terms relative to the sale of the
shares offered in this prospectus.
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|
Termination
of the Offering
|
The
offering will conclude on the date as of which the selling stockholders
may sell the shares without restriction pursuant to Rule 144 under the
Securities Act, or when all of the shares registered under this prospectus
have been sold.
|
|
Risk
Factors
|
The
securities offered hereby involve a high degree of risk and should not be
purchased by investors who cannot afford the loss of their entire
investment. See “Risk Factors.”
|
(1) This
number of shares of common stock does not reflect shares of common stock
authorized and reserved for future issuance under the Company’s equity incentive
plan or the amount of presently outstanding, unvested options to acquire common
stock or restricted shares issued under such equity incentive
plan. However, this amount assumes the exercise of all vested
options outstanding under the Company’s equity incentive plan as of the date of
this prospectus.
5
RISK
FACTORS
There are
numerous and varied risks that may prevent us from achieving our goals,
including those described below. You should carefully consider the
risks described below and other information included in this prospectus,
including our financial statements and related notes. Our business,
financial condition and results of operations could be harmed by any of the
following risks. If any of the events or circumstances described
below were to occur, our business, financial condition and results of operations
could be materially adversely affected. As a result, the trading
price of our common stock could decline, and investors could lose part or all of
their investment.
Risks
Related to Our Business
With
the recent loss of our largest customer, our revenue has been significantly
reduced and we no longer operate at a profit.
On
November 2, 2009, we received a contract termination notice from our largest
customer, SkyTerra. As a result, we expect to lose approximately 95% of our
revenue. In light of this notice, we reduced our workforce by approximately 50%.
With the loss of our most significant customer, we have limited revenue and,
going forward, will not operate at a profit without additional business. We
cannot assure you that we will ever be profitable and you should not invest
unless you are prepared to lose your entire investment.
We
have received a going concern opinion from our auditors.
Our
financial statements have been prepared on the basis of accounting principles
applicable to a going concern. This raises substantial doubt about our ability
to continue as a going concern. Our ability to continue as a going concern is
dependent on our ability to raise additional capital and implement our business
plan. Assurances cannot be given that adequate financing can be obtained to meet
our capital needs. If we are unable to generate profits and unable to continue
to obtain financing to meet our working capital requirements, we may have to
curtail our business sharply or cease operations altogether. Our continuation as
a going concern is dependent upon our ability to generate sufficient cash flow
to meet our obligations on a timely basis to retain our current financing, to
obtain additional financing, and, ultimately, to attain profitability. Should
any of these events not occur, we will be adversely affected and we may have to
cease operations. We intend to seek funding of approximately $20
million. Of this amount, approximately $10 million is expected to be
used to develop a commercially viable Nimbus solution and to fund operations
through 2010. The remaining $10 million is expected to be used to
fund ongoing working capital needs for sales, marketing, product management and
general overhead in 2011. There is no assurance that we will be
successful in obtaining this funding.
The
products and services we sell are based on an emerging technology and therefore
the potential market for our products remains uncertain.
The
telecommunication transformation products and services we develop and sell are
based on an emerging technology platform and our success depends on
organizations and customers perceiving technological and operational benefits
and cost savings associated with adopting our solutions. Our
relatively limited operating history and the limited extent to which our
solutions have been currently adopted may make it difficult to evaluate our
business because the potential market for our products remains
uncertain.
Failure
to properly manage projects may result in unanticipated costs or
claims.
Our
engagements may involve large scale, highly complex projects. The quality of our
performance on such projects depends in large part upon our ability to manage
the relationship with our customers, and to effectively manage the project and
deploy appropriate resources, including third-party contractors and our own
personnel, in a timely manner. Any defects or errors or failure to meet
customers’ expectations could result in claims for substantial damages against
us. Our contracts generally limit our liability for damages that arise from
negligent acts, errors, mistakes or omissions in rendering services to our
customers. However, we cannot be sure that these contractual provisions will
protect us from liability for damages in the event we are sued. In addition, in
certain instances, we guarantee customers that we will complete a project by a
scheduled date or that the network will achieve certain performance standards.
If the project or network experiences a performance problem, we may not be able
to recover the additional costs we would incur, which could exceed revenues
realized from a project.
Our
clients’ complex regulatory requirements may increase our costs, which could
negatively impact our profits.
Many of
our clients, particularly those in the telecommunication services, are subject
to complex and constantly changing regulatory requirements. On occasion, these
regulatory requirements change unpredictably. These regulations may increase our
potential liabilities if our services are found to contribute to a failure by
our clients to comply with the requirements applicable to them and may increase
compliance costs as regulatory requirements increase or change. These increased
costs could negatively impact our profits.
6
In
our course of business, we expose ourselves to possible litigation associated
with performing services on our customers’ properties.
We
perform services on our customers’ properties and doing so can result in claims
of property damage, breach of contract, harassment, theft, and other such
claims. These claims may become time consuming and expensive, which would
adversely affect our financial condition and the reputation of our
business.
We
are highly dependent upon technology, and our inability to keep pace with
technological advances in our industry could have a material adverse effect on
our business, financial condition and results of operations.
Our
success depends in part on our ability to develop IT solutions that keep pace
with continuing changes in the IT industry, evolving industry standards and
changing client preferences. There can be no assurance that we will be
successful in adequately addressing these developments on a timely basis or
that, if these developments are addressed, we will be successful in the
marketplace. We need to continually make significant investments, with ever
increasing regularity, in sophisticated and specialized communications and
computer technology to meet our clients’ needs. We anticipate that it will be
necessary to continue to invest in and develop new and enhanced technology in
shorter intervals and on a timely basis to maintain our competitiveness.
Significant capital expenditures may be required to keep our technology
up-to-date. There can be no assurance that any of our information systems will
be adequate to meet our future needs or that we will be able to incorporate new
technology to enhance and develop our existing services. Moreover, investments
in technology, including future investments in upgrades and enhancements to
software, may not necessarily maintain our competitiveness. Our future success
will also depend in part on our ability to anticipate and develop information
technology solutions that keep pace with evolving industry standards and
changing client demands. Our inability to effectively keep pace with continuing
changes in the IT industry could have a material adverse effect on our business,
financial condition and results of operations.
Our
failure to protect or maintain our existing systems could have material adverse
effect on our business, financial condition and result of
operations.
Moreover,
experienced computer programmers and hackers may be able to penetrate our
network security, or that of our customers, and misappropriate confidential
information, create system disruptions or cause shutdowns. If this were to
occur, we could incur significant expenses in addressing problems created by
security breaches of our network.
Our
business depends on our clients not going offshore for services.
The
potential exists for us to lose existing customers for information technology
outsourcing services or other information technology solutions, or incur
significant expenses in connection with our customers’ system failures. In
addition, sophisticated hardware and operating system software and applications
that we produce or procure from third parties may contain defects in design and
manufacture, including “bugs” and other problems that can unexpectedly interfere
with the operation of our systems. The costs to eliminate or alleviate security
problems, viruses, worms and bugs could be significant, and the efforts to
address these problems could result in interruptions, delays or cessation of
service.
Our business depends on the growth
and maintenance of wireless communications infrastructure.
Our
success will depend on the continued growth and maintenance of wireless
communications infrastructure in the United States and around the world. This
includes deployment and maintenance of reliable next-generation digital networks
with the necessary speed, data capacity and security for providing reliable
wireless communications services. Wireless communications infrastructure may be
unable to support the demands placed on it if the number of customers continues
to increase, or if existing or future customers increase their bandwidth
requirements. In addition, viruses, worms and similar break-ins and disruptions
from illicit code or unauthorized tampering may harm the performance of wireless
communications. If a well-publicized breach of security were to occur, general
mobile phone usage could decline, which could reduce the demand for and use of
our applications. Wireless communications experience a variety of outages and
other delays as a result of infrastructure and equipment failures, and could
face outages and delays in the future. These outages and delays could reduce the
level of wireless communications usage as well as our ability to distribute our
applications successfully.
The
industry in which we operate has relatively low barriers to entry and increased
competition could result in margin erosion, which would make profitability even
more difficult to sustain.
Other
than the technical skills required in our business, the barriers to entry in our
business are relatively low. Business start-up costs do not pose a
significant barrier to entry. The success of our business is dependent on our
employees, customer relations and the successful performance of our services. If
we face increased competition as a result of new entrants in our markets, we
could experience reduced operating margins and loss of market share and brand
recognition.
We
operate in a competitive industry with several established and more horizontally
integrated companies. It may be difficult to sustain our market share in the
event of a decline in market conditions.
Our
industry is competitive and rapidly changing. Future competitors may include
large international and domestic engineering companies. These competitors may
have a material advantage in their financial, technical and marketing resources.
We may be unable to successfully compete against future competitors, which would
adversely affect our business and operations.
7
Risks
Relating To Our Company
We
may not be able to manage our expansion of operations effectively and if we are
unable to do so, we will not achieve profitability.
We
believe our Nimbus solution will allow us to significantly expand our business
and capture new market opportunities. As we grow, we must continue to
improve our operational and financial systems, procedures and controls, and
expand, train and manage our growing employee base. In order to fund our
on-going operations and our future growth, we will need to have sufficient
internal sources of liquidity or access to additional financing from external
sources. Furthermore, our management will be required to maintain and strengthen
our relationships with our customers, suppliers and other third parties. As a
result, our continued expansion has placed, and will continue to place,
significant strains on our management personnel, systems and resources. We will
also need to further strengthen our internal control and compliance functions to
ensure that we will be able to comply with our legal and contractual obligations
and minimize our operational and compliance risks. Our current and planned
operations, personnel, systems, internal procedures and controls may not be
adequate to support our future growth. If we are unable to manage our growth
effectively, we may not be able to take advantage of market opportunities,
execute our business strategies or respond to competitive pressures. As a
result, our results from operations may decline.
Our
limited operating history may not serve as an adequate basis to judge our future
prospects and results of operations.
Our
limited operating history and the unpredictability of our industry make it
difficult for investors to evaluate our business and future operating results.
An investor in our securities must consider the risks, uncertainties and
difficulties frequently encountered by companies in new and rapidly evolving
markets. The risks and difficulties we face include challenges in accurate
financial planning as a result of limited historical data and the uncertainties
resulting from having had a relatively limited time period in which to implement
and evaluate our business strategies as compared to companies with longer
operating histories.
Our
operating results may fluctuate significantly, which makes our future results
difficult to predict and may result in our operating results falling below
expectations or our guidance, which could cause the price of our common stock to
decline.
Our
operating results may fluctuate due to a variety of factors, many of which are
outside of our control. As a result, comparing our operating results on a
period-to-period basis may not be meaningful. You should not rely on our past
results as an indication of our future performance. If our revenue or operating
results fall below the expectations of investors or securities analysts or below
any guidance we may provide to the market, the price of our common stock would
likely decline substantially.
In
addition, factors that may affect our operating results include, among
others:
•
|
fluctuations
in demand, adoption, sales cycles and pricing levels for our products and
services;
|
|
•
|
changes
in customers’ budgets for information technology purchases and in the
timing of their purchasing decisions;
|
|
•
|
the
timing of recognizing revenue in any given quarter as a result of software
revenue recognition policies;
|
|
•
|
the
sale of our products in the timeframes we anticipate, including the number
and size of orders in each quarter;
|
|
•
|
our
ability to develop, introduce and deliver in a timely manner new products
and product enhancements that meet customer demand, certification
requirements and technical requirements;
|
|
•
|
the
timing of the announcement or release of products or upgrades by us or by
our competitors;
|
|
•
|
our
ability to implement scalable internal systems for reporting, order
processing, license fulfillment, product delivery, purchasing, billing and
general accounting, among other functions;
|
|
•
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our
ability to control costs, including our operating expenses;
and
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general
economic conditions in our domestic and international
markets.
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If
our clients terminate significant contracted projects or choose not to retain us
for additional projects, or if we are restricted from providing services to our
clients’ competitors, our revenues and profitability may be negatively
affected.
Our
clients typically retain us on a non-exclusive basis. Many of our client
contracts, including those that are on a fixed price, fixed timeframe basis, can
be terminated by the client with or without cause upon 90 days’ notice or less
and generally without termination-related penalties. Additionally, our contracts
with clients are typically limited to discrete projects without any commitment
to a specific volume of business or future work and may involve multiple stages.
In addition, the increased breadth of our service offerings may result in larger
and more complex projects for our clients that require us to devote resources to
more thoroughly understand their operations. Despite these efforts, our clients
may choose not to retain us for additional stages or may cancel or delay planned
or existing engagements due to any number of factors, including:
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financial
difficulties of the clients;
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a
change in strategic priorities;
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a
demand for price reductions; and
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a
decision by our clients to utilize their in-house IT capacity or work with
our competitors.
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These
potential terminations, cancellations or delays in planned or existing
engagements could make it difficult for us to use our personnel efficiently. In
addition, some of our client contracts may restrict us from engaging in business
with certain competitors of our clients during the term of the agreements and
for a limited period following termination of these agreements. Any of the
foregoing factors could negatively impact our revenues and profitability. Other
than under existing contractual obligations, none of our customers is obligated
to purchase additional services from us. As a result, the volume of work that we
perform for a specific customer is likely to vary from period to period, and a
significant customer in one period may not use our services in a subsequent
period.
We
may engage in acquisitions, strategic investments, partnerships, alliances or
other ventures that are not successful, or fail to integrate acquired businesses
into our operations, which may adversely affect our competitive position and
growth prospects.
We may
acquire or make strategic investments in complementary businesses, technologies,
services or products, or enter into strategic partnerships or alliances with
third parties in the future in order to expand our business. We may be unable to
identify suitable acquisition, strategic investment or strategic partnership
candidates, or if we do identify suitable candidates, we may not complete those
transactions on terms commercially favorable to us or at all, which may
adversely affect our competitive position and our growth prospects.
If we
acquire another business, we may face difficulties, including:
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integrating
that business’s personnel, products, technologies or services into our
operations;
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retaining
the key personnel of the acquired business;
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failing
to adequately identify or assess liabilities of that
business;
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failure
of that business to fulfill its contractual
obligations;
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failure
of that business to achieve the forecasts we used to determine the
purchase price; and
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diverting
our management’s attention from normal daily operations of our
business.
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These
difficulties could disrupt our ongoing business and increase our expenses. As of
the date of this prospectus and registration statement on Form S-1, we have no
agreements to enter into any material acquisition, investment, partnership,
alliance or other joint venture transaction.
We
are subject to the reporting requirements of the federal securities laws, which
impose additional burdens on us.
We are a
public reporting company and accordingly subject to the information and
reporting requirements of the Securities Act, the Securities Exchange Act of
1934 (the “Exchange Act”) and other federal securities laws, including
compliance with the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). As a public
company, these rules and regulations may make it more difficult and expensive
for us to obtain director and officer liability insurance in the future, and we
may be required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same coverage. As a result, it may be
more difficult for us to attract and retain qualified persons to serve on our
board of directors or as executive officers. We are currently evaluating and
monitoring developments with respect to these new rules, and we cannot predict
or estimate the amount of additional costs we may incur or the timing of such
costs.
It may be
time consuming, difficult and costly for us to develop and implement the
internal controls and reporting procedures required by Sarbanes-Oxley. Some
members of our management team have limited or no experience operating a company
whose securities are publicly reported, traded or listed on an exchange, and
with SEC rules and requirements, including SEC reporting practices and
requirements that are applicable to a publicly reporting or publicly-traded
company. We may need to recruit, hire, train and retain additional financial
reporting, internal controls and other personnel in order to develop and
implement appropriate internal controls and reporting procedures. If we are
unable to comply with the internal controls requirements of Sarbanes-Oxley, when
applicable, we may not be able to obtain the independent accountant
certifications required by Sarbanes-Oxley.
9
If
we fail to maintain an effective system of internal controls, we may not be able
to accurately report our financial results or prevent fraud. As a result,
current and potential stockholders could lose confidence in our financial
reporting, which could harm our business and the trading price of our stock, if
we are ever able to list it on an exchange.
Effective
internal controls are necessary for us to provide reliable financial reports and
effectively prevent fraud. If we cannot provide financial reports or prevent
fraud, our business reputation and operating results could be harmed. Internal
control weaknesses could also cause investors to lose confidence in our reported
financial information, which could have a negative effect on the trading price
of our stock, if we are ever able to list it on the OTC Bulletin Board or an
exchange.
Assertions
by a third party that we infringe its intellectual property could result in
costly and time-consuming litigation, expensive licenses or the inability to
operate as planned.
The
software and technology industries are characterized by the existence of a large
number of patents, copyrights, trademarks and trade secrets and by frequent
litigation based on allegations of infringement or other violations of
intellectual property rights. As we face increasing competition, the possibility
of intellectual property rights claims against us may grow. Our technologies may
not be able to withstand third-party claims or rights restricting their use.
Companies, organizations or individuals, including our competitors, may hold or
obtain patents or other proprietary rights that would prevent, limit or
interfere with our ability to provide our services or develop new services and
features, which could make it more difficult for us to operate our
business.
If we are
determined to have infringed upon a third party’s intellectual property rights,
we may be required to pay substantial damages, stop using technology found to be
in violation of a third party’s rights or seek to obtain a license from the
holder of the infringed intellectual property right, which license may not be
available on reasonable terms, or at all, and may significantly increase our
operating expenses or may require us to restrict our business activities in one
or more respects. We may also be required to develop alternative non-infringing
technology that could require significant effort and expense or may not be
feasible. In the event of a successful claim of infringement against us and our
failure or inability to obtain a license to the infringed technology, our
business and results of operations could be harmed.
There
is a reduced probability of a change of control or acquisition of us due to the
possible issuance of preferred stock. This reduced probability could deprive our
investors of the opportunity to otherwise sell our common stock in an
acquisition of us by others.
Our
Articles of Incorporation, as amended, authorize our board of directors to issue
up to 5,000,000 shares of preferred stock, of which no shares have been issued.
Our preferred stock is issuable in one or more series and our board of directors
has the power to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, liquidation preferences and the number of shares
constituting any series or designation of such series, without further vote or
action by stockholders. As a result of the existence of this “blank check”
preferred stock, potential acquirers of the Company may find it more difficult
to, or be discouraged from, attempting to effect an acquisition transaction
with, or a change of control of, the Company, thereby possibly depriving holders
of our securities of certain opportunities to sell or otherwise dispose of such
securities at above-market prices pursuant to such transactions.
The
success of our business depends on the continuing contributions of our senior
management and other key personnel who may terminate their employment with us at
any time causing us to lose experienced personnel and to expend resources in
securing replacements.
We depend
substantially on the current and continued services and performance of our
senior management and other key personnel. Loss of the services of any of such
individuals would adversely impact our operations. In addition, we believe that
our technical personnel represent a significant asset and provide us with a
competitive advantage over many of our competitors and that our future success
will depend upon our ability to hire and retain these key employees and our
ability to attract and retain other skilled financial, engineering, technical,
and managerial personnel. None of our key personnel, including our Chief
Executive Officer, is party to any employment agreements with us and management
and other employees may voluntarily terminate their employment at any
time.
If
we fail to attract and retain highly skilled IT professionals, we may not have
the necessary resources to properly staff projects.
Our
success depends largely on the contributions of our employees and our ability to
attract and retain qualified personnel, including technology, consulting,
engineering, marketing and management professionals. Competition for qualified
personnel in the IT services industry can be intense and, accordingly, we may
not be able to retain or hire all of the personnel necessary to meet our ongoing
and future business needs. If we are unable to attract and retain the highly
skilled IT professionals we need, we may have to forego projects for lack of
resources or be unable to staff projects optimally. In addition, the competition
for highly skilled employees may require us to increase salaries of highly
skilled employees, and we may be unable to pass on these increased costs to our
clients, which would reduce our profitability.
Our
inability to attract and retain qualified sales and customer service management
personnel could have an adverse effect on our ability to meet our organic growth
targets.
Our
business involves the delivery of complex services over a distributed IT
environment. It takes time to train new sales people in our business and for
them to build a pipeline of opportunities. Inasmuch as we strive to grow
existing accounts by expanding our services to new locations or adding new
services to our solution, we rely heavily on our client service managers to grow
our revenue. Our inability to find the right personnel and train them quickly
may have an adverse effect on our ability to appropriately manage our customers
and meet our organic growth targets.
10
Our
loan covenant requires that we maintain a minimum cash balance of
$750,000.
On May
26, 2009, the Company executed a promissory note for the benefit of two former
principals of the Company. The promissory note has a principal amount
of $2,800,000, which shall be paid in ten equal installments of
$280,000. In addition, the promissory note bears interest at prime
plus 4%. Finally, the promissory note contains a covenant which
requires that we maintain no less than $750,000 in cash or cash equivalents
beginning January 1, 2010 and until the promissory note is paid in full. Failure
to maintain this cash requirement can accelerate full payment of the promissory
note, which we may be unable to pay. This restriction on our available cash and
cash equivalents limits our financial flexibility. We may be unable to implement
internal growth and operating strategies due to this limitation. As
of February 2, 2010, we are in compliance with this
covenant.
The
current severe worldwide economic slowdown may negatively affect our sales,
which would materially adversely affect our profitability and revenue
growth.
Our
revenue and profitability depend significantly on general economic conditions
and the demand for IT services in the markets in which we compete. Economic
weakness and constrained IT spending has, and may result in the future, limited
revenue and profitability growth. Uncertainty about future economic conditions
makes it difficult for us to forecast operating results and to make decisions
about future investments. Delays or reductions in IT spending could have a
material adverse effect on demand for our services, and consequently our results
of operations, prospects and stock price.
Capital
markets are currently experiencing a period of dislocation and instability,
which has had and could continue to have a negative impact on the availability
and cost of capital.
The
general disruption in the U.S. capital markets has impacted the broader
financial and credit markets and reduced the availability of debt and equity
capital for the market as a whole. These conditions could persist for a
prolonged period of time or worsen in the future. Our ability to access the
capital markets (or any other source of funds) may be restricted at a time when
we would like, or need, to access those markets, which could have an impact on
our flexibility to react to changing economic and business conditions. The
resulting lack of available credit, lack of confidence in the financial sector,
increased volatility in the financial markets and reduced business activity
could materially and adversely affect our business, financial condition, results
of operations and our ability to obtain and manage our liquidity. In addition,
the cost of debt financing and the proceeds of equity financing may be
materially adversely impacted by these market conditions.
Our
inability to obtain capital, use internally generated cash, or use our
securities or debt to finance future expansion efforts could impair the growth
and expansion of our business.
Reliance
on internally generated cash or debt to finance our operations or complete
business expansion efforts could substantially limit our operational and
financial flexibility. The extent to which we will be able or willing to issue
securities to consummate expansions will depend on the market value of our
securities from time to time and the willingness of potential investors, sellers
or business partners to accept it as full or partial payment. Using securities
for this purpose also may result in significant dilution to our then existing
stockholders. To the extent that we are unable to use securities to make future
expansions, our ability to grow through expansions may be limited by the extent
to which we are able to raise capital for this purpose through debt or equity
financings. Raising external capital in the form of debt could require periodic
interest payments that could hinder our financial flexibility in the future. No
assurance can be given that we will be able to obtain the necessary capital to
finance a successful expansion program or our other cash needs. If we are unable
to obtain additional capital on acceptable terms, we may be required to reduce
the scope of any expansion. In addition to requiring funding for expansions, we
may need additional funds to implement our internal growth and operating
strategies or to finance other aspects of our operations. Our failure to (a)
obtain additional capital on acceptable terms, (b) use internally generated cash
or debt to complete expansions because it significantly limits our operational
or financial flexibility, or (c) use securities to make future expansions may
hinder our ability to actively pursue any expansion program we may decide to
implement. In addition, if we are unable to obtain necessary capital going
forward, our ability to continue as a going concern would be negatively
impacted.
Risks
Relating To Our Common Stock
There
is currently no market for our common stock, and if a market for our common
stock does not develop, our investors may be unable to sell their
shares.
There is
currently no market for our common stock. We intend to be quoted on
the OTC Bulletin Board trading system, although there is no guarantee we will
ever qualify to do so. The OTC Bulletin Board is not a listing service or
exchange, but is instead a dealer quotation service for subscribing members. The
OTC Bulletin Board tends to be highly illiquid, in part because there is no
national quotation system by which potential investors can track the market
price of shares except through information received or generated by a limited
number of broker-dealers that make markets in particular stocks. There is a
greater chance of market volatility for securities that trade on the OTC
Bulletin Board as opposed to a national exchange or quotation system. This
volatility may be caused by a variety of factors including:
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the
lack of readily available price quotations;
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the
absence of consistent administrative supervision of “bid” and “ask”
quotations;
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lower
trading volume;
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market
conditions;
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technological
innovations or new products and services by us or our
competitors;
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regulatory,
legislative or other developments affecting us or our industry
generally;
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limited
availability of freely tradable “unrestricted” shares of our common stock
to satisfy purchase orders and demand;
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our
ability to execute our business plan;
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operating
results that fall below expectations;
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industry
developments;
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economic
and other external factors; and
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period-to-period
fluctuations in our financial
results.
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In
addition, the value of our common stock could be affected by:
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actual
or anticipated variations in our operating results;
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changes
in the market valuations of other companies operating in our
industry;
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announcements
by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
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adoption
of new accounting standards affecting our industry;
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additions
or departures of key personnel;
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introduction
of new services or technology by our competitors or us;
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sales
of our common stock or other securities in the open market or private
transactions;
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changes
in financial estimates by securities analysts;
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conditions
or trends in the market in which we operate;
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changes
in earnings estimates and recommendations by financial
analysts;
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our
failure to meet financial analysts’ performance expectations;
and
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other
events or factors, many of which are beyond our
control.
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The
securities markets have from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. These market fluctuations may also significantly affect
the market price of our common stock.
In a
volatile market, you may experience wide fluctuations in the market price of our
securities. These fluctuations may have an extremely negative effect on the
market price of our securities and may prevent you from obtaining a market price
equal to your purchase price when you attempt to sell our securities in the open
market. In these situations, you may be required either to sell our securities
at a market price which is lower than your purchase price, or to hold our
securities for a longer period of time than you planned. An inactive market may
also impair our ability to raise capital by selling shares of capital stock and
may impair our ability to acquire other companies or technologies by using
common stock as consideration.
12
Because
our common stock may be classified as “penny stock,” trading may be limited, and
the share price could decline.
Because
our common stock may fall under the definition of “penny stock,” trading in the
common stock, if any, may be limited because broker-dealers would be required to
provide their customers with disclosure documents prior to allowing them to
participate in transactions involving the common stock. These disclosure
requirements are burdensome to broker-dealers and may discourage them from
allowing their customers to participate in transactions involving the common
stock.
“Penny
stocks” are equity securities with a market price below $5.00 per share other
than a security that is registered on a national exchange, included for
quotation on the NASDAQ system or whose issuer has net tangible assets of more
than $2,000,000 and has been in continuous operation for greater than three
years. Issuers who have been in operation for less than three years must have
net tangible assets of at least $5,000,000.
Rules
promulgated by the SEC under Section 15(g) of the Exchange Act require
broker-dealers engaging in transactions in penny stocks, to first provide to
their customers a series of disclosures and documents including:
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a
standardized risk disclosure document identifying the risks inherent in
investment in penny stocks;
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all
compensation received by the broker-dealer in connection with the
transaction;
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current
quotation prices and other relevant market data; and
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monthly
account statements reflecting the fair market value of the
securities.
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These
rules also require that a broker-dealer obtain financial and other information
from a customer, determine that transactions in penny stocks are suitable for
such customer and deliver a written statement to such customer setting forth the
basis for this determination.
We
cannot assure you that we will list our common stock on NASDAQ or any other
national securities system or exchange.
We do not
currently meet the initial listing standards of either of NASDAQ or the American
Stock Exchange, and we cannot assure you that we will be able to qualify for and
maintain a listing of our common stock on either of those markets or any other
stock system or exchange in the future. Furthermore, in the case that our
application is approved, there can be no assurance that trading of our common
stock on such market will reach or maintain desired liquidity.
Because
we do not intend to pay any dividends on our common stock, purchases of our
common stock may not be suited for investors seeking dividend
income.
We do not
currently anticipate declaring and paying dividends to our stockholders in the
near future. It is our current intention to apply any net earnings in the
foreseeable future to the internal needs of our business. Prospective investors
seeking or needing dividend income or liquidity from our common stock should,
therefore, not purchase our common stock. There can be no assurance that we will
ever have sufficient earnings to declare and pay dividends to the holders of our
shares, and in any event, a decision to declare and pay dividends is at the sole
discretion of our board of directors, who currently do not intend to pay any
dividends on our common shares for the foreseeable future.
Securities
analysts may not initiate coverage or continue to cover our common stock, and
this may have a negative impact on our common stock’s market price.
A
potential trading market for our common stock will depend, in part, on the
research and reports that securities analysts publish about us and our business.
We do not have any control over these analysts. Currently there is no coverage
of our common stock and there is no guarantee that securities analysts will
cover our common stock in the future. If securities analysts do not cover our
common stock, the lack of research coverage may adversely affect its market
price. If we are covered by securities analysts, and our stock is downgraded,
our stock price would likely decline. If one or more of these analysts ceases to
cover us or fails to publish regular reports on us, we could lose visibility in
the financial markets, which could cause our stock price or trading volume to
decline.
Currently
Mr. John McCawley controls 82.6% of the Company which will have an impact on all
major decisions on which our stockholders may vote and which may discourage an
acquisition of our Company.
Currently,
Mr. John McCawley owns approximately 82.6% of our outstanding common
stock. After the registration and sale of his common stock pursuant
to the registration statement on Form S-1 of which this prospectus is a part, he
will still own 62.3% of the Company. In addition, he is also one of
our directors and our President and Chief Executive Officer. The interests of
Mr. McCawley may differ from the interests of other stockholders. As a
result, Mr. McCawley will have the ability to significantly impact virtually all
corporate actions requiring stockholder approval, vote, including the following
actions:
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election
of our directors;
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the
amendment of our organizational documents;
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the
merger of our company or the sale of our assets or other corporate
transaction; and
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controlling
the outcome of any other matter submitted to the stockholders for
vote.
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Mr.
McCawley’s beneficial stock ownership may discourage potential investors from
investing in shares of our common stock due to the lack of influence they could
have on our business decisions, which in turn could reduce our stock
price. Mr. McCawley’s ownership could also discourage or prevent a
takeover of the Company even if an acquisition would be beneficial to our
stockholders.
Risks
Related to this Offering
In
order to raise sufficient funds to continue operations, we may have to issue
additional securities which may result in substantial dilution to our
stockholders.
If we
raise additional funds through the sale of equity or convertible debt, current
stockholders’ percentage ownership will be reduced. In addition, these
transactions may dilute the value of common stock then outstanding. We may have
to issue securities that may have rights, preferences and privileges senior to
our common stock. We cannot assure that we will be able to raise additional
funds on terms acceptable to us, if at all. If future financing is not available
or is not available on acceptable terms, we may not be able to fund our future
needs, which would have a material adverse effect on our business plans,
prospects, results of operations and financial condition.
We
have arbitrarily determined the offering price of our common stock and the value
of our stock does not necessarily reflect our book value.
We
arbitrarily selected the price for the shares. Our establishment of
the offering price of the shares has not been determined by negotiation with an
underwriter as is customary in underwritten public offerings. The offering price
does not bear any relationship whatsoever to our assets, earnings, book value or
any other objective standard of value. Therefore, investors may be unable to
recoup their investment if the value of our securities does not materially
increase. Among the factors we considered in determining the offering price
were:
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our
lack of operating history;
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the
amount of risk associated with an investment in our stock and the
proportional amount of stock to be retained by our existing stockholders;
and
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our
relative cash requirements.
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In the
current state of the stock market, there is no assurance that we will be able to
market all of the shares we desire to implement our business plan. We
may not be able to market any at all. If such an unavailability of capital were
to arise, it could affect our development efforts and significantly delay or
prevent implementation of our plans. Should we prove unable to market any shares
at all, the existence of the Company itself could be imperiled.
14
FORWARD
LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in
this prospectus and registration statement on Form S-1 contain certain
forward-looking statements, are based on the beliefs of our management as
well as assumptions made by and information currently available to our
management. Statements that are not based on historical facts, which can be
identified by the use of such words as “likely,” “will,” “suggests,” “target,”
“may,” “would,” “could,” “anticipate,” “believe,” “estimate,” “expect,”
“intend,” “plan,” “predict,” and similar expressions and their variants, are
forward-looking. Such statements reflect our judgment as of the date of this
prospectus and they involve many risks and uncertainties, including those
described under the captions “Risk Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.” These risks and
uncertainties could cause actual results to differ materially from those
predicted in any forward-looking statements. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of these forward-looking
statements .
Our
actual results could differ materially and adversely from those expressed in any
forward-looking statements as a result of various factors. Such factors include,
but are not limited to the following:
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our
goals and strategies;
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our
expansion plans;
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our
future business development, financial conditions and results of
operations;
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the
expected growth of the market for our products;
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our
expectations regarding demand for our products;
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our
expectations regarding keeping and strengthening our relationships with
key customers;
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our
ability to stay abreast of market trends and technological
advances;
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general
economic and business conditions in the regions in which we sell our
products;
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relevant
government policies and regulations relating to our industry;
and
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market
acceptance of our products.
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These
forward-looking statements involve various risks and uncertainties. Although we
believe that our expectations expressed in these forward-looking statements are
reasonable, our expectations may later be found to be incorrect. Our actual
results could be materially different from our expectations. Important risks and
factors that could cause our actual results to be materially different from our
expectations are generally set forth in “Risk Factors,” “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” “Our Business,”
and other sections in this prospectus. You should read thoroughly this
prospectus and the documents that we refer to with the understanding that our
actual future results may be materially different from and worse than what we
expect. We qualify all of our forward-looking statements by these cautionary
statements. Other sections of this prospectus include additional factors which
could adversely impact our business and financial performance.
Unless
otherwise indicated, information in this prospectus concerning economic
conditions and our industry is based on information from independent industry
analysts and publications, as well as our estimates. Except where otherwise
noted, our estimates are derived from publicly available information released by
third party sources, as well as data from our internal research, and are based
on such data and our knowledge of our industry, which we believe to be
reasonable. None of the independent industry publication market data cited in
this prospectus was prepared on our or our affiliates’ behalf.
The
forward-looking statements made in this prospectus relate only to events or
information as of the date on which the statements are made in this prospectus.
Except as required by law, we undertake no obligation to update or revise
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise, after the date on which the statements are made or
to reflect the occurrence of unanticipated events. You should read this
prospectus and the documents that we refer to in this prospectus and have filed
as exhibits to the registration statement on Form S-1, of which this prospectus
is a part, completely and with the understanding that our actual future results
may be materially different from what we expect.
15
USE
OF PROCEEDS
MARKET
PRICE OF AND DIVIDENDS ON OUR COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Market
Information
Our
common stock is currently not listed on the OTC Bulletin Board or any securities
exchange. There is no guarantee our common stock will ever meet the
requirements for listing on the OTC Bulletin Board or a securities
exchange.
Determination
of Offering Price
Since our
common stock is presently not traded on any market or securities exchange, we
have fixed the offering price of the shares offered by this prospectus at
$0.07. The fixed offering price may not reflect the market price of
the shares after the offering. The offering price does not bear any relationship
whatsoever to our assets, earnings, book value or any other objective standard
of value. We selected the price for the common stock based upon revenue trading
multiples of comparable companies in our industry and the discounted present
value of anticipated cash flows through 2012. Among the other factors
we considered in determining the offering price that served to decrease it
significantly were:
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our
lack of operating history;
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•
|
the
amount of risk associated with an investment in our stock and the
proportional amount of stock to be retained by our existing stockholders;
and
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•
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our
relative cash requirements.
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There is
no relationship between the current offering price of $0.07 and the price that
we previously received from our private placements of stock.
Stockholders
As
of February 2, 2010, we had approximately 29 stockholders of
record of our common stock.
Dividends
We have
never declared dividends or paid cash dividends on our common stock and our
board of directors does not intend to distribute dividends in the near future.
The declaration, payment and amount of any future dividends will be made at the
discretion of the board of directors, and will depend upon, among other things,
the results of our operations, cash flows and financial condition, operating and
capital requirements, and other factors as the board of directors considers
relevant. There is no assurance that future dividends will be paid, and, if
dividends are paid, there is no assurance with respect to the amount of any such
dividend.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table sets forth, as of February 2, 2010, certain information related
to our compensation plans under which shares of our common stock are authorized
for issuance.
Plan
Category
|
Number
of Securities to be Issued upon Exercise of Outstanding
Options
(a)
|
Average
Exercise Price of Outstanding Options
|
Number
of Securities Remaining Available For Future Issuance Under Equity
Compensation Plans (excluding securities reflected in column
(a))
|
|||||||||
Equity
compensation plans approved by security holders
|
--
|
--
|
--
|
|||||||||
Equity
compensation plans not approved by security holders
|
6,485,000
|
(1) | $ |
0.07
|
1,275,000
|
|||||||
Total
|
6,485,000
|
(1) | $ | 0.07 |
1,275,000
|
|||||||
(1) The 240,000 restricted shares issued to the Company’s employees placed on furlough due to the termination of the SkyTerra contract termination have not been included in these calculations.
On
October 27, 2009, the board of directors of the Company adopted the Verecloud,
Inc. 2009 Equity Incentive Plan (the “Incentive Plan”). The Company expects
to submit the Incentive Plan for approval by its stockholders at the next annual
meeting of the Company's stockholders. The Company’s board of directors will
administer the Incentive Plan until the board of directors delegates the
administration to a committee of the board of
directors.
16
The
purpose of the Incentive Plan is to benefit the Company's stockholders by
furthering the growth and development of the Company by affording an opportunity
for stock ownership to attract, retain and provide incentives to employees and
directors of, and non-employee consultants to, the Company and its affiliates,
and to assist the Company in attracting and retaining new employees, directors
and consultants; to encourage growth of the Company through incentives that are
consistent with the Company's goals; to provide incentives for individual
performance; and to promote teamwork.
Under the
Incentive Plan, the board of directors in its sole discretion may grant stock
options, stock appreciation rights, restricted stock, restricted stock units,
bonus stock, deferred stock or other equity-based awards (each an “Award”) to
the Company's employees, directors and consultants (or those of the Company's
affiliates). The Awards available under the Incentive Plan also
include performance-based Awards, which would have pre-established performance
goals that relate to the achievement of the Company’s business
objectives. The performance-based stock Awards available under the
plan are intended to comply with the requirements of Section 162(m) of the
Internal Revenue Code of 1986, as amended, to allow such Awards, when payable,
to be tax deductible by the Company.
The
Company has reserved a total of 8,000,000 shares of common stock for issuance
under the Incentive Plan. To the extent that an Award expires, ceases
to be exercisable, is forfeited or repurchased by the Company, any shares
subject to the Award may be used again for new grants under the Incentive
Plan. In addition, shares tendered or withheld to satisfy the grant
or exercise price or tax withholding obligation with respect to any Award (other
than with respect to options) may be used for grants under the Incentive
Plan. The maximum number of shares of Common Stock that may be
subject to one or more awards to a participant pursuant to the Incentive Plan
during any fiscal year of the Company is 4,000,000.
As of
February 2, 2010, 240,000 shares have been awarded as restricted stock to those
employees of the Company put on furlough as a result of the termination of the
SkyTerra contract. Each restricted stock award will vest evenly on
the first day of each third month over a two-year period commencing on November
1, 2009, provided that the employee has been re-instated to a full-time position
at the Company on or before July 1, 2010. A restricted stock
award becomes fully vested if the employee dies while actively employed or upon
a change in control of the Company followed by termination of the employee’s
employment within 12 months of such change in control.
As of
February 2, 2010, 6,485,000 options have been issued under the Incentive
Plan. In general, each option vests evenly on the last day of each
fiscal quarter, based on a three year period commencing upon the employee’s
original date-of-hire. As of February 2, 2010, 4,011,252 options
have vested.
DILUTION
The
shares that are currently being registered under this registration statement on
Form S-1 of which this prospectus is a part, have already been issued and are
currently outstanding. Therefore, there will be no dilutive impact to the
Company’s stockholders.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS
The
following “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” contained should be read in conjunction with our Current
Report on Form 8-K, filed on September 1, 2009, as well as our Quarterly Report
on Form 10-Q for the three months ended September 30, 2009. We also urge you to
review and consider our disclosures describing various risks that may affect our
business, which are set forth under the heading “Risk Factors.”
Overview
On August
31, 2009, we consummated the Share Exchange with the sole member of
Cadence II, pursuant to which we acquired all of the membership interests
in Cadence II in exchange for the issuance to the sole member of Cadence II
of 42,320,000 shares of our common stock representing at that time, 92.0% of our
issued and outstanding common stock, as previously disclosed on Verecloud’s
Current Report on Form 8-K, filed on September 1, 2009. After the
Share Exchange, our business operations consist of those of
Cadence II. Upon the closing of the Share Exchange, we amended
our Articles of Incorporation to change our name to Network Cadence, Inc. and
Cadence II became our wholly-owned subsidiary. On January 25, 2010,
we instituted a four-for-one forward split of our common stock and amended our
Articles of Incorporation to change our name from Network Cadence, Inc. to
Verecloud, Inc.
Verecloud
is focused on providing professional services and business platform solutions to
CSPs. These services and solutions are focused on the service delivery platform
component of CSPs back office systems and enable CSPs to, among other things,
operate more efficiently, introduce new products faster and deliver a better
customer experience.
Cadence II
was formed in 2006 and, for the past three years, has driven operational
improvements and innovation with clients across the telecommunications landscape
through professional services contracts. From architecture design to solution,
or technology selection to delivery and implementation, Cadence II has
provided professional service solutions in all areas of operational support
systems (service creation, order fulfillment, inventory, activation and
provisioning, assurance and billing, among others). Currently, the
Company’s revenue stream consists solely of billable professional
services. No software or product revenue has yet been
generated.
17
While
professional services are expected to be the Company’s sole source of revenue
through at least mid-2010, the Company’s objective is to develop a
unique platform, known as, Nimbus, which we hope will position the Company to
exploit the opportunity created by the continued growth in cloud computing.
Nimbus is expected to bridge the gap between i) small-and-medium businesses,
that want expanded and integrated services via the “cloud,” ii) CSPs who need
innovative, high-margin services to drive growth, and iii) innovative cloud
computing solution providers who want access to the large distribution channel
that CSPs have developed for voice and data services. The Company believes that
Nimbus can potentially open new revenue opportunities, protect investments made
in existing services and create a new distribution model for both CSPs and cloud
computing solution providers in a low cost, high return manner. The
success of the Company’s plan will depend on several major
factors. First, its ability to raise the capital needed to develop
Nimbus. Second, the successful development of Nimbus into a
commercially viable and competitive cloud-based solution. Third, the
Company’s ability to effectively market and sell the Nimbus solution to
CSPs. If the Company is unable to successfully execute on some or all
of these factors, there could be a material adverse effect on the Company’s
business, financial condition and results of operations and we could be forced
to cease operations entirely. Currently, the development of Nimbus is
in the early phase with the focus in the first quarter of 2010 on developing
technical timelines and partner strategies. Beta phase is projected
to occur in the second quarter of 2010 with platform testing and integration
expected to occur in the third quarter of 2010. Commercial viability
is targeted for the fourth quarter of 2010. However, the entire
foregoing plan is dependent on the Company’s ability to raise the needed capital
in the first half of 2010.
Once
Nimbus is commercially available, the Company anticipates focusing on three
streams of revenue. First, upfront integration fees charged to
customers for integrating Nimbus into their existing systems. Second,
license and support fees for ongoing maintenance and support of the
platform. Finally, revenue sharing with the CSPs related to revenue
generated via the Nimbus platform. If the Company’s business plan is
successful, the revenue share component is expected to be the major source of
revenue moving forward.
Related
Party Transactions
On May
26, 2009, the membership interests of Pat Burke and Ann Burke, totaling 51% of
Cadence II, were purchase by Cadence II pursuant to a Purchase Agreement by and
among Cadence II, Pat Burke and Ann Burke, dated as of May 26, 2009, as
previously disclosed as Exhibit 10.2 to the Company’s Form 8-K dated September
1, 2009. The aggregate purchase price was $3,609,244 which was comprised of
$661,977 in cash, $2,800,000 in a promissory note, $123,000 in property, and
$24,267 estimated value in future health insurance benefits for Pat and Ann
Burke. The promissory note is being repaid in 10 equal quarterly
installments of $280,000 plus interest thereon, beginning August 31, 2009 with a
maturity date of November 30, 2011. The promissory note bears
interest at a prime rate plus 4%. As of September 30, 2009, the
Company has made one payment of $333,498, which includes $280,000 in principal
and $53,948 in interest. The outstanding principal balance as of
September 30, 2009 was $2,520,000. As of February 2, 2010, the outstanding
principal balance is $2,240,000.
The
promissory note issued in connection with the Purchase Agreement requires that
the Company maintain no less than $750,000 in cash or cash equivalents beginning
on January 1, 2010 and until the promissory note is paid in
full. Failure to maintain this cash requirement can accelerate full
payment of the promissory note, resulting in the note balance becoming a current
liability. Without additional funding, the Company expects to fall
below the required cash amount by March 1, 2010. If the Company is
unable to obtain the necessary funding to comply with the requirements of the
promissory note or repay the note, the holders of the note could accelerate the
due date and foreclose on the assets of the Company as they currently hold a
security interest.
Going
Concern
The
Company’s financial statements have been prepared on the basis of accounting
principles applicable to a going concern. As a result, they do not include
adjustments that would be necessary if the Company were unable to continue as a
going concern and would therefore be obligated to realize assets and discharge
its liabilities other than in the normal course of operations. On November 2,
2009, the Company received a contract termination notice from its largest
customer, SkyTerra. As a result, it is expected to lose approximately
95% of its revenue, effective November 2, 2009. This raises
substantial doubt about the Company's ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on the
Company’s ability to raise additional capital and implement its business
plan.
The
Company’s objective is to overcome the circumstances that impact its ability to
remain a going concern through a combination of the commencement of revenues,
with interim cash flow deficiencies being addressed through additional equity
and debt financing. The Company is currently focused raising additional funds
through public or private financing, strategic relationships or other
arrangements in the near future to support its business operations; however, the
Company may not have commitments from third parties for a sufficient amount of
additional capital. As of February 2, 2010, the Company has not
secured any financing or commitments. In addition, the Company cannot
be certain that any such financing will be available on acceptable terms, or at
all, and its failure to raise capital when needed could limit its ability to
continue operations. The Company’s ability to obtain additional funding will
determine its ability to continue as a going concern. Failure to secure
additional financing in a timely manner and on favorable terms would have a
material adverse effect on financial performance, results of operations and
stock price and require it to curtail or cease operations, sell off its assets,
seek protection from its creditors through bankruptcy proceedings, or otherwise.
Furthermore, additional equity financing may be dilutive to the holders of the
Company’s common stock, and debt financing, if available, may involve
restrictive covenants, and strategic relationships, if necessary to raise
additional funds, and may require that the Company relinquish valuable
rights.
18
Management believes that actions presently being taken to raise
funds provide the opportunity for the Company to continue as a going
concern. As of February 2, 2010, our current cash balance is expected
to fund our operations through at least April 2010. Our 2010
plan does not contemplate significant revenue from Nimbus as we complete
development of the platform. For the next twelve months, we need approximately
$10 million to execute on our business plan. Of this amount, approximately $4
million will be used for Nimbus development and product management,
approximately $5 million for sales, marketing, working capital and
administrative expenses, and $1.2 million to meet the obligations of the
promissory note. With significant revenue not planned until the
second half of 2011, we will need an additional $10 million to fund operations
through 2011. As a result, we intend to seek up to $20 million to fund
operations through 2011 and comply with the requirements of and service the
promissory note.
Significant Accounting
Policies
The
preparation of financial statements requires management to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosures. On an on-going basis, management evaluates
these estimates and assumptions, including but not limited to those related to
revenue recognition and the impairment of long-lived assets, goodwill and other
intangible assets. Management bases its estimates on historical experience and
various other assumptions that it believes 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 are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles (“GAAP”) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results may differ from those
estimates.
Cash
and Cash Equivalents
For
purposes of balance sheet classification and the statements of cash flows, the
Company considers cash in banks, deposits in transit, and all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Concentration
of Credit Risk
The
Company primarily sells its services to customers in the communications industry
in the United States on an uncollateralized, open credit basis. For the nine
months ended September 30, 2009, one customer accounted for 97% of the
revenue.
Cash is
maintained at financial institutions. The Federal Deposit Insurance Corporation
(“FDIC”) currently insures accounts at each institution for up to $250,000. At
times, cash balances may exceed the FDIC insurance limit of
$250,000.
19
Accounts
Receivable
Accounts
receivable include uncollateralized customer obligations due under normal trade
terms and do not bear interest.
The
carrying amount of accounts receivable is reduced by a valuation allowance for
doubtful accounts that reflects management’s best estimate of the amounts that
will not be collected resulting from past due amounts from customers. There was
no allowance for doubtful accounts at September 30, 2009 since the total balance
of accounts receivable was collected subsequent to September 30,
2009.
Revenue
Recognition
For the
periods covered by this registration statement on Form S-1 of which this
prospectus is a part, the Company derived its revenue solely from billable
professional services provided to clients. Revenue is recognized only
when all of the following conditions have been met: (i) there is
persuasive evidence of an arrangement; (ii) delivery has occurred; (iii) the fee
is fixed or determinable; and (iv) collectibility of the fee is reasonably
assured.
Property
and Equipment
Equipment
and furniture are carried at historical cost, net of accumulated depreciation.
Depreciation is computed using straight-line methods over the estimated useful
lives of the assets, ranging from three to seven years. Expenditures for repairs
and maintenance which do not materially extend the useful lives of equipment and
furniture are charged to operations.
Fair
Value Financial Instruments
Fair
value estimates discussed herein are based upon certain market assumptions and
pertinent information available to management as of September 30, 2009. The
respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash,
accounts payable and accrued expenses. Fair values are assumed to approximate
carrying values for these financial instruments because they are short term in
nature, or are receivable or payable on demand.
Segment
Information
Certain
information is disclosed based on the way management organizes financial
information for making operating decisions and assessing performance. The
Company currently operates in one business segment and will evaluate additional
segment disclosure requirements if it expands operations.
Significant
Customers
For the
nine months ended September 30, 2009, the Company had a substantial business
relationship with one major customer, SkyTerra. SkyTerra accounted
for 97% and 100% of the Company’s total revenue for the nine months ended
September 30, 2009 and 2008, respectively. On November 2, 2009, SkyTerra
notified the Company that they are terminating its contract. As a
result, the Company reduced its workforce by approximately 50% and revenues
moving forward are expected to decrease by approximately 95%.
Long-Lived
Assets
The
Company accounts for its long-lived assets in accordance with Accounting for the Impairment or
Disposal of Long-Lived Assets (“ASC 360”). The Company’s
primary long-lived assets are goodwill, property and equipment. ASC 360 requires
a company to assess the recoverability of its long-lived assets whenever events
and circumstances indicate the carrying value of an asset or asset group may not
be recoverable from estimated future cash flows expected to result from its use
and eventual disposition. Additionally, the standard requires expected future
operating losses from discontinued operations to be displayed in discontinued
operations in the period(s) in which the losses are incurred, rather than as of
the measurement date. For the nine months ended September 30, 2009, the Company
recorded a goodwill impairment charge of $2,437,177 to reflect the loss of
SkyTerra as a customer, in November 2009. For property and equipment,
the net book value materially reflects the fair market value as of September 30,
2009.
Net
Income (Loss) Per Common Share
Basic
earnings (loss) per common share calculations are determined by dividing net
income by the weighted average number of shares of common stock outstanding
during the year. Diluted earnings (loss) per common share
calculations are determined by dividing net income (loss) by the weighted
average number of common shares and dilutive common share equivalents
outstanding. During the periods when they are anti-dilutive, common
stock equivalents, if any, are not considered in the computation.
20
Recent
Pronouncements
The
Company evaluates the pronouncements of various authoritative accounting
organizations, primarily the Financial Accounting Standards Board (“FASB”), the
SEC, and the Emerging Issues Task Force (“EITF”), to determine the impact of new
pronouncements on GAAP and the impact on the Company. The Company has
adopted the following new accounting standards during 2009:
Accounting Standards
Codification – In June
2009, FASB established the FASB Accounting Standards Codification (“ASC”) as the
single source of authoritative GAAP. The ASC is a new structure which took
existing accounting pronouncements and organized them by accounting topic.
Relevant authoritative literature issued by the SEC and select SEC staff
interpretations and administrative literature was also included in the ASC. All
other accounting guidance not included in the ASC is non-authoritative. The ASC
is effective for interim and annual reporting periods ending after September 15,
2009. The adoption of the ASC did not have an impact on the Company’s
consolidated financial position, results of operations or cash
flows.
Subsequent Events – In
May, 2009, the ASC guidance for subsequent events was updated to establish
accounting and reporting standards for events that occur after the balance sheet
date but before financial statements are issued or are available to be issued.
The update sets forth: (i) the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements, (ii) the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet in its financial
statements, and (iii) the disclosures that an entity should make about
events or transactions occurring after the balance sheet date in its financial
statements. The new guidance requires the disclosure of the date through which
subsequent events have been evaluated. The Company adopted the updated guidance
for the interim period ended September 30, 2009. The adoption had no impact
on the Company’s consolidated financial position, results of operations or cash
flows.
Accounting for the Useful Life of
Intangible Assets – In
April 2008, the ASC guidance for Goodwill and Other Intangibles was updated
to amend the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a recognized
intangible asset. The intent of this update is to improve the consistency
between the useful life of a recognized intangible asset and the period of
expected cash flows used to measure the fair value of the asset under guidance
for business combinations. The updated guidance was effective for the Company’s
fiscal year beginning January 1, 2009 and will be applied prospectively to
intangible assets acquired after the effective date. The adoption had no impact
on the Company’s consolidated financial position, results of operations or cash
flows.
Derivative Instruments – In
March 2008, the ASC guidance for derivatives and hedging was updated for
enhanced disclosures about how and why an entity uses derivative instruments,
how derivative instruments and the related hedged items are accounted for, and
how derivative instruments and the related hedged items affect an entity’s
financial position, financial performance and cash flows. The Company adopted
the updated guidance on January 1, 2009. The adoption had no impact on the
Company’s consolidated financial position, results of operations or cash
flows.
Business Combinations – In
December 2007, the ASC guidance for business combinations was updated to
provide new guidance for recognizing and measuring identifiable assets and
goodwill acquired, liabilities assumed, and any non-controlling interest in the
acquiree. The updated guidance also provides disclosure requirements to enable
users of the financial statements to evaluate the nature and financial effects
of the business combination. The Company adopted the updated guidance on January
1, 2009 and it will be applied to any future acquisitions.
Non-Controlling Interests –
In December 2007, the ASC guidance for Non-Controlling Interests was
updated to establish accounting and reporting standards pertaining to:
(i) ownership interests in subsidiaries held by parties other than the
parent (“Non-Controlling Interest”), (ii) the amount of net income
attributable to the parent and to the Non-Controlling Interest,
(iii) changes in a parent’s ownership interest, and (iv) the valuation
of any retained non-controlling equity investment when a subsidiary is
deconsolidated. If a subsidiary is deconsolidated, any retained
non-controlling equity investment in the former subsidiary is measured at fair
value and a gain or loss is recognized in net income based on such fair
value. For presentation and disclosure purposes, the guidance requires
Non-Controlling Interests (formerly referred to as minority interest) to be
classified as a separate component of equity. The Company adopted the updated
guidance on January 1, 2009. The adoption had no impact on the
Company’s consolidated financial position, results of operations or cash
flows.
There
were various accounting standards and interpretations recently issued which have
not yet been adopted, including:
Fair Value Accounting - –In
August 2009, the ASC guidance for fair value measurements and disclosure
was updated to further define fair value of liabilities. This update provides
clarification for circumstances in which: (i) a quoted price in an active
market for the identical liability is not available, (ii) the liability has a
restriction that prevents its transfer, and (iii) the identical liability
is traded as an asset in an active market in which no adjustments to the quoted
price of an asset are required. The updated guidance is effective for the
Company’s interim reporting period beginning October 1, 2009. The Company
is evaluating the potential impact of adopting this guidance on the Company’s
consolidated financial position, results of operations and cash
flows.
Variable Interest
Entities – In
June 2009, the ASC guidance for consolidation accounting was updated to
require an entity to perform a qualitative analysis to determine whether the
enterprise’s variable interest gives it a controlling financial interest in a
variable interest entity (“VIE”). This analysis identifies a primary beneficiary
of a VIE as the entity that has both of the following characteristics:
(i) the power to direct the activities of a VIE that most significantly
impact the entity’s economic performance and (ii) the obligation to absorb
losses or receive benefits from the entity that could potentially be significant
to the VIE. The updated guidance also requires ongoing reassessments of the
primary beneficiary of a VIE. The updated guidance is effective for the
Company’s fiscal year beginning January 1, 2010. The Company currently is
evaluating the potential impact of adopting this guidance on the Company’s
consolidated financial position, results of operations and cash
flows.
There
were no other accounting standards and interpretations issued recently which are
expected to have a material impact on the Company's financial position,
operations or cash flows.
21
The
Verecloud business model seeks to provide solutions to traditional CSPs,
enabling them to innovate and provide value-added services to their customers
via cloud computing. We expect to accomplish our business model by utilizing the
core competencies of our team to deliver and deploy Nimbus within the CSPs
operating environment.
The
Company will initially target Tier 1 CSPs domestically and internationally who
have a desire to transform their operations to deliver highly optimized
cloud-based services to their customers. In particular, Verecloud will
place a high priority on partnering with CSPs who intend to target the
small-and-medium business customer, due to size of the opportunity for
incremental services and revenue via cloud computing in the near
term.
Revenues
With this
outstanding market opportunity, Verecloud is targeting three key revenue
streams:
•
|
Nimbus
implementation and integration;
|
|
•
|
ongoing
system upgrades; and
|
|
•
|
revenue
share on CSPs new products and
services.
|
As our
revenues increase, we plan to continue to invest in marketing and sales by
increasing our presence within the industry and well as continued targeted sales
efforts within and outside the telecommunications industry. We do not
expect significant revenue from the above streams until 2011.
Cost
of Goods Sold
With the
expected growth in revenue, general, legal and administrative expenses are
expected to increase. We expect to continue to add supporting staff in finance
and operations as we grow the business. Our Nimbus development team
is expected to consist of 25-35 employees and contractors by the end of
2010. We expect to maintain a similar staffing level beyond 2010 as
we continue to focus on enhancements to the Nimbus platform.
Operating
Expenses
With the
expected growth in revenue, general and administrative expenses are expected to
increase. We expect to continue to add supporting staff in areas of legal
finance and operations as we growth the business. We also expect to continue to
enhance the capabilities of Nimbus to meet the changes in technology within the
industry.
Comparison
of the Nine Months Ended September 30, 2009 and September 30, 2008
(unaudited)
The
following table sets forth the results of our operations for the periods
indicated as a percentage of revenues:
Nine
months ended September 30, (Unaudited)
|
Years
ended December 31,
|
|||||||||||||||||||||||||||||||
2009
|
2008
|
2008
|
2007
|
|||||||||||||||||||||||||||||
%
of
|
%
of
|
%
of
|
%
of
|
|||||||||||||||||||||||||||||
Amount
|
Revenues
|
Amount
|
Revenues
|
Amount
|
Revenues
|
Amount
|
Revenues
|
|||||||||||||||||||||||||
in
dollars except percentages
|
in
dollars except percentages
|
|||||||||||||||||||||||||||||||
Revenues
|
$ | 7,945,011 | 100 | % | $ | 5,191,642 | 100 | % | $ | 7,147,618 | 100 | % | $ | 4,345,330 | 100 | % | ||||||||||||||||
Cost
of goods sold
|
3,803,028 | 48 | % | 2,422,121 | 47 | % | 3,373,883 | 47 | % | 2,615,505 | 60 | % | ||||||||||||||||||||
Gross
profit
|
4,141,983 | 52 | % | 2,769,521 | 53 | % | 3,773,735 | 53 | % | 1,729,825 | 40 | % | ||||||||||||||||||||
Operating
expenses
|
4,333,593 | 55 | % | 873,457 | 17 | % | 1,242,917 | 17 | % | 395,943 | 9 | % | ||||||||||||||||||||
Operating
income (loss)
|
(191,610 | ) | 3 | % | 1,896,064 | 37 | % | 2,530,818 | 35 | % | 1,333,882 | 31 | % | |||||||||||||||||||
Other
income (expense)
|
(62,318 | ) | -1 | % | 26,370 | 1 | % | 32,584 | 0 | % | (4,654 | ) | 0 | % | ||||||||||||||||||
Income
tax expense
|
98,438 | 1 | % | - | 0 | % | - | 0 | % | - | 0 | % | ||||||||||||||||||||
Net
income
|
$ | (352,366 | ) | -4 | % | $ | 1,922,434 | 37 | % | $ | 2,563,402 | 36 | % | $ | 1,329,228 | 31 | % |
22
Revenue: Revenue for the nine
months ended September 30, 2009 increased 53%, compared to the nine months ended
September 30, 2008. This increase is driven primarily by growth at
our former major customer in 2009.
Cost of Goods
Sold:
Cost of
goods sold, which consists mainly of wage related expenses and travel expenses
in the nine months ended September 30, 2009, increased 57%, reflecting the
overall growth in revenue. Our gross profit remained fairly
consistent and was 53% for the nine months ended September 30, 2009 and 2008,
respectively.
Operating Expenses:
Operating expenses for the nine months ended September 30, 2009 were up 396%,
versus the comparable period in 2008. This increase is driven primarily by the
goodwill impairment of $2,437,177 due to the loss of our major customer, and the
increased headcount, additional marketing costs and higher legal and accounting
costs due to the Share Exchange and public reporting
requirements.
Other Income (Expense):
Other income (expense) for the nine months ended September 30, 2009 was
($62,318) consisting primarily of interest expense related to the note payable
to our former principals.
Net Income (Loss): For
the nine months ended September 30, 2009, we reported a net loss of $352,366,
compared to net income of $1,922,434 for the nine months ended September 30,
2008. Excluding the goodwill impairment, for the nine months ended
September 30, 2009, we reported net income of $2,084,811. Excluding
the goodwill impairment, our growth in net income is driven by increased revenue
at our major customer.
During
the nine months ended September 30, 2009, we granted Capital Group
Communications (“CGC”) of Sausalito, California, 1,380,000 shares of our common
stock pursuant to a consulting agreement. The fair market value of
these services is estimated at $98,000 and, upon issuance of the shares, has
been reflected in the operating expenses for the nine months ended September 30,
2009 since the shares issued are non-refundable if the agreement is
terminated.
Comparison
of the Year Ended December 31, 2008 Compared to the Year Ended December 31,
2007
Revenue
for the year ended December 31, 2008 was $7,147,618, compared to $4,345,330 for
the year ended December 31, 2007, an increase of $2,802,288 or 64%. This
increase is driven by growth at our major customer in 2008.
For the
year ended December 31, 2008, we reported net income of $2,563,402, compared to
net income of $1,329,228 for the year ended December 31, 2007, driven by
increased revenue at our major customer.
Total
expenses for the year ended December 31, 2008 were $4,616,800 compared to
$3,011,448 in the comparable period of 2007, an increase of $1,605,352 or 53%.
The additional expenditures reflect the overall growth in our business across
cost of goods sold and operating expenses. Cost of goods sold, which consists
mainly of wage related expenses and travel expenses, increased $758,378 from
$2,615,505 for the year ended December 31, 2007 to $3,373,883 for the year ended
December 31, 2008. This increase is due to the expansion of revenue and direct
costs associated with the revenue growth.
Operating
expenses for year ended December 31, 2008 increased to $1,242,917 compared to
$395,943 during the comparable period in 2007, a difference of $846,974 or 214%.
The biggest component of operating expenses is salary and wages, which increased
from $73,070 in 2007 to $465,319 in 2008. Other line items that increased
significantly were marketing expenses, which increased to $248,517 for the year
ended December 31, 2008, compared to $13,569 for the year ended December 31,
2007 and rent expense which increased from $103,245 in 2007 to $137,222 in
2008.
23
During
the years ended December 31, 2008 and December 31, 2007, we did not grant any
shares of common stock as compensation.
Interest
income for the year ended December 31, 2008 increased to $32,155 compared to $0
for the comparable period of 2007.
Historically,
inflation has not had a material effect on us.
Liquidity
and Capital Resources
The
ability of the Company to continue as a going concern is dependent on the
Company’s ability to raise additional capital and implement its business plan.
Since its inception, the Company has been funded by its founders.
As of
September 30, 2009, total current assets were $2,465,262 which consisted of
$255,635 of cash, $2,142,214 of accounts receivable and $67,413 of other current
assets.
Accounts
receivable at September 30, 2009 were $2,142,214 compared to $840,866 at
December 31, 2008. This increase of $1,301,348 was driven by the
increased business with SkyTerra. Days of sales outstanding ("DSO")
calculates the average collection period of our accounts receivable. DSO is
based on the ending net trade receivables and the revenue for each reported
period. DSO is calculated by dividing accounts receivable, net of
allowance for doubtful accounts and revenue reserves, by average net revenue for
the reported period. For the nine months ended September 30, 2009 and the year
ended December 31, 2008, the DSO was 74 days and 43 days, respectively. The
increase is driven by the increase in monthly revenue from SkyTerra in the three
months ended September 30, 2009 vs. the previous six months. There were no
changes in our collection policy during the nine months ended September 30, 2009
and, as of February 2, 2010, all outstanding receivables at September 30, 2009
had been collected.
Advances to related parties declined from $12,000 at December 31, 2008 to $0 at September 30, 2009. This amount was a down payment on a timeshare condominium that was purchased by Cadence II. An additional $112,000 payment was made in early 2009 to complete the purchase. On May 26, 2009, the entire interest in the condominium was transferred to Pat and Ann Burke as part of the Purchase Agreement.
Accounts payable at September
30, 2009 were $344,627 compared to $43,932 at December 31, 2008. This
increase of $300,695 was driven by the increased business with SkyTerra and use
of contract resources and additional general and administrative costs such as
legal and accounting.
Income taxes payable at
September 30, 2009 were $463,370 compared to $0 at December 31,
2008. Prior to the Share Exchange, Cadence II was a limited liability
company using cash basis accounting for tax purposes. The income
taxes payable at September 30, 2009 represent tax effected balance due on
accounts receivable that were outstanding at August 31, 2009 and collected in
September 2009. The deferred tax balance of $214,973 at September 30,
2009 represents the tax effect of receivables that were outstanding at the time
of the Share Exchange and not yet collected as of September 30,
2009. See Note 11 for additional tax disclosures. Due to
anticipated operating losses for the remainder of the fiscal year ending June
30, 2010 that are expected to offset this liability, the Company does not expect
to owe any taxes for the full fiscal year.
As of
September 30, 2009, we had a working capital balance of $243,489, consisting of
current assets of $2,465,262 and current liabilities of $2,221,772. This
represents a decrease of $2,027,020 from the working capital balance of
$2,270,510 at December 31, 2008. Our current assets consist primarily of cash,
which is deposited in short term, interest bearing accounts, and accounts
receivable. We have historically relied on normal operations to fund our
operations. Due to the termination of the SkyTerra contract, we will need to
raise additional capital to execute our business strategy.
Net cash
from operating activities during the nine months ended September 30, 2009 was
$1,345,241, compared to $2,660,483 during the year ended December 31, 2008, a
decrease of $1,315,242. Net cash used in investing activities, consisting
primarily of capital expenditures, for the nine months ended September 30, 2009
was $169,512, compared to $57,730 for year ended December 31, 2008. Our capital
expenditures consist mainly of office and computer equipment. Net cash used in
financing activities for the nine months ended September 30, 2009 was
$2,359,861, consisting of distributions to the Cadence II members, paydown
of long term debt and the purchase of member's interest in May 2009. Cash and
equivalents decreased to $255,635 as of September 30, 2009, from $1,439,766 as
of December 31, 2008, a net decrease in cash of
$1,184,131.
24
Off-Balance
Sheet Arrangements
As of and
subsequent to September 30, 2009, we have no off-balance sheet
arrangements.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
Company does not use derivative financial instruments in its investment
portfolio and has no foreign exchange contracts. We consider
investments in highly liquid instruments purchased with a remaining maturity of
90 days or less at the date of purchase to be cash equivalents.
Interest
Rates
Our
exposure to market risk for changes interest rates relates primarily to our
short-term investments and short-term obligations; thus, fluctuations in
interest rates would not have a material impact on the fair value of these
securities. As of February 2, 2010, we had a cash balance of
$1,235,533. A hypothetical 5% increase or decrease in interest rates
would not have a material impact on our earnings or loss, or the fair market
value or cash flows of these instruments.
OUR
BUSINESS
The
Company is headquartered in Englewood, Colorado and, through its wholly owned
subsidiary, Cadence II, provides transformation solutions to the
telecommunications industry. Through 2009, the Company focused its
business on professional service engagements within the telecommunications
sector. These services have included creating and implementing
functional architectural designs intended to help CSPs solve the problems
related to the high costs of integrating new products and
services. Although it is anticipated that these professional
services will drive the short-term revenue growth for the Company, Verecloud is
in the process of developing and rolling out a cloud-based computing system
known as Nimbus.
On July
19, 2007, we were was incorporated in Nevada as a web development
services company.
On August
31, 2009, we closed the Share Exchange pursuant to which we acquired all of the
membership interest in Cadence II in exchange for the issuance of
42,320,000 shares of our common stock to the sole member of
Cadence II. Upon the closing of the transaction, Cadence II
became our wholly owned subsidiary and our business operations consist of those
of Cadence II.
Industry
Background
The
global telecommunications industry is a multi-trillion dollar per year industry.
CSPs are a subset of the telecommunications industry that interact directly with
end-users and wholesale customers to provide communication services such as
voice, data, and wireless. CSPs include AT&T, Verizon, Sprint, T-Mobile,
Qwest, and British Telecom. As deregulation occurred in the telecommunications
industry over the past 20 years, the growth of CSPs accelerated at an
unprecedented level as they were able to offer a multitude of new and innovative
services.
Historically,
CSPs have managed to satisfy growing demand for their services by continuing to
add hardware to their communications networks. Rather than upgrading their core
software systems, CSPs have added more servers, switches and routers. While
capacity and capability of the CSP commercial network broadly expanded, the two
supporting software components, the Operational Support System and Business
Support System (“OSS/BSS”) remained relatively unchanged. OSS are a set of
programs that help CSPs monitor, control, analyze and manage a telephone or
computer network. BSS are systems which help CSPs run their business operations
when dealing with customers with respect to, taking orders, processing bills,
and collecting payments. CSPs, while wanting to add new services, realized they
had to overcome significant hurdles such as the dated designs of their legacy
OSS/BSS and the high cost of deploying new technology in order to capture new
revenue opportunities. High deployment costs, coupled with an inability to
leverage existing hardware resources, have been identified within the industry
as “the Integration Tax.”
The CSPs
difficulty in managing the Integration Tax issue has created an opportunity for
new entrants into the communications services industry: IP-based service
providers. IP-based, or Internet Protocol based, refers to the use of the
Internet infrastructure to power communications services. Companies such as
Skype and Google launched creative and new telecommunication services using the
Internet as the foundational component of their communications networks. While
IP-based CSPs are a threat to the traditional providers, traditional CSPs have a
significant advantage that the Internet companies desire: a large installed base
of customers with an established billing relationship. Going forward, traditional
CSPs choosing to leverage the power of the Internet, coupled with a wholesale
marketing model, can enhance their revenue realization with the addition of next
generation services to their current product set.
25
Telecommunications
Transformation, or Telco 2.0, is accepted terminology that refers to this
overall paradigm shift which reduces the Integration Tax, enabling CSPs to
innovate and provide value-added services to their customers. This can only be
accomplished through the deployment of a Service Delivery Platform (“SDP”) layer
that enables linkage of disparate network components and Internet based
applications (from any source) with legacy back-office systems unique to each
CSP. SDPs are a set of components which interface with legacy OSS/BSS systems to
create a new entry point for adding, managing, and innovating new services. When
a CSP desires to develop a new communication service, they can work directly
with the SDP rather than inefficiently interfacing directly with the OSS/BSS.
This ultimately creates a way to deliver new services more quickly and at lower
cost.
Market
Environment
Customer
Transition – From Smartphones to SaaS
Since
their introduction, smartphones (e.g. Blackberry, iPhone) have provided
consumers with a growing number of new and innovative applications. Smartphones
are continually becoming more feature-rich at price points that provide greater
value to customers. Development and availability of unique applications and
services have increased rapidly, and consumers are using these new applications
and services at a very high rate. This “customer driven” bundling has
created demand for the development of new uses and applications. In most cases,
these “customer desired” applications are neither developed nor hosted by the
underlying service provider but are made available through the smartphone
platform and integrated into the service providers’ back-office systems. Every
addition of an application to a smartphone results in an incremental increase in
revenue for the wireless service provider.
Business
customers are also embracing changes in how they source business applications as
“Software as a Service” (“SaaS”) applications expand. For example,
rather than self-hosting an application, SaaS services such as Salesforce.com,
allow customers to interact with the software via the Internet. The
current economic downturn has only hastened this shift, focusing cost
containment in software purchases and IT staffing. The use of SaaS
applications is often referred to as “cloud computing.” Cloud
computing is a general term for anything that involves delivering hosted
services over the Internet. A cloud service has three distinct
characteristics that differentiate it from traditional hosting. It is
sold on demand, typically by the minute or the hour, it is elastic—a user can
have as much or as little of a service as they want at any given time, and the
service is fully managed by the provider (the consumer needs nothing but a
person computer and Internet access).
The
Problem for CSPs
Most CSPs
are focused on transforming their businesses from a non-converged model, for
example, plain old telephone services delivered over traditional hardwire to a
converged network combining access medium (e.g., wired, wireless, CATV, IP) with
the ability to enable content delivery and hosted applications. A converged
network can offer a boundless number of applications made available via the
Internet cloud, thus meeting customer demands, increasing revenue capture, and
increasing competition in the communications sector.
In most
cases, CSP legacy support systems were designed in an era when non-converged
network service providers (i.e., telephone companies, cellular/PCS companies,
and cable TV companies) offered a single product category and could dictate to
customers the packaging options. With today’s multiple product
offerings (video, data, phone, wireless and content), CSPs now find it difficult
and costly to transition their back office OSS/BSS infrastructure to meet this
evolving marketplace. However, for long-term sustainability and
growth, CSPs are now focused on leveraging their vast connections into homes and
businesses by adding other forms of value oriented services and make them
readily available to their established customer
base.
26
Our
Business Strategy
The
Verecloud business model seeks to provide solutions to traditional CSPs,
enabling them to innovate and provide value-added services to their customers.
We accomplish our business model by utilizing the core competencies of our team
to initially drive high margin consulting projects with major CSPs focused on
developing a service management layer. We use a combination of “on the job”
experience coupled with ongoing research and development to create a broad-based
solution that is commercially viable to new and existing CSPs and is based upon
validated industry standards.
Verecloud
has extensive experience helping CSPs address solutions that support their
retail and wholesale business models. This experience has resulted in the
following core competencies:
•
|
Our
solutions are configurable, flexible, reusable, and have been designed to
meet increasingly complex and unique CSP client
requirements.
|
|
•
|
We
are developing an end-to-end methodology to consolidate all critical
network elements, systems components, and operational processes into an
optimal design that can reduce operating costs and improve time-to-market
system developments.
|
From
architecture design to solution, or technology selection to delivery and
implementation, Verecloud has provided solutions in all areas of operational
support systems (service creation, order fulfillment, inventory, activation and
provisioning, assurance, billing). Verecloud is also a contributor to
communication industry standards bodies such as TM Forum’s SID and SDF, OASIS
for Telecom, ATIS Services Oriented Network, Open Mobile Alliance and Institute
of Electrical and Electronics Engineers, Inc.
Service
Management Layer
As a
result of experience in the telecommunications sector and operational support
systems, with significant focus on operational support systems, Verecloud has
identified the need for a creative solution in the service management layer via
the SDP. The service management layer resides between the traditional OSS/BSS
and the commercial network of all CSPs and is designed to address all phases of
a service lifecycle. Our approach in the service management layer consists of
the following:
•
|
Service Catalog /
Inventory– Maintains the repository of the service specification
definition and instances of the service. The catalog is the central hub of
service management that maintains the data model, processes, and rules for
the service in its various lifecycle stages.
|
|
•
|
Service Fulfillment –
This function is commonly referred to as service provisioning or service
activation. It provides the CSP with the ability to allocate capabilities
and/or resources, either physical or logical, for the service with as much
automation (“zero-touch”) as possible. This function significantly reduces
the classic “swivel
chair” conundrum created by multiple systems input existing in most
CSPs today.
|
|
•
|
Service Assurance –
Network resources are monitored for faults or
impairments, but determining the impact to services that customers
leverage is challenging. The Verecloud approach creates a definition of
not only the primary quality indicators of a service, but also the process
definition of how to repair the service as well as the model of the
service to determine the relationships and impacts with other
services.
|
|
•
|
Service Charging – New converged services that cross technological and
organizational boundaries create complexity in charging and billing.
Traditional back-office systems designs do not offer the unique charging
options desired by customers. Verecloud has employed an IMS architectural
orientation to support real-time charging of composite services. This
creative approach offers a CSP greater flexibility in pricing their
offerings to customers and provides for revenue assurance capabilities to
confirm proper billing based upon accurate
usage.
|
|
•
|
Service Delivery–A
unified SDP is an enabler for a CSP to offer converged services in a much
more flexible and adaptable environment than what has traditionally been
available. SDPs enable rapid, lower cost service creation for product
developers seeking to experiment with offerings, accomplished with minimal
required involvement from IT and network operations
personnel.
|
27
Nimbus
Verecloud
began funding its research and development activities for the Nimbus project in
January 2009 with retained earnings from operations. This research
and development project was chartered to develop a proof of concept to evaluate
product potential, functionality and product deliverability. Through
September 30, 2009, the cost of this research and development project totaled
$198,000. These costs consisted primarily of salaries and wages
associated with our technical staffing in assessing the viability, potential and
technical requirements of the Nimbus solution. Going forward, our
research and development spending will focus on the development of the Nimbus
solution, however, such spending is dependent upon the Company raising capital
in 2010.
Market
Strategy
Professional
services remain the near term opportunity to drive revenue and operating margin
growth. In addition, we expect to develop Nimbus, which we hope will
position the Company to exploit the opportunity created by the continued growth
in cloud computing. Nimbus will bridge the gap between
i) small-to-medium businesses that want expanded and integrated
services via the “cloud,” ii) CSPs who need innovative, high-margin services to
drive growth, and iii) innovative clouding computing solution providers who want
access to the large distribution channel that CSPs have developed for voice and
data services. We believe that Nimbus can potentially open new revenue
opportunities, protect investments made in existing services and create an
exciting new distribution model for both CSPs and cloud computing solution
providers in a low cost, high return manner.
Verecloud is
focused on providing professional services and business platform solutions to
CSPs. These services and solutions are focused on the service
delivery platform component of CSPs back office systems and enable CSPs to,
among other things, operate more efficiently, introduce new products faster and
deliver a better customer experience.
Verecloud began
in 2006 and, for the past three years, has driven operational improvements and
innovation with clients across the telecommunications landscape through
professional services contracts. From architecture design to solution, or
technology selection to delivery and implementation, Verecloud has provided
professional service solutions in all areas of operational support systems
(service creation, order fulfillment, inventory, activation and provisioning,
assurance and billing, among others).
In addition to developing industry leading technology,Verecloud
is also a contributor to communication industry standards bodies such as TM
Forum’s SID and SDF, OASIS for Telecom, ATIS Services Oriented Network, Open
Mobile Alliance and Institute of Electrical and Electronics Engineers,
Inc .
Competition
The
competitive landscape includes firms that are attempting to address CSP
transformational needs in the telecommunications industry. These can be
segmented into three areas:
•
|
large-scale
Systems Integrators (e.g. – Accenture and IBM);
|
|
•
|
full
Suite Solution Providers (e.g. – Oracle, SAP, Microsoft, and IBM);
and
|
|
•
|
CSP
Transformation Agents who seek to redefine how CSPs deliver services (e.g.
– JamCracker and Amdocs).
|
Large-scale
Systems
Integrators are engaged based upon their broad knowledge in solving
well-defined CSP problems. Their approach provides a “remedy to a status-quo
environment” versus implementation of transformational change. These large
competitors are focused on multi-year, expensive projects that may not solve the
problem that SLM addresses.
Full Suite
Solution Providers offer a suite of products, that when fully
implemented, provide an integrated approach in solving the CSPs transformation
needs. Their approach, however, comes at a great expense to CSPs. It can be very
time consuming to implement, very costly, provides a “one-size-fits-all”
solution, and is integrated only within the bounds of their suite. Their
solution does not integrate with a CSPs unique legacy OSS/BSS environment. Cost
of implementing a full suite of products results in a much
lower return on investment for the CSP than a more flexible and
less expensive SLM solution.
CSP
Transformation Agents are emerging as CSPs embrace the value of and need
for a service delivery layer platform. These competitors are small and are
narrowly focused on specific areas of SLM. For
example, they may address order management but have not fully addressed how this
solution integrates with other areas of the overall service
lifecycle.
28
Based on
these definitions, Verecloud is considered a CSP Transformation Agent. It is our
belief that the SLM
methodology provides a superior end-to-end solution that is:
•
|
significantly
more robust than that of other CSP Transformation
Agents;
|
|
•
|
less
expensive and more cost effective; and
|
|
•
|
more
nimble, flexible, and more suitable to the dynamically evolving needs of
all CSPs.
|
Customers
Our
customer base has been focused in the telecommunications space. Since inception,
our business has been dependent on one significant customer, SkyTerra. For the
year ended December 31, 2008, SkyTerra represented 100% of our revenue. On
November 2, 2009, we received a contract termination notice from SkyTerra. As a
result, beginning in November 2009, our monthly revenue will be reduced by
approximately 95% due to this termination. We have successfully helped such
providers as Qwest Communications, Numerex, Taser and GigaSpaces Technologies in
projects ranging from new implementations, or projects that are not constrained
by prior networks (“Greenfield”) to enhance and expand the capabilities of
legacy systems. We are focused on expanding our customer base through continuing
to offer professional services as well as the selling the long term vision of
our platform.
Verecloud claims
rights in its inventions, code, and other intellectual property that it has
created and that is contained in the SLM, Nimbus, and other components of future
products and current services (the “IP”). It has not, however, sought
formal registration for any of its IP, or filed any U.S. patent or copyright
applications for such intellectual property.
Employees
We
currently have 26 employees, 21 of which are full time employees. In addition to
our full time employees, we have five finance and sales consultants. We do not
expect to hire additional employees until such time as our operations
require.
None of
our employees is covered by a collective bargaining agreement. Each of our
managerial, sales and administrative employees has entered into a standard form
of employment agreement which, among other things, contains covenants not to
compete for 24 months following termination of employment and to maintain the
confidentiality of certain proprietary information. We believe that our employee
relations are good.
Properties
Our
principal address is 6560 South Greenwood Plaza Boulevard, Number 400,
Englewood, Colorado 80111. We currently lease approximately 10,000 square feet
of office space. Our lease expires in April 2010.
Litigation
None.
29
DIRECTORS
AND EXECUTIVE OFFICERS
Our
Directors and Executive Officers
Name
|
Age
|
Position
|
||
|
|
|
||
Mr. John
McCawley
|
43
|
President,
Chief Executive Officer and Director
|
||
Mr.
Mark Faris
|
55
|
Executive
Vice President – Business Development, Chairman of the Board and
Director
|
||
Mr.
Jim Buckley
|
49
|
Chief
Financial Officer
|
||
Mr.
Mike Cookson
|
47
|
Chief
Operating Officer
|
||
Mr.
Bill Perkins
|
42
|
Chief
Technology Officer
|
Mr. John
McCawley has been President, Chief Executive Officer and Director of Verecloud
since August 31, 2009. He co-founded Cadence II in March 2006 and has more
than 12 years of experience as software developer, designer and architect for
projects in the areas of finance and telecommunications. Prior to Verecloud ,
Mr. McCawley founded GatheringPoint Networks LLC, a national VoIP reseller. Mr.
McCawley acted as President and Managing Member of GatheringPoint Networks, LLC
from its founding in 2004 to January 2006. Mr. McCawley was also Founder and
Senior Partner for Parocon Consulting Group, where he successfully developed a
national IT consulting firm whose clients includes Fortune 500 clients such as
SprintPCS, Echostar, Qwest and Level(3). Mr. McCawley received his MS in
Information Systems from the University of Colorado at Denver and holds a BS in
Finance and Economics from the University of Wyoming.
Mr. Mark
Faris, our Executive Vice President – Business Development, Chairman of the
Board and Director, joined Verecloud in February 2009. Prior to joining
Verecloud , from January 2007 to March 2009, Mr. Faris was a Partner at
Invisible Towers, a US wireless tower provider. Prior to his work with Invisible
Towers, from September 2005 to January 2007, Mr. Faris served as the Chief
Operating Officer for Mobile Satellite Ventures, a hybrid satellite and
terrestrial communications provider. Prior to his time at Mobile Satellite
Ventures, from April 2001 to September 2005, Mr. Faris served as a Senior Vice
President of Network Services for XO Communications, a leading provider of
voice, data, VoIP management services. Mr. Faris is a veteran of the
telecommunications industry who has worked for both large corporate entities and
small entrepreneurial ventures over a 30 year period. Mr. Faris spent 24 years
with Southwestern Bell Telephone Company (now AT&T Corporation) in a wide
variety of assignments including time as Vice President-Engineering/Operations.
He has also served as President and Chief Operating Officer of BlueStar
Communications, Chief Operating Officer for Gemini Networks. Mr. Faris received
his BBA in Business from Texas Tech and is a graduate of the Yale University
Executive Management Program.
Mr. Jim
Buckley has been our Chief Financial Officer since August 2009. He has over 25
years of diverse financial experience in corporate and operational finance,
business development and strategy. His industry focus has been in cable and
telecommunications. Since October 2008, Mr. Buckley has provided
contract finance and CFO services across several industries. From January 2008
to October 2008, Mr. Buckley served as Vice President – Strategy for Qwest
Communications with a focus on long range planning and strategic initiatives
within the Company. From August 2006 to December 2007, Mr. Buckley
provided contract finance and CFO services for major cable and telecom
providers in the US. From February 2003 to July 2006, Mr. Buckley
served as Vice President-Finance at Adelphia Communications. He has worked for
Fortune 100 companies (MediaOne and US WEST) as well as startup ventures in
technology and media. Mr. Buckley is also a CPA and began his career at Coopers
& Lybrand. Mr. Buckley received his MS in Management from Purdue University
and his BS in Accounting from the University of Colorado at Boulder. Mr. Buckley
is employed on a consulting basis and does not devote his full time to
Verecloud.
Mr. Mike
Cookson joined Verecloud in August 2007. Mr. Cookson has more than 25 years of
operational experience in Fortune 10, mid-size, and start-up technology
organizations. From February 2004 through August 2007, Mr. Cookson held a
variety of director-level positions at Ariba (ARBA), the leading provider of
Spend Management Solutions, including responsibilities in Global Processes and
Planning and in leading the program to transform operational processes from a
CD-based solution to a new Software-as-a-Service offering. Prior to that Mr.
Cookson was director of IT and Strategic Alliances at Alliente, a divesture of
Hewlett Packard and Agilent Technologies. Mr. Cookson’s operational
responsibilities also include over 16 years of experience at Hewlett Packard
(HP) and Agilent Technologies (A) in a variety of managerial roles including
Section Manager of Indirect Procurement Systems and Processes, Global Manager
for SAP Infrastructure, and Americas SAP Finance Program Manager. Mr. Cookson
received his BS in Business with a concentration in Information Systems from
Colorado State University in 1984.
Mr. Bill
Perkins joined Verecloud in May 2007. From May 2006 to May 2007, he worked as a
consultant to Verecloud. Prior to his service at Verecloud, from
December 2004 through August 2006, Mr. Perkins was president of HomeFlyers Inc.,
a technology driven advertising company where his roles ranged from software
development to business expansion. Mr. Perkins received his MS in Computer
Science from the University of Tennessee and holds a BS in Computer Science with
a minor in Economics from the Central Connecticut State
University.
30
Director
Independence
We
undertook a review of the independence of our directors and, using the
definitions and independence standards for directors in the rules of The Nasdaq
Stock Market, considered whether any director has a material relationship with
us that could interfere with their ability to exercise independent judgment in
carrying out their responsibilities. As a result of this review, we
determined that our directors, John McCawley and Mark Faris, are not
“independent directors” as defined under the rules of The Nasdaq Stock
Market. If we ever become a listed issuer whose securities are listed
on The Nasdaq Stock Market or on an automated inter-dealer quotation system of a
national securities association, which has independent director requirements, we
intend to comply with all applicable requirements relating to director
independence.
The
Company’s directors serve for one year and are subject to re-election at the
Company’s annual meeting. The Company has not held an annual meeting
since the Share Exchange, but intends to provide notice and hold one by December
31, 2010.
Family
Relationships
Mike
Cookson, our Chief Operating Officer and Lynn Schlemeyer, our Vice President of
Investor Relations and Marketing are husband and wife.
Legal
Proceedings
No
bankruptcy petition has been filed by or against any business of which any of
Verecloud's directors or executive officers was a general partner or executive
officer either at the time of the bankruptcy or within two years prior to that
time.
No
director or executive officer of Verecloud has been convicted in a criminal
proceeding or is subject to a pending criminal proceeding (excluding traffic
violations and other minor offenses).
No
director or executive officer of Verecloud has been 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.
No
director or executive officer of Verecloud has been found by a court of
competent jurisdiction (in a civil action), the SEC or the Commodity Futures
Trading Commission to have violated a federal or state securities or commodities
law, that has not been reversed, suspended, or vacated.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid to the following persons for services
performed for us during 2008 and 2009 in all capacities.
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Total
($)
|
|||||||
|
|||||||||||
John
McCawley,
|
2008
|
$
|
290,870
|
$
|
0
|
$
|
290,870
|
||||
Chief Technology Officer (1) |
2009
|
$
|
240,000
|
$
|
0
|
$
|
240,000
|
||||
Pat
Burke, CEO (2)
|
2008
|
$
|
192,940
|
$
|
192,940
|
||||||
2009
|
$
|
110,000
|
$
|
0
|
$
|
110,000
|
|||||
Bill
Perkins, VP
|
2008
|
$
|
162,000
|
$
|
7,000
|
$
|
169,000
|
||||
Chief Technology Officer (3) |
2009
|
$
|
170,050
|
$
|
0
|
$
|
170,050
|
||||
Mike Cookson, | 2008 | $ | 129,172 | $ | 17,000 | $ | 146,172 | ||||
Chief Operating Officer (4) | 2009 | $ | 158,875 | $ | 0 | $ | 158,875 |
(1)
|
Mr.
McCawley became President and Chief Executive Officer of the Company in
August 2009. Prior to serving as Chief Executive Officer,
Mr. McCawley served as Chief Technology Officer of Cadence II since its
founding in 2006. The historical compensation set forth above
is payment received as Chief Technology Officer of Cadence
II. In addition, Mr. McCawley serves as a Director and receives
no compensation for this service.
|
|
(2)
|
Mr.
Burke is the former Chief Executive Officer of Cadence II. The
historical compensation set forth above is for payment received as Chief
Executive Officer of Cadence II, a position which he held until May
2009.
|
|
(3)
|
Mr.
Perkins became Chief Technology Officer in January 2010. The
historical compensation set forth above is for payment Mr. Perkins
received as an employee of Cadence II.
|
|
(4) | Mr. Cookson became Chief Operating Officer in August 2009. The historical compensation set forth above is for payment Mr. Cookson received as an employee of Cadence II. |
31
Compensation
Committee Interlocks and Insider Participation
During
the nine month period ended September 30, 2009, the Company did not have a
compensation committee. During the nine month period ended
September 30, 2009, no deliberations concerning executive officer compensation
took place.
During
the nine month period ended September 30, 2009:
(i) none
of our executive officers served as a member of the compensation committee (or
other board committee performing equivalent functions or, in the absence of any
such committee, the entire board of directors) of another entity, one of whose
executive officers served on our compensation committee;
(ii) none
of our executive officers served as a director of another entity, one of whose
executive officers served on our compensation committee; and
(iii)
none of our executive officers served as a member of the compensation committee
(or other board committee performing equivalent functions or, in the absence of
any such committee, the entire board of directors) of another entity, one of
whose executive officers served as a member of our board of
directors.
Elements
of Compensation
Our
compensation program for the named executive officers consists of base salary,
equity in the form of stock options, and a discretionary bonus. There is no
retirement plan, long-term incentive plan or other such plans. The base salary
we provide is intended to equitably compensate the named executive officers
based upon their level of responsibility, complexity and importance of role,
leadership and growth potential, and experience.
Base
Salary
Our named
executive officers receive base salaries commensurate with their roles and
responsibilities. We have no applicable employment
agreements. We have no applicable employment agreements with any of
our executive officers. Base salaries and subsequent adjustments, if
any, are reviewed and approved by our board of directors annually, based on
independent evaluations of each executive’s performance for the prior year,
expertise and position, and objective sources such as
PayScale.com. The base salaries paid to our named executives in 2008
and 2007 are reflected in the Summary Compensation Table below.
Stock-Based
Awards
Our named
executive officers are eligible to receive options to purchase common stock
pursuant to the Verecloud 2009 Equity Incentive Plan, which our board of
directors approved on October 27, 2009. These option grants are based
upon numerous factors including a combination of performance and relative value
of different job types. In addition, the board of directors believes
that stock-based awards, based upon individual performance, will maximize
shareholder value through incentivizing the Company’s named executive officers
and retaining them through multi-year vesting periods. As of February
2, 2010, there have been 3,490,000 options to purchase the Company’s common
stock issued to our named executive officers of which, 2,121,664 vested on
December 31, 2009.
Unit
Bonus Plan
On
January 26, 2010, the board of directors adopted the Verecloud, Inc. Unit Bonus
Plan (the “Unit Bonus Plan”) and granted unit awards (“Unit Awards”) to certain
current key employees of the Company pursuant to the terms of such Unit Bonus
Plan. The Unit Bonus Plan provides that a participant’s Unit Award
will vest and become payable only upon one of the following events: (i) a change
in control of the Company (a “Change in Control”), (ii) a valuation of the
Company equal to, or in excess of, $30 million that is sustained for a period of
15 consecutive days (a “Market Valuation Event”) or (iii) the participant’s
involuntary separation from service by the Company without cause or by reason of
the participant’s death or disability (an “Involuntary
Separation”).
The
Company may pay the Unit Award to the participant (or the participant’s
beneficiary) in cash or common stock as determined by the board of directors in
its sole discretion. The Company will make payments in connection
with a Change in Control no later than five days following such
event. The Company will make payments in connection with a Market
Valuation Event no later than 30 days following such event. For
payments in connection with a participant’s Involuntary Separation, the Company
will pay the participant 25 percent of the participant’s Unit Award on the first
day of the first month following the date of his Involuntary Separation and will
pay the balance to the participant in three subsequent annual payments beginning
on the anniversary date of the first payment date. However, if the
participant separated from service by reason of his death or, if the participant
dies after his Involuntary Separation but prior to receiving his entire Unit
Award payment, the Company will pay the participant the balance of such Unit
Award in a lump sum no more than 30 days after receiving notification of the
participant’s death. The Unit Bonus Plan provides that if the making
of any payment would jeopardize the ability of the Company to continue as a
going concern, the payment will be delayed until the date that the payment would
not have such an effect on the Company.
32
The total
value of the unit pool is equal to, as applicable, 12.5 percent of the following
amounts: (i) the total consideration received by the Company upon a Change in
Control or (ii) the fair market value of the outstanding shares of common stock
of the Company at the time of a Market Valuation Event or an applicable
Involuntary Separation (the “Company Value”). Mark Faris, the
Chairman of the board of directors, received a Unit Award equal to five (5)
percent of the Company Value, William Perkins, Chief Technology
Officer, received a Unit Award equal to two and one-half (2.5) percent of the
Company Value and Mike Cookson, Chief Operating Officer, received a Unit Award
equal to two (2) percent of the Company Value.
Retention
Bonus Agreements
On
January 26, 2010, the board of directors also approved the Company entering into
Retention Bonus Agreements (each, a “Retention Agreement”) with five employees,
including Daniel Vacanti, Lynn Schlemeyer, Mark Faris, Mike Cookson and William
Perkins. Since November 1, 2009, the annual salary of these five
employees has been reduced by 25 percent. Each Retention Agreement
provides that, subject to the employee’s continuous service with the Company
from the effective date of the Retention Agreement through the date of the
“Triggering Event” (as defined below), the employee may receive a bonus, in the
form of either cash or stock, in an amount equal to the salary such employee has
foregone since November 1, 2009. The “Triggering Event” is the board
of director’s declaration to pay a bonus based on one of the following
events: (i) a Change of Control, as such term is defined in the
Incentive Plan, (ii) removal of the “going concern” status of the Company
rendered by an external audit and as reported in the Company’s public filings,
(iii) the receipt of intermediate-term financing, which is determined by the
board of directors to merit the approval of the bonus, or (iv) the entry into a
material definitive agreement, which is determined by the board of directors to
merit the approval of the bonus.
Retirement
Benefits
Currently,
we do not provide any company sponsored retirement benefits to any employee,
including the named executive officers.
Perquisites
Historically,
we have not provided our named executive officers with any perquisites or other
personal benefits. We do not view perquisites as a significant element of our
compensation structure, but do believe that perquisites can be useful in
attracting, motivating and retaining the executive talent for which we compete.
It is expected that our historical practices regarding perquisites will continue
and will be subject to periodic review by our by our board of directors.
As of
February 2, 2010, there are 3,490,000 outstanding equity awards
granted to our named executive officers.
Director
Compensation
None of
our directors receives any compensation for serving as such director, for
serving on committees of the board of directors, or for special
assignments. As of the date of this prospectus and registration
statement on Form S-1, there were no other arrangements between us and our
directors that resulted in our making payments to any of our directors for any
services provided to us by them as directors.
Employment
Agreements
None.
33
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Beneficial
ownership is determined in accordance with the rules of the SEC. In computing
the number of shares beneficially owned by a person and the percentage of
ownership of that person, shares of common stock subject to options and warrants
held by that person that are currently exercisable or become exercisable within
60 days of the date of this prospectus and registration statement on Form S-1
are deemed outstanding even if they have not actually been exercised. Those
shares, however, are not deemed outstanding for the purpose of computing the
percentage ownership of any other person. The total shares, options exercisable
within 60 days and shares available pursuant to conversion of convertible debt
are aggregated by individual and divided by sum of the total shares outstanding
plus the total options exercisable within 60 days plus the total number of
shares potentially arising from the conversion of all convertible debt of the
Company. This provides each individual’s ownership percent. These percents are
then summed to arrive at the beneficial ownership of the officers and directors
as a group.
The
following table sets forth certain information with respect to beneficial
ownership of our common stock based on 51,391,252 issued and outstanding shares
of common stock as of February 2, 2010 by:
•
|
each
person known to be the beneficial owner of 5% or more of the outstanding
common stock of our company;
|
|
•
|
each
executive officer;
|
|
•
|
each
director; and
|
|
•
|
all
of the executive officers and directors as a
group.
|
Unless otherwise indicated, the persons and entities named in the
table have sole voting and sole investment power with respect to the shares set
forth opposite the stockholder’s name, subject to community property laws, where
applicable. Unless otherwise indicated, the address of each stockholder listed
in the table is c/o Verecloud, Inc.
6560 South
Greenwood Plaza Boulevard, Number 400 Englewood, Colorado
80111.
Name
and Address of Beneficial Owner
|
Beneficially
Owned
|
Percent
of Class Beneficially Owned
|
|||||
Directors
and Executive Officers
|
|||||||
John
McCawley, President, Chief Executive Officer and
Director
|
42,320,000
|
82.6%
|
|||||
Pat
Burke, Former Chief Executive Officer
7026
S. Magnolia Circle
Centennial,
Colorado 80112
|
0
|
0.0%
|
|||||
Mark
Faris, Executive Vice President of Business Development, Director and
Chairman of the Board
|
591,664
|
(1) |
1.1%
|
||||
Bill
Perkins, Chief Technology Officer
|
1,054,164
|
(1) |
2.0%
|
||||
Mike Cookson, Chief Operating Officer | 766,664 | (1) | 1.5% | ||||
Officers
and Directors as a Group
|
44,732,492 | (1) |
87.2%
|
||||
(total
of 5 persons)
|
|||||||
(1) This
amount reflects options to purchase the Company’s common stock which vested on
December 31, 2009 and are scheduled to vest on March 31,
2010.
34
The
Company has not adopted formal policies and procedures for the review, approval
or ratification of Related Party Transactions with its executive officers,
directors and significant stockholders. However, all material Related
Party Transactions for the periods covered by this report have been disclosed
and such transactions will, on a going-forward basis, be subject to the review,
approval or ratification of the board of directors or an appropriate committee
thereof.
On May
26, 2009, the membership interests of Pat Burke and Ann Burke totaling 51% of
Cadence II were purchased by Cadence II pursuant to a Purchase Agreement by and
among Cadence II, Pat Burke and Ann Burke dated as of May 26, 2009, as
previously disclosed on Item 10.2 on the Company’s Form 8-K, filed on September
1, 2009. The aggregate purchase price was $3,609,244 which was comprised of
$661,977 in cash, $2,800,000 in a promissory note, $123,000 in property, and
$24,267 estimated value in future health insurance benefits for the two members.
The note is being repaid in 10 equal quarterly installments of $280,000 plus
interest thereon, beginning August 31, 2009 with a maturity date of November 30,
2011. The note bears interest at the prime rate plus 4%. As of
September 30, 2009, Verecloud has made one payment of $333,948, which includes
$280,000 in principal and $53,948 in interest. The outstanding
principal balance as of September 30, 2009 was $2,520,000. As of February 2,
2010, the outstanding principal balance is $2,240,000.
The
aggregate purchase price of $3,609,244 less the basis of Pat and Ann Burke’s
interest in Cadence II of $1,172,067 equaled $2,437,177 and was booked as
goodwill as of May 26, 2009. This goodwill balance was subsequently
impaired due to substantial doubt regarding the Company’s ability to continue as
a going concern.
DESCRIPTION
OF CAPITAL STOCK
General
Our
Articles of Incorporation, as amended, authorize the issuance of 100,000,000
shares of common stock, $0.001 par value per share, and 5,000,000 shares of
preferred stock, $0.001 par value per share. As of February 2, 2010, there were
51,391,252 issued and outstanding shares of common stock and no issued and
outstanding shares of our preferred stock. Set forth below is a description of
certain provisions relating to our capital stock. For additional information
regarding our stock, please refer to our Articles of Incorporation, as amended,
and Bylaws.
Common
Stock
Each
outstanding share of common stock has one vote on all matters requiring a vote
of the stockholders. There is no right to cumulative voting; thus, the holder of
50.1% or more of the shares outstanding can, if they choose to do so, elect all
of the directors. In the event of a voluntary or involuntary liquidation, all
stockholders are entitled to a pro rata distribution after payment of
liabilities and after provision has been made for each class of stock, if any,
having preference over the common stock. The holders of the common stock have no
preemptive rights with respect to future offerings of shares of common stock.
Holders of common stock are entitled to dividends if, as and when declared by
the board of directors out of the funds legally available therefore. It is our
present intention to retain earnings, if any, for use in our business. The
payment of dividends on the common stock is, therefore, unlikely in the
foreseeable future.
Preferred
Stock
Our
preferred stock may be issued in one or more series at the discretion of our
board of directors. In establishing a series, the board of directors
has the right to give it a distinctive designation so as to distinguish such
series of preferred stock from other series and classes of capital
stock. In addition, the board of directors is obligated to fix the
number of shares in such a series, and the preference rights and restrictions
thereof. All shares of any one series shall be alike in every
particular except as provided by our Articles of Incorporation, as amended, or
the Nevada Revised Statutes.
Warrants
There are
no outstanding warrants to purchase shares of our common stock.
Change
in Control Provisions
Our board
of directors, without further stockholder approval, may issue preferred stock,
with such terms as the board of directors may determine, that could have the
effect of delaying or preventing a change in control. The issuance of
preferred stock could also adversely affect the voting powers of the holders of
our common stock, including the loss of voting control to others. The
described provision and the issuance of preferred stock could discourage or
prevent a takeover even if an acquisition would be beneficial to our
stockholders.
35
SELLING
STOCKHOLDERS
(a) upon
incorporation in July 2007, we sold 3,600,000 shares to two individuals for
$25,000 in cash;
(b) in
November and December 2007, we sold 80,000 shares of common stock for $20,000 in
cash to a group of 25 individuals; and
(c) on
August 31, 2009, we issued 42,320,000 shares of common stock to John McCawley,
our President, Chief Executive Officer and director in connection with the Share
Exchange.
We have
used letter designations in the list above in the selling stockholder table
below to identify for each selling stockholder the source of the shares of the
Company’s common stock being registered hereby.
The table
below lists the selling stockholders and other information regarding the
beneficial ownership of the shares of common stock owned by each of the selling
stockholders. We determined beneficial ownership in accordance with
the rules promulgated by the SEC, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Except as
otherwise indicated, we believe that the persons or entities named in the
following table have sole voting and investment power with respect to all shares
of common stock beneficially owned by them, subject to community property laws
where applicable. The term “selling stockholders” includes the
selling stockholders and their transferees, pledges, donees, or
successors. We will file a prospectus supplement to name successors
to any named selling stockholders who are able to use this prospectus to resell
the shares. The third column lists the number of shares beneficially
owned by each selling stockholder, based on its ownership of our common stock as
of February 2, 2010. The fourth column lists the percentage of
outstanding shares of our common stock owned before the offering. The
firth column lists the amount of shares beneficially owned to be sold in the
offering. And finally, the sixth column lists the percentage of
shares beneficially owned after the offering.
The
selling stockholders may sell all, some or none of their shares in this
offering. See “Plan of Distribution.”
To our
knowledge, none of the selling stockholders is a registered broker-dealer and/or
affiliated with a registered broker-dealer. In addition, the
following numbers may change because of future stock splits, stock dividends or
similar events involving our common stock. On January 25, 2010, we
instituted a four-for-one forward stock split. At this time, there
are currently no other plans for any additional splits, dividends or similar
events. We have not paid any compensation fees under financing
arrangements with the selling stockholders, nor are we currently obligated to
make such payments in the future, and, other than as indicated below, the
selling stockholders have not had any material relationship with us within the
past three years other than through ownership of our
securities.
Selling
Stockholders
|
Relationship
to Issuer
|
Shares
Beneficially
Owned
Before
the
Offering
|
Percentage
of
Outstanding
Shares
Beneficially
Owned
Before
the
Offering
|
Shares
to
be sold
in
the
offering
|
Percentage
of
Outstanding
Shares
Beneficially
Owned
After
the
Offering
|
|||||
John
McCawley (1)(c)
|
President,
Chief Executive Officer and Director
|
42,320,000
|
82.6%
|
10,400,000
|
62.3%
|
|||||
Gary
A. Agron (2)(a)
|
Stockholder
|
1,800,000
|
3.5%
|
1,800,000
|
--
|
|||||
Jennifer
Frenkel (3)(a)
|
Stockholder
|
1,800,000
|
3.5%
|
1,800,00
|
--
|
|||||
Troy
Andrewjeski (4)(b)
|
Stockholder
|
2,000
|
*
|
2,000
|
--
|
|||||
Adam
Duman (5)(b)
|
Stockholder
|
4,000
|
*
|
4,000
|
--
|
|||||
Benjam
R. Francois and Staci E. Francois Living Trust
(6)(b)
|
Stockholder
|
4,000
|
*
|
4,000
|
--
|
|||||
Francois
Education Trust (7)(b)
|
Stockholder
|
4,000
|
*
|
4,000
|
--
|
|||||
George
Frenkel (8)(b)
|
Stockholder
|
4,000
|
*
|
4,000
|
--
|
|||||
Ruth
Frenkel (9)(b)
|
Stockholder
|
4,000
|
*
|
4,000
|
--
|
36
Matthew
Frenkel (10)(b)
|
Stockholder
|
4,000
|
*
|
4,000
|
--
|
|||||
Leigh
Gates (11)(b)
|
Stockholder
|
2,000
|
*
|
2,000
|
--
|
|||||
Keenan
Gates (12)(b)
|
Stockholder
|
2,000
|
*
|
2,000
|
--
|
|||||
Michael
Gellman (13)(b)
|
Stockholder
|
2,000
|
*
|
2,000
|
--
|
|||||
Steven
Green (14)(b)
|
Stockholder
|
4,000
|
*
|
4,000
|
--
|
|||||
Daniel
Keefe (15)(b)
|
Stockholder
|
4,000
|
*
|
4,000
|
--
|
|||||
Andrew
Klein (16)(b)
|
Stockholder
|
4,000
|
*
|
4,000
|
--
|
|||||
Manny
Ladis (17)(b)
|
Stockholder
|
4,000
|
*
|
4,000
|
--
|
|||||
Bob
Lazzeri (18)(b)
|
Stockholder
|
2,000
|
*
|
2,000
|
--
|
|||||
Lindsey
Puder (19)(b)
|
Stockholder
|
4,000
|
*
|
4,000
|
--
|
|||||
John
Puder (20)(b)
|
Stockholder
|
4,000
|
*
|
4,000
|
--
|
|||||
John
D. Puder (21)(b)
|
Stockholder
|
4,000
|
*
|
4,000
|
--
|
(1)
|
Mr.
John McCawley is the Company’s President and Chief Executive
Officer. He also serves as a Director. The address
for this stockholder is 6560 South Greenwood Plaza Boulevard, Number 400,
Englewood, Colorado 80111.
|
|
(2)
|
The
address for this stockholder is 59 Glenmoor Circle, Englewood, Colorado
80110.
|
|
(3)
|
Mrs.
Jennifer Frenkel is the wife of Brian Frenkel, the initial President of
Sage. The address for this stockholder is 2340 S. Columbine
Street, Denver, Colorado 80210.
|
|
(4)
|
The
address for this stockholder is 779 Kearney Street, Denver, Colorado
80220.
|
|
(5)
|
The
address for this stockholder is 6011 S. Moline Way, Englewood, Colorado
80111.
|
|
(6)
|
Benjamin
Francois, as Trustee, has dispositive and voting control over the
securities. Mr. Francois disclaims beneficial ownership in the
securities to the extent that he does not have a pecuniary
interest. The address for this stockholder is 6334 Calle Del
Alcazar, Rancho Santa Fe, California 92067.
|
|
(7)
|
Staci
Smith, as Trustee, has dispositive and voting control over the
securities. Ms. Smith disclaims beneficial ownership in the
securities to the extent that she does not have a pecuniary
interest. The address for this stockholder is 6334 Calle Del
Alcazar, Rancho Sante Fe, California 92067.
|
|
(8)
|
The
address for this stockholder is 6425 Greenbriar Drive, Englewood, Colorado
80111.
|
|
(9)
|
The
address for this stockholder is 6425 Greenbriar Drive, Englewood, Colorado
80111.
|
|
(10)
|
The
address for this stockholder is 6425 Greenbriar Drive, Englewood, Colorado
80111.
|
|
(11)
|
The
address for this stockholder is 1925 W. 32nd Avenue #104, Denver, Colorado
80211.
|
|
(12)
|
The
address for this stockholder is 1925 W. 32nd Avenue #104, Denver, Colorado
80211.
|
|
(13)
|
The
address for this stockholder is 139 Grant Street, Denver, Colorado
80203.
|
|
(14)
|
The
address for this stockholder is 140 Jersey Street, Denver, Colorado
80220.
|
|
(15)
|
The
address for this stockholder is 1443 S. Unita Court, Denver, Colorado
80231.
|
|
(16)
|
The
address for this stockholder is 5 Sandy Lane Road, Cherry Hills, Colorado
80113.
|
|
(17)
|
The
address for this stockholder is 2845 Akron Street, Denver, Colorado
80238.
|
|
(18)
|
The
address for this stockholder is 5046 Christensen Drive, Littleton,
Colorado 80123.
|
|
(19)
|
The
address for this stockholder is 5222 W. Riverbend Drive, Libertyville,
Illinois 60048.
|
|
(20)
|
The
address for this stockholder is 5222 W. Riverbend Drive, Libertyville,
Illinois 60048.
|
|
(21)
|
The
address for this stockholder is 1821 22nd Street, Apartment # 305,
Boulder, Colorado 80302.
|
|
(22)
|
Earnest
Mathis, as General Partner, has dispositive and voting control over the
securities. Mr. Mathis disclaims beneficial ownership in the
securities to the extent that he does not have a pecuniary
interest. The address for this stockholder is 2560 W. Main
Street, Suite 200, Littleton, Colorado 80120.
|
37
(23)
|
Gary
McAdam, as Trustee, has dispositive and voting control over the
securities. Mr. McAdam disclaims beneficial ownership in the
securities to the extent that he does not have a pecuniary
interest. The address for this stockholder is 14 Red Tail
Drive, Highlands Ranch, Colorado 80126.
|
|
(24)
|
The
address for this stockholder is 5711 E. Stanford Drive, Cherry Hills,
Colorado 80111.
|
|
(25)
|
The
address for this stockholder is 12 Canon Place, Englewood, Colorado
80111.
|
|
(26)
|
The
address for this stockholder is 6481 S. Kearney Circle, Centennial,
Colorado 80111.
|
|
(27)
|
Staci
Smith, as Trustee, has dispositive and voting control over the
securities. Ms. Smith disclaims beneficial ownership in the
securities to the extent that she does not have a pecuniary
interest. The address for this stockholder is 6334 Calle Del
Alcazar, Rancho Santa Fe, California 92067.
|
|
(28)
|
Lawrence
Underwood, as General Partner, has dispositive and voting control over the
securities. Mr. Underwood disclaims beneficial ownership to the
extent that he does not have a pecuniary interest. The address
for this stockholder is 5 Eagle Pointe Lane, Castle Rock, Colorado
80108.
|
The
shares will be sold at the fixed price of $0.07 until the common stock becomes
quoted on the OTC Bulletin Board or listed on a securities exchange, if at all.
We will file a post-effective amendment to reflect the change to a market price
if the shares begin trading on an exchange.
The
shares are not currently listed on any stock exchange and there is no guarantee
that we will ever satisfy the listing requirements of an exchange. However, we
will seek to list the shares on the OTC Bulletin Board immediately following the
effectiveness of this registration statement on Form S-1. The selling
stockholders and any of their pledgees, donees, transferees, assignees and
successors-in-interest may, from time to time, sell any or all of the shares of
common stock on any stock exchange, market or trading facility on which the
shares are traded or quoted or in private transactions. These sales may be at
fixed or negotiated prices. The selling stockholders may use any one or more of
the following methods when selling the shares:
•
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits investors;
|
|
•
|
block
trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
•
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
|
•
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
•
|
privately
negotiated transactions;
|
|
•
|
to
cover short sales made after the date that this Registration Statement is
declared effective by the SEC;
|
|
•
|
broker-dealers
may agree with the selling stockholders to sell a specified number of the
shares at a stipulated price per share;
|
|
•
|
a
combination of any such methods of sale; and
|
|
•
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may also sell the shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of the shares, from the purchaser) in amounts to be negotiated. The
selling stockholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved.
38
The
selling stockholders may from time to time pledge or grant a security interest
in some or all of the shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell the shares from time to time under this prospectus, or under an
amendment to this prospectus under Rule 424(b)(3) or other applicable provision
of the Securities Act amending the list of selling stockholders to include the
pledgees, transferee or other successors in interest as selling stockholders
under this prospectus.
Upon the
Company being notified in writing by a selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of common
stock through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing (i) the name of each such selling stockholder and of
the participating broker-dealer(s), (ii) the number of the shares involved,
(iii) the price at which the shares were sold, (iv) the commissions paid or
discounts or concessions allowed to such broker-dealer(s), where applicable, (v)
that such broker-dealer(s) did not conduct any investigation to verify the
information set out in this prospectus, and (vi) other facts material to the
transaction. In addition, upon the Company being notified in writing
by a selling stockholder that a donee or pledgee intends to sell more than 500
of the shares, a supplement to this prospectus will be filed if then required in
accordance with applicable securities law.
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Discounts, concessions, commissions and
similar selling expenses, if any, that can be attributed to the sale of
Securities will be paid by the selling stockholder and/or the purchasers. Each
of the selling stockholder has represented and warranted to us that it acquired
the Securities covered by this prospectus in the ordinary course of such selling
stockholder’s business and, at the time of its purchase of such Securities such
selling stockholder had no agreements or understandings, directly or indirectly,
with any person to distribute any such Securities.
We have
advised each selling stockholder that it may not use the shares covered by this
prospectus short for sales of common stock made prior to the date on which this
registration statement on Form S-1 shall have been declared effective by the
SEC. If a selling stockholder uses this prospectus for any sale of the common
stock, it will be subject to the prospectus delivery requirements of the
Securities Act. The selling stockholders will be responsible for complying with
the applicable provisions of the Securities Act and the Exchange Act, and the
rules and regulations thereunder promulgated, including, without limitation,
Regulation M, as applicable to such selling stockholders in connection with
resale of the shares pursuant to this prospectus.
We are
required to pay all fees and expenses incident to the registration of the shares
(estimated to be approximately $28,000), but we will not receive any proceeds
from the sale of the shares. We have agreed to indemnify the selling
stockholders against any liabilities, including liabilities under the Securities
Act and the Exchange Act.
EXPERTS
The financial statements appearing in this prospectus and
registration statement on Form S-1 have been audited by Schumacher &
Associates Inc., independent certified public accountants, as set forth in their
report thereon appearing elsewhere in this prospectus and in the registration
statement on Form S-1, and such report is included in reliance upon such report
given upon the authority of such firm as experts in accounting and
auditing.
VALIDITY
OF SECURITIES
The
validity of the securities offered hereby is being passed upon for the Company
by Brownstein Hyatt Farber Schreck, LLP, Denver, Colorado.
INTERESTS
OF NAMED EXPERTS AND COUNSEL
No expert
or counsel named in this prospectus as having prepared or certified any part of
this prospectus or having given an opinion upon the validity of the securities
being registered or upon other legal matters in connection with the registration
or offering of the common stock offered hereby was employed on a contingency
basis, or had, or is to receive, in connection with such offering, a substantial
interest, direct or indirect, in the Company, nor was any such person connected
with the Company as a promoter, managing or principal underwriter, voting
trustee, director, officer, or employee.
Insofar
as indemnification for liabilities arising out of the Securities Act may be
permitted to directors, officers or persons controlling the Company, the Company
has been informed that in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
39
AVAILABLE
INFORMATION
We have
filed this prospectus under the Securities Act with the SEC with respect to the
securities offered by this prospectus. This prospectus does not include all of
the information contained in the registration statement on Form S-1 of which
this prospectus is a part or the exhibits and schedules filed therewith. You
should refer to the registration statement on Form S-1 of which this prospectus
is a part and its exhibits for additional information. Whenever we make
reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits attached to the registration statement on Form S-1 for copies of
the actual contract, agreement or other document.
We will
file annual, quarterly and special reports and other information with the SEC.
You can read these SEC filings and reports, including the registration statement
on Form S-1 of which this prospectus is a part, over the Internet at the SEC’s
website at http://www.sec.gov. You can also obtain copies of the documents at
prescribed rates by writing to the Public Reference Section of the SEC at 100 F
Street, NE, Washington, DC 20549, on official business days between the hours of
10:00 am and 3:00 pm. Please call the SEC at (800) SEC-0330 for further
information on the operations of the public reference facilities. We will
provide a copy of our annual report to stockholders, including audited financial
statements, at no charge upon receipt of your written request to us at
Verecloud, Inc., 6560 South Greenwood Plaza Boulevard, Number 400, Englewood,
Colorado 80111.
40
FINANCIAL
STATEMENTS OF VERECLOUD, INC.
PAGE
|
F-2
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
|
PAGE
|
F-3
|
BALANCE
SHEETS AS OF SEPTEMBER 30, 2009 (UNAUDITED), DECEMBER 31, 2008
AND 2007
|
|
PAGE
|
F-4
|
STATEMENTS
OF OPERATIONS FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED) AND YEARS ENDED DECEMBER 31, 2008 AND 2007
|
|
PAGE
|
F-5
|
STATEMENT
OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE PERIOD FROM JANUARY
1, 2007 TO SEPTEMBER 30, 2009 (UNAUDITED)
|
|
PAGE
|
F-6
|
STATEMENTS
OF CASH FLOWS FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2009 AND
2008 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 2008 AND
2007
|
|
PAGES
|
F-7
to F-15
|
NOTES
TO THE FINANCIAL STATEMENTS
|
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors
Verecloud,
Inc.
Englewood,
Colorado
We have
audited the accompanying balance sheets of Verecloud, Inc. as of December 31,
2008 and 2007, and the related statements of operations, stockholders’ equity
(deficit), and cash flows for the two years ended December 31, 2008 and 2007.
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 audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the 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 also includes
examining on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides 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 Verecloud, Inc. as of December 31,
2008 and 2007, and the results of its operations and its cash flows for the two
years ended December 31, 2008 and 2007, in conformity with accounting principles
generally accepted in the United States of America. The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As described in Note 4, on November 2, 2009,
the Company received a contract termination notice from its largest customer,
and expects to lose approximately 95% of its revenue, which raises substantial
doubt about its ability to continue as a going concern. Management's plan in
regard to this matter is also discussed in Note 4. The financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
/s/
Schumacher & Associates, Inc.
Schumacher
& Associates, Inc.
Certified
Public Accountants
7931 S.
Broadway, #314
Littleton,
CO 80122
August
31, 2009
(except
for Note 4, which is dated as of November 2, 2009)
F-2
Verecloud,
Inc.
BALANCE
SHEETS
Unaudited
|
||||||||||||
September
30,
|
December
31,
|
December
31,
|
||||||||||
2009
|
2008
|
2007
|
||||||||||
ASSETS
|
||||||||||||
Current
assets
|
||||||||||||
Cash
|
$ | 255,635 | $ | 1,439,766 | $ | 657,013 | ||||||
Accounts receivable
|
2,142,214 | 840,866 | 948,537 | |||||||||
Other current assets
|
67,413 | 54,368 | 1,120 | |||||||||
Total current assets
|
2,465,262 | 2,335,000 | 1,606,671 | |||||||||
Property
and equipment
|
||||||||||||
Computer related
|
87,655 | 58,630 | 36,492 | |||||||||
Equipment and machinery
|
36,255 | 29,623 | 10,753 | |||||||||
Other property and equipment
|
31,330 | 8,476 | 3,754 | |||||||||
Subtotal
|
155,240 | 96,729 | 50,998 | |||||||||
Accumulated depreciation
|
(76,921 | ) | (36,888 | ) | (10,119 | ) | ||||||
Net property and equipment
|
78,318 | 59,840 | 40,879 | |||||||||
Other
assets
|
||||||||||||
Security deposits
|
22,785 | 22,785 | 22,785 | |||||||||
Advances to related parties
|
- | 12,000 | - | |||||||||
Total other assets
|
22,785 | 34,785 | 22,785 | |||||||||
Total
assets
|
$ | 2,566,365 | $ | 2,429,625 | $ | 1,670,334 | ||||||
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||||||
Current
liabilities
|
||||||||||||
Accounts payable
|
$ | 344,627 | $ | 43,932 | $ | 41,695 | ||||||
Current portion of long term debt
|
1,120,000 | - | - | |||||||||
Income taxes payable
|
463,370 | - | - | |||||||||
Deferred taxes payable
|
214,973 | - | - | |||||||||
Accrued liabilities
|
78,803 | 20,558 | 6,906 | |||||||||
Total current liabilities
|
2,221,772 | 64,490 | 48,601 | |||||||||
Long
term debt
|
1,400,000 | - | - | |||||||||
Total liabilities
|
3,621,772 | 64,490 | 48,601 | |||||||||
Commitments
and contingencies (Notes 1, 2, 4, 7, 8, 9, 10, 11 and
12)
|
- | - | - | |||||||||
Stockholders'
equity (deficit)
|
||||||||||||
Preferred stock - $0.001 par value, 5,000,000 shares
authorized:
|
- | |||||||||||
No shares issued or outstanding
|
||||||||||||
Common stock - $0.001 par value, 100,000,000 shares
authorized:
|
47,380 | 42,320 | 42,320 | |||||||||
47,320,000, 42,320,000 and 42,320,000, shares issued and outstanding
|
||||||||||||
at September 30, 2009, December 31, 2008 and 2007, respectively | ||||||||||||
Additional paid-in capital
|
96,620 | - | - | |||||||||
Retained earnings (accumulated deficit)
|
(1,199,407 | ) | 2,322,815 | 1,579,413 | ||||||||
Total stockholders' equity (deficit)
|
(1,055,407 | ) | 2,365,135 | 1,621,733 | ||||||||
Total
liabilities and stockholders' equity (deficit)
|
$ | 2,566,365 | $ | 2,429,625 | $ | 1,670,334 |
The accompanying notes are integral parts of
these financial statements
F-3
Verecloud,
Inc.
STATEMENTS OF
OPERATIONS
Nine
months ended (unaudited)
|
For
the Years Ended
|
|||||||||||||||
September
30
|
September
30
|
December
31,
|
December
31,
|
|||||||||||||
2009
|
2008
|
2008
|
2007
|
|||||||||||||
Revenue
|
$ | 7,945,011 | $ | 5,191,642 | $ | 7,147,618 | $ | 4,345,330 | ||||||||
Cost
of goods sold
|
3,803,028 | 2,422,121 | 3,373,883 | 2,615,505 | ||||||||||||
Gross
profit
|
4,141,983 | 2,769,521 | 3,773,735 | 1,729,825 | ||||||||||||
Operating
expenses
|
||||||||||||||||
Salary and wages
|
724,559 | 337,718 | 465,319 | 73,070 | ||||||||||||
Recruiting and hiring expense
|
38,193 | 98,891 | 118,642 | 53,513 | ||||||||||||
Consulting expense
|
80,400 | 19,934 | 49,934 | 23,160 | ||||||||||||
Marketing expense
|
546,898 | 151,329 | 248,517 | 13,569 | ||||||||||||
Rent
|
108,924 | 103,046 | 137,222 | 103,245 | ||||||||||||
Legal and accounting
|
193,608 | 59,068 | 78,685 | 48,597 | ||||||||||||
Office expense
|
12,227 | 5,999 | 10,730 | 13,987 | ||||||||||||
Travel and entertainment
|
46,544 | 13,719 | 23,328 | 8,712 | ||||||||||||
Insurance
|
13,406 | 7,721 | 7,582 | 11,297 | ||||||||||||
Information technology
|
47,757 | 35,159 | 46,118 | 9,222 | ||||||||||||
Equipment rental
|
1,918 | 1,692 | 2,314 | 296 | ||||||||||||
Utilities
|
15,971 | 12,808 | 18,252 | 12,506 | ||||||||||||
Depreciation
|
40,033 | 19,936 | 26,769 | 10,119 | ||||||||||||
Dues and subscriptions
|
12,449 | 5,436 | 8,662 | 12,438 | ||||||||||||
Goodwill impairment
|
2,437,177 | - | - | - | ||||||||||||
Other, net
|
13,530 | 1,002 | 843 | 2,211 | ||||||||||||
Total operating expenses
|
4,333,593 | 873,457 | 1,242,917 | 395,943 | ||||||||||||
Operating
income (loss)
|
(191,610 | ) | 1,896,064 | 2,530,818 | 1,333,882 | |||||||||||
Other
income (expense)
|
||||||||||||||||
Interest income
|
6,646 | 26,370 | 32,155 | - | ||||||||||||
Interest (expense)
|
(68,964 | ) | - | - | - | |||||||||||
Other, net
|
- | - | 428 | (4,654 | ) | |||||||||||
Other income (expense)
|
(62,318 | ) | 26,370 | 32,584 | (4,654 | ) | ||||||||||
- | ||||||||||||||||
Pretax
income (loss)
|
$ | (253,928 | ) | 1,922,434 | $ | 2,563,402 | $ | 1,329,228 | ||||||||
Income
tax expense
|
98,438 | - | - | - | ||||||||||||
Net
income (loss)
|
$ | (352,366 | ) | 1,922,434 | $ | 2,563,402 | $ | 1,329,228 | ||||||||
Net
income (loss) per common share
|
$ | (0.01 | ) | $ | 0.05 | $ | 0.06 | $ | 0.03 | |||||||
(Basic
and Diluted)
|
||||||||||||||||
Weighted
average common shares
|
42,800,220 | 42,320,000 | 42,320,000 | 42,320,000 | ||||||||||||
outstanding
(Basic and Diluted)
|
||||||||||||||||
Proforma Statistics (1)
|
||||||||||||||||
Income tax expense (benefit)
|
(97,762 | ) | 740,137 | 986,910 | 511,753 | |||||||||||
Net income (loss) per common share
|
$ | (0.00 | ) | $ | 0.03 | $ | 0.04 | $ | 0.02 | |||||||
(Basic and Diluted)
|
(1)
|
Proforma
as if the Share Exchange occurred at the beginning of the periods
reflected in the above statement of operations. (See Note 1 to the
financial
statements)
|
The accompanying notes are integral parts of
these financial statements
F-4
Verecloud,
Inc.
STATEMENT OF
STOCKHOLDERS' EQUITY (DEFICIT)
From January 1,
2007 to September 30, 2009 (unaudited)
|
||||||||||||||||||||
Total
|
||||||||||||||||||||
Common
Stock
|
Additional Paid
in |
Accumulated Earnings |
Stockholders
Equity
|
|||||||||||||||||
Shares
|
Amount
|
Capital
|
(Deficit)
|
(Deficit)
|
||||||||||||||||
Balance
at January 1, 2007
|
42,320,000 | $ | 42,320 | $ | - | $ | 250,185 | $ | 292,505 | |||||||||||
Net
Income
|
- | - | - | 1,329,228 | 1,329,228 | |||||||||||||||
Balance
at December 31, 2007
|
42,320,000 | 42,320 | - | 1,579,413 | 1,621,733 | |||||||||||||||
Distributions
|
- | - | - | (1,820,000 | ) | (1,820,000 | ) | |||||||||||||
Net
Income
|
- | - | - | 2,563,402 | 2,563,402 | |||||||||||||||
Balance
at December 31, 2008
|
42,320,000 | 42,320 | - | 2,322,815 | 2,365,135 | |||||||||||||||
Purchase
of Members' Interest
|
- | - | - | (1,172,067 | ) | (1,172,067 | ) | |||||||||||||
Distributions
|
- | - | - | (1,417,884 | ) | (1,417,884 | ) | |||||||||||||
Sage
Recapitalization
|
3,680,000 | 3,680 | - | (579,905 | ) | (576,225 | ) | |||||||||||||
Consulting
Agreement
|
1,380,000 | 1,380 | 96,620 | - | 98,000 | |||||||||||||||
Net
Loss
|
- | - | - | (352,366 | ) | (352,366 | ) | |||||||||||||
Balance
at September 30, 2009
|
47,380,000 | $ | 47,380 | $ | 96,620 | $ | (1,199,407 | ) | $ | (1,055,407 | ) |
The accompanying notes are integral parts of
these financial statements
F-5
Verecloud,
Inc.
STATEMENTS OF
CASH FLOWS
Nine
months ended (unaudited)
|
For
the years ended
|
|||||||||||||||
September
30,
|
September
30,
|
December
31,
|
December
31,
|
|||||||||||||
Operating
Activities
|
2009
|
2008
|
2008
|
2007
|
||||||||||||
Net income (loss)
|
$ | (352,366 | ) | $ | 1,922,434 | $ | 2,563,402 | $ | 1,329,228 | |||||||
Adjustments
to reconcile net income (loss) to
|
||||||||||||||||
net
cash from operations
|
||||||||||||||||
Depreciation and amortization
|
40,033 | 19,936 | 26,769 | 10,119 | ||||||||||||
Stock based compensation
|
98,000 | - | - | - | ||||||||||||
Goodwill impairment
|
2,437,177 | - | - | - | ||||||||||||
Change
in assets and liabilities
|
||||||||||||||||
Accounts receivable
|
(1,301,347 | ) | (21,334 | ) | 107,671 | (644,589 | ) | |||||||||
Other current assets
|
(13,045 | ) | (6,630 | ) | (53,248 | ) | (1,120 | ) | ||||||||
Accounts payable
|
300,695 | 100,995 | 2,237 | (50,157 | ) | |||||||||||
Income taxes payable
|
98,438 | - | - | - | ||||||||||||
Other current liabilities
|
37,657 | 8,512 | 13,652 | (182,651 | ) | |||||||||||
Net
cash from operating activities
|
1,345,241 | 2,023,913 | 2,660,483 | 460,830 | ||||||||||||
Investing
Activities
|
||||||||||||||||
Purchase of computer related
|
(29,025 | ) | (14,952 | ) | (22,138 | ) | (36,492 | ) | ||||||||
Purchase of equipment and machinery
|
(6,633 | ) | (12,998 | ) | (18,870 | ) | (10,753 | ) | ||||||||
Purchase of other property and equipment
|
(22,854 | ) | (4,722 | ) | (4,722 | ) | (3,753 | ) | ||||||||
Security deposits
|
- | - | - | (22,785 | ) | |||||||||||
Advances to related parties
|
(111,000 | ) | (12,000 | ) | (12,000 | ) | - | |||||||||
Net cash (used in) investing activities
|
(169,512 | ) | (44,672 | ) | (57,730 | ) | (73,783 | ) | ||||||||
Financing
Activities
|
||||||||||||||||
Purchase of members' interest
|
(661,977 | ) | - | - | - | |||||||||||
Paydowns on Note Payable
|
(280,000 | ) | - | - | - | |||||||||||
Members distributions
|
(1,417,884 | ) | (1,300,000 | ) | (1,820,000 | ) | - | |||||||||
Net cash (used in) financing activities
|
(2,359,861 | ) | (1,300,000 | ) | (1,820,000 | ) | - | |||||||||
Increase
(decrease) in cash for period
|
$ | (1,184,131 | ) | $ | 679,241 | $ | 782,753 | $ | 387,047 | |||||||
Cash
at beginning of period
|
1,439,766 | 657,013 | 657,013 | 269,966 | ||||||||||||
Cash
at end of period
|
$ | 255,635 | $ | 1,336,254 | $ | 1,439,766 | $ | 657,013 | ||||||||
Schedule
of Noncash Investing and Financing Activities
|
||||||||||||||||
Notes payable
|
$ | 2,800,000 | $ | - | $ | - | $ | - | ||||||||
Goodwill
|
$ | (2,437,177 | ) | $ | - | - | - | |||||||||
Purchase of members' interest
|
$ | (510,090 | ) | $ | - | - | - | |||||||||
Advances to related parties
|
$ | 123,000 | $ | - | - | - | ||||||||||
Future health benefits
|
$ | 24,267 | $ | - | - | - | ||||||||||
Common stock
|
$ | 47,380 | $ | - | ||||||||||||
Recapitalization
|
$ | (579,905 | ) | $ | - | |||||||||||
Deferred taxes payable
|
$ | 214,972 | $ | - | ||||||||||||
Income taxes payable
|
$ | 364,932 | $ | - | ||||||||||||
Supplemental
disclosure:
|
||||||||||||||||
Cash paid for interest during the year
|
$ | 68,964 | $ | - | - | - | ||||||||||
Cash paid for income taxes during the year
|
$ | - | $ | - | - | - |
The accompanying notes are integral parts of
these financial statements
F-6
Verecloud,
Inc.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008 and 2007 (References to Periods ended September 30, 2009 and 2008, and
Subsequent to December 31, 2008 are unaudited)
1. Organization
On July
19, 2007, Sage Interactive, Inc. (“Sage’) was incorporated in Nevada as a web
development services company.
On August
31, 2009, Sage consummated a share exchange with the sole member of
Cadence II, LLC, a Colorado limited liability company (“Cadence II”), pursuant
to which it acquired all of the membership interests of Cadence II in
exchange for the issuance to the sole member of Cadence II, 42,320,000 shares of
our common stock representing 92.0% of our issued and outstanding common stock,
as previously disclosed in the Current Report on Form 8-K, filed on September 1,
2009 (the “Share Exchange”). After the Share Exchange, our business operations
consist of those of Cadence II. The Share Exchange was treated as a
merger of Sage and Cadence II, which is accounted for as a reverse acquisition
with Cadence II being the acquirer for financial reporting
purposes. As such, for all disclosures referencing shares authorized,
issued, outstanding, reserved for, per share amounts and other disclosures
related to equity, amounts have been retroactively restated to reflect share
quantities as if the exchange of Cadence II membership interest had occurred at
the beginning of the periods presented as altered by the terms of the Share
Exchange. Upon the closing of the Share Exchange, the Articles of
Incorporation were amended to change the name of the Company to Network Cadence,
Inc. and Cadence II became a wholly owned subsidiary of Network Cadence,
Inc. On January 25, 2010, the Company’s Articles of Incorporation, as
amended were amended to change the name of the Company from Network Cadence,
Inc. to Verecloud, Inc. (“Verecloud” or the “Company”).
Upon
completion of the Share Exchange, the operations of Sage ceased. As a
result, net assets of Sage at August 31, 2009, which were negative $13,774 and
consisted of cash and web development costs ($4,326) offset by amounts owed to
the former President ($18,100) were written off. See Note 11 for the
tax treatment of the Share Exchange.
2. Significant
Accounting Policies
Basis
of Presentation
The
accompanying unaudited interim condensed consolidated financial statements have
been prepared pursuant to the rules and regulations of the SEC for
quarterly reports on Form 10-Q and do not include all of the information
and note disclosures required by U.S. generally accepted accounting principles
(“GAAP”) for complete financial statements. These condensed consolidated
financial statements should therefore be read in conjunction with the
consolidated financial statements and notes thereto for the year ended December
31, 2008, included in our Current Form 8-K, filed on September 1,
2009 in connection with the Share Exchange. The accompanying
unaudited interim condensed consolidated financial statements have been prepared
in accordance with GAAP and include all adjustments of a normal, recurring
nature that are, in the opinion of management, necessary to present fairly the
financial position and results of operations for the interim periods
presented. The results of operations for an interim period are not
necessarily indicative of the results of operations for a full fiscal year. The
Company has evaluated all subsequent events through February 2, 2010, the date
the financial statements were issued.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles (“GAAP”) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results may differ from those
estimates.
Cash
and Cash Equivalents
For
purposes of balance sheet classification and the statements of cash flows, the
Company considers cash in banks, deposits in transit, and all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Concentration
of Credit Risk
The
Company primarily sells its services to customers in the communications industry
in the United States on an uncollateralized, open credit basis. For the nine
months ended September 30, 2009, one customer accounted for 97% of the
revenue.
Cash is
maintained at financial institutions. The Federal Deposit Insurance Corporation
(“FDIC”) currently insures accounts at each institution for up to $250,000. At
times, cash balances may exceed the FDIC insurance limit of
$250,000.
F-7
Accounts
Receivable
Accounts
receivable include uncollateralized customer obligations due under normal trade
terms and do not bear interest.
The
carrying amount of accounts receivable is reduced by a valuation allowance for
doubtful accounts that reflects management’s best estimate of the amounts that
will not be collected resulting from past due amounts from customers. There was
no allowance for doubtful accounts at September 30, 2009 since the total balance
of accounts receivable was deemed collectible. As of September 30,
2009, SkyTerra accounted for $2,040,454 of the outstanding accounts receivable
balance with normal net 30 terms and conditions. The entire balance
was collected subsequent to September 30, 2009.
Revenue
Recognition
For the
periods covered by this registration on Form S-1, the Company derived its
revenue solely from billable professional services provided to
clients. Revenue is recognized only when all of the following
conditions have been met: (i) there is persuasive evidence of an
arrangement; (ii) delivery has occurred; (iii) the fee is fixed or determinable;
and (iv) collectability of the fee is reasonably assured.
Property
and Equipment
Equipment
and furniture are carried at historical cost, net of accumulated depreciation.
Depreciation is computed using straight-line methods over the estimated useful
lives of the assets, ranging from three to seven years. Expenditures for repairs
and maintenance which do not materially extend the useful lives of equipment and
furniture are charged to operations.
Fair
Value Financial Instruments
Fair
value estimates discussed herein are based upon certain market assumptions and
pertinent information available to management as of September 30, 2009. The
respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash,
accounts payable and accrued expenses. Fair values are assumed to approximate
carrying values for these financial instruments because they are short term in
nature, or are receivable or payable on demand.
Research
and Development
Research
and development costs are expensed as incurred and consist primarily of salaries
and wages associated with assessing the viability, the potential and technical
requirements of the Nimbus platform. Capitalization of software
development costs commences upon the establishment of technological feasibility
of the product in accordance with SOP 81-1. As of September 30, 2009,
no software development costs have been capitalized since technological
feasibility has not yet been established.
Segment
Information
Certain
information is disclosed based on the way management organizes financial
information for making operating decisions and assessing performance. The
Company currently operates in one business segment and will evaluate additional
segment disclosure requirements if it expands operations.
Significant
Customers
For the
nine months ended September 30, 2009, the Company had a substantial business
relationship with one major customer, SkyTerra Communications (“SkyTerra”).
SkyTerra accounted for 97% and 100% of the Company’s total revenue for
the nine months ended September 30, 2009 and 2008, respectively. On
November 2, 2009, SkyTerra notified the Company that they terminated its
contract. As a result, the Company reduced its workforce by
approximately 50% and revenues moving forward will decrease by approximately
95%.
Long-Lived
Assets
The
Company accounts for its long-lived assets in accordance with Accounting for the Impairment or
Disposal of Long-Lived Assets (“ASC 360”). The Company’s primary
long-lived assets are goodwill, property and equipment. ASC 360 requires a
company to assess the recoverability of its long-lived assets whenever events
and circumstances indicate the carrying value of an asset or asset group may not
be recoverable from estimated future cash flows expected to result from its use
and eventual disposition. Additionally, ASC 360 requires expected future
operating losses from discontinued operations to be displayed in discontinued
operations in the period(s) in which the losses are incurred, rather than as of
the measurement date. For the nine months ended September 30, 2009, the Company
recorded a goodwill impairment charge of $2,437,177 to reflect the loss of
SkyTerra in November 2009. The Company believes that the carrying
value of the remaining long-lived assets, property and equipment, reflects the
fair market value of these assets as these assets remain in use by the
Company.
F-8
Net
Income (Loss) Per Common Share
Basic
earnings (loss) per common share calculations are determined by dividing net
income by the weighted average number of shares of common stock outstanding
during the year. Diluted earnings (loss) per common share calculations are
determined by dividing net income (loss) by the weighted average number of
common shares and dilutive common share equivalents outstanding. During the
periods when they are anti-dilutive, common stock equivalents, if any, are not
considered in the computation.
Stock
Based Compensation
The
Company accounts for stock-based payment transactions in which the Company
receives employee services in exchange for (a) equity instruments or (b)
liabilities that are based on the fair value of the enterprise’s equity
instruments or that may be settled by the issuance of such equity
instruments. Stock-based compensation cost for stock options is
estimated at the grant date based on each option’s fair-value as calculated by
the Black-Scholes-Merton option pricing model. The Company recognizes
stock-based compensation cost as expense ratably on a straight-line basis over
the requisite service period. The Company will recognize a benefit
from stock-based compensation in equity if an incremental tax benefit is
realized by following the ordering provisions of the tax law. Further
information regarding stock-based compensation may be found in Item 10.
Securities Authorized for Issuance Under Equity Compensation Plans.
Other
In
connection with the Share Exchange, the Company adopted the fiscal year end of
Cadence II. The historical financial statements included herein
represent the fiscal year end of Cadence II.
3.
Recent Pronouncements
The
Company evaluates the pronouncements of various authoritative accounting
organizations, primarily the Financial Accounting Standards Board (“FASB”), the
SEC, and the Emerging Issues Task Force (“EITF”), to determine the impact of new
pronouncements on GAAP and the impact on the Company. The Company has
adopted the following new accounting standards during 2009:
Accounting Standards Codification
– In June 2009, FASB established the FASB Accounting Standards
Codification (“ASC”) as the single source of authoritative GAAP. The ASC
is a new structure which took existing accounting pronouncements and organized
them by accounting topic. Relevant authoritative literature issued by the SEC
and select SEC staff interpretations and administrative literature was also
included in the ASC. All other accounting guidance not included in the ASC is
non-authoritative. The ASC IS effective for interim and annual reporting periods
ending after September 15, 2009. The adoption of the ASC did not have an impact
on the Company’s consolidated financial position, results of operations or cash
flows.
Subsequent Events – In
May, 2009, the ASC guidance for subsequent events was updated to establish
accounting and reporting standards for events that occur after the balance sheet
date but before financial statements are issued or are available to be issued.
The update sets forth: (i) the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements, (ii) the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet in its financial
statements, and (iii) the disclosures that an entity should make about
events or transactions occurring after the balance sheet date in its financial
statements. The new guidance requires the disclosure of the date through which
subsequent events have been evaluated. The Company adopted the updated guidance
for the interim period ended September 30, 2009. The adoption had no impact
on the Company’s consolidated financial position, results of operations or cash
flows.
Accounting for the Useful Life of
Intangible Assets – In April 2008, the ASC guidance for Goodwill and
Other Intangibles was updated to amend the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset. The intent of this update is to improve the
consistency between the useful life of a recognized intangible asset and the
period of expected cash flows used to measure the fair value of the asset under
guidance for business combinations. The updated guidance was effective for the
Company’s fiscal year beginning January 1, 2009 and will be applied
prospectively to intangible assets acquired after the effective date. The
adoption had no impact on the Company’s consolidated financial position, results
of operations or cash flows.
Derivative Instruments – In
March 2008, the ASC guidance for derivatives and hedging was updated for
enhanced disclosures about how and why an entity uses derivative instruments,
how derivative instruments and the related hedged items are accounted for, and
how derivative instruments and the related hedged items affect an entity’s
financial position, financial performance and cash flows. The Company adopted
the updated guidance on January 1, 2009. The adoption had no impact on the
Company’s consolidated financial position, results of operations or cash
flows.
F-9
Business Combinations – In
December 2007, the ASC guidance for business combinations was updated to
provide new guidance for recognizing and measuring identifiable assets and
goodwill acquired, liabilities assumed, and any non-controlling interest in the
acquiree. The updated guidance also provides disclosure requirements to enable
users of the financial statements to evaluate the nature and financial effects
of the business combination. The Company adopted the updated guidance on January
1, 2009 and it will be applied to any future acquisitions.
Non-controlling Interests –
In December 2007, the ASC guidance for Non-controlling Interests was
updated to establish accounting and reporting standards pertaining to:
(i) ownership interests in subsidiaries held by parties other than the
parent (“non-controlling interest”), (ii) the amount of net income
attributable to the parent and to the non-controlling interest,
(iii) changes in a parent’s ownership interest, and (iv) the valuation
of any retained non-controlling equity investment when a subsidiary is
deconsolidated.. If a subsidiary is deconsolidated, any retained
non-controlling equity investment in the former subsidiary is measured at fair
value and a gain or loss is recognized in net income based on such fair
value. For presentation and disclosure purposes, the guidance requires
non-controlling interests (formerly referred to as minority interest) to be
classified as a separate component of equity. The Company adopted the updated
guidance on January 1, 2009. The adoption had no impact on the
Company’s consolidated financial position, results of operations or cash
flows.
There
were various accounting standards and interpretations recently issued which have
not yet been adopted, including:
Fair Value Accounting – In
August 2009, the ASC guidance for fair value measurements and disclosure
was updated to further define fair value of liabilities. This update provides
clarification for circumstances in which: (i) a quoted price in an active
market for the identical liability is not available, (ii) the liability has a
restriction that prevents its transfer, and (iii) the identical liability
is traded as an asset in an active market in which no adjustments to the quoted
price of an asset are required. The updated guidance is effective for the
Company’s interim reporting period beginning October 1, 2009. The Company
is evaluating the potential impact of adopting this guidance on the Company’s
consolidated financial position, results of operations and cash
flows.
Variable Interest Entities –
In June 2009, the ASC guidance for consolidation accounting was updated to
require an entity to perform a qualitative analysis to determine whether the
enterprise’s variable interest gives it a controlling financial interest in a
variable interest entity (“VIE”). This analysis identifies a primary beneficiary
of a VIE as the entity that has both of the following characteristics:
(i) the power to direct the activities of a VIE that most significantly
impact the entity’s economic performance and (ii) the obligation to absorb
losses or receive benefits from the entity that could potentially be significant
to the VIE. The updated guidance also requires ongoing reassessments of the
primary beneficiary of a VIE. The updated guidance is effective for the
Company’s fiscal year beginning January 1, 2010. The Company currently is
evaluating the potential impact of adopting this guidance on the Company’s
consolidated financial position, results of operations and cash
flows.
There
were no other accounting standards and interpretations issued recently which are
expected to have a material impact on the Company’s financial position,
operations or cash flows.
4.
Going Concern
The
Company’s financial statements have been prepared on the basis of accounting
principles applicable to a going concern. As a result, they do not include
adjustments that would be necessary if the Company were unable to continue as a
going concern and would therefore be obligated to realize assets and discharge
its liabilities other than in the normal course of operations. On November 2,
2009, the Company received a contract termination notice from its largest
customer, SkyTerra. As a result, it is expected to lose approximately
95% of its revenue, effective November 2, 2009. This raises
substantial doubt about the Company’s ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on the
Company’s ability to raise additional capital and implement its business
plan.
The
Company’s objective is to overcome the circumstances that impact its ability to
remain a going concern through a combination of the commencement of revenues,
with interim cash flow deficiencies being addressed through additional equity
and debt financing. The Company is currently focused raising additional funds
through public or private financing, strategic relationships or other
arrangements in the near future to support its business operations; however, the
Company may not have commitments from third parties for a sufficient amount of
additional capital. As of February 2, 2010, the Company has not
secured any financing or commitments. In addition, the Company cannot
be certain that any such financing will be available on acceptable terms, or at
all, and its failure to raise capital when needed could limit its ability to
continue operations. The Company’s ability to obtain additional funding will
determine its ability to continue as a going concern. Failure to secure
additional financing in a timely manner and on favorable terms would have a
material adverse effect on financial performance, results of operations and
stock price and require it to curtail or cease operations, sell off its assets,
seek protection from its creditors through bankruptcy proceedings, or otherwise.
Furthermore, additional equity financing may be dilutive to the holders of the
Company’s common stock, and debt financing, if available, may involve
restrictive covenants, and strategic relationships, if necessary to raise
additional funds, and may require that the Company relinquish valuable
rights.
Management
believes that actions presently being taken to raise funds provide the
opportunity for the Company to continue as a going concern. As of
February 2, 2010, our current cash balance can fund our operations through April
2010. We are actively pursuing additional funding and are seeking up
to $20 million to fund operations through 2011 and service the promissory
note. If we are able to raise the required capital and execute on our
business plan, we anticipate being cash flow positive in the first half of
2012.
F-10
5.
Property and Equipment
Property
and equipment are recorded at cost. Replacements and major improvements are
capitalized while maintenance and repairs are charged to expense as incurred.
Depreciation is provided using primarily straight line methods over the
estimated useful lives of the related assets.
Property
and equipment at September 30, 2009 and December 31, 2008 and 2007 consisted of
the following:
September
30,
|
December
31,
|
December
31,
|
||||||||||
2009
|
2008
|
2007
|
||||||||||
unaudited
|
||||||||||||
Computer
related
|
$
|
87,655
|
$
|
58,630
|
$
|
36,492
|
||||||
Equipment
and machinery
|
36,255
|
29,623
|
10,753
|
|||||||||
Other
property and equipment
|
31,330
|
8,476
|
3,754
|
|||||||||
Subtotal
|
155,240
|
96,729
|
50,998
|
|||||||||
Accumulated
depreciation
|
(76,922
|
)
|
(36,889
|
)
|
(10,119
|
)
|
||||||
Net
property and equipment
|
$
|
78,318
|
$
|
59,840
|
$
|
40,879
|
6. Goodwill
Goodwill
represents the excess of acquisition cost over the net assets acquired in a
business combination and is not amortized in accordance with Goodwill and Other Intangible
Assets. (“ASC 360”) The
provisions of ASC 360 require that the Company allocate its goodwill to its
various reporting units, determine the carrying value of those businesses, and
estimate the fair value of the reporting units so that a two-step goodwill
impairment test can be performed. In the first step of the goodwill impairment
test, the fair value of each reporting unit is compared to its carrying value.
Management reviews, on an annual basis, the carrying value of goodwill in order
to determine whether impairment has occurred. Impairment is based on several
factors including the Company’s projection of future discounted operating cash
flows. If an impairment of the carrying value were to be indicated by this
review, the Company would perform the second step of the goodwill impairment
test in order to determine the amount of goodwill impairment, if
any.
On May
26, 2009, the membership interests of Pat Burke and Ann Burke, totaling 51% of
Cadence II were purchased by Cadence II pursuant to a Purchase Agreement by and
among Cadence II, Pat Burke and Ann Burke, as previously disclosed as Exhibit
10.2 to the Company’s Form 8-K dated September 1, 2009. The aggregate
purchase price was $3,609,244 which was comprised of $661,977 in cash,
$2,800,000 in a promissory note, $123,000 in property, and $24,267 estimated
value in future health insurance benefits for the two members. The note is being
repaid in 10 equal quarterly installments of $280,000 plus interest thereon,
beginning August 31, 2009 with a maturity date of November 30, 2011. The note
bears interest at the prime rate plus 4%. As of September 30, 2009,
Network Cadence has made one payment of $333,948, which includes $280,000 in
principal and $53,948 in interest. The outstanding principal balance
as of September 30, 2009 is $2,520,000.
The
following table summarizes the carrying values of the assets acquired at the
date of acquisition.
Total
purchase price
|
3,609,244 | |||
Less
basis of members’ equity acquired
|
(1,172,067 | ) | ||
Goodwill
|
$ | 2,437,177 |
This
transaction was accounted for in accordance with ASC 805, Business Combinations
("ASC 805"). The excess of the purchase price over 51% of the tangible net
assets (the two members’ equity accounts) was allocated to Goodwill.
Accordingly, the Company recorded $2,437,177 in Goodwill as a result of the
transaction.
Subsequent
to June 30, 2009, the goodwill balance of $2,437,177 was fully impaired due to
substantial doubt about the Company’s ability to continue as a going concern
as described in Note 4.
F-11
The
changes in the carrying amount of goodwill for the nine months ended September
30, 2009 are as follows:
Balance
as of December 31, 2008
|
$
|
-
|
||
Goodwill -
Purchase Agreement
|
2,437,177
|
|||
Goodwill
impairment
|
(2,437,177
|
)
|
||
Balance
as of September 30, 2009
|
$
|
-
|
7.
Commitments and Contingencies
Consulting
Agreements
The
Company has entered into a variety of consulting agreements for services to be
provided to the Company in the ordinary course of business. These agreements
call for various payments upon performance of services and are generally
short-term.
On
September 15, 2009, the Company signed a consulting agreement with Capital Group
Communications (“CGC”) of Sausalito, California, pursuant to which CGC agreed to
provide consulting services to the Company for a 14-month
period. Pursuant to the terms of the Consulting Agreement, the
Company agreed to compensate CGC with an issuance of 1,380,000 shares of
restricted common stock. The fair market value of these services is
estimated at $98,000 and, upon issuance of the shares, has been reflected in the
operating expenses for the nine months ended September 30, 2009 since the shares
issued are non-refundable if the agreement is terminated.
Operating
Leases
The
Company has a lease commitment for its office facility. This lease has a monthly
rental payment of approximately $11,400 at September 30, 2009 and expires in
April 2010.
8.
Related Parties
The
Company has not adopted formal policies and procedures for the review, approval
or ratification of Related Party Transactions with its executive officers,
directors and significant stockholders. However, all material Related
Party Transactions for the periods covered by this report have been disclosed
and such transactions have been approved by the board of
directors. Future transactions will, on a going-forward basis, be
subject to the review, approval or ratification of the board of directors, or an
appropriate committee thereof. Related Party Transactions are
described below:
In March
2009, the members of Cadence II purchased an interest in a timeshare condominium
for $123,000. On May 26, 2009, the entire interest in the condominium
was transferred to Pat and Ann Burke as part of the Purchase
Agreement.
On May
26, 2009, the membership interests of Pat Burke and Ann Burke totaling 51% of
Cadence II were purchased by Cadence II pursuant to a Purchase Agreement by and
among Cadence II, LLC, Pat Burke and Ann Burke dated as of May 26, 2009, as
previously disclosed on Item 10.2 on the Company’s Form 8-K, filed on September
1, 2009. The aggregate purchase price was $3,609,244 which was comprised of
$661,977 in cash, $2,800,000 in a promissory note, $123,000 in property, and
$24,267 estimated value in future health insurance benefits for the two members.
The note is being repaid in 10 equal quarterly installments of $280,000 plus
interest thereon, beginning August 31, 2009 with a maturity date of November 30,
2011. The note bears interest at the prime rate plus 4%. As of
September 30, 2009, Verecloud has made one payment of $333,948, which includes
$280,000 in principal and $53,948 in interest. The outstanding
principal balance as of September 30, 2009 is $2,520,000.
The
aggregate purchase price of $3,609,244 less the basis of Pat and Ann Burke’s
interest in Cadence II of $1,172,067 equaled $2,437,177 and was
booked as goodwill as of May 26, 2009. This goodwill balance was subsequently
impaired due to substantial doubt about the Company’s ability to continue as a
going concern. See Note 4.
9. Capital
Stock
The
Company’s Articles of Incorporation, as amended, authorize the issuance of
100,000,000 shares of common stock, $0.001 par value per share and 5,000,000
shares of preferred stock, $0.001 par value. As of September 30, 2009, there
were 47,380,000outstanding shares of common stock and no issued and outstanding
shares of preferred stock.
The
Company’s Articles of Incorporation, as amended, authorize the issuance of
preferred stock in one or more series at the discretion of the board of
directors. In establishing a series, the board of directors has the
right to give it a distinctive designation so as to distinguish such series of
preferred stock from other series and classes of capital stock. In
addition, the board of directors is obligated to fix the number of shares in
such a series, and the preference rights and restrictions
thereof. All shares of any one series shall be alike in every
particular except as provided by the Articles of Incorporation, as amended, or
the Nevada Revised Statutes.
On
January 25, 2010, the Board of Directors authorized a 4-for-1 forward stock
split of our $0.001 par value common stock. As a result of the
forward stock split, 35,535,000 additional shares were
issued. Capital and additional paid-in capital have been adjusted
accordingly. When adjusting retroactively, there was a $34,500
shortage of additional paid-in-capital; thus adjustments were made to opening
retained earnings ($31,740) and current period operating expense ($2,760 which
is considered acquisition costs of the Share Exchange. The financial
statements contained herein reflect the appropriate values for capital stock and
accumulated deficit. All references in the accompanying financial statements to
the number of common shares and per share amounts have been retroactively
adjusted to reflect the forward stock split.
Share Issuances – On September 15, 2009, the
Company signed a consulting agreement with CGC, pursuant to which CGC agreed to
provide consulting services to the Company for a 14-month
period. Pursuant to the terms of the consulting agreement, the
Company agreed to compensate CGC with an issuance of 1,380,000 shares of
restricted common stock. The fair market value of these services is estimated at
$98,000 and, upon issuance of the shares, has been reflected in the operating
expenses for the nine months ended September 30, 2009 since the shares issued
are non-refundable if the agreement is terminated.
F-12
10.
Securities Authorized for Issuance under Equity Compensation Plans
The
following table sets forth, as of February 2, 2010, certain information related
to our compensation plans under which shares of our common stock are authorized
for issuance.
Plan
Category
|
Number
of Securities to be Issued upon Exercise of Outstanding
Options
(a)
|
Average
Exercise Price of Outstanding Options
|
Number
of Securities Remaining Available For Future Issuance Under Equity
Compensation Plans (excluding securities reflected in column
(a))
|
|||||||||
Equity
compensation plans approved by security holders
|
--
|
--
|
--
|
|||||||||
Equity
compensation plans not approved by security holders
|
6,485,000
|
$
|
0.07
|
1,275,000
|
||||||||
Total
(1)
|
6,485,000
|
$
|
0.07
|
1,275,000
|
||||||||
(1)
The 240,000 restricted shares issued to the Company’s employees placed on
furlough due to the termination of the SkyTerra contract termination have not
been included in these calculations or total.
On
October 27, 2009, the board of directors of the Company adopted the Verecloud,
Inc. 2009 Equity Incentive Plan (the “Incentive Plan”). The Company expects to
submit the Incentive Plan for approval by its stockholders at the next annual
meeting of the Company’s stockholders. The Company’s board of director’s will
administer the Incentive Plan until the board of directors delegates the
administration to a committee of the board of directors.
The
purpose of the Incentive Plan is to benefit the Company’s stockholders by
furthering the growth and development of the Company by affording an opportunity
for stock ownership to attract, retain and provide incentives to employees and
directors of, and non-employee consultants to, the Company and its affiliates,
and to assist the Company in attracting and retaining new employees, directors
and consultants; to encourage growth of the Company through incentives that are
consistent with the Company’s goals; to provide incentives for individual
performance; and to promote teamwork.
Under the
Incentive Plan, the board of directors in its sole discretion may grant stock
options, stock appreciation rights, restricted stock, restricted stock units,
bonus stock, deferred stock or other equity-based awards (each an “Award”) to
the Company’s employees, directors and consultants (or those of the Company’s
affiliates). The Awards available under the Incentive Plan also
include performance-based Awards, which would have pre-established performance
goals that relate to the achievement of the Company’s business
objectives. The performance-based stock Awards available under the
plan are intended to comply with the requirements of Section 162(m) of the
Internal Revenue Code of 1986, as amended, to allow such Awards, when payable,
to be tax deductible by the Company.
The
Company has reserved a total of 8,000,000 shares of common stock for issuance
under the Incentive Plan. To the extent that an Award expires, ceases
to be exercisable, is forfeited or repurchased by the Company, any shares
subject to the Award may be used again for new grants under the Incentive
Plan. In addition, shares tendered or withheld to satisfy the grant
or exercise price or tax withholding obligation with respect to any Award (other
than with respect to options) may be used for grants under the Incentive
Plan. The maximum number of shares of Common Stock that may be
subject to one or more awards to a participant pursuant to the Incentive Plan
during any fiscal year of the Company is 4,000,000.
As of
February 2, 2010, 240,000 shares have been awarded as restricted stock to those
employees of the Company put on furlough as a result of the termination of the
SkyTerra contract. Each restricted stock award will vest evenly on
the first day of each third month over a two-year period commencing on November
1, 2009, provided that the employee has been re-instated to a full-time position
at the Company on or before July 1, 2010. A restricted stock
award becomes fully vested if the employee dies while actively employed or upon
a change in control of the Company followed by termination of the employee’s
employment within 12 months of such change in control.
As of
February 2, 2010, 6,485,000 options have been issued under the Incentive
Plan. In general, each option vests evenly on the last day of each
fiscal quarter, based on a three year period commencing upon the employee’s
original date-of-hire. As of February 2, 2010, 4,011,252 options have
vested.
11.
Income Taxes
As a
result of the Share Exchange on August 31, 2009, the Company became a “C”
corporation. Therefore, the income tax expense and liability for the nine months
ended September 30, 2009 only reflect the tax provision for the month ended
September 30, 2009.
F-13
Significant
management judgment is required in developing our provision for income taxes,
including the determination of deferred tax assets. Management evaluates its
ability to realize its deferred tax assets and adjusts its valuation allowance
when it believes that it is more likely than not that all or a portion of the
asset will not be realized.
Effective
August 31, 2009, Cadence II, LLC became a wholly-owned subsidiary of
Verecloud, Inc through the Share Exchange. Cadence, LLC was a pass-through
entity for U.S. federal income tax purposes prior to the Share Exchange and
U.S. federal, state, and local income taxes were not provided for this
entity as it was not a taxable entity. LLC members are required to report their
share of our taxable income on their respective income tax returns. As a result
of the Share Exchange, the Company will be subject to corporate U.S. federal,
state, and local taxes beginning in September 2009.
The
significant components of income tax expense were as follows:
Nine
months ended (unaudited)
|
For
the years ended
|
|||||||||||||||
September
30,
|
September
30,
|
December
31,
|
December
31,
|
|||||||||||||
2009
|
2008
|
2008
|
2007
|
|||||||||||||
Current
income tax expense (benefit)
|
||||||||||||||||
U.S.
Federal
|
$ | 743,243 | $ | - | $ | - | $ | - | ||||||||
State
and local
|
98,370 | - | - | - | ||||||||||||
Total
current expense (benefit)
|
841,613 | - | - | - | ||||||||||||
Change
in tax status
|
(743,175 | ) | - | - | - | |||||||||||
Total
income tax expense
|
$ | 98,438 | $ | - | $ | - | $ | - | ||||||||
Prior to
August 31, 2009 (date of Share Exchange), taxable income and losses were
reported on the member’s tax returns. Accordingly, for the years ended
December 31, 2008 and 2007 and through August 31, 2009, there were no deferred
tax assets, liabilities or valuation adjustments.
A
reconciliation of the statutory U.S. federal income tax rate to the Company’s
effective tax rate is shown in the following table:
Nine
months ended (unaudited)
|
For
the years ended
|
|||||||||||||||
September
30,
|
September
30,
|
December
31,
|
December
31,
|
|||||||||||||
2009
|
2008
|
2008
|
2007
|
|||||||||||||
Statutory
U.S. federal tax rate
|
34.0 | % | - | - | - | |||||||||||
Change
in tax rate resulting from
|
||||||||||||||||
LLC
results not subject to federal or state income taxes
|
(29.8 | %) | - | - | - | |||||||||||
Goodwill
|
(38.1 | %) | - | - | - | |||||||||||
State
and Local taxes
|
(4.5 | %) | ||||||||||||||
Other
|
(0.8 | %) | - | - | - | |||||||||||
Effective
Tax Rate
|
(39.2 | %) | - | - | - |
Deferred
tax assets and liabilities result from differences between assets and
liabilities for financial reporting purposes and those measured for income tax
purposes. The significant components of deferred assets and
liabilities are reflected in the following table:
Nine
months ended (unaudited)
|
For
the years ended
|
|||||||||||||||
September
30,
|
September
30,
|
December
31,
|
December
31,
|
|||||||||||||
2009
|
2008
|
2008
|
2007
|
|||||||||||||
Deferred tax assets
|
||||||||||||||||
Goodwill
|
$ | (938,313 | ) | $ | - | $ | - | $ | - | |||||||
Valuation
allowance
|
938,313 | - | - | - | ||||||||||||
Net
deferred tax assets
|
$ | - | $ | - | $ | - | $ | - | ||||||||
Deferred tax liabilities
|
||||||||||||||||
Change
in tax status
|
$ | 214,973 | $ | - | $ | - | $ | - | ||||||||
Net
deferred tax liabilities
|
$ | 214,973 | $ | - | $ | - | $ | - |
Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized, based upon criteria that include a recent
history of demonstrated profits Due to the going concern issues outlined
in Note 4, the Company considered it to be unlikely to recognize sufficient
operating income to realize the benefit of these deferred tax assets over time
until the Company has had a reasonable history of net income, As a result, a
full valuation allowance has been taken.
F-14
With the
conversion from an LLC to a corporation due to the Share Exchange, the Company
recorded income taxes payable, deferred taxes and adjustments to retained
earnings to reflect the transition from a cash basis taxpayer to an accrual
basis taxpayer. The impact and description of these adjustments are reflected in
the following table:
Income
Taxes
|
Deferred
Taxes
|
Retained
|
Income
Tax
|
|||||||||||||
Payable
|
Payable
|
Earnings
|
Expense
|
|||||||||||||
Tax
on Accounts Receivable at August 31, 2009
|
$ | 364,932 | $ | - | $ | (364,932 | ) | $ | - | |||||||
that
were collected as of September 30, 2009
|
||||||||||||||||
Tax
on Accounts Receivable at August 31, 2009
|
- | 214,973 | (214,973 | ) | - | |||||||||||
that
were not collected as of September 30, 2009
|
||||||||||||||||
Net
impact of transition from cash basis LLC to accrual basic
corporation
|
364,932 | 214,973 | (579,905 | ) | - | |||||||||||
Income
tax expense - Post merger through
|
98,438 | - | - | 98,438 | ||||||||||||
September
30, 2009
|
||||||||||||||||
Total
|
$ | 463,370 | $ | 214,973 | $ | (579,905 | ) | $ | 98,438 |
During
the nine months ended September 30, 2009 and 2008, the Company recorded a net
income tax expense of $98,438 and $0, respectively. For the nine months ended
September 30, 2009, the Company’s income tax expense related to income earned
after completion of the Share Exchange.
The
Company’s income taxes payable and net deferred tax liability as of September
30, 2009 were comprised primarily of the deferred taxes associated with the
Purchase Agreement (Note 6) and the Share Exchange (Note 1) and the related
transition from a cash basis LLC to a accrual basis corporation . The net effect
of the tax liability and deferred taxes upon completion of the Share Exchange
was reflected as a reduction in retained earnings of $579,905 since, on an
accrual basis, it relates to the period prior to completion of the Share
Exchange.
12.
Subsequent Events
On
November 2, 2009, the Company received a contract termination notice from its
largest customer, SkyTerra. As a result, it is expected to lose
approximately 95% of its revenue, effective November 2, 2009.
As of
February 2, 2010, 240,000 shares have been awarded as restricted stock to those
employees of the Company put on furlough as a result of the termination of the
SkyTerra contract. Each restricted stock award will vest evenly on
the first day of each third month over a two-year period commencing on November
1, 2009, provided that the employee has been re-instated to full-time positions
at the Company on or before July 1, 2010. A restricted stock award becomes fully
vested if the employee dies while actively employed or upon a change in control
of the Company followed by a termination of the employee’s employment within 12
months of such change in control.
As of
February 2, 2010, 6,485,000 options have been issued under the Incentive
Plan. In general, each option vests evenly on the last day of each
fiscal quarter, based on a three year period commencing upon the employee’s
original date-of-hire. As of February 2, 2010, 4,011,252 options have
vested.
The
promissory note issued in connection with the Purchase Agreement requires that
the Company maintain no less than $750,000 in cash or cash equivalents beginning
January 1, 2010 and until the promissory note is paid in
full. Failure to maintain this cash requirement can accelerate full
payment of the promissory note, resulting in the promissory note balance
becoming a current liability. Without additional funding, the Company
expects to fall below the required cash amount by March 1, 2010. If
the Company is unable to obtain the necessary funding to service the promissory
note, the holders of the note could potentially foreclose on the assets of the
Company as they currently hold a security interest.
On
December 31, 2009, 4,011,252 of the Company’s stock options under its Incentive
Plan vested to qualified employees.
Effective
January 25, 2010, the Company effected a four-for-one forward split of the
issued and outstanding shares of the Company’s common stock, par value $0.001,
pursuant to which one share of the Company’s issued and outstanding common stock
was converted into four shares of common stock.
On
January 25, 2010, the Company filed an amendment to its Articles of
Incorporation changing the name of the Company from Network Cadence, Inc. to
Verecloud, Inc.
F-15
PART II
Item
13. Other Expenses of Issuance and Distribution
The
estimated expenses of this offering in connection with the issuance and
distribution of the securities being registered, all of which are to be paid by
the Company, are as follows:
Registration
Fee
|
$
|
--
|
||
Legal
Fees and Expenses
|
$
|
--
|
||
Accounting
Fees and Expenses
|
$
|
--
|
||
Printing
|
--
|
|||
Miscellaneous
Expenses
|
--
|
|||
Total
|
$
|
--
|
Our
Articles of Incorporation, as amended, provide that, to the fullest extent that
limitations on the liability of directors and officers are permitted by the
Nevada Revised Statutes, no director or officer of the Company shall have any
liability to the Company or its stockholders for monetary damages. The Nevada
Revised Statutes provide that a corporation’s articles of incorporation may
include a provision which restricts or limits the liability of its directors or
officers to the corporation or its stockholders for money damages except: (1) to
the extent that it is provided that the person actually received an improper
benefit or profit in money, property or services, for the amount of the benefit
or profit in money, property or services actually received, or (2) to the extent
that a judgment or other final adjudication adverse to the person is entered in
a proceeding based on a finding in the proceeding that the person’s action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. The Company’s
Articles of Incorporation, as amended, and Bylaws provide that the Company shall
indemnify and advance expenses to its currently acting and its former directors
to the fullest extent permitted by the Nevada Revised Business Corporations Act
and that the Company shall indemnify and advance expenses to its officers to the
same extent as its directors and to such further extent as is consistent with
law.
The
Articles of Incorporation and Bylaws provide that we will indemnify our
directors and officers and may indemnify our employees or agents to the fullest
extent permitted by law against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with
Verecloud, Inc. However, nothing in our Articles of Incorporation or Bylaws
protects or indemnifies a director, officer, employee or agent against any
liability to which he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. To the extent that a director has been
successful in defense of any proceeding, the Nevada Revised Statutes provide
that he shall be indemnified against reasonable expenses incurred in connection
therewith.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the SEC such indemnification is against public policy and is,
therefore, unenforceable.
Item
15. Recent Sales of Unregistered Securities
Upon
incorporation in July 2007, we sold 3,600,000 shares to two individuals for
$25,000 in cash.
In
November and December 2007, we sold 80,000 shares of common stock for $20,000 in
cash to a group of 25 individuals.
On August
31, 2009, we issued 42,320,000 shares of common stock to John McCawley, our
President, Chief Executive Officer and director in connection with the Share
Exchange.
On
September 15, 2009, we issued 1,380,000 shares as compensation to our investor
relations firm, Capital Group Communications, Inc.
The
offers and sales of the securities described above were exempt from registration
under Section 4(2) of the Securities Act and pursuant to the rules of Regulation
D promulgated thereunder, insofar as: (a) each investor represented to us that
it was accredited within the meaning of Rule 501(a); (b) we restricted the
transfer of the securities in accordance with Rule 502(d); (c) there were no
more than 35 non-accredited investors in any transaction within the meaning of
Rule 506(b), after taking into consideration all prior investors under Section
4(2) of the Securities Act within the 12 months preceding the transaction; (d)
none of the offers and sales were effected through any general solicitation or
general advertising within the meaning of Rule 502(c); (e) each investor agreed
to hold the securities for its own account and not on behalf of others; and (f)
each investor represented to us that it acquired the securities for investment
purposes only and not with a view to sell them.
II-1
Item
16. Exhibits
Exhibit # | Description |
2.1
|
Share
Exchange Agreement by and among Sage Interactive, Inc., Cadence II, LLC
and John McCawley dated as of August 31, 2009 (filed as Exhibit 2.1 to the
Company’s Form 8-K on September 1, 2009, and incorporated by reference
herein)
|
3.1
|
Articles
of Incorporation (filed as Exhibit 3.1 to the Company’s Form
10SB on October 30, 2007, and incorporated by reference
herein)
|
3.2
|
Amended
Articles of Incorporation (filed as Exhibit 3.2 to the
Company’s Form 8-K on September 1, 2009, and incorporated by reference
herein)
|
3.3
|
Amended
Articles of Incorporation (filed as Exhibit 3.2 to the Company’s Form 8-K
on January 29, 2010, and incorporated by reference
herein)
|
3.4
|
Bylaws
(filed as Exhibit 3.2 to the Company’s Form 10-SB on October 30, 2007, and
incorporated by reference herein)
|
5.1
|
Opinion
of Brownstein Hyatt Farber Schreck, LLP (filed as
Exhibit 5.1 to the Company’s Registration Statement on Form S-1 on
December 11, 2009, and incorporated by reference
herein)
|
10.1
|
Verecloud,
Inc. 2009 Equity Incentive Plan, dated as of October 31, 2009 (filed as
Exhibit 10.1 to the Company’s Form 8-K on November 2, 2009, and
incorporated by reference herein)
|
10.2
|
Purchase
Agreement by and among Cadence II, LLC, Pat Burke and Ann Burke dated as
of May 26, 2009 (filed as Exhibit 10.2 to the Company’s Form 8-K on
September 1, 2009, and incorporated by reference
herein)
|
10.3
|
Promissory
Note dated as of May 26, 2009 (filed as Exhibit 10.3 to the Company’s Form
8-K on September 1, 2009, and incorporated by reference
herein)
|
10.4
|
Consulting
Agreement dated by and between Network Cadence, Inc. and Capital Group
Communications, Inc. dated as of September 15, 2009, attached
herewith
|
10.5
|
Verecloud,
Inc. Bonus Unit Plan, dated as of January 26, 2010 (filed as Exhibit 10.2
to the Company’s Form 8-K on January 29, 2010, and incorporated by
reference herein)
|
10.6
|
Retention
Bonus Agreement by and between the Company and Daniel Vacanti, dated as of
January 26, 2010 (filed as Exhibit 10.3 to the Company’s Form 8-K on
January 29, 2010, and incorporated by reference
herein)
|
10.7
|
Retention
Bonus Agreement by and between the Company and Lynn Schlemeyer, dated as
of January 26, 2010 (filed as Exhibit 10.4 to the Company’s Form 8-K on
January 29, 2010, and incorporated by reference
herein)
|
10.8
|
Retention
Bonus Agreement by and between the Company and Mark Faris, dated as of
January 26, 2010 (filed as Exhibit 10.5 to the Company’s Form 8-K on
January 29, 2010, and incorporated by reference
herein)
|
10.9
|
Retention
Bonus Agreement by and between the Company and Mike Cookson, dated as of
January 26, 2010 (filed as Exhibit 10.6 to the Company’s Form 8-K on
January 29, 2010, and incorporated by reference
herein)
|
10.10
|
Retention
Bonus Agreement by and between the Company and Bill Perkins, dated as of
January 26, 2010 (filed as Exhibit 10.7 to the Company’s Form 8-K on
January 29, 2010, and incorporated by reference
herein)
|
23.1
|
Consent
of Schumacher & Associates Inc (attached herewith)
|
23.2
|
Consent
of Brownstein Hyatt Farber Schreck, LLP (attached
herewith)
|
The
undersigned registrant hereby undertakes:
1. To
file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To
include any prospectus required by Section 10(a)(3) of the Securities Act of
1933;
(iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change to
such information in the Registration Statement;
2. That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
3. To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering;
4. That,
for the purpose of determining liability of the registrant under the Securities
Act of 1933 to any purchaser in the initial distribution of the securities, the
registrant undertakes that in a primary offering of securities of the
undersigned registrant pursuant to this registration statement, regardless of
the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the registrant will be a seller to the purchaser and
will be considered to offer or sell such securities to such
purchaser:
(i) Any
preliminary prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule 424;
(ii) Any
free writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant;
(iii) The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
(iv) Any
other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
II-2
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons pursuant to the
provisions above, or otherwise, we have been advised that in the opinion of the
SEC such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable.
In the
event that a claim for indemnification against such liabilities, other than the
payment by us of expenses incurred or paid by one of our directors, officers, or
controlling persons in the successful defense of any action, suit or proceeding,
is asserted by one of our directors, officers, or controlling persons in
connection with the securities being registered, we will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification is
against public policy as expressed in the Securities Act, and we will be
governed by the final adjudication of such issue.
Each
prospectus filed pursuant to Rule 424(b) of the Securities Act as part of a
registration statement relating to an offering, other than registration
statements relying on Rule 430B or other prospectuses filed in reliance on Rule
430A, shall be deemed to be part of and included in the registration statement
as of the date it is first used after effectiveness. Provided, however, that no
statement made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed incorporated
by reference into the registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of contract of sale
prior to such first use, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of first
use.
II-3
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Englewood, Colorado on
February 2, 2010.
Verecloud,
Inc.
|
||
By:
|
/s/
John McCawley
|
|
Principal
Executive Officer and Director
|
||
Pursuant
to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed by the following persons in the capacities indicated
on February 2, 2010.
Signature
|
Title
|
Date
|
||
/s/ John F.
McCawley
|
President,
Chief Executive Officer and Director
|
February
2, 2010
|
||
John
F. McCawley
|
||||
/s/ James R.
Buckley
|
Chief
Financial Officer and Principal Accounting Officer
|
February
2, 2010
|
||
James
R. Buckley
|
||||
/s/ Mark Faris
|
Director
|
February
2, 2010
|
||
Mark
Faris
|
II-4
Exhibit # | Description |
2.1
|
Share
Exchange Agreement by and among Sage Interactive, Inc., Cadence II, LLC
and John McCawley dated as of August 31, 2009 (filed as Exhibit 2.1 to the
Company’s Form 8-K on September 1, 2009, and incorporated by reference
herein)
|
3.1
|
Articles
of Incorporation (filed as Exhibit 3.1 to the Company’s Form
10SB on October 30, 2007, and incorporated by reference
herein)
|
3.2
|
Amended
Articles of Incorporation (filed as Exhibit 3.2 to the
Company’s Form 8-K on September 1, 2009, and incorporated by reference
herein)
|
3.3
|
Amended
Articles of Incorporation (filed as Exhibit 3.2 to the Company’s Form 8-K
on January 29, 2010, and incorporated by reference
herein)
|
3.4
|
Bylaws
(filed as Exhibit 3.2 to the Company’s Form 10-SB on October 30, 2007, and
incorporated by reference herein)
|
5.1
|
Opinion
of Brownstein Hyatt Farber Schreck, LLP (filed as
Exhibit 5.1 to the Company’s Registration Statement on Form S-1 on
December 11, 2009, and incorporated by reference
herein)
|
10.1
|
Verecloud,
Inc. 2009 Equity Incentive Plan, dated as of October 31, 2009 (filed as
Exhibit 10.1 to the Company’s Form 8-K on November 2, 2009, and
incorporated by reference herein)
|
10.2
|
Purchase
Agreement by and among Cadence II, LLC, Pat Burke and Ann Burke dated as
of May 26, 2009 (filed as Exhibit 10.2 to the Company’s Form 8-K on
September 1, 2009, and incorporated by reference
herein)
|
10.3
|
Promissory
Note dated as of May 26, 2009 (filed as Exhibit 10.3 to the Company’s Form
8-K on September 1, 2009, and incorporated by reference
herein)
|
10.4
|
Consulting
Agreement dated by and between Network Cadence, Inc. and Capital Group
Communications, Inc. dated as of September 15, 2009, attached
herewith
|
10.5
|
Verecloud,
Inc. Bonus Unit Plan, dated as of January 26, 2010 (filed as Exhibit 10.2
to the Company’s Form 8-K on January 29, 2010, and incorporated by
reference herein)
|
10.6
|
Retention
Bonus Agreement by and between the Company and Daniel Vacanti, dated as of
January 26, 2010 (filed as Exhibit 10.3 to the Company’s Form 8-K on
January 29, 2010, and incorporated by reference
herein)
|
10.7
|
Retention
Bonus Agreement by and between the Company and Lynn Schlemeyer, dated as
of January 26, 2010 (filed as Exhibit 10.4 to the Company’s Form 8-K on
January 29, 2010, and incorporated by reference
herein)
|
10.8
|
Retention
Bonus Agreement by and between the Company and Mark Faris, dated as of
January 26, 2010 (filed as Exhibit 10.5 to the Company’s Form 8-K on
January 29, 2010, and incorporated by reference
herein)
|
10.9
|
Retention
Bonus Agreement by and between the Company and Mike Cookson, dated as of
January 26, 2010 (filed as Exhibit 10.6 to the Company’s Form 8-K on
January 29, 2010, and incorporated by reference
herein)
|
10.10
|
Retention
Bonus Agreement by and between the Company and Bill Perkins, dated as of
January 26, 2010 (filed as Exhibit 10.7 to the Company’s Form 8-K on
January 29, 2010, and incorporated by reference
herein)
|
23.1
|
Consent
of Schumacher & Associates Inc (attached herewith)
|
23.2
|
Consent
of Brownstein Hyatt Farber Schreck, LLP (attached
herewith)
|
II-5