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EX-32.0 - HEREUARE INC | v182660_ex32-0.htm |
EX-31.1 - HEREUARE INC | v182660_ex31-1.htm |
EX-31.1B - HEREUARE INC | v182660_ex31-1b.htm |
EX-32.0B - HEREUARE INC | v182660_ex32-0b.htm |
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-K/A
Second
Amendment to
(MARK ONE)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,
2009
OR
o TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
___________ TO _____________
Commission
file number 000-33033
hereUare,
Inc.
(Name of registrant in its
charter)
Delaware
|
02-0575232
|
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S.
Employer Identification Number)
|
228 Hamilton Ave.,
3rd floor
Palo Alto, CA
94301
(Address of Principal Executive Offices
including Zip Code)
(650)
798-5288
(Registrant's Telephone Number,
Including Area Code)
Securities registered pursuant to
Section 12(b) of the Act: None
Securities registered pursuant to
Section 12(g) of the Act:
Common
Stock, $0.0001 par value
(Title of
Class)
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. o Yes x No
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. o Yes x No
Indicate by check mark whether the
registration (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. x Yes o No
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. 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 Exchange Act.
Large accelerated filer o Accelerated
filer o
Non-accelerated filer o (Do not check if a smaller reporting
company) Smaller reporting
company x
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the
Act). o Yes x No
Aggregate
market value of common stock held by non-affiliates at March 31,
2010: $34,376,386 (see Note A)
Number of shares of common stock
outstanding at March 31, 2010: 34,678,813
DOCUMENTS INCORPORATED BY
REFERENCE: None
Note A:
Based upon the $2.00 price in the most recent transaction involving the sale of
the Company's common stock as there is no active trading
market.
Total Number of Pages: 40
Exhibit Index is on Page 40
Explanatory
Note: On April 19, 2009, the Company filed its First Amendment
(the "First Amendment") to Form 10-K for the reasons stated in its
introductory explanatory note. However, the First Amendment, as well
as the Form 10-K filed on April 15, 2010, inadvertently included financial
statements that were filed before the final review desired by the Company’s
independent auditors. As a result, this Second Amendment is being filed to
effect the following changes to the First Amendment:
1. To correct the footing errors in the
financial statements contained in Item 7.
2. To
indicate in various places in the financial statements, and footnotes 6 and 8 to
the financial statements contained in Item 7 that various portions of the
financial statements have been restated.
3. To add footnote 15 to the financial
statements in Item 7 explaining the restatement.
4. To
delete a stray heading in Item 6 and change certain data regarding the
number of director options held in Item 10.
5. To add Exhibits
31.1 and 32.1 in Item 14, the Exhibit Index, and as exhibits, which were
inadvertently omitted from the First Amendment, which apply to the Form 10-K
filed on April 15, 2010.
6. To add
Exhibits 31.1B and 32.1B in Item 14, the Exhibit Index, and as exhibits which
apply to this Second Amendment.
This
Second Amendment includes the entire Form 10-K even though only the
above-described items are being changed.
HEREUARE, INC.
2009 ANNUAL REPORT ON FORM
10-K
INDEX
Part
I.
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Page
|
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Item
1.
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Business.
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1
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Item 1A
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Risk
Factors.
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8
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Item 1B
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Unresolved
Staff Comments.
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15
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Item 2.
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Description
of Property.
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15
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Item 3.
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Legal
Proceedings.
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15
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Part
II.
|
|
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Item 4.
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Market
for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities.
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15
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Item 5.
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Selected
Financial Data.
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16
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Item 6.
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Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
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16
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Item 6A
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Quantitative
and Qualitative Disclosures About Market Risk.
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19
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Item 7.
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Financial
Statements and Supplementary Data.
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19
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Item 8.
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Changes
In and Disagreements with Accountants on Accounting and Financial
Disclosure.
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33
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Item 8A(T).
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Controls
and Procedures.
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33
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Item 8B.
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Other
Information.
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34
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Part
III.
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|
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Item 9.
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Directors,
Executive Officers and Corporate Governance.
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34
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Item 10.
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Executive
Compensation.
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36
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Item 11.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
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36
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Item 12.
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Certain
Relationships and Related Transactions, and Director Independence.
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38
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Item 13.
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Principal
Accountant Fees and Services.
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38
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Part
IV
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||
Item 14.
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Exhibits
and Financial Statement Schedules.
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38
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Signatures
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39
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Exhibits
Index
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40
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Certifications
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|
|
PART I
Our disclosure and analysis in this
report contains forward-looking statements. When used in this discussion, the
words "believes," "anticipates" and "intends" and similar expressions are
intended to identify forward-looking statements, but the absence of these words
does not necessarily mean that a statement is not forward looking.
Forward-looking statements include, but are not limited to, statements about our
product development, product release, marketing, fundraising and expansion
plans, and our objectives, expectations, intentions, and target markets,
and are subject to risks and uncertainties that could cause actual results to
differ materially from those anticipated in these forward-looking statements for
many reasons, including the factors described under "Description of
Business—Risk Factors Affecting Future Performance" and elsewhere in this
report. We undertake no obligation to publicly release any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of anticipated events.
Readers are urged, however, to review the factors and risks we describe in
reports we file from time to time with the Securities and Exchange Commission,
which may be accessed at the Commission's website at www.sec.gov .
Item 1. Business.
General
hereUare, Inc. ("hereUare", "HUA", or
"the Company"), formerly known as PeopleNet International Corporation, is a
Delaware corporation headquartered in Santa Clara, California. hereUare was
incorporated on February 5, 1997 under the original name of American Champion
Media, Inc. hereUare was formed by, and had been a wholly owned subsidiary of
Pacific Systems Control Technology, Inc., formerly known as American Champion
Entertainment, Inc., a Delaware corporation. The board of directors of Pacific
Systems determined that it was in the stockholders' best interest to separate
the two companies and allow them to operate independently. Through a spin-off
transaction on February 8, 2002, hereUare became an independent entity and
Pacific Systems distributed its shares of hereUare to the stockholders of
Pacific Systems as of the record date of January 16, 2002. The securities of
hereUare are not currently traded on any market.
On September 22, 2006, the Company
acquired hereUare Communications, Inc., a Delaware corporation, by reverse
merger. Details of the acquisition are available on the Company's Current Report
on Form 8-K dated September 22, 2006, as filed with the SEC on September 28,
2006, as amended by Form 8-K/A filed on December 8, 2006. On March 26, 2007, the
Company changed its name from PeopleNet International Corporation to hereUare,
Inc.
Discontinued
Business
In 2001 and 2002, we licensed and then
purchased safe web browser software for children. We evaluated this asset at
December 31, 2003 and determined that this asset had been impaired and was of no
value, based upon the fair market value of similar assets. We recorded an
impairment expense equal to the remaining book value of this
asset.
In 2002 we purchased all rights relating
to the intellectual property of a business communication software package. We
evaluated this asset at December 31, 2003 and determined that this asset has
been impaired and was of no value, based upon the fair market value of similar
assets. We recorded an impairment expense equal to the remaining book value of
this asset.
Business Overview
hereUare, Inc. ("hereUare," "HUA," or
"the Company") is a diversified technology company developing Internet software
and telecom solutions. The Company's key products deliver a simple, yet powerful
platform, which can be uniquely tailored to different Internet needs or telecom
styles. The Company's products provide a unique online platform for users,
from individuals, through small & medium businesses to larger corporate
enterprises, with a personalized, all-in-one web-based solution that aggregates
any user's needs, from any location, with the use of any Internet device. The
innovative hereUare platform and accompanying solutions are a result
of eight years of comprehensive research and development packaged into a
portfolio of products, some of which utilize pioneering and involved patent
pending technologies that may drastically enhance a user's Internet experience.
1
Different from many Internet companies,
hereUare approaches the online market and wireless communications with a
holistic view that focuses on daily usage patterns. hereUare's integrated
product suite consists of five primary applications as described below, and
serves five primary Internet revenue segments: a) Consumers, b) Retailers, c)
Advertisers, d) Small & Medium Businesses ("SMBs"), and e) Larger
Enterprises.
hereUare
applications:
●
|
hereUareEngine, Search - a
powerful and intelligent search tool that efficiently delivers applicable
information from the Internet in a simple and precise presentation through
its unique hereUare patent pending "relevancy search bar".
hereUareEngine is capable of searching over 10 billion indexed pages,
providing powerful information and is designed for all types of users from
novice to expert. hereUare had indexed 10 billion pages but
discovered that a majority of the indexed pages were duplicates or
contained SPAM . hereUare has developed a methodology to filter pages as
they are indexed in order to help avoid (but not entirely eliminate)
duplicate pages and SPAM. hereUare is the process of indexing
pages using this filter and thus has not yet achieved its goal of a 10
billion page index but plans to do so during 2010, although no assurance
of success can be given.
|
●
|
hereUareClassifies, Classified
Advertising - our centralized online marketplace for
merchandise, jobs, real estate, automotive, etc. in local communities
around the world for the buying and selling of
items.
|
●
|
hereUareMessage, e-Messaging &
Groupware - a hereUare web-based office tool that allows for
group collaboration through emails, group emails, and shared calendars and
tasks, using a concentrated common interfaced network and
database.
|
Additionally, hereUare has developed and plans to launch “hereUareVoice, VoIP”, a peer-to-peer
Internet voice connection which would use advanced patent-pending hereUare
engineered "click-to-call" and "follow-me-everywhere" custom calling
features. This application’s cost-structure, primarily inter-connects
with telephone and cell phone providers, has made it financially infeasible for
hereUare at this time, but the Company plans to launch this application in the
future if it can raise the requiste funding.
Every hereUare application is interconnected through the interchangeable
functionalities of each application. For example, a user can click a phone
number from a website generated from our hereUareEngine search to order a pizza
through our hereUareVoice
VoIP, when released, or conversely click a phone number from a
user’s hereUareMessage contact
list to place a call. Both functions are enabled without the
requirement of a user to insert user data or information. This level
of seamlessness is designed to increase user efficiency while enhancing the
overall ease-of-use. hereUare believes there is a direct correlation
between product integration and the success of a business that relies on the
Internet as its point of sale.
Our Mission
hereUare is committed to transforming
communication between people, markets and communities who use them. hereUare is
dedicated to designing user-friendly applications and collaborative interactive
technology that includes our unique search, messaging and voice applications to
facilitate mobility for online user convergence across the
globe.
The hereUare team understands the broad
global and local connectivity that is required to conduct business competitively
and effectively; as such we pride ourselves on providing one seamless,
easy-to-use platform that limitlessly expands the communication reach of
enterprises, businesses and individuals in the 21st century.
Through the intuitive integration of
various technology channels, hereUare’s goal is to place an all-in-one
communication solution at the fingertips of its users. It is our mission to
build useful online applications that collaborate with any device, anywhere,
that meet and exceed the far-reaching expectations of our diverse
users.
2
hereUare Applications and
Solutions
As a daily Web destination, hereUare
intends to offer a Product Suite of four key revenue producing
applications. Providing a valuable sense of the style that is illustrated
in the design of our applications, our desire is to present a warm and welcoming
presence for any community on the Internet today. It is our intention to
continue developing unique applications that provide daily relevance to any
user, anytime whether it applies to our search, VoIP, or messaging technology.
The direction of the Company over the past several years is to place a premium
on quick, easy and efficient online tools that enhance the online experience for
any user.
hereUare Engine
Search
The hereUareEngine search solution stems
from two primary design philosophies: 1) a "green" search engine that is
environmental responsible and 2) a search style that's easily navigated
regardless of the user's experience level. This solution offers
comprehensive and relevant search results which will eventually access over 10
billion indexed pages. The required software that powers hereUareEngine
search uses less hardware than typically used by our competitors to search
indexed pages; hence, the "green" search solution which uses less energy. This
equates to a lower capital requirement and operating cost; one of the product's
key competitive advantages. In addition to the "green" search engine, hereUare
offers a search style that categorizes the keyword search to allow further
refinement without requiring the user to use a sophisticated Boolean search
approach.
hereUareEngine Search
features:
●
|
Dynamically
generated graphical indicators of relevant content - hereUare provides a
unique way to indicate the level of relevancy of a search result. This
allows the user to easily identify the most relevant search data results
rather than reading a long list of content that is potentially not of
interest or relevant to the user.
|
●
|
Large
search library – will consist of over 10 billion indexed pages once
hereUare completes the indexing process. hereUare had believed
it already had indexed over 10 billion pages but discovered that a
majority of the pages were duplications or contained spam and as a result,
hereUare has less than one billion indexed pages currently. Our
hereUare Engine search product requires us to increase the number of
indexed pages to over 10 billion in order to be effective. As a
result, we have developed and implemented some new technologies in order
to eliminate the page duplications and spam that existed in our prior
number of indexed pages and we are crawling or spidering the web in order
to increase the number of indexed pages. We are not planning to
offer our hereUare search engine product until after we have indexed close
to 10 billion pages for our hereUare Engine software to search. When
complete, this will be an entry barrier to any new search engine. It
is time-consuming and expensive to build a library of billions of indexed
pages for a competitive result and there can be no assurance of when hUa
will have a complete library.
|
●
|
More
efficient scaling algorithm - requiring significantly less servers
compared to the competition in the market when indexing the same number of
pages. This is achieved through advanced proprietary software and
indexing algorithms.
|
●
|
High
relevancy - supports sophisticated search queries allowing nested Boolean
format for experts, and also supports simple step-by-step searches,
leading novices through categories to the most relevant information they
seek.
|
●
|
Search
query – hereUare Engine query results include all common formats such as
PDF, Microsoft Word, Power Point, Excel and Postscript
documents.
|
hereUareEngine search engine is
supported by an advertisement server which is designed to provide the Company
with a powerful revenue-generating source. With hereUareEngine acting as the
backbone of the hereUare product suite, particularly hereUareClassifies, the
Company is poised to offer effective methods for advertisers to narrowly target
their online marketing campaigns across hereUare's product suite and
applications.
3
hereUareVoice VoIP
The hereUareVoice Voice over Internet
Protocol (VoIP) telephony solution will offer a peer-to-peer (P2P) connection,
delivering high quality audio while requiring minimal bandwidth. The
service will work over almost any Internet connection, even at dial-up access
speeds. The hereUareVoice VoIP service will be managed through our
hereUare engineered 'Softphone' a multi-media user interface that works in
association with our VoIP technology. It serves as a dialing pad for
initiating calls directly from a PC to any receiving device over the Internet.
The Softphone applet is downloaded from the hereUare website as a stand-alone
onscreen phone.
For versatility, the Softphone supports
an external phone or headset connected to a computer for dialing and receiving
calls. The Softphone is designed to be a multi-media communication portal,
which when expanded incorporates and connects to hereUareEngine and
hereUareMessage.
hereUare does not intend to charge
customers monthly fees or connection charges for hereUareVoice VoIP, or to
require a user contract for VoIP service. Calls made between two
hereUareVoice connections will be free from anywhere in the world. For calls
made outside of the hereUare community, hereUare will offer one of the most
competitive international rates on the market. However, the cost of
these inter-connects is prohibitive for the Company at this time and will remain
until the Company has substantial cash on hand. Yet, the Company
believes that being able to offer such interconnects is essential to the success
of hereUareVoice. Therefore, the Company does not currently plan to
be offering this product except on a limited basis until after the Company has
raised approximately one million dollars in financing beyond
that required to pay off its current debts.
Planned hereUareVoice VoIP
Features:
●
|
Peer-to-peer
connection - resulting in low voice
delay.
|
●
|
Direct
Inward Dialing (DID) - offering maximum privacy by allowing users from
outside the hereUare network to reach a hereUare VoIP user without the
need to give out any personal
number.
|
●
|
Follow-me-everywhere
call forwarding capability - allowing users to direct calls to their land
or mobile number, even when the computer is not
online.
|
●
|
Click-to-Call
- a patent-pending hereUare engineered technology that is capable of
detecting a phone number in a web browser and allowing the hereUareVoice
or VoIP user to initiate a call by simply clicking on the
number.
|
The company holds an International FCC
214 license and is telecom compliant for all tariff requirements in the United
States.
Click-to-Call and Pay-per-Call Market
Opportunity
Although the Click-to-Call (CTC) will be
a feature built into our hereUareVoice solution, the application will be
powerful enough to stand on its own as a unique online downloadable browser
tool. hereUare's CTC will take consumers directly to advertisers and
retailers in one step by clicking on the displayed phone number resulting from a
search or an advertisement. The hereUare patent-pending CTC technology
will immediately connect users to their selected destination from any web page.
This feature will take targeted marketing campaigns to the next level by
providing a convenient way for impulse buyers and advertisers to achieve
immediate satisfaction.
The CTC feature will allow hereUare to
be innovative with its business proposal to advertisers by allowing a
"pay-per-call" model. According to this model, the advertisers will pay
only when a customer initiates a call. The billing will be reversed so
that the caller does not pay, rather the advertiser subsidizes the cost of the
call. Businesses will greatly benefit from this model as it minimizes the
investment risk for their advertisement dollars and provides a powerful way to
capture their audience. Consumers will benefit from this convenience,
while at the same time their privacy is protected, because their home numbers
and personal information are shielded. Businesses are able to self-manage
the tools such that they do their own "auditing" of the efficacy of the
pay-per-call advertising; thus, they improve the return on investment of their
online marketing campaigns. The hereUare CTC model will eliminate the click
fraud experienced by many advertisers. By including "pay-per-call" in its
service offerings, hereUare expects to be able to increase VoIP and advertising
revenue, plus increase market share through push and pull marketing.
4
Studies by the Kelsey Group indicate
that the response rate for telephone-based ads is 8%, compared with 3% for
Pay-per-Click ads. hereUare's CTC feature has the potential, if properly
positioned and successful, to capture a significant share of this new emerging
market.
hereUareClassifies Classified
Advertising
hereUareClassifies allows consumers and
businesses to buy, sell, advertise, and connect to the discussion forums based
on topics like business, relationships, entertainment, and shopping.
hereUareClassifies provides advertisers with simple uploading for their listings
through the use of pictures and step-by-step descriptions that allow users to
instantly start utilizing the services.
hereUareClassifies
features:
●
|
Multiple
options - from a simple basic service plan to a premium
package
|
●
|
Self-managed
listings - with simple step-by-step walkthrough and visual ad
displays
|
●
|
Priority
Ranking - options which keep an ad on the top of the category in which it
is posted to improve response and generate more advertising
exposure
|
●
|
Differentiating
capability - allow listings with a variety of font options for ad
text
|
●
|
Sponsored
Links - in any category, help businesses stand
out
|
While the main portion of the
hereUareClassifies product has been developed, further testing is required and
launch is currently planned during the second quarter of 2010 provided the
required testing is successful and the Company raises adequare financing.
hereUareMessage e-Messaging &
Groupware
hereUareMessage offers a powerful and
simple solution for messaging with collaborative applications for the SMB market
and email hosting business. The application is a web-based design which
provides SMBs with a collaborative tool to support multiple office locations in
a shared-management environment. The web-based messaging solution reduces
IT overhead for businesses.
hereUareMessage provides a user-friendly
graphical web-based interface with instant access to information. Email
messages, contacts, appointments and tasks are clearly arranged and easy to
manage from almost any location, anywhere. Users are provided with a choice to
assign tasks, appointments and information as private and/or public for others
to view.
In addition to providing publicly
accessible basic features free of charge that we believe are comparable to the
largest email systems available from market leaders such as Yahoo and Google,
our hereUareMessage system will also provide paid solutions for more demanding
users and SMBs such as private domain names, file sharing, and calendar sharing.
The Company believes that
hereUareMessage is ready for release and once the Company raises approximately
five hundred thousand dollars, the Company intends to recruit and retain a sales
team and release hereUareMessage.
The Market for hereUare
Applications
Based on the Internet advertising model,
Internet Search is the most recognized revenue generating application.
Search revenue is primarily fueled by targeted ads and revenue from "pay for
Click". The online classified market continues to grow as users rapidly
migrate to the Internet as their source for news, research, and commerce. As the
number of consumers that visit the Internet increases, advertisers have followed
suit, thus shifting a greater proportion of their ad dollars to the Internet
from the older forms of media. It is estimated that newspaper classified
revenues have fallen by as much as 40% recently in certain
categories.
5
Messaging, also referred to as Groupware
or collaborative software, has been widely accepted by Internet users and is now
expanding to serve SMBs. As virtual offices are established in dispersed
locations to address a global work environment, the acceptance of a centralized
web-based office tool is expected to create a new category of users for an old
application: email. SMBs, too small to create and maintain their own
communication networks, will give new life to an application that the individual
user now expects for free.
VoIP technology has advanced drastically
in recent years as voice quality and call stability has improved. This trend
will lead to greater market opportunities as individual consumers and businesses
accept the technology as a low cost option to traditional telecom
solutions. This application is in the initial stages of growth and
is expected to continue to expand in worldwide acceptance as VoIP technology is
more readily understood and accepted
hereUare Marketing
Plan
Our initial marketing strategy is to
market hereUare message to the SMB market. This approach focuses on
both on direct sales and channel development with value-added resellers (VARs)
and distributors who will offer our hereUareMessage messaging product line to
SMBs and enterprises. If we are able to gain traction with this
product, and if we are able to complete the hereUareClassifies product and index
10 billion pages for the hereUareSearch product, the Company intends to release
these two products along with hereUareVoice, and thereby market a suite of
interrelated products.
For this suite, our planned marketing
strategy approaches the market from three different perspectives, with the
primary goal of driving adoption of hereUare's applications. Our first approach
would focus on building brand awareness primarily through online advertising and
eyeball acquisition of carefully placed and strategically located ads and links
that draw attention to the hereUare Search page that will be the Company's
landing page. The hereUare marketing team has identified multiple sites as
co-branding partners which will host hereUare search and links. As a central
destination web page, the hereUare landing page is designed to lead users into
the company's other applications.
The second prong for marketing once our
product suite is available would be an active public relations campaign where
the Company and its applications are promoted through a viral marketing approach
that attracts interested users through word of mouth. Active viral marketing or
viral advertising refers to marketing techniques that use pre-existing social
networks to produce or increase in brand awareness, through a self-replicating
or viral process using social connections and word-of-mouth or online Internet
dialogue to enhance the power of online networking. Viral marketing is a unique
online phenomenon that facilitates and encourages people to pass along fresh
ideas, concepts and products, and therefore market a message voluntarily. Viral
promotions may take the form of video clips, interactive games, images, or
emails and have proven very effective in recent years, as proven by the success
of YouTube, MySpace and Facebook. Some data suggest that a satisfied customer
tells an average of three people about a product or service he/she likes, and
eleven people about a product or service which he/she did not like. Viral
marketing is based on this natural human behavior, and has been very useful to
the online community in promoting ideas, concepts and products.
Our third approach for marketing once
the product suite is available would center around the establishment of
relationships with large communities for positioning hereUare as the default
user gateway or portal to the Internet. As described below, hereUare had
identified large communities of Internet users among unique demographic groups
in the USA and in Asia.
hereUare plans to jumpstart the viral
marketing effect with identified vertical market segments and partners. We are
attempting to establish relationships with community groups in the U.S., Vietnam
and China. These relationships, if established, can give us access to user
gateways of a large number of users that play an essential role in the success
of our commercial launch for our hereUareEngine, hereUareVoice, and
hereUareMessage applications. Our goal is to establish these relationships
on the basis of hereUare being the default user gateway. We would direct
our marketing programs toward a vertical focus through promotion with
sponsorships, radio stations, bulletin board groups, and community events. These
relationships could drive traffic through hereUare products, and the strategy is
designed to attract eyeballs to the hereUare website; this could enable a
network effect that stems from self-proliferating community
behavior.
6
We plan to employ both online and
offline components in our sales-focused campaign. Online initiatives will
include keyword advertisements, targeted banner advertisements, email lists, and
contextual text links. Offline campaigns will focus on direct marketing
strategies that will include mailings and inserts in relevant
publications. Our direct sales team will establish channels with
value-added resellers (VARs) and distributors to expand and actively reach the
enterprise market with our messaging (and eventually VoIP)
solutions.
International
Strategy
Currently, the Company is not marketing
its products outside the United States. However, uniquely positioned,
hereUare's executive team has established strong working relationships with the
relevant branches of the governments of Vietnam and China. These
relationships are critical to entering the Asia market, where economies are
projected to continue double digit growth well into the next decade. These
relationships potentially are a key competitive advantage for hereUare over
competitors who face high barriers of entry in these
markets.
Vietnam and China have historically had
poor telecom infrastructure. The development and establishment of VoIP as a
communication alternative will meet the immediate needs of many users that
cannot afford traditional telecom infrastructure. The VoIP solution
provides voice connectivity without the extra cost of data infrastructure, while
it provides greater access to telecom products without a high termination
fee. With a communication infrastructure that is still under developed in
these countries, VoIP is an easy, cost-efficient solution. In these countries,
government approval is vital and necessary for rolling out and distributing our
VoIP product solution. The hereUareMessage e-messaging application is another
cost-effective solution to the communication problems that continue to exist in
these countries. The hereUare messaging system includes an email hosting
solution that scales from small business to governmental level usage. This
allows the government the flexibility to support and control the development of
communication tools in regions that lack investment capital.
hereUare presently has an office in
Vietnam where it undertakes a substantial portion of its engineering and
operations activities. In doing so in a location with lower labor and
overhead costs, hereUare has been able to reduce the costs of such
activities.
Branding Strategy
The Internet is a consumer market in
which brand recognition is essential to any viral marketing campaign for the
attraction and retention of traffic. Therefore, hereUare has carefully
studied and selected its brand and domain name. Extensive focus group studies
indicate that the hereUare name suggests and promotes a central Internet
destination that serves all the needs of the user. As a brand, the
hereUare message delivers the company's mission as a one-stop destination, where
any device can be used, anywhere, any time. "hereUare" is easily pronounced and
understood by non-English speaking users, which enhances its acceptance as a
global brand. Generally speaking, the Internet domain name has become a valuable
commodity. As a result, it has become a serious challenge to find a name that
will resonate with consumers, while serving as a company's mission. hereUare has
overcome this challenge successfully, with its easily understood brand and
domain name used in
conjunction with descriptive
product names. The
Company has successfully registered its brand and domain name as a trademark
with the United States Patent and Trademark Office. The Company also
has applied to register its brand and domain name as a trademark in
other jurisdictions.
Online the company plans to promote its
brand through the use of sponsored links and vertical event sponsorships.
As described in the hereUare Marketing Plan section above, sponsorship of events
in large tight-knit communities, such as the Christian Life Center, mirrors the
viral marketing effect and creates brand awareness. In partnership or in a
syndicated situation, the hereUare logo is to be used followed by the “powered
by hereUare” tagline.
Intellectual
Property
We rely on a combination of patent,
trademark, copyright, and trade secret laws in the U.S. and other jurisdictions
as well as confidentiality procedures and contractual provisions to protect our
proprietary technology and our brand. We also enter into confidentiality and
invention assignment agreements with our employees and consultants and
confidentiality agreements with other third parties, and we rigorously control
access to our proprietary technology. We license our search technology on
a non-exclusive royalty-bearing basis; our license expires, unless renewed by
agreement with the licensor, in October 2016. Trademarks which we own or license
include "hereUare".
7
The Company has been granted two US
patents:
●
|
Granted
February 2006 - method and system for simulating multiple independent
client devices in a wired or wireless network;
|
●
|
Granted
February 2007 - system for distributed network authentication and access
control.
|
The Company has not included the use of
the technology covered by these two patents in its current
plans.
We have U.S. patents pending covering
aspects of our hereUareEngine and hereUareVoice applications, which we cannot be
sure will be granted or if they are granted will be valid and enforceable and of
a scope to cover aspects of commercial importance. We cannot predict whether the
failure to obtain these patents or the invalidation of any patents we obtain
would result in the introduction of competitive products which would adversely
affect our future revenues. We presently intend to pursue any infringement of
patents which issue from these applications either by litigation, arbitration,
or negotiation. However, there can be no assurance that any of our patents will
be sufficiently broad in scope to afford protection from products with
comparable characteristics that may be sold by competitors in the future. There
also can be no assurance that the validity of any patents actually granted will
not be challenged.
Government
Regulation
Once we begin to offer our services, we
will be subject to a number of foreign and domestic laws and regulations that
affect companies conducting business on the Internet. In addition, laws
and regulations relating to user privacy, freedom of expression, content
(including gambling and underage sexual material), advertising, information
security and intellectual property rights are being debated and considered for
adoption by many countries throughout the world. In the U.S., laws
relating to the liability of providers of online services for activities of
their users and other third parties are currently being tested by a number of
claims, which include actions for defamation, libel, invasion of privacy and
other data protection claims, tort, unlawful activity, copyright or trademark
infringement and other theories based on the nature and content of the materials
searched, the ads posted or the content generated by users. Certain foreign
jurisdictions are also testing the liability of providers of online services for
activities of their users and other third parties. Any court ruling that imposes
liability on providers of online services for activities of their users and
other third parties could adversely impact our business prospects. In addition,
because our services may become accessible worldwide, certain foreign
jurisdictions may claim that we are required to comply with their laws, even
where we have no local entity, employees or infrastructure.
Employees
As of December 31, 2009, we have five full-time employees. In order to conserve cash, thirteen
employees in Vietnam have been put on leave without pay. Assuming the
Company can raise the necessary financing, the Company plans to re-hire them
although no assurance can be given.
Item
1A. Risk Factors
A revised
description of the risk factors associated with our business is set forth below.
This description supersedes the description of the risk factors associated with
our business previously disclosed in our Form 10-Q for the quarter ended
September 30, 2009. Because of these risk factors, as well as other factors
affecting the Company’s business and operating results and financial condition,
including those set forth elsewhere in this report, our actual future results
could differ materially from the results contemplated by the forward-looking
statements contained in this report and our past financial performance should
not be considered to be a reliable indicator of future performance, so that
investors should not use historical trends to anticipate results or trends in
future periods.
We lack revenue history and currently do
not have a proven business model to generate revenue. Absent
revenue, our business will fail.
In the past years, we have concentrated on developing our products and have
not generated significant revenues. We have only recently begun testing
our products and services on a limited basis and have generated minimal
revenues. During fiscal 2009, we only recognized approximately $5.6
thousand of revenue, of which approximately $3 thousand was from a company
controlled by our CEO. There can be no assurance that as we roll-out our
products, we will be able to generate material revenues from them. Many of
our services, such as search and VoIP, have been historically offered
free of charge to users, with companies depending upon advertising to generate
revenues. There can be no assurance that we will be able to persuade
advertisers that it is cost effective for them to pay us for advertising their
products and services. Even if we are successful initially in generating
advertising revenue, there can be no assurance that we will be successful
long-term. hereUareMessage has not generated any revenue to date and
is the product from which we plan to receive most of our revenue in the
near-term. Because we have no experience in selling hereUareMessage,
there can be no assurances that we will be successful in generating revenue from
it.
8
We have never been and may never become
profitable. We will need to be profitable in order to
succeed.
We have
never been profitable, largely because of our lack of revenues. There can be no
assurance that we will ever generate substantial revenues or a gross profit,
much less and operating profit. Even if we achieve profitability, there can be
no assurance that we will be able to sustain it.
We expect to incur operating losses for
the foreseeable future.
Some of our products are still in
the developmental stage, and prior to completing the commercialization of our
products, we anticipate that we may incur operating expenses without realizing
substantial revenues, for example while indexing 10 billion pages for hereUare
Search. We therefore expect to incur losses into the foreseeable
future.
If we are unable to manage our projected
growth, our prospects may be limited and our potential for profitability may be
adversely affected.
We intend to expand our sales and
marketing, and research and development programs. Rapid expansion may
strain our managerial, financial and other resources. If we are unable to
manage our projected growth, our business, operating results and financial
condition could be adversely affected. Our systems, procedures, controls
and management resources also may not be adequate to support our future
operations. We will need to continually improve our operational, financial
and other internal systems to manage our growth effectively, and any failure to
do so may lead to inefficiencies and redundancies and result in reduced
prospects for our company.
We are materially dependent on
acceptance of our products in development by our target markets. If our
products, when commercially ready, are not accepted, our revenues will be
adversely affected and we may not be able to generate revenue from these
markets.
The target markets for our technologies
and products in development will principally include consumers, retailers,
advertisers, small to medium businesses, and enterprises. If our products in
development are not widely accepted by these markets, we may not be able to
generate sales of our products into these markets. Technology for the
Internet evolve quickly as compared to other industries, if technology evolves
beyond the capabilities of our products, the market may not accept our
products.
Our dependence on new products and
enhancements to current products means that we are dependent upon our research
and development team for key components of our platforms and delivery systems
and technical or personnel issues could delay the launch of our products and
reduce acceptance rates of our products.
We depend on our research and
development department for the delivery of components integral to our
systems. Our reliance on these teams creates risks related to our
potential inability to launch our systems. Specifically, we depend or may
in the future depend on these teams to write software code to power our systems
or to help implement them, such as indexing ten billion pages for
hereUareSearch. Any interruption of our technology development could
significantly delay the introduction or update our products and have a material
adverse effect on our revenues, profitability and financial condition. Within
the last year we have abandoned two products: OneBizDirectory (a web-based
yellow pages) and OneUniverse (a social networking platform), in part because of
team issues and in part due to market conditions. There can be no
assurance that we will be able to continue with our new product
development and the enhancement of our current products and failure
to do so may requires us to abandon additional products.
Defects in our systems could reduce
demand for our products and result in delays in market acceptance and injury to
our reputation.
Complex software systems and
technologies used in our products may contain undetected defects that are
subsequently discovered at any point in the lifecycle of our products.
Defects in our products may result in a loss of sales, delay in market
acceptance, loss of opportunity or other economic loss to our customers, and
injury to our reputation and increased costs to remedy interruptions in our
service or products.
9
We depend on our technology and products
which incorporate our technology. The loss of access to this technology as
a result of intellectual property claims or otherwise would terminate or delay
the further development of our products, injure our reputation or otherwise
impair our viability as a company.
We rely on technologies that we acquired
or developed through our proprietary research and development efforts. The
loss of these technologies for any reason would seriously impair our business
and future viability. If we are required to enter into license agreements
with third parties for replacement technologies, and assuming such licenses are
even available to us, we could be subject to high royalty payments. In
addition, any defects in our technology or any technology we may license in the
future could prevent the implementation or impair the functionality of our
products, delay new product introductions or injure our reputation and results
of operations.
We may be unable to adapt or upgrade our
technologies and products as the markets in which we compete evolve, which would
leave us at a significant competitive disadvantage.
The Internet and online marketplace is
rapidly evolving as new technologies are developed to create unforeseen
needs. We may be unable to adapt or upgrade our technologies, or otherwise
invent and develop new technologies, to meet theses competitive technologies. If
we cannot develop new more sophisticated or advanced technologies and systems,
or interface with newly developed technologies from our competitors our business
could suffer serious harm to its reputation and could negatively impact our
results of operations.
We have few capital resources and will
be dependent upon future financing to generate the cash necessary to operate our
business. Should we fail to raise such financing, we may be forced to cease
operations.
As of December 31, 2009 we had cash of
only $24,393 and working capital of ($1,638,461). Historically, we relied on funds
raised from private sale of our common stock to accredited investors and were
only able to support our small operation and development of our technology.
Although we are currently seeking substantial financing to launch our
products and services and to pay down our third party accounts payable and
accrued expenses of $1,111,528 as of December 31, 2009, the loss we incurred
during 2009, and our debt to related parties $257,683 as of December 31, 2009,
there is no assurance that we will be successful in raising the funds necessary
on favorable terms. Management remains doubtful whether enough revenues
can be generated in the near term to sustain our operations and intends to seek
substantial funding for introducing and marketing our suite of software
products. Otherwise, we will not be able to introduce them in a large-scale
manner and may have to scale down or cease our operations. In the event
that financing activities cannot generate adequate funds to launch our marketing
efforts, we intend to curtail our operations until such funds are available.
Although the Company continues to seek financing to support our working capital
needs, we have no assurance that we will be successful in raising the funds
required. In the event that the Company is not successful in generating
sufficient capital resources on terms acceptable to us, there could be a
material adverse effect on our business, results of operations, liquidity, and
financial condition.
We will need to raise additional
capital, which will be dilutive to our current shareholders.
We will need to raise additional funds
in order to advance our business plan, and to carry out a full scale
commercialization of our products. To the extent we need to raise additional
capital, we may do so in the near future, if conditions in the markets are
favorable. If and when we achieve initial market acceptance our
technologies and products, we may desire to attempt to accelerate our growth to
take advantage of increasing demand and raise additional capital at that time as
well. Any additional capital could take the form of equity or debt financing. In
addition, any future equity financing will be dilutive to
shareholders.
We
have a potential liability of approximately $1.2 million to our Terra Bella
landlord. If we cannot negotiate a material reduction in this
liability, we may not be able raise the equity capital we require.
We
entered into a five-year lease of a facility on Terra Bella Avenue in Mountain
View in 2008. We were subsequently unable to afford the rent and did
not require the space when we down-sized. We therefore abandoned the
facility during 2009. As of December 31, 2009, we had accrued a
liability to the landlord under our lease of approximately $265,000 and through
2013 we may potentially incur liability for an additional approximately
$950,000. The landlord has not been able to lease the premises since
we moved out. We intend to attempt to negotiate a reduced settlement
with the landlord. If we are unable to do so, we may not be able to
raise equity capital due to the prospect of the funds we raise being used to pay
the landlord rather than grow our business.
We face significant competition from
large-scale Internet content, product and service aggregators, principally
Google, Microsoft and AOL.
We face significant competition from
companies, principally Google, Microsoft and AOL, that have aggregated a variety
of Internet products, services and content in a manner similar to ours. These
companies are in dominant positions in the Internet service industry and have
well established relationships with online advertisers. Their strength may
adversely affect our ability to execute our business plan. Their services
directly compete with ours, including Internet search, local search and
directories, consumer e-mail service, VoIP, and advertising solutions. These
large-scale competitors and possible additional entrants have significantly
greater operational, strategic, financial, personnel or other resources than we
do, as well as greater brand recognition overall. These competitors are expected
to be continuously more effective than us in targeting services and
advertisements to the specific preferences of their users thereby giving them a
competitive advantage.
10
We also face competition from other
Internet service companies, including Internet access providers, device
manufacturers offering online services and destination
websites.
Our users must access our services
through Internet access providers, including wireless providers and providers of
cable and broadband Internet access. To the extent that an access provider or
device manufacturer offers online services competitive with ours, the user may
elect to use the services or properties of that access provider or manufacturer.
In addition, the access provider or manufacturer may make it difficult to access
our services by not listing them in the access provider's or manufacturer's own
directory. Such access providers and manufacturers may prove better able to
target services and advertisements to the preferences of their
users.
We also compete for customers, users and
advertisers with many other providers of online services, including destination
websites and social media and networking sites. Some of these competitors may
have more expertise in a particular segment of the market, and within such
segment, have longer operating histories, larger advertiser or user bases, and
more brand recognition or technological features than we
offer.
In the future, competitors may acquire
additional competitive offerings, and if we are unable to complete strategic
acquisitions or investments, our business could be adversely affected. Further,
competitors may consolidate with each other to become more competitive, and new
competitors may enter the market. If our competitors are more successful than we
are in developing compelling products or attracting and retaining users,
advertisers or customers, then we may have difficulty in executing our business
plan.
We face significant competition from
traditional media companies which could limit our ability to generate
advertising revenue.
We also compete with traditional media
companies for advertising. Most advertisers currently spend only a small portion
of their advertising budgets on Internet advertising. We do not have indication
that these traditional advertisers will allocate some of their advertising
budget for our services.
Decreases or delays in advertising
spending by advertisers due to general economic conditions could harm our
ability to generate advertising revenue.
Expenditures by advertisers tend to be
cyclical, reflecting overall economic conditions and budgeting and buying
patterns. Since our business plan anticipates significant activities from
advertising, any decreases in or delays in advertising spending due to general
economic conditions could reduce our chances in carrying out our
plan.
We are, and may in the future be,
subject to intellectual property infringement claims, which are costly to
defend, could result in significant damage awards, and could limit our ability
to provide certain content or use certain technologies in the
future.
Internet, technology, media companies
and patent holding companies often possess a significant number of patents.
Further, many of these companies and other parties are actively developing or
purchasing search, indexing, electronic commerce and other Internet-related
technologies, as well as a variety of online business models and methods. We
believe that these parties will continue to take steps to protect these
technologies, including, but not limited to, seeking patent protection. As a
result, disputes regarding the ownership of technologies and rights associated
with online business are likely to continue to arise in the
future.
As we expand our business and develop
new technologies, products and services, we may become increasingly subject to
intellectual property infringement claims. In the event that there is a
determination that we have infringed third-party proprietary rights such as
patents, copyrights, trademark rights, trade secret rights or other third party
rights such as publicity and privacy rights, we could incur substantial monetary
liability, be required to enter into costly royalty or licensing agreements or
be prevented from using the rights, any of which could require us to change our
business practices in the future and limit our ability to compete effectively.
We may also incur substantial expenses in defending against third-party
infringement claims regardless of the merit of such
claims.
11
If we are unable to protect our
intellectual property, or obtain patents for the technologies we are currently
researching, we may lose a competitive advantage or incur substantial litigation
costs to protect our rights and we be unable to protect our intellectual
property rights.
Our future success depends in part upon
our proprietary technology. Our protective measures, including future
patents, trademarks and trade secret laws, may prove inadequate to protect our
proprietary rights. We are in the process of filing patent applications
for our technologies and although we do not currently foresee issues arising as
a result of our pending patents, there can be no assurance that any of these
patents will be issued or that patents will not be challenged. Established
companies in our industry generally are aggressive in attempts to block new
entrants to their markets, and our products, if developed and commercialized,
may interfere (or may be alleged to interfere) with the intellectual property
rights of these companies. Our viability will depend on its products not
infringing patents that we expect would be vigorously prosecuted.
Furthermore, the validity and breadth of claims in our technology patents
involve complex legal and factual questions and, therefore, are highly
uncertain. Even if we are granted patents relating to our technology,
there can be no assurance that we would be able to successfully assert our
patents against competing products. Once we receive a patent, the scope of
any patent to which we have or may obtain rights may not prevent others from
developing and selling competing products. The validity and breadth of
claims covered in technology patents involve complex legal and factual
questions, and the resolution of such claims may be highly uncertain, lengthy,
and expensive. In addition, any future patents which we may file may be
held invalid upon challenge; others may claim rights in or ownership of our
patents.
We may not be able to enforce or protect
our intellectual property rights, which may harm our ability to compete and
adversely affect our business.
Our ability to enforce our patents,
copyrights, software licenses, and other intellectual property is subject to
general litigation risks, as well as uncertainty as to the enforceability of our
intellectual property rights in various countries. When we seek to enforce our
rights, we are often subject to claims that the intellectual property right is
invalid, is otherwise not enforceable, or is licensed to the party against whom
we are asserting a claim. In addition, our assertion of intellectual property
rights often results in the other party seeking to assert alleged intellectual
property rights of its own against us, which may adversely impact our business
in the manner discussed above. If we are not ultimately successful in defending
ourselves against these claims in litigation, we may not be able to sell a
particular product or family of products, due to an injunction, or we may have
to pay material amounts of damages, which could in turn negatively affect our
results of operations. In addition, governments may adopt regulations or courts
may render decisions requiring compulsory licensing of intellectual property to
others, or governments may require that products meet specified standards that
serve to favor local companies. Our inability to enforce our intellectual
property rights under these circumstances may negatively impact our competitive
position and our business.
If we are unable to retain our existing
senior management and key personnel and hire new highly skilled personnel, we
may not be able to execute our business plan.
We are substantially dependent on the
continued services of our senior management, including our chief executive
officer, Benedict Van, and our chief technical officer (name withheld due to
privacy purposes). These individuals have acquired specialized knowledge and
skills in the Internet industries and our business operations. The loss of any
of these individuals could harm our business. Additionally, within the past
year, we have experienced a great deal of turnover. Our CFO resigned,
effective as of December 4, 2008, and our engineering manager in charge of
certain new product development previously resigned. Our business is
also dependent on our ability to retain, hire and motivate talented, highly
skilled personnel, particularly sales people. The competition for
such executives and for other highly skilled personnel can be intense,
particularly in the San Francisco Bay Area, where our corporate
headquarters, and the headquarters of several of our vertical and horizontal
competitors, are located. If we do not succeed in recruiting, retaining and
motivating our key employees and in attracting new key personnel, we may be
unable to meet our business plan and as a result, our stock price may
decline. Because the success of hereUareMessage is highly dependent
on sales personnel, if we do not succeed in recruiting, retaining and motivating
top sales people, the success of our hereUareMessage launch could be in
jeopardy.
12
Our directors and executive officers may
experience conflicts of interest which may detrimentally affect our business
development activities and our results of operations.
Our principal executive officers and
directors, also serve in capacities at other companies that may be a direct or
indirect conflict to our business. They may also be inventors or
visionaries of our technologies. To the extent that our interests diverge
from those of the other companies our executive officers and directors may
become subject to conflicts of interest which could lead them to make decisions
which are not necessarily in the best interests of our other stockholders.
This could result in material adverse consequences to our company, its value and
the value of your investment in the Company.
We operate in intensely competitive
industries, and our failure to respond quickly to technological developments and
incorporate new features into our products could have an adverse effect on our
ability to compete.
We operate in intensely competitive
industries that experience rapid technological developments, changes in industry
standards, changes in customer requirements, and frequent new product
introductions and improvements. If we are unable to respond quickly and
successfully to these developments, we may lose our competitive position, and
our products or technologies may become uncompetitive or obsolete. To compete
successfully, we must maintain a successful R&D effort, develop new products
and enhance the synergies between our products, and improve our existing
products and processes at the same pace or ahead of our competitors. We may not
be able to successfully develop and market these new products, the products we
invest in and develop may not be well received by customers, and products
developed and new technologies offered by others may affect the demand for our
products. These types of events could have a variety of negative effects on our
competitive position and our financial results, such as reducing our revenue,
increasing our costs, lowering our gross margin percentage, and requiring us to
recognize impairments of our assets.
We may have difficulty scaling and
adapting our existing technology architecture to accommodate increased traffic
when we launch our products and services.
Our products and services have only been
tested on a limited basis. As we launch our products and services through our
marketing campaign, we expect Internet traffic to our websites to significantly
increase over a short time. We have very limited experience in handling a
heightened traffic level by our hardware and customer service operations. Our
future will depend on our ability to adapt to rapidly changing technologies, to
adapt our products and services to evolving industry standards and to improve
the performance and reliability of our products and services. Rapid increases in
the levels or types of use of our online properties and services could result in
delays or interruptions in our service.
New technologies could block our
advertisements or our search marketing listings, which would harm our operating
results.
Technologies have been developed and are
likely to continue to be developed that can block the display of our
advertisements or our search marketing listings. Advertisement-blocking
technology could have an adverse affect on our ability to execute our plan to
capture revenues.
Our online operations are subject to
security risks and systems failures.
Security risks.
Online security breaches could
materially adversely affect our collective businesses, financial condition, or
results of operations. Any well-publicized compromise of security could deter
use of the Internet in general or use of the Internet to conduct transactions
that involve transmitting confidential information or downloading sensitive
materials in particular. In offering online payment services, we may
increasingly rely on technology licensed from third parties to provide the
security and authentication necessary to effect secure transmission of
confidential information, such as consumer credit card numbers. Advances in
computer capabilities, new discoveries in the field of cryptography or other
developments could compromise or breach the algorithms that we use to protect
our consumers' transaction data. In addition, experienced programmers or
"hackers" may attempt to misappropriate proprietary information or cause
interruptions in our services which could require us to expend significant
capital and resources to protect against these problems.
13
Other system
failures.
The uninterrupted performance of our
computer systems is critical to the operations of our Internet sites. We may
have to restrict access to our Internet sites to solve problems caused by
computer viruses or other system failures. Our customers may become dissatisfied
by any systems disruption or failure that interrupts our ability to provide our
content. Repeated system failures could substantially reduce the attractiveness
of our Internet site and/or interfere with commercial transactions, negatively
affecting our ability to generate revenues. Our Internet sites must, in the
future if we grow, accommodate a high volume of traffic and deliver regularly
updated content. Our sites have, on occasion, experienced slower response times
and network failures. These types of occurrences in the future could cause users
to perceive our web sites as not functioning properly and therefore induce them
to frequent Internet sites other than ours. In addition, our customers depend on
their own Internet service providers for access to our sites. Our revenues could
be negatively affected by outages or other difficulties customers experience in
accessing our Internet sites due to Internet service providers' system
disruptions or similar failures unrelated to our systems.
We may be exposed to liability over
privacy concerns.
Despite the display of our privacy
policy on our website, any penetration of our network security or
misappropriation of our customers' personal or credit card information could
subject us to liability. We may be liable for claims based on unauthorized
purchases with credit card information, impersonation or other similar fraud
claims. Claims could also be based on other misuses of personal information,
such as for unauthorized marketing purposes. These claims could result in
litigation, which could divert management's attention from the operation of our
business and result in the imposition of significant damages. In addition, the
Federal Trade Commission and several states have investigated the use by
Internet companies of personal information. In 1998, the U.S. Congress enacted
the Children's Online Privacy Protection Act of 1998. The Federal Trade
Commission recently promulgated final regulations interpreting this act. We
depend upon collecting personal information from our customers and we believe
that the regulations under this act will make it more difficult for us to
collect personal information from some of our customers. Any failure to comply
with this act may make us liable for substantial fines and other penalties. We
could also incur expenses if new regulations regarding the use of personal
information are introduced or if our privacy practices are
investigated.
Our management owns or controls a
significant number of the outstanding shares of Common Stock and will continue
to have significant ownership of its voting securities for the foreseeable
future.
Our management, either directly or
indirectly through their control of affiliated companies, own or control
approximately 48.01% of our issued and outstanding capital stock as of
December 31,
2009. See "Security
Ownership of Certain Beneficial Owners and Management." As a result, these
persons would have the ability, acting as a group, to effectively control our
affairs and business, including the election of directors and subject to certain
limitations, approval or preclusion of fundamental corporate transactions.
This concentration of ownership may be detrimental to the interest of our
minority shareholders in that it may:
●
|
limit
shareholders' ability to elect or remove
directors;
|
●
|
delay
or prevent a change in the control;
|
●
|
impede
a merger, consolidation, take over or other transaction involving the
Company; or
|
●
|
discourage
a potential acquirer from making a tender offer or otherwise attempting to
obtain control of the Company.
|
We do not intend to pay dividends in the
foreseeable future.
We have never paid cash dividends.
We do not anticipate that we would pay cash dividends in the foreseeable
future. Instead, we intend to retain future earnings, if any, for
reinvestment in its business and/or to fund future acquisitions. You
should not invest in our securities in the anticipation of receiving
dividends.
14
Item
1B. Unresolved Staff Comments.
Not
applicable.
Item 2. Description of
Property.
On June 8, 2006, the Company entered
into a 5-year lease agreement with CarrAmerica Techmart which expires on June
15, 2011. Rent expenses in future periods pursuant to this lease agreement are
shown below. In July 2008, we subleased the space for the remainder of the lease
term to Egenera, Inc. pursuant to a sublease agreement by which the sublessee
pays for all of the future rent expenses.
Year
|
Expense
|
Sub-lease
|
Net
Expense
|
|||||||||
2010
|
$
|
93,666
|
$
|
93,666
|
$
|
-
|
||||||
2011
|
$
|
43,458
|
$
|
43,458
|
$
|
-
|
On January 28, 2008, the Company entered
into a 5-year lease agreement, with an option to purchase, with 1061 Terra Bella
Associates, LLC, which expires on February 28, 2013. Rent expense per this new
lease agreement is as following:
2010:
|
$ | 294,100 | ||
2011:
|
$ | 304,300 | ||
2012:
|
$ | 314,500 | ||
Thereafter:
|
$ | 52,700 |
The
Company ceased paying its monthly rent in December of 2008 and is
therefore in default under this lease, owing approximately $265,000 as
of December 31, 2009, after the landlord applied its security deposit. The
Company received a notice of abandonment from the landlord during June,
2009. The Company intends to negotiate a settlement with its landlord
although there can be no assurance it will succeed or what the terms of any such
settlement would be.
Since April 2009, the Company has been
leasing approximately 4,000 square feet of office space in Palo Alto, CA on
a month to month basis for $15,000 per month from eCapital Group, Inc., an
entity controlled by Company CEO Benedict Van.
Item 3. Legal
Proceedings.
On
January 27, 2010, one of the Company’s note holders filed a complaint in Santa
Clara County Superior Court pursuing a $50,000 promissory note bearing 7%
interest which was due on October 16, 2009. The Company did not
respond to the complaint and the claimant’s counsel filed a request for entry of
default on March 16, 2010. Thereafter, as the Company did not
respond, the claimant counsel filed a request for judgment on April 6, 2010 in
the amount of $50,000 principal, $2,816.52 interest, and $1,395 of costs and
attorneys fees, or $54,211.52 in the aggregate.
PART II
Item 4. Market for Registrant’s Common
Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.
Market Information
There is currently no active market for
our securities.
Holders
As of December 31, 2009 there were 379 holders or record of our common stock. The number
of record holders does not include beneficial owners whose shares are held in
the names of banks, brokers, nominees or other fiduciaries.
15
Dividends
hereUare has not declared or paid any
cash dividends on its common stock. It intends to retain any future earnings to
finance the growth and development of its business, and therefore it does not
anticipate paying any cash dividends on its common stock in the future. The
board of directors will determine any future payment of cash dividends depending
on the financial condition, results of operations, capital requirements, general
business condition and other relevant factors. If the Company issues preferred
shares, although not currently anticipated, no dividends may be paid on the
outstanding common stock until all dividends then due on the outstanding
preferred stock will have been paid.
Recent Sales of Unregistered Securities;
Use of Proceeds from Registered Securities
In the quarterly period ended December
31, 2009, the Company sold an aggregate of 140,500 shares of $0.0001 par value common stock to
three people in a private placement exempt from
registration under Rule 506 of Regulation D of the Securities Act of 1933.
The shares were sold from $2.00 to $9.00 per share for aggregate proceeds of
$316,000.
Purchases of Equity Securities by the
Issuer and Affiliated Purchasers
There were no purchases made by or on
behalf of Registrant or any "affiliated purchaser" (as defined in Exchange Act
Rule 10b-18(a)(3)) of shares of Registrant's $0.0001 par value common stock
during the fourth quarter of fiscal 2008.
Securities
Authorized for Issuance under Equity Compensation Plans
The
information required by this Item is included under Item 11 of Part III of this
Annual Report on Form 10-K.
Item 6. Selected Financial
Data.
Not applicable
Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations.
The following section discusses the
significant operating changes, business trends, financial condition, earnings
and liquidity that have occurred in the Company's as of and for the fiscal years
ended December 31,
2009 and 2008. This discussion should be read in
conjunction with the Company's consolidated financial statements and notes
appearing elsewhere in this report.
The
following discussion may contain forward-looking statements that are subject to
risks and uncertainties. When used in this discussion, the words "believes,"
"anticipates" and "intends" and similar expressions are intended to identify
forward-looking statements, but the absence of these words does not necessarily
mean that a statement is not forward looking. Forward-looking statements
include, but are not limited to, statements about our product development,
product release, marketing, fundraising and expansion plans, and our objectives,
expectations, intentions, and target markets, and are subject to risks and
uncertainties that could cause actual results to differ materially from those
anticipated in these forward-looking statements for many reasons, including the
factors described under Item 1A “Risk Factors” and elsewhere in this report. We
undertake no obligation to publicly release any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of anticipated events.
Readers are urged, however, to review the factors and risks we describe in
reports we file from time to time with the Securities and Exchange Commission,
which may be accessed at the Commission's website at www.sec.gov.
Critical Accounting
Policies
In the ordinary course of business, the
Company has made a number of estimates and assumptions relating to the reporting
of results of operations and financial condition in the preparation of its
financial statements in conformity with accounting principles generally accepted
in the United States of America. Actual results could differ significantly from
those estimates under different assumptions and conditions. The Company believes
that the following discussion addresses the Company's most critical accounting
policies, which are those that are most important to the portrayal of the
Company's financial condition and results or because their application requires
significant management judgment, are described in the following paragraphs. The
Company constantly re-evaluates these significant factors and makes adjustments
where facts and circumstances dictate. Although historically, actual results
have not significantly deviated from those determined using the necessary
estimates inherent in the preparation of financial statements, future actual
results may vary significantly. Estimates and assumptions include, but are not
limited to, customer receivables, long-term asset lives, contingencies and
litigation. The Company has also chosen certain accounting policies when options
were available, including:
16
●
|
The
intrinsic value method, or APB Opinion No. 25, to account for our common
stock incentive awards; and
|
|
●
|
We
record an allowance for credit losses based on estimates of customers'
ability to pay. If the financial condition of our customers were to
deteriorate, additional allowances may be required.
|
|
●
|
The
Company expects to apply the provisions of Statement of Position 97-2 as
well as SAB 101, to account for the sales of software and related services
that may be bundled with the software
license.
|
These Company's most critical accounting
policies are applied consistently for all years presented and many are described
in Note 2 of our financial statements. Our operating results would be affected
if other alternatives were used. Information about the impact on our operating
results is included in the footnotes to our consolidated financial
statements.
Recent Accounting
Pronouncements
In June 2009, the FASB issued ASC 105
(previously SFAS No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles ("GAAP") - a replacement
of FASB Statement No. 162), which will become the source of authoritative
accounting principles generally accepted in the United States recognized by the
FASB to be applied to nongovernmental entities.
In June 2009, the FASB issued ASC 855
(previously SFAS No. 165, Subsequent Events), which establishes general
standards of accounting for and disclosures of events that occur after the
balance sheet date but before the financial statements are issued or available
to be issued. It is effective for interim and annual periods ending after June
15, 2009. There was no material impact upon the adoption of this standard on the
Company’s consolidated financial statements.
In June 2009, the FASB issued ASC
860 (previously SFAS No. 166, “Accounting for Transfers of Financial
Assets”) , which requires additional information regarding transfers of
financial assets, including securitization transactions, and where companies
have continuing exposure to the risks related to transferred financial assets.
SFAS 166 eliminates the concept of a “qualifying special-purpose entity,”
changes the requirements for derecognizing financial assets, and requires
additional disclosures. SFAS 166 is effective for fiscal years beginning after
November 15, 2009. The Company does not believe this pronouncement will
impact its financial statements.
In June 2009, the FASB issued ASC
810 (previously SFAS No. 167) for determining whether to consolidate a variable
interest entity. These amended standards eliminate a mandatory quantitative
approach to determine whether a variable interest gives the entity a controlling
financial interest in a variable interest entity in favor of a qualitatively
focused analysis, and require an ongoing reassessment of whether an entity is
the primary beneficiary. These amended standards are effective for us beginning
in the first quarter of fiscal year 2010 and we are currently evaluating the
impact that adoption will have on our consolidated financial
statements.
In August
2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, which amends
ASC Topic 820, Measuring Liabilities at Fair Value, which provides additional
guidance on the measurement of liabilities at fair value. These amended
standards clarify that in circumstances in which a quoted price in an active
market for the identical liability is not available, we are required to use the
quoted price of the identical liability when traded as an asset, quoted prices
for similar liabilities, or quoted prices for similar liabilities when traded as
assets. If these quoted prices are not available, we are required to use another
valuation technique, such as an income approach or a market approach. These
amended standards are effective for us beginning in the fourth quarter of fiscal
year 2009 and did not have a significant impact on our consolidated financial
statements.
17
Results of Operation
hereUare, whose name was changed from
PeopleNet International Corporation on March 26, 2007 to hereUare, Inc., was
formed in February 1997, under the name American Champion Media, as a wholly
owned subsidiary of Pacific Systems Control Technology ("PSCT"), formerly known
as American Champion Entertainment. Through a spin-off transaction on February
8, 2002, hereUare became an independent entity and PSCT distributed its shares
of hereUare to the shareholders of PSCT as of the record date of January 16,
2002. Throughout the year ended December 31, 2009, the Company was primarily developing
products and was not generating material revenues.
Revenues and Gross Profit
(Loss)
During
the year ended December 31, 2009, we only generated sales of $5,575 which was
mainly from the Company's VoIP product. Cost of goods was $2,567 which
included domestic and international telecom termination charges for testing
purposes, resulted in gross profit of $3,009. Revenue for the year ended
December 31, 2008, also primarily from the VoIP product, was $27,737 and cost of
goods was $32,485 resulting in a gross loss of $4,748.
Development
of our Internet software technologies has generally been completed as of
year-end 2009, and we plan to attempt to market our hereUare Message e-messaging
and groupware products to small and medium-sized businesses beginning in the
second quarter of 2010. However, there can be no assurance that we can
generate significant sales from such attempts. We are currently not intending to
market our hereUare Voice VoIP software due to interconnect and other costs
until we are on a more secure financial footing. Our hereUare Engine
search product requires us to increase the number of indexed pages in order to
be effective as we implemented some new technologies in order to eliminate the
page duplications that existed in our prior number of indexed pages due largely
from spam. We are not planning to offer our hereUareEngine search
engine product until after we have indexed close to 10 billion pages for our
hereUare Engine software to search, and we cannot estimate when that will occur
or the effort that will be required to index that many pages.
Costs and Expenses
Our
depreciation and amortization expenses were $333,570 and $415,575 for the years
ended December 31, 2009 and 2008. Most of the decrease was due to our not
purchasing additional assets during 2009 as we did during 2008 and to the end of
the depreciation period on other assets during 2009.
Our rent
expenses were $590,241 and $402,423 for the years ended December 31, 2009 and
2008. Of the $590,241 for 2009, $572,187 was for our US locations and $18,053
was for our Vietnam location. Of the $402,423 for 2008, $326,782 was for our US
locations and $72,719 was for our Vietnam location. The main part of the
increased rent in 2009 versus 2008 in our US locations involved our moving our
principal executive offices from our Mountain View to our Palo Alto facility.
Even though we have moved out of the Mountain View facility in an attempt to
reduce costs, we are still accruing liability for rent as the landlord has not
found another tenant.
Our
payroll expenses were $183,321 which reflected a sharp decrease in engineering,
marketing, and management staff as compared to $1,106,375 for the previous year.
For the year ended December 31, 2009, we also incurred professional fees of
$356,451 which included $155,146 for legal, $40,330 for accounting, $150,020 in
consulting fees for software engineering and business consultation, and $10,956
for agent fees. In the prior year, we had professional fees of $934,741 which
included $181,258 for legal, $18,181 for accounting, $735,302 in consulting fees
for software engineering and business consultation, and $7,514 for agent fees.
The bulk of the $585,282 decrease in professional fees in 2009 versus 2008 was
therefore in consulting fees for software engineering and business consultation,
with most of that decrease being from the decrease in number of consultants.
These reductions in payroll and consultants were necessary due to our not having
the cash on hand to pay service providers.
General
and administrative expenses for the year ended December 31, 2009 were $7,709,883
which included $7,480,293 in non-cash option and warrant expenses estimated by
using a Black-Scholes option pricing model G&A expenses for the previous
year were $4,122,645 which included non-cash option expenses in the amount of
$3,223,391. Our non-cash option expenses increased largely because of the
expenses associated with options that were renewed in the first half of 2009.
During December 31, 2009, the company wrote off $105,851 worth of property and
equipment as compared to zero in 2008. Therefore, our general and administrative
costs other than non-cash option and warrant expenses and property and equipment
writeoff declined by $775,515 from $899,515 to $123,739 due to our efforts to
reduce expenses.
18
As a result of foregoing factors,
our net loss was $9,306,874 for the year ended
December 31, 2009, as compared to $8,156,861 for the year ended
December 31, 2008. Net loss per share increased to $0.27 in 2009 from $0.24 in
2008, while weighted average number of shares outstanding increased to
34,453,892 by the end of the year 2009 from 34,340,393 of a year ago.
Liquidity and Capital
Resources
Net cash flow for the twelve months
ended December 31,
2009 was $17,493. There was a net inflow of
$616,013 from financing activities. Cash flow
from operating activities was a negative $623,210 on a consolidated basis while net cash
provided by investing activities was $24,690.
Our
Company has not generated significant revenues from our operations over the last
several years and management remains doubtful that enough revenues can be
generated from operations in the next twelve months to cover the cost of our
operations. In addition, as of December 31, 2009, we had cash of only $24,393
and working capital of ($1,638,461) As a result of our weak cash
position, we are in default of some of our contractual obligations, including
our Terra Bella Avenue lease. We will be seeking substantial funding
within the next year to pay down our accounts payable and accrued expenses of
$1,111,528 as of December 31, 2009, the loss we incurred during the first
quarter of 2009, and for introducing and marketing our hereUare Message
e-messaging and groupware software product. Otherwise, we may not be able to
survive and will not be able to introduce such software in a large-scale manner
and may have to scale down or cease our operations.
As a result of limited capital resources
and insignificant revenues from operations, the Company has relied on the
issuance of equity securities in financing transactions for our operational
needs. During fiscal 2009, the Company raised approximately
$.38 million from the sale of approximately
0.17 million shares while during fiscal
2008 the Company raised approximately
$2.7 million from the sale of approximately
0.3 million shares. The independent
auditor's report on the Company's December 31, 2009 financial statements included in this
report states that there is substantial doubt about our Company's ability to
continue as a going concern. In the event that financing activities cannot
generate adequate funds to launch our marketing efforts, we intend to curtail
our operations until such funds are available and we may have to cease our
operations entirely. Although the Company continues to seek financing to support
our working capital needs, we have no assurance that we will be successful in
raising the funds required. In the event that the Company is not successful in
generating sufficient capital resources on terms acceptable to us, there could
be a material adverse effect on our business, results of operations, liquidity
and financial condition.
Off-Balance Sheet
Arrangements
We have no off-balance sheet
arrangements.
Item
6A. Quantitative and Qualitative Disclosure About Market Risk.
Not
Applicable.
Item 7. Financial Statements and
Supplementary Data.
The
financial statements of the Company and the independent registered public
accounting firm's report are filed herewith on pages 21 through 24 of this
report.
19
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
hereUare,
Inc.
(formerly known as PeopleNet
International Corporation)
We have
audited the accompanying balance sheets of hereUare, Inc. (formerly known as PeopleNet
International Corporation) as of December 31, 2009 and
2008 and the related statements of operations, stockholders' equity, and cash
flows for the
years ended December 31, 2009 and 2008. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We
conducted our audits of these statements 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. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of hereUare, Inc. as of December 31,
2009 and the results of its operations and its cash flows for the years ended
December 31, 2009 and 2008, in conformity with accounting principles generally
accepted in the United States of America.
The
Company’s financial statements are prepared using the generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. The Company has deficit accumulated at December 31, 2009 of
$86,512,703 including net losses of $9,306,874 for the year ended December 31,
2009. These factors as discussed in Note 13 to the financial statements, raise
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans in regard to these matters are also described in Note 13. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
As
discussed in Note 15, the financial statements for the year ended December 31,
2009 have been restated.
/s/
Kabani & Company, Inc.
CERTIFIED
PUBLIC ACCOUNTANTS
Los
Angeles, California
April 15,
2010, except for the Note 15, for which the date is April 30,
2010.
20
HEREUARE,
INC. AND SUBSIDIARIES
(FORMERLY
PEOPLENET INTERNATIONAL CORPORATION)
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31,
|
||||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
and cash equivalents
|
$ | 24,393 | $ | 6,900 | ||||
Account
receivable
|
439 | 106 | ||||||
Prepaid
expenses
|
8,753 | 35,301 | ||||||
Total
Current Assets
|
33,585 | 42,307 | ||||||
PROPERTY
AND EQUIPMENT-NET
|
389,056 | 701,289 | ||||||
INTANGIBLE
ASSETS-NET
|
57,343 | 206,608 | ||||||
DEPOSITS
|
50,000 | 185,293 | ||||||
Total
Non-Current Assets
|
496,398 | 1,093,190 | ||||||
TOTAL
ASSETS
|
$ | 529,983 | $ | 1,135,496 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY/(DEFICIT)
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable and accrued expenses
|
$ | 1,111,528 | $ | 511,472 | ||||
Deferred
revenue
|
9,390 | 12,390 | ||||||
Due
to related parties
|
257,683 | 309,070 | ||||||
Short
term notes payable, net
|
109,445 | - | ||||||
Convertible
notes payable
|
120,000 | - | ||||||
Shares
to be issued
|
64,000 | 45,000 | ||||||
Total
current liabilities-(Restated 2009)
|
1,672,046 | 877,932 | ||||||
STOCKHOLDERS'
EQUITY:
|
||||||||
Common
stock, $0.0001 par value;
|
||||||||
100,000,000
shares authorized; 34,678,813 shares issued
|
||||||||
and
34,578,813 shares outstanding as of December 31,
2009
|
||||||||
and
34,338,313 shares issued and outstanding as of December 31,
2008
|
3,468 | 3,454 | ||||||
Treasury
Stock; 100,000 shares
|
(10 | ) | (10 | ) | ||||
Additional
paid in capital
|
85,399,233 | 77,466,062 | ||||||
Subscription
receivable
|
- | (8,000 | ) | |||||
Prepaid
consulting
|
(33,937 | ) | - | |||||
Accumulated
deficit-(Restated 2009)
|
(86,512,703 | ) | (77,205,829 | ) | ||||
Translation
Adjustment
|
1,886 | 1,886 | ||||||
Total
stockholders' equity/(deficit)-(Restated 2009)
|
(1,142,062 | ) | 257,563 | |||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 529,983 | $ | 1,135,496 |
The
accompany notes are an integral part of these consolidated financial
statements
21
HEREUARE,
INC. AND SUBSIDIARIES
(FORMERLY
PEOPLENET INTERNATIONAL CORPORATION)
CONSOLIDATED
STATEMENT OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31,
|
||||||||
2009
|
2008
|
|||||||
NET
REVENUE
|
$ | 5,575 | $ | 27,737 | ||||
COST
OF GOODS SOLD
|
2,567 | 32,485 | ||||||
GROSS
PROFIT/(LOSS)
|
3,009 | (4,748 | ) | |||||
OPERATING
EXPENSES
|
||||||||
Depreciation
and amortization
|
333,570 | 415,575 | ||||||
Rent
|
590,241 | 402,423 | ||||||
Salaries
and payroll taxes
|
183,321 | 1,106,375 | ||||||
Professional
fees
|
356,452 | 934,742 | ||||||
Impairment
of advance
|
- | 170,000 | ||||||
Impairment
of property and equipment
|
105,851 | - | ||||||
Impairment
of investment
|
- | 1,000,000 | ||||||
General
and administrative expenses
|
7,709,883 | 4,122,645 | ||||||
Total
operating expenses-(Restated 2009)
|
9,279,317 | 8,151,760 | ||||||
LOSS
FROM OPERATIONS-(Restated 2009)
|
(9,276,308 | ) | (8,156,508 | ) | ||||
OTHER
INCOME (EXPENSE)
|
||||||||
Interest
income
|
121 | 2,167 | ||||||
Interest
expense
|
(31,699 | ) | - | |||||
Gain
on sale of property
|
2,613 | - | ||||||
Total
Other Income/(loss)
|
(28,966 | ) | 2,167 | |||||
LOSS
BEFORE INCOME TAXES-(Restated 2009)
|
(9,305,274 | ) | (8,154,341 | ) | ||||
INCOME
TAX
|
1,600 | 2,520 | ||||||
NET
LOSS-(Restated 2009)
|
(9,306,874 | ) | (8,156,861 | ) | ||||
OTHER
COMPREHENSIVE INCOME
|
||||||||
Foreign
currency translation gain
|
- | 1,886 | ||||||
NET
COMPREHENSIVE LOSS-(Restated 2009)
|
$ | (9,306,874 | ) | $ | (8,154,975 | ) | ||
*BASIC
AND DILUTED WEIGHTED AVERAGE NUMBER OF
|
||||||||
COMMON
STOCK OUTSTANDING
|
34,453,892 | 34,340,393 | ||||||
BASIC
AND DILUTED NET LOSS PER SHARE
|
$ | (0.27 | ) | $ | (0.24 | ) |
*Weighted
average number of shares used to compute basis and diluted loss per share is the
same since the
effect of dilutive securities is anti-dilutive
The
accompany notes are an integral part of these consolidated financial
statements
22
HEREUARE,
INC. AND SUBSIDIARIES
(formerly
known as PeopleNet International Corporation)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008
Common
stock
|
Treasury
stock
|
Other
|
Total
|
|||||||||||||||||||||||||||||||||||||
Number
of
|
Number
of
|
Additional
|
Subscription
|
Prepaid
|
comprehensive
|
Accum.
|
stockholders'
|
|||||||||||||||||||||||||||||||||
shares
|
Amount
|
shares
|
Amount
|
paid
in
capital
|
Receivable
|
Consulting
|
income
|
deficit
|
equity
(deficit)
|
|||||||||||||||||||||||||||||||
Balance
as of January 1, 2008
|
34,239,864 | $ | 3,424 | - | $ | - | $ | 71,606,663 | $ | (53,000 | ) | $ | - | $ | - | $ | (69,048,968 | ) | $ | 2,508,119 | ||||||||||||||||||||
Shares
issued for cash
|
298,449 | 30 | - | - | 2,685,998 | - | - | - | - | 2,686,028 | ||||||||||||||||||||||||||||||
Cash
received for subscription receivable from 2007
|
- | - | - | - | - | 45,000 | - | - | - | 45,000 | ||||||||||||||||||||||||||||||
Purchase
of treasury shares
|
- | - | 100,000 | (10 | ) | (49,990 | ) | - | - | - | - | (50,000 | ) | |||||||||||||||||||||||||||
Option
expenses
|
- | - | - | - | 3,223,391 | - | - | - | - | 3,223,391 | ||||||||||||||||||||||||||||||
Foreign
currency translation
|
- | - | - | - | - | - | - | 1,886 | - | 1,886 | ||||||||||||||||||||||||||||||
Net
loss for the year
|
- | - | - | - | - | - | - | (8,156,861 | ) | (8,156,861 | ) | |||||||||||||||||||||||||||||
Balance
as of December 31, 2008
|
34,538,313 | 3,454 | 100,000 | (10 | ) | 77,466,062 | (8,000 | ) | - | 1,886 | (77,205,829 | ) | 257,563 | |||||||||||||||||||||||||||
Shares
issued for cash
|
140,500 | 14 | - | - | 315,986 | - | - | - | - | 316,000 | ||||||||||||||||||||||||||||||
Written
off of subscription receivable
|
- | - | - | - | - | 8,000 | - | - | - | 8,000 | ||||||||||||||||||||||||||||||
Granted
of warrants for notes payable
|
- | - | - | - | 74,206 | - | - | - | - | 74,206 | ||||||||||||||||||||||||||||||
Granted
of warrants for services
|
- | - | - | - | 38,420 | - | (33,937 | ) | - | - | 4,483 | |||||||||||||||||||||||||||||
Warrants
issued for cash
|
- | - | - | - | 318,131 | - | - | - | - | 318,131 | ||||||||||||||||||||||||||||||
Option
expenses
|
- | - | - | - | 7,186,428 | - | - | - | - | 7,186,428 | ||||||||||||||||||||||||||||||
Net
loss for the year-(Restated)
|
- | - | - | - | - | - | - | - | (9,306,874 | ) | (9,306,874 | ) | ||||||||||||||||||||||||||||
Balance
as of December 31, 2009-(Restated)
|
34,678,813 | $ | 3,468 | 100,000 | $ | (10 | ) | 85,399,233 | $ | - | $ | (33,937 | ) | $ | 1,886 | $ | (86,512,703 | ) | $ | (1,142,062 | ) |
The
accompany notes are an integral part of these consolidated financial
statements
23
HEREUARE,
INC. AND SUBSIDIARIES
(FORMERLY
PEOPLENET INTERNATIONAL CORPORATION)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31,
|
||||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
loss-(Restated 2009)
|
$ | (9,306,874 | ) | $ | (8,156,861 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
333,570 | 415,575 | ||||||
Issuance
of stock options for compensation
|
7,186,428 | 3,223,391 | ||||||
Amortization
of warrants expense for services
|
267,614 | - | ||||||
Amortization
of warrant expense for notes payable
|
26,251 | - | ||||||
Impairment
of property and equipment
|
105,851 | - | ||||||
Impairment
of an investment and advances
|
- | 1,170,000 | ||||||
Write
off of subscription receivable
|
8,000 | - | ||||||
Gain
on sale of property
|
(2,613 | ) | - | |||||
(Increase)
decrease in current assets:
|
||||||||
Account
receivable
|
(333 | ) | - | |||||
Inventory
|
- | 21,811 | ||||||
Prepaid
expense
|
26,548 | 130,356 | ||||||
Deposits
|
135,293 | (78,303 | ) | |||||
Increase
(decrease) in current liabilities:
|
||||||||
Accounts
payable and accrued expenses-(Restated 2009)
|
600,056 | 112,033 | ||||||
Deferred
Revenue
|
(3,000 | ) | 12,144 | |||||
Net
cash used in operating activities
|
(623,210 | ) | (3,149,853 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Proceeds
from sale of property
|
27,000 | - | ||||||
Purchase
of property and equipment
|
(1,100 | ) | (437,079 | ) | ||||
Purchase
of software
|
(1,210 | ) | (70,471 | ) | ||||
Leasehold
Improvement
|
- | (89,768 | ) | |||||
Net
cash provide by/(used in) investing activities
|
24,690 | (597,318 | ) | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Proceeds
from/payment to related parties
|
(51,387 | ) | 320,318 | |||||
Proceeds
from subsciption receivable
|
- | 45,000 | ||||||
Proceeds
from short term notes payable
|
157,400 | - | ||||||
Proceeds
from convertible note payable
|
120,000 | - | ||||||
Proceeds
from issuance of common stock for cash and shares to be
issued
|
335,000 | 2,731,028 | ||||||
Proceeds
from warrants
|
55,000 | - | ||||||
Repurchase
treasury stock
|
- | (50,000 | ) | |||||
Net
cash provided by financing activities
|
616,013 | 3,046,346 | ||||||
EFFECT
OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
- | 1,887 | ||||||
NET
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS
|
17,493 | (698,939 | ) | |||||
CASH
& CASH EQUIVALENTS, BEGINNING BALANCE
|
6,900 | 705,839 | ||||||
CASH
& CASH EQUIVALENTS, ENDING BALANCE
|
$ | 24,393 | $ | 6,900 | ||||
SUPPLEMENTAL
DISCLOSURES:
|
||||||||
Income
tax payments
|
$ | 1,600 | $ | 2,520 | ||||
Interest
payments
|
$ | - | $ | - | ||||
NONCASH
SUPPLEMENTAL DISCLOSURES:
|
||||||||
Warrants
issued for notes payable
|
$ | 74,206 | $ | - | ||||
Warrants
issued for services
|
$ | 38,420 | $ | - |
The accompany
notes are an integral part of these consolidated financial statements
24
HEREUARE, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2009 AND 2008
Note 1 - Nature of Operations and
Spin-off
Nature of
Operations - hereUare, Inc. (the "Company") was
incorporated on February 5, 1997 in the state of Delaware. The Company focuses
on development and sales of communication software solutions including web-based
email and office automation bundle and a voice over internet protocol telephony
product. The Company had been a wholly owned subsidiary of Pacific Systems
Control Technology, Inc. ("PSCT") until February 8, 2002 when the Company
completed its spin-off transaction from PSCT and became an independent
entity.
On September 22, 2006, the Company
acquired 100% of hereUare Communications, Inc., a Delaware corporation
("hereUare"). hereUare is an operator of web-based search engine and other
Internet software solutions founded in 2002. Consequently, hereUare's financial
position, results of operations and cash flows subsequent to the acquisition are
included in the accompanying audited consolidated financial
statements.
In August 2007, the Company established
a wholly owned subsidiary in Vietnam, hereUare Communications Company Ltd.
Vietnam, in anticipation of engaging in business activities in that
country. As of December 31, 2009, the subsidiary in Vietnam has not
generated revenue for the Company but has served as an engineering and
operations center.
Note 2 - Summary of Significant
Accounting Policies
Basis of
Presentation: The accompanying consolidated financial
statements have been prepared in conformity with accounting principles generally
accepted in the United States of America.
Principles of
Consolidation: The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries, hereUare Communications, Inc. and hereUare Communications Company
Ltd. Vietnam. All material inter-company accounts have been
eliminated in consolidation.
Use of Estimates,
Risks and Uncertainties - The preparation of financial
statements in conformity with generally accepted accounting principles in the
United States ("GAAP") requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates include the collectibility of accounts receivable, accounts payable,
sales returns and recoverability of long-term assets.
Cash and cash
equivalents - The Company considers all liquid
investments with a maturity of three months or less from the date of purchase
that are readily convertible into cash to be cash
equivalents.
Property and
Equipment - Property and equipment is stated at
cost. Depreciation for property and equipment is computed using the
straight-line method over an estimated useful life of three years for computer
equipment and five years for non-electronic property. Depreciation on leasehold
improvements is recorded on the shorter of the life of improvement or life of
lease.
Long-lived assets - Effective January 1, 2002,
the Company adopted Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("ASC 360"),
which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
and the accounting and reporting provisions of APB Opinion No. 30, "Reporting
the Results of Operations for a Disposal of a Segment of a Business." The
Company periodically evaluates the carrying value of long-lived assets to be
held and used in accordance with ASC 360. ASC 360 requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts. In that event, a
loss is recognized based on the amount by which the carrying amount exceeds the
fair market value of the long-lived assets. For the fourth quarter ended
December 31, 2009, the Company wrote off $105,851 worth of assets. Loss on
long-lived assets to be disposed of is determined in a similar manner, except
that fair market values are reduced for the cost of disposal.
25
Intangible Assets
- The Company evaluates intangible assets
for impairment, at least on an annual basis and whenever events or changes in
circumstances indicate that the carrying value may not be recoverable from its
estimated future cash flows. Recoverability of intangible assets, other
long-lived assets and, goodwill is measured by comparing their net book value to
the related projected undiscounted cash flows from these assets, considering a
number of factors including past operating results, budgets, economic
projections, market trends and product development cycles. If the net book value
of the asset exceeds the related undiscounted cash flows, the asset is
considered impaired, and a second test is performed to measure the amount of
impairment loss. As at December 31, 2009 no impairment in intangible assets is
recorded.
Revenue Recognition -
Revenue from certain licensing programs is recorded when license agreement has
been executed, the software package has been delivered or shipped, the fee is
determined and the customer is invoiced. Subscription Fees or Perpetual License
Fees and Support Fees revenues are recognized on an accrual basis for the term
of the agreement. The Company has adopted the provisions of
Statements of Position 97-2 and 98-4 and SEC Staff Accounting Bulletin104 (ASC
605). The Company recognized a small amount of revenue from licensing
agreements in the year ended December 31, 2009.
Income
Taxes - The Company utilizes SFAS No.
109, (ASC 740) "Accounting for Income Taxes," which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred income taxes are
recognized for the tax consequences in future years of differences between the
tax bases of assets and liabilities and their financial reporting amounts at
each period end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized.
Stock-based
compensation –
The Company adopted SFAS No. 123
(Revised 2004) (ASC
718), Share Based
Payment (“SFAS No. 123R”), under the
modified-prospective transition method on January 1, 2006. SFAS No. 123R
requires companies to measure and recognize the cost of employee services
received in exchange for an award of equity instruments based on the grant-date
fair value. Share-based compensation recognized under the modified-prospective
transition method of SFAS No. 123R includes share-based compensation based on
the grant-date fair value determined in accordance with the original provisions
of SFAS No. 123, Accounting for
Stock-Based Compensation, for all share-based payments granted
prior to and not yet vested as of January 1, 2006 and share-based compensation
based on the grant-date fair-value determined in accordance with SFAS No. 123R
for all share-based payments granted after January 1, 2006. SFAS No. 123R
eliminates the ability to account for the award of these instruments under the
intrinsic value method prescribed by Accounting Principles Board (“APB”) Opinion
No. 25, Accounting for Stock
Issued to Employees, and
allowed under the original provisions of SFAS No. 123. Prior to the adoption of
SFAS No. 123R, the Company accounted for our stock option plans using the
intrinsic value method in accordance with the provisions of APB Opinion No. 25
and related interpretations.
Basic and diluted net
loss per share - Net loss per share is calculated in
accordance with the Statement of financial accounting standards No. 128 (SFAS
No. 128) (ASC
260), "Earnings per share".
SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Net
loss per share for all periods presented has been restated to reflect the
adoption of SFAS No. 128. Basic net loss per share is based upon the weighted
average number of common shares outstanding. Diluted net loss per share is based
on the assumption that all dilutive convertible shares and stock options were
converted or exercised. Dilution is computed by applying the treasury stock
method. Under this method, options and warrants are assumed to be exercised at
the beginning of the period (or at the time of issuance, if later), and as if
funds obtained thereby were used to purchase common stock at the average market
price during the period.
26
Fair value of
financial instruments - Statement of financial accounting
standard No. 107 (ASC
460), Disclosures about
fair value of financial instruments, requires that the Company disclose
estimated fair values of financial instruments. The carrying amounts reported in
the statements of financial position for assets and liabilities qualifying as
financial instruments are a reasonable estimate of fair
value.
Concentrations of
Risk - Financial instruments which
potentially subject the Company to concentrations of credit risk are cash and
accounts receivable. The Company places its cash with financial institutions
deemed by management to be of high credit quality. The amount on deposit in any
one institution that exceeds federally insured limits is subject to credit
risk.
Recent Accounting
Pronouncements
In June 2009, the FASB issued ASC 105
(previously SFAS No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles ("GAAP") - a replacement
of FASB Statement No. 162), which will become the source of authoritative
accounting principles generally accepted in the United States recognized by the
FASB to be applied to nongovernmental entities.
In June 2009, the FASB issued ASC 855
(previously SFAS No. 165, Subsequent Events), which establishes general
standards of accounting for and disclosures of events that occur after the
balance sheet date but before the financial statements are issued or available
to be issued. It is effective for interim and annual periods ending after June
15, 2009. There was no material impact upon the adoption of this standard on the
Company’s consolidated financial statements.
In June 2009, the FASB issued ASC
860 (previously SFAS No. 166, “Accounting for Transfers of Financial
Assets”) , which requires additional information regarding transfers of
financial assets, including securitization transactions, and where companies
have continuing exposure to the risks related to transferred financial assets.
SFAS 166 eliminates the concept of a “qualifying special-purpose entity,”
changes the requirements for derecognizing financial assets, and requires
additional disclosures. SFAS 166 is effective for fiscal years beginning after
November 15, 2009. The Company does not believe this pronouncement will
impact its financial statements.
In June 2009, the FASB issued ASC
810 (previously SFAS No. 167) for determining whether to consolidate a variable
interest entity. These amended standards eliminate a mandatory quantitative
approach to determine whether a variable interest gives the entity a controlling
financial interest in a variable interest entity in favor of a qualitatively
focused analysis, and require an ongoing reassessment of whether an entity is
the primary beneficiary. These amended standards are effective for us beginning
in the first quarter of fiscal year 2010 and we are currently evaluating the
impact that adoption will have on our consolidated financial
statements.
In August
2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, which amends
ASC Topic 820, Measuring Liabilities at Fair Value, which provides additional
guidance on the measurement of liabilities at fair value. These amended
standards clarify that in circumstances in which a quoted price in an active
market for the identical liability is not available, we are required to use the
quoted price of the identical liability when traded as an asset, quoted prices
for similar liabilities, or quoted prices for similar liabilities when traded as
assets. If these quoted prices are not available, we are required to use another
valuation technique, such as an income approach or a market approach. These
amended standards are effective for us beginning in the fourth quarter of fiscal
year 2009 and did not have a significant impact on our consolidated financial
statements.
27
Note 3 - Property and
Equipment
The property & equipment comprised
of the following at December 31:
2009
|
2008
|
|||||||
Equipment
|
$
|
836,812
|
$
|
934,964
|
||||
Furniture
|
141,078
|
141,078
|
||||||
Leasehold
improvement
|
-
|
89,768
|
||||||
Total
Property & Equipment
|
977,890
|
1,165,810
|
||||||
Less
accumulated depreciation
|
(588,834
|
) |
(464,522
|
)
|
||||
Net
Property & Equipment
|
$
|
389,056
|
$
|
701,289
|
Depreciation expense was $183,095 and $255,451 for the years ended
December 31,
2009 and 2008, respectively.
During December 31, 2009, the company
wrote off $105,851 worth of equipment and leasehold improvement as compared to
zero in 2008.
Note 4 - Intangible
Assets
Intangible assets include software
solutions and domain names, and the related accumulated amortization as of
December 31 are as follows:
2009
|
2008
|
|||||||
Software
solutions
|
$
|
548,122
|
$
|
546,912
|
||||
Domain
name
|
32,321
|
32,321
|
||||||
Total
Intangible Assets
|
580,443
|
579,233
|
||||||
Less
accumulated amortization
|
(523,100
|
)
|
(372,625
|
)
|
||||
Net
Intangible Assets
|
$
|
57,343
|
$
|
206,608
|
Amortization expense was $150,475 and $185,624 for the years ended December 31, 2009 and 2008, respectively.
Amortization expenses of intangible
assets over the next two years are as follows:
Amortization
|
||||
2010:
|
$
|
49,825
|
||
2011:
|
$
|
7,518
|
Note 5 - Deposits
Deposits comprised of the following at
December 31:
2009
|
2008
|
|||||||
Rent
deposit – Mountain View
|
$
|
-
|
$
|
114,750
|
||||
Rent
deposit – Los Angeles
|
-
|
2,189
|
||||||
Rent
deposit – Vietnam
|
-
|
10,000
|
||||||
Attorney
retainer deposit
|
50,000
|
50,000
|
||||||
Others
|
-
|
8,354
|
||||||
Total
Deposits
|
$
|
50,000
|
$
|
185,293
|
28
Note 6 - Accounts Payable and Accrued
Expenses
Account payable and accrued expenses
comprised of the following at December 31:
2009
|
2008
|
|||||||
Accounts
payable (Restated for 2009)
|
$
|
924,349
|
$
|
378,873
|
||||
Accrued
litigation
|
72,000
|
72,000
|
||||||
Other
accrued expenses
|
115,179
|
65,600
|
||||||
Total
accounts payable and accrued expenses
|
$
|
1,111,528
|
$
|
511,472
|
Note 7 - Related Party
Transactions
During
the year ended December 31, 2009, the amount due to eCapital Group,
Inc. was $257,683, a company owned by the CEO of the Company. The
amounts are due on demand, interest-free and unsecured as of December 31,
2009. As of December 31, 2008, the Company had an amount due to eCapital
Group, Inc. of $309,070.
The
company received approximately $13,000 for a ten (10) years software license
from Ecapital, a related party through common director, during the year ended
December 31, 2008. During December 31, 2009, the company has recorded $3,000 of
this sum as revenue, and the remaining of $9,390 was recorded as deferred
revenue on the balance sheet.
Starting from April 2009, the Company has been leasing
approximately 4,000 square feet of office space in Palo Alto, CA on a month
to month basis for $15,000 per month from eCapital Group, Inc.
Note 8 -
Income Taxes (Restated)
No provision was made for Federal income
tax since the Company has significant net operating loss carry forward. Through
December 31,
2009, the Company incurred
net operating losses for tax purposes of approximately $35,817,000. The net operating loss carry forward
may be used to reduce taxable income through the year 2029. Net operating loss carry forward for
the State of California is generally available to reduce taxable income through
the year 2019. The availability of the Company's net
operating loss carry forward is subject to limitations if there is a 50% or more
change in the ownership of the Company's stock.
The following is a reconciliation of the
provision for income taxes
at the U.S. federal income tax rate to the income taxes reflected in the
Consolidated Statements of Operations:
2009
|
2008
|
|||||||
The United States Tax
Rates-Federal
|
(34 | %) | (34 | %) | ||||
State Tax
|
(6 | %) | (6 | %) | ||||
Vietnam Tax
Rate
|
(25 | %) | (25 | %) | ||||
Changes in valuation
allowance
|
65 | % | 65 | % | ||||
Tax expense at actual
rate
|
- | - |
Income tax expense consisted of the
following:
December
31,
|
||||||||
2009
|
2008
|
|||||||
Current
tax expense:
|
||||||||
Federal
|
$ | - | $ | - | ||||
State
|
1600 | 2,520 | ||||||
Vietnam
|
- | - | ||||||
Total
current
|
$ | 1,600 | $ | 2,520 | ||||
Deferred
tax-(Restated 2009)
|
||||||||
Federal
|
2,819,000 | $ | 2,695,000 | |||||
State
|
497,000 | 449,000 | ||||||
Vietnam
Deferred Tax
|
91,000 | 65,000 | ||||||
Total
deferred tax asset (liabilities)
|
$ | 3, 407,000 | $ | 3,209,000 | ||||
Valuation
allowance
|
(3,407,000 | ) | (3,209,000 | ) | ||||
Net
deferred tax asset
|
- | - | ||||||
Tax
expense
|
$ | 1,600 | $ | 2,520 |
The
components of the net deferred tax asset are summarized below:
12/31/2009
|
12/31/2008
|
|||||||
(Restated)
|
||||||||
Deferred
tax asset
|
14,349,000 | 10,663,000 | ||||||
Valuation
allowance
|
(14,349,000 | ) | (10,663,000 | ) | ||||
$ | - | $ | - |
Due to the uncertainty of future taxable income and limitations related to Section 382 of the Internal Revenue Code, a 100% valuation allowance for the net amount of the deferred tax assets has been recorded at December 31, 2009 and 2008.
29
Note 9 - Commitments and
Contingencies
As a result of litigation against its
prior parent corporation, Pacific Systems Control Technology ("PSCT"), PSCT and
its subsidiaries, including the Company, entered into a global settlement and
mutual release of all claims with a former PSCT employee. Under the agreement,
PSCT and the other former parties to the litigation, including the Company,
agreed to pay to the former employee a total sum of $100,000 plus interest at
the rate of 10% per year, payable in installments at the rate of $3,000 per
month. As of December 31, 2004, the outstanding balance under the settlement
agreement was $72,000. The Company accrued the $72,000 on its financial
statements as of December 31, 2004 in the event PSCT is unable to fulfill its
obligations under the settlement agreement.
On June
8, 2006, the Company entered into a 5-year lease agreement with CarrAmerica
Techmart which expires on June 15, 2011. Rent expenses in future periods
pursuant to this lease agreement are shown below. In July 2008, the Company
subleased the space for the remainder of the lease term to Egenera, Inc.
pursuant to a sublease agreement by which the sublessee pays for all of the
future rent expenses.
Year
|
Expense
|
Sub-lease
|
Net
Expense
|
|||||||||
2010
|
$
|
93,666
|
$
|
93,666
|
$
|
-
|
||||||
2011
|
$
|
43,458
|
$
|
43,458
|
$
|
-
|
On August 1, 2007, the Company entered
into a lease for 530 square meters of office space in Vietnam with Nguyen Van
Tan and Vo Thi Ngoc Lan which expires on August 1, 2012. The lease commences on
August 1, 2007 and rent expense is fixed at approximately $4,200 per month. The Company prepaid
the rent under this lease for 24 months through July 31, 2009.In December 2009, the Company has
terminated its lease in Vietnam with Nguyen Van Tan and Vo Thi Ngoc Lan, as a
result, the Company was refunded approximately $33,600.
On
January 28, 2008, the Company entered into a 5-year lease agreement, with an
option to purchase, with 1061 Terra Bella Associates, LLC, which expires on
February 28, 2013. Rent expense per this lease agreement is as following:
2010:
|
$
|
294,100
|
||
2011:
|
$
|
304,300
|
||
2012:
|
$
|
314,500
|
||
Thereafter:
|
$
|
52,700
|
The
Company has moved out of these premises but is still accruing liability for rent
as the landlord has not found another tenant.
Since April 2009, the Company has been
leasing approximately 4,000 square feet of office space in Palo Alto, CA on
a month to month basis for $15,000 per month from eCapital Group, Inc., an
entity controlled by Company CEO Benedict Van.
Note 10 - Common Stock /
Options
Common Stock
2009
During
the year ended December 31, 2009, the Company issued the 140,500 shares of
common stock. 5,000 of these shares were issued for $45,000 in cash
at the price of $9 per share and 135,500 of these shares were issued for
$271,000 at the price of $2 per share. Shares to be issued amounted
to $64,000 for 32,000 shares as of December 31, 2009.
2008
During
the year ended December 31, 2008, the Company issued the 298,449 shares of
common stock for $2,686,028 in cash at the price of $9 per share and repurchased
100,000 shares for $50,000 into treasury stock. Shares to be issued amounted to
$45,000 as at December 31, 2008, which were issued during 2009.
Stock Options
Between January 22 and March 17, 2008,
the Company granted a total of 560,000 options with an exercise price of $9.00
per share to 3 employees and 1 consultant. These options expire in 5 years and
vest between one to four years.
Between May 19 and June 23, 2008, the
Company granted a total of 55,000 options with an exercise price of $9.00 per
share to 2 employees. These options expire in 5 years and vest between one to
four years.
On September 2, 2008, the Company
granted a total of 200,000 options with an exercise price of $9.00 per share to
3 employees. These options expire in 5 years and vest over 4
years.
On May 18, 2009, the Board of Directors
approved the extension of expiration of 3,639,999 options which would expire in
May 2009, for another 3 years to May 2012, including 2,699,999 options held by
its CEO, director, and largest beneficial stockholder Benedict Van and 30,000
options held by an outside director.
Due to the termination of employees and
contractors, the number of options that expired within the year ended
December 31,
2009 was 688,000 shares, as opposed to 2,868,000 for the year ended December 31,
2008.
30
The following summary presents the
incentive and non-qualified options under the plan granted, exercised, expired
and outstanding at December
31, 2009:
Weighted
|
||||||||||||
|
Average
|
Aggregate
|
||||||||||
Exercise
|
Intrinsic
|
|||||||||||
Under
Plan
|
Price
|
Value
|
||||||||||
Balance,
December 31, 2008
|
5,383,999
|
0.97
|
$
|
5,222,479
|
||||||||
Granted
|
||||||||||||
Lapsed
|
688,000
|
2.49
|
||||||||||
Exercised
|
0
|
-
|
||||||||||
Balance,
December 31, 2009
|
4,695,000
|
0.74
|
-
|
The following summary presents the
weighted average exercise prices, number of options outstanding and exercisable,
and the remaining contractual lives of the Company's stock options at
December 31,
2009:
Options
|
||||||||||||||
Outstanding
|
Options Exercisable
|
|||||||||||||
Weighted
|
||||||||||||||
Average
|
Weighted
|
Weighted
|
||||||||||||
Remaining
|
Average
|
Average
|
||||||||||||
Number
|
Contractual
|
Exercise
|
Number
|
Exercise
|
||||||||||
Outstanding
|
Life
|
Price
|
Exercisable
|
Price
|
||||||||||
Options
|
4,695,999
|
2.18
|
$
|
0.74
|
4,562,032
|
$
|
0.64
|
Warrants
In a settlement with three shareholders
in December 2006, the Company granted a three-year warrant to purchase 750,000
shares of the Company's stock at $6 per share. The non-cash expense of the
warrant, calculated by a Black-Scholes model, in the amount of $1,238,303 was
recorded in the Company's financial statements for the year ended December 31,
2006. In the second quarter of 2009, in exchange for $55,000, the Company
and this warrant holder have agreed to increase the number of warrants by
200,000, that is from 750,00 to 950,000, and to extend the term for another
three years, so that the warrant will expire on December 31, 2012, instead of
December 31, 2009.
In
exchange for certain consulting services, in,2009, the Company granted two
shareholders a three year warrant to purchase 100,000 shares of the Company's
stock at $9 per share.
For the
year ended December 31, 2009, the Company also granted seven lenders, four of
which are shareholders, three-year warrants to purchase 488,500 shares of the
Company’s common stock at $9 per share.
The
company also granted warrants to purchase 25,000 shares of its common
stock at $9 per share to one of the stockholder in connection with
common stock issued during the fourth quarter ended December 31, 2009
The following summary presents the
warrants granted, exercised, expired and outstanding at December 31, 2009:
Weighted
|
||||||||||||
Average
|
Aggregate
|
|||||||||||
Exercise
|
Intrinsic
|
|||||||||||
Price
|
Value
|
|||||||||||
Balance,
December 31, 2008
|
750,000
|
$
|
6.00
|
$
|
-
|
|||||||
Granted
|
810,500
|
8.26
|
-
|
|||||||||
Exercised
|
-
|
-
|
-
|
|||||||||
Balance,
December 31, 2009
|
1,560,500
|
$
|
6.66
|
$
|
-
|
The following summary presents the
weighted average exercise prices, number of warrants outstanding and
exercisable, and the remaining contractual lives of the Company's warrants at
December 31, 2009:
Warrants
|
||||||||||||||||||||
Outstanding
|
|
|||||||||||||||||||
Weighted
|
Warrants
Exercisable
|
|||||||||||||||||||
Average
|
Weighted
|
Weighted
|
||||||||||||||||||
Remaining
|
Average
|
Average
|
||||||||||||||||||
Number
|
Contractual
|
Exercise
|
Number
|
Exercise
|
||||||||||||||||
Outstanding
|
Life
|
Price
|
Exercisable
|
Price
|
||||||||||||||||
Warrants
|
1,560,500
|
3.01
|
$
|
6.66
|
1,472,167
|
$
|
6.91
|
31
Note 11 - Convertible Debt
On various dates in June 2009 to September 2009, the Company entered into
five convertible debt agreements pursuant to which the company borrowed a total
of $120,000. Under the terms of the agreements, the Company is
obligated to pay a fixed interest rate of between 2% and 8% (4.68% weighted
average rate). The loans all mature between July and October of
2009. Each of the loan agreements gives the lender the right to
convert the amount due into the common stock of the Company at price of $2.00
per share at any time prior to the loan being paid. As of December
31, 2009, the Company is under default under the terms of these loans and these
loans remain outstanding and convertible into Company common stock.
Note 12-Notes
payable
For the
year ending December 31, 2009, the Company entered into nine short-term notes
payable agreements in which the Company borrowed a total of $157,400. In
connection with some of these notes payable, the Company issued 488,500 warrants
with an exercise
price of $9.00 per share which expire between October 2012 and December
2012. The total fair value of these warrants, which is treated as a warrant
discount and is allocable to the notes payable, was calculated using the Black
Schole model and was determined at $74,206. During December 31, 2009, $26,251 of
this total fair value has been amortized and recorded as interest expense. The
remaining unamortized warrant discount of $47,955 was included with the face
notes payable balance as of December 31, 2009.
For eight
of the note payables agreements, the Company is to pay a fixed interest rate
between 2% to 7%. These loans all mature between September 2009 and May 2010.
The ninth such agreement is interest free, unsecured debt and is due on demand.
As of December 31, 2009, the Company has defaulted on payment of $24,297.
Note 13 - Going concern
The Company's consolidated financial
statements are prepared using the generally accepted accounting principles
applicable to a going concern, which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. However, the
Company has an accumulated deficit of $86,512,703 at December 31, 2009. The Company incurred a net loss
of $9,306,874 and $$8,156,861 for the years ended
December 31,
2009 and 2008, respectively, and as of December 31, 2009, had cash of only $24,393 and working capital of ($1,638,461). In view of the matters described
above, recoverability of a major portion of the recorded asset amounts shown in
the accompanying balance sheets is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to raise
additional capital, obtain financing and to succeed in its future operations.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Management's plans and the ongoing
operations of the Company are expected to require additional working capital in
the next twelve months. However, there can be no assurance that sufficient
capital may be raised at acceptable terms due to current investment climate or
otherwise.
Note 14 – Subsequent Event
On January 27, 2010, one of the
Company’s note holders filed a complaint in Santa Clara County Superior Court
pursuing a $50,000 promissory note bearing 7% interest which was due on October
16, 2009. The Company did not respond to the complaint and the
claimant’s counsel filed a request for entry of default on March 16,
2010. Thereafter, as the Company did not respond, the claimant
counsel filed a request for judgment on April 6, 2010 in the amount of
$50,000 principal, $2,816.52 interest, and $1,395 of costs and attorneys fees,
or $54,211.52 in the aggregate.
32
Note
15- Restatement
The
Company is presently restating its financial statements so that the following
items reflect a $55,000 rent accrual that such items had not previously
reflected although such expense had been previously reflected in other items in
the financial statements:
As Previously
Stated
|
Adjustment
|
As Restated
December 31, 2009
|
||||||||||
Balance
Sheet
|
||||||||||||
Total
current liabilities
|
$ | 1,617,046 | $ | 55,000 | $ | 1,672,046 | ||||||
Accumulated
deficit
|
(86,457,703 | ) | (55,000 | ) | (86,512,703 | ) | ||||||
Total
stockholders' equity/(deficit)
|
(1,087,062 | ) | (55,000 | ) | (1,142,062 | ) | ||||||
Statement
of Operations (for the year ended December 31, 2009
|
||||||||||||
Total
operating expenses
|
$ | 9,224,317 | $ | 55,000 | $ | 9,279,317 | ||||||
Loss
from operations
|
(9,221,308 | ) | (55,000 | ) | (9,276,308 | ) | ||||||
Loss
before income tax
|
(9,250,274 | ) | (55,000 | ) | (9,305,274 | ) | ||||||
Net
loss
|
(9,251,874 | ) | (55,000 | ) | (9,306,874 | ) | ||||||
Net
comprehensive loss
|
(9,251,874 | ) | (55,000 | ) | (9,306,874 | ) | ||||||
Statement
of Cash Flows (for the year ended December 31, 2009)
|
||||||||||||
Net
loss
|
$ | (9,251,874 | ) | $ | (55,000 | ) | $ | (9,306,874 | ) | |||
Accounts
payable and accrued expenses
|
545,056 | 55,000 | 600,056 |
Item 8. Changes In
and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 8A(T). Controls and Procedures
(a) Disclosure Controls and
Procedures.
Disclosure Controls
and Procedures. Our disclosure controls and procedures
are designed to ensure that information required to be disclosed in the
Company's reports filed under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in the
SEC's rules and forms, including, without limitation, that such information is
accumulated and communicated to Company management, including our principal
executive and financial officers, as appropriate to allow timely decisions
regarding required disclosures.
Limitations on the
Effectiveness of Disclosure Controls. In designing and evaluating our
disclosure controls and procedures, management recognized that disclosure
controls and procedures, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the disclosure
controls and procedures are met. Additionally, in designing disclosure controls
and procedures, our management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible disclosure controls and
procedures. The design of any disclosure controls and procedures also is based
in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions.
Evaluation of
Disclosure Controls and Procedures. Our principal executive and financial
officer has evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as defined in Exchange Act Rules 13a-14(c) as
of December 31,
2009, and has determined
that they are reasonably effective, taking into account the totality of the
circumstances, including the limitations described above.
(b) Internal Control over Financial
Reporting.
Our management is responsible for
establishing and maintaining adequate internal control over our financial
reporting, which is designed to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. generally accepted
accounting principles. Internal control over financial reporting includes those
policies and procedures that: (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. generally accepted accounting principles, and
that receipts and expenditures of the Company are being made only in accordance
with authorizations of our management and directors; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect
on the financial statements.
Our management, with the participation of our Chief Executive and Financial
Officer, assessed the effectiveness of our internal control over financial
reporting as of December 31, 2009. In making this assessment we used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control -
Integrated Framework.
Based on the assessment using those
criteria, management concluded that, as of December 31, 2009, our internal control over financial
reporting is effective. Our assessment takes into consideration that we
currently have little or no revenue and inventory so that the impact of revenue
recognition and inventory write-down policies and controls has not been material
to our financial reporting. We currently maintain our books using QuickBooks and
we intend to switch as our business grows.
This annual report does not include an
attestation report of our registered public accounting firm regarding internal
control over financial reporting. Management's report was not subject to
attestation by our registered public accounting firm pursuant to temporary rules
of the Securities Exchange Commission that permit us to provide only
management's report on internal control over financial reporting in this annual
report.
33
There was
no change in the Company's internal control over financial reporting identified
in connection with the assessment described above that occurred during the
Company's fiscal 2009 fourth quarter ended December 31, 2009, that
has materially affected, or is reasonably likely to materially affect, such
control.
(c) Inherent
Limitations on Effectiveness of Controls
Our
management, including our Chief Executive and Financial Officer, does not expect
that our disclosure controls and procedures or our internal control over
financial reporting will prevent or detect all errors and all fraud. Any control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the control system’s objectives will be met. The
design of a control system must reflect the fact that there are resource
constraints and competing use of resources, and the benefits of controls must be
considered relative to their costs in light of competing demands on limited
resources. Further, because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all control issues
and instances of fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of simple error or mistake.
Controls can also be circumvented by the individual acts or omissions of some
persons, by collusion of two or more people, or by management override of the
controls. The design of any system of controls is based in part on certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions. Over time, controls may become inadequate because of changes
in conditions or deterioration in the degree of compliance with policies or
procedures.
Item 8B. Other Information.
None.
PART III
Item 9. Directors, Executive Officers
and Corporate Governance
Our directors, executive officers and
key employees and their respective ages and positions are set forth below.
Biographical information for each of those persons is also presented below. Our
executive officers are appointed by our Board of Directors and serve at its
discretion.
MANAGEMENT
Directors and Executive
Officers
The following table sets forth, as of
March 31, 2010, the names and ages of all of our directors and executive
officers and all positions and offices held. All directors hold office until
such director's successor is elected and qualified. Each officer serves at the
pleasure of the board and may be removed at any time by a vote of a majority of
the authorized directors. It is anticipated that each of the remaining
directors and executive officers will continue in his position, although there
is no understanding or arrangement to that effect. However, any of the above
directors or executive officers could resign and any of the officers could be
replaced or removed by the Board of Directors at any time. There are no family
relationships among any directors or executive officers of the Company.
Name
|
Age
|
Position
with the Company
|
Benedict
Van
|
49
|
Chief
Executive Officer, Chief Financial Officer, and Chairman of the Board of
Directors
|
James
McCargo
|
58
|
Director
|
David
A. Brewer
|
57
|
Director
|
The board of directors has appointed
committees of the board comprising a compensation committee and an audit
committee. The members of both committees are the Company's independent
directors, Messrs. Brewer and McCargo.
Business Experience
The following summarizes the occupation
and business experience during the past five years for our officers and
directors.
Benedict
Van. Since 2002, Mr. Van has served as
Chairman of the Board of Directors, CEO and CFO of hereUare, Inc. Mr. Van
has over 22 years of success and experience as a tech visionary, with a
specialty in building and restructuring high tech related companies. In 1996, he
founded eCapital Group, an investment firm specialized in nurturing high tech,
biotech, and energy ventures through their development stages. Portfolio
investments for eCapital Group have included hereUare Communications, eCity,
Inc., 3E Systems, Inc., hereUare, Inc., 3Net Communications Corporation,
PeopleWeb Communications, Inc., BenSys Corporation, and Doles Networks
Corporation. Prior to eCapital, he founded in 1985 Crownland Group of Companies
and served as CEO of the international conglomerate that engaged in venture
capital investments in telecom, electronics, and medical devises. Crownland
invested successfully into Biocompatible, Inc., and Cardio Genesis (formerly
Eclipse Surgical Technology, Inc.). Mr. Van received his Doctorate of Business
Administration from University of the Pacific.
34
James
McCargo. Mr. McCargo has served as a member of
our Board of Directors since November 2004. Mr. McCargo served as President and
CEO of Omega Designs, and was the principal founder of InterArt Designs. Before
founding InterArt, Mr. McCargo spent over 20 years involved in the computer and
high-tech industry, including positions with Fairchild Semiconductors, Hunt
Chemical, and 3M Corporation. Mr. McCargo served as a Trustee for the University
of the Pacific, and was the Vice Chairman of the Board of Regents for the
University of the Pacific. Mr. McCargo holds a Bachelor's of Arts degree in
pre-law from University of the Pacific.
David A.
Brewer. Mr. Brewer has served as a member of our
Board of Directors since February 2006. Mr. Brewer is the Managing Partner of
Aragon Ventures, a Menlo Park, California venture capital firm specializing in
early stage, high technology companies. He serves on the boards of directors of
Notify Technology Corp., Cuica Technologies, Inc., FirstStone Incubators LLC,
and PriaVision, Inc. He currently serves as an officer, director or
advisor to two other investment companies. Mr. Brewer is also the Chairman
of End Poverty Foundation, a nonprofit organization dedicated to the eradication
of poverty through empowerment of entrepreneurs in developing countries, and a
board member of the SEEP Network. Before forming Aragon Ventures in 1998,
Mr. Brewer was a co-founder and the initial President of Inktomi Corporation, an
Internet infrastructure software company which was subsequently acquired by
Yahoo, Inc. In his over thirty years in high technology start-ups, he also
served as president or chief financial officer in several early stage companies,
including Explore Technologies (electronic educational toys), eFax.com, formerly
JetFax, (advanced fax technology products), Monogram Software (consumer
financial software), Telebit (high speed modems and other data communications
equipment) and Packet Technologies (two-way interactive cable television
communication systems). Mr. Brewer holds a Bachelor's of Science degree in
business from the University of California, Berkeley, and a Juris Doctor from
the University of San Francisco.
Section 16(a) Beneficial Ownership
Reporting Compliance
Section 16(a) of the Securities Exchange
Act of 1934, as amended, requires the Company's directors, executive officers
and beneficial owners of more than 10% of the Company's common stock to file
with the Securities and Exchange Commission (SEC) initial reports of ownership
and reports of changes in ownership of common stock and other equity securities
of the Company. The Company typically files these reports on behalf of its
directors and officers, based on information provided by them. The Company
believes, based on its review of Forms 3, 4, 5, if any, and periodic written
representations from reporting persons, that all other officers, directors and
holders of more than 10% of the Company's common stock complied with all Section
16(a) filing requirements for the 2009 fiscal year.
Code of Ethics
The Company adopted, on June 25, 2007, a
code of business conduct and ethics that applies to its executive officers as it
institutionalizes corporate governance procedures. Our code of business conduct
and ethics can be found on our website: hereUare.com
Audit Committee Financial
Expert
The board of directors has determined
that independent director David A. Brewer qualifies as a financial expert and he
serves as the chairperson of the board's audit committee.
35
Item 10. Executive Compensation
The following table sets forth the
compensation paid by the Company to its officers and directors for services
rendered during the periods indicated. No other executive officer received
compensation in excess of $100,000 during the specified
periods.
Name
|
Position
|
Year
|
Salary
|
Directors
Fees Earned
or Paid in
Cash
|
Option Awards
(1)
|
All Other
Compensation
|
Total
|
|||||||
Benedict
|
Chief Executive Officer
& Chief
|
2009
|
$
|
None
|
|
None
|
$ |
51,92,876
|
None
|
$ |
5,192,876
|
|||
Van
|
Financial
Officer (4) & Chairman of
|
|
||||||||||||
the
Board & Director
|
2008
|
$
|
80,000
|
(2)
|
None
|
None
|
None
|
$ |
80,000
|
|||||
Anthony
K .
|
Chief
Financial Officer & Secretary
|
2009
|
$
|
None
|
None
|
None
|
None
|
none
|
||||||
Chan
(3)
|
&
Director
|
|||||||||||||
2008
|
$
|
100,000
|
None
|
None
|
None
|
$ |
100,000
|
|||||||
James
McCargo
|
Director
|
2009
|
None
|
None
|
$ |
85,052
|
$10,000
|
$ |
95,052
|
|||||
2008
|
None
|
None
|
$ |
2,522,594
|
$10,000
|
$ |
2,532,594
|
|||||||
David
A. Brewer
|
Director
|
2009
|
None
|
None
|
$ |
36,636
|
None
|
$ |
36,636
|
|||||
2008
|
None
|
None
|
$ |
57,337
|
None
|
$ |
57,337
|
|||||||
Gregory
B. Pelling (4)
|
Director
|
2009
|
None
|
None
|
None
|
None
|
None
|
|||||||
2008
|
None
|
None
|
$ |
53,489
|
None
|
$ |
53,489
|
(1)
Amounts in this column for a particular fiscal year represent the
compensation cost of stock option awards granted during that fiscal year and in
prior years recognized for financial statement reporting purposes during that
fiscal year calculated in accordance with SFAS 123R. In our calculations per
SFAS 123R, the Company used the Black-Scholes option pricing model which
utilizes certain assumptions outlined in the footnotes to the Company’s
financial statements included in this report. On May 18, 2009, the
expiration date of Mr. Van’s 2,699,999 options and 30,000 of Mr. McCargo’s
options was extended for two years and the amount shown includes the incremental
fair value,computed as of the date of the extension in accordance with FASB ASC
Topic 718. As of December 31, 2009, Mr. McCargo held 422,000 options and
Mr. Brewer held 304,000 options.
(2) Salary
through August 2008, after which time Mr. Van did not
receive compensation and served at no charge to the Company.
(3) Resigned as Chief
Financial Officer and member of the Board of Directors as of December 4,
2008. Mr. Van has assumed the responsibilities of the Chief Financial
Officer until an appropriate successor is appointed.
(4) Resigned as a member of
the Board of Directors as of February 27, 2009.
Our executive officers currently receive
no salary or bonuses. The bulk of their compensation
is long-term equity appreciation which aligns their interests with those of our
stockholders. As we hire additional executive officers as our business
expands, they will likely receive market compensation packages, including base
salary, bonus, and option grants. Mr. Van does not have an employment
contract.
Our
outside directors currently receive no director’s fees but instead receive an
option grant upon their joining the board. On June 25, 2007, our board
appointed our two current independent directors (Messrs. Brewer and
McCargo) and a former independent director (Mr. Pelling) to the audit
committee and the compensation committee. For their services on such committees
of the board over the next three years, each independent director was granted an
average of 48,000 options that vest over a 36-month period and are exercisable
at $6.00 per share. No option grants were made to the directors in
2008 or 2009. Thus, the options described in this paragraph represent all
options granted to our directors in fiscal years 2007, 2008, and
2009.
The following table shows certain
information with respect to unexercised options held on December 31, 2009, by the named executive
officers:
Name
|
Number of
securities
underlying
unexercised options
Exercisable
|
Number of securities
underlying
unexercised options
Unexercisable
|
Option
Exercise Price
|
Option
Expiration Date
|
|||||||||
Benedict
Van, Chief Executive Officer, Chairman of the Board, and
Director
|
2,699,999
|
0
|
$
|
0.08
|
5/18/2012
|
Because
the Company has no cash to pay its service providers, their compensation has
been tied entirely to long-term equity incentives, namely stock
options. The service providers will only be able to monetize these
options if the value of the Company’s stock exceeds the exercise price of the
options. In the case of Mr. Van, this means $0.08 for his 2,699,999
options. Mr. Van therefore does not need the price per share of
common stock to be very great in order for his options to have value and he may
therefore be risk averse if and when the Company’s stock obtains
value. For Messrs. McCargo and Brewer, this means $6.00 per share as
to 42,000 and 54,000 of their options, respectively; $2.00 as to 350,000 and
250,000 of their options, respectively; and as to Mr. McCargo, $0.012 for 30,000
of his options. To the extent their average option exercise price is
greater, the outside directors are incentivized to take risks that could realize
substantial value for the Company rather than to not take risks and end up in a
situation where their options have little or no value.
Item 11. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth, as of
March 31, 2010, certain information with respect to stock ownership of:
●
|
all
persons known by us to be beneficial owners of 5% or more of our
outstanding shares of $0.0001 par value Common
Stock;
|
36
●
|
each
director and officer; and
|
●
|
all
directors and officers as a group.
|
The table assumes a total of 34,438,313
shares of common stock outstanding. In calculating the number of shares of
common stock beneficially owned by a person or group and the percentage
ownership of that person or group, we deemed outstanding shares subject to
options or warrants held by that person or group that are currently exercisable
or exercisable within 60 days of March 31, 2010. We did not deem these shares
outstanding, however, for the purpose of computing the percentage ownership of
any other person or group.
Name and Address of Beneficial Owner (6)
|
Number of Shares of
Common Stock (7)
|
Percentage of
Common Stock
Ownership*
|
||||||
ECapital
Group, Inc. (1)
|
13,769,886
|
39.71
|
%
|
|||||
PeopleWeb
Communications, Inc. (1)
|
3,060,229
|
8.82
|
%
|
|||||
Adel
M. Ali
|
3,260,000
|
9.40
|
%
|
|||||
Benedict
Van (director and executive officer) (1)
|
2,886,358
|
(2)
|
7.72
|
%
|
||||
James
McCargo (director)
|
413,833
|
(3)
|
1.15
|
%
|
||||
David
A. Brewer (director)
|
418,500
|
(4)
|
1.13
|
%
|
||||
All
Directors and Officers as a group (5 persons)
|
3,919,837
|
(5)
|
10.38
|
%
|
* Less than 1%
(1) Mr. Van is also the controlling
person of eCapital Group, Inc. ("eCapital"), and through eCapital he also
controls PeopleWeb Communications, Inc. ("PeopleWeb"). Mr. Van disclaims
beneficial ownership of the Company shares owned by eCapital and PeopleWeb. His
pecuniary interest in the Company's shares, based on his percent ownership of
such entities would be approximately 12,385,000 and 1,826,000 shares,
respectively. Mr. Van is the sole director of eCapital and the sole director of
PeopleWeb. Including his pecuniary interest in such entities and his options
described in Note (2) below, Mr. Van would beneficially own 17,097,358 shares
which is 46.07%.
(2) Includes 2,699,999 shares issuable
upon exercise of options exercisable within sixty days of March 31, 2010.
(3) Includes 413,833 shares issuable
upon exercise of options exercisable within sixty days of March 31, 2010.
(4) Includes 293,500 shares issuable
upon exercise of options exercisable within sixty days of March 31, 2010.
(5) Includes 3,419,332 shares issuable
upon exercise of options exercisable within sixty days of March 31, 2009. This
total excludes shares of ECapital Group, Inc. and PeopleWeb Communications which
Mr. Van may be deemed to beneficially own per note (1). Including his pecuniary
interest in such entities, officer and directors as a group would beneficially
own 18,130,837 shares which is 48.01%.
(6) The address for the directors and
executive officers, and for Mr. Ali, is c/o hereUare, Inc., 228 Hamilton Ave., 3rd floor,
Palo Alto, CA 94301.
The address for ECapital Group is 575
Middlefield Rd., Palo Alto, CA 94031.
The address for PeopleWeb Communications
is 575 Middlefield Rd., Palo Alto, CA 94031.
(7) To the Company's knowledge, the
persons named in the table have sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by them, subject to
community property laws, where applicable, and the information contained in the
footnotes to this table.
Securities Authorized for Issuance under
Equity Compensation Plans
As of December 31, 2009, the table below provides the indicated
information with respect to compensation plans.
37
(c)
|
||||||||||||
Number of
|
||||||||||||
securities remaining
|
(a)
|
|||||||||||
available for
|
Number of
|
(b)
|
||||||||||
future issuance
|
securities to
|
Weighted
|
||||||||||
under equity
|
be issued upon
|
average exercise
|
||||||||||
compensation
|
exercise of
|
price of
|
||||||||||
plans(excluding
|
outstanding
|
outstanding
|
||||||||||
securities reflected
|
options, warrants
|
options, warrants
|
||||||||||
Plan Category
|
in column(a))
|
and rights
|
and rights
|
|||||||||
Equity
compensation plans approved by security holders
|
-
|
-
|
-
|
|||||||||
Equity
compensation plans not approved by security holders
|
13,616,001
|
6,256,499
|
$
|
2.22
|
Item 12. Certain Relationships and
Related Transactions, and Director Independence.
Using the
standard for independence promulgated by The Nasdaq Stock Market, Inc., each of
Messrs. McCargo, and Brewer, who are the sole members of the audit and
compensation committees, are independent while Mr. Benedict Van, the Company’s
third director, is not independent.
Since
April 2009, the Company has been leasing approximately 4,000 square feet of
office space in Palo Alto, CA on a month to month basis for $15,000 per
month from eCapital Group, Inc., an entity controlled by Company CEO Benedict
Van by virtue of his being its sole director and executive officer and a greater
than 10% stockholder. The Company believes that this rental rate is
at or below market.
Item 13. Principal Accounting Fees and
Services.
During the years ended December 31, 2009 and 2008, the following fees were
paid to Kabani & Company, Inc.:
Description
of Services
|
2009
|
2008
|
||||||
Audit
Fees
|
$
|
45,500
|
$
|
45,500
|
||||
Audit-Related
Fees
|
-
|
-
|
||||||
Tax
Fees
|
-
|
-
|
||||||
All
Other Fees
|
-
|
-
|
||||||
Total
|
$
|
45,500
|
$
|
45,500
|
The audit
committee has a policy to pre-approve all fees to be paid to the Company’s
principal accountant. The audit fees for 2008 and 2009 were
pre-approved by the audit committee.
Item 14. Exhibits, Financial Statement
Schedules.
(a) Exhibits and Index of
Exhibits.
See Index to Exhibits on page 62 of
this Form 10-K/A.
38
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this amended report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated:
April 28, 2010
hereUare, Inc.
By:
|
/s/
Benedict Van
|
Benedict Van
Chairman of the Board and Chief
Executive Officer
(Principal Executive
Officer)
39
INDEX TO EXHIBITS
(a) Exhibits Incorporated by
Reference
Exhibit
No.
|
Exhibit
Description
|
|
3.1(1)
|
Certificate
of Incorporation, as amended on July 24, 2001
|
|
3.1(5)
|
Certificate
of Ownership and Merger of PeopleNet Name Change Subsidiary, Inc. with and
into PeopleNet International Corporation
|
|
3.2(1)
|
By-laws
|
|
4.1(1)
|
2001
Stock Option Plan
|
|
4.2(1)
|
2001
Non-Employee Director Stock Option Plan
|
|
4.3(1)
|
2001
Stock Incentive Plan
|
|
10.1(1)
|
Agreement
between American Champion Media & American Champion Entertainment
dated as of July 10, 2001
|
|
10.2(1)
|
Agreement
among ACEI, American Champion Media, ECapital Group & Anthony Chan,
dated as of June 20, 2001
|
|
10.3(1)
|
Agreement
between American Champion Media & World Channel dated as of December
27, 2000
|
|
10.4(1)
|
Agreement
between American Champion Media & Brighter Child Interactive dated as
of September 30, 1999
|
|
10.5(1)
|
Agreement
between American Champion Media & Prestige Toys Corp dated as of
October 13, 1999
|
|
10.6(2)
|
Agreement
- Sale of Assets between ECapital Group & PeopleNet International
dated March 21, 2002
|
|
10.7(2)
|
Agreement
- Sale of Assets between PeopleNet Corporation & PeopleNet
International dated March 21, 2002
|
|
10.8(3)
|
Lease
Agreement with CarrAmerica Techmart, LLC
|
|
10.9(4)
|
Agreement
and Plan of Merger with hereUare Communications, Inc., dated August 25,
2006
|
|
10.10(6)
|
Lease
Agreement with 1061 Terra Bella Associates, LLC
|
|
21.0
(6)
|
Subsidiaries
of the registrant
|
|
24.0 (7) | Power of Attorney | |
31.1A(8)
|
Rule
13a-14(a) / 15d-14(a) Certification of Benedict Van, CEO and
CFO
|
|
32.0A (8)
|
Section
1350
Certification
|
1. Filed as an exhibit to the Company's
Form 10-SB/A dated as of December 3, 2001
2. Filed as an exhibit to the Company's
Form 8-K dated as of March 21, 2002, and filed on April 4,
2002
3. Filed as Exhibit 10.8 to the
Company's quarterly Report on Form 10-QSB filed on August 14,
2006
4. Filed as Exhibit 10.9 to the
Company's Form 8-K dated as of August 25, 2006, and filed on August 31,
2006
5. Filed as Exhibit 3 to the Company's
Form 8-K dated as of March 26, 2007, and filed on March 29,
2007
6. Filed as an exhibit to the Company’s
Form 10-KSB for the period ending December 31, 2007.
7. Included
on Page 39 of the Form 10-K for the period ended December 31, 2009.
8. Filed
as an exhibit to the Company’s Form 10-K/A dated April 19, 2010, for the period
ended December 31, 2010.
(b) Exhibits Filed
Herewith
i. Exhibits
Inadvertently Omitted from the Form 10-K for the period ended December 31, 2009:
31.1 Rule 13a-14(a) / 15d-14(a)
Certification of Benedict Van, CEO and CFO
32.0 Section 1350
Certification
ii. Exhibits
to this Form 10-K/A
31.1B
Rule 13a-14(a) / 15d-14(a) Certification of Benedict Van, CEO and
CFO
32.0B
Section 1350 Certification
40