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EX-5.1 - GetFugu, Inc. | v183310_ex5-1.htm |
EX-23.2 - GetFugu, Inc. | v183310_ex23-2.htm |
As filed with the Securities and
Exchange Commission on April __, 2010
Registration
No. 333-
UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
GetFugu, Inc.
(Exact name of registrant as
specified in its charter)
Delaware
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5812
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20-8658254
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||
(State
or other jurisdiction of
incorporation
or organization)
|
(Primary
Standard
Industrial
Classification
Code
Number)
|
(I.R.S.
Employer Identification
Number)
|
8560
West Sunset Boulevard, 7th
Floor
West
Hollywood, California 90069
(424) 354-4800
(Address, including zip code, and
telephone number, including area code, of
registrant’s principal executive
offices)
John C.
Kirkland, Esq.
Luce
Forward Hamilton & Scripps LLP
601
S. Figueroa Street, 39th
Floor
Los
Angeles, California 90017
(213) 892-4907
Fax:
(213) 452-0835
(Address, including zip code, and
telephone number, including area code, of agent for service)
Approximate
date of commencement of proposed sale to the public: As soon as practicable after the
effective date of this Registration Statement.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the
following box: o
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of ‘‘accelerated filer,” “large accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer o Accelerated
filer o Non-accelerated
filer o Smaller
reporting company x
CALCULATION OF REGISTRATION
FEE
Title
of Each Class of
|
Amount
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Proposed
Maximum
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Amount
of
|
|||||||||
Securities
to be Registered
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to
be Registered(1)
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Aggregate
Offering Price (2)
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Registration
Fee
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|||||||||
Common
Stock, $0.001 par value
|
||||||||||||
Warrants
|
||||||||||||
Units
|
$ | 3,000,000 | $ | 3,000,000 | ||||||||
Total
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$ | 3,000,000 | $ | 3,000,000 | $ |
213.90
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(1)
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There
are being registered hereunder such indeterminate number of shares of
common stock, warrants to purchase common stock, and number of units as
shall have an aggregate initial offering price not to exceed $3,000,000.
Any securities registered hereunder may be sold separately or as units
with other securities registered hereunder. The securities registered also
include such indeterminate number of shares of common stock as may be
issued upon conversion of or exchange for debt securities that provide for
conversion or exchange, upon exercise of warrants, or pursuant to the
antidilution provisions of any such
securities.
|
(2)
|
Calculated
pursuant to Rule 457(o) of the rules and regulations under the Securities
Act of 1933.
|
The
registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registrant Statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and may be
changed without notice. We may not sell these securities until
the registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell these securities, and it is not soliciting offers to buy
these securities, in any jurisdiction where the offer or sale of these
securities is not permitted.
|
||
PRELIMINARY
PROSPECTUS
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SUBJECT
TO COMPLETION
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APRIL
23, 2010
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$3,000,000
Common
Stock
Warrants
You
should read this prospectus and any prospectus supplement carefully before you
invest. We are offering up to _____ shares of our common stock at
$___ per share, plus warrants to purchase an additional _____ shares of common
stock.
We will
sell directly, through agents, dealers or underwriters, or through a combination
of these methods. If any agents, dealers or underwriters are involved in the
sale of the securities, the relevant prospectus supplement will set forth any
applicable commissions or discounts. Our net proceeds from the sale of
securities will also be set forth in the relevant prospectus
supplement.
Our
common stock trades on the Over The Counter Bulletin Board under the trading
symbol “GFGU.”
The last
sale price of our common stock on April 21, 2010 was $0.029 per
share.
Investing
in our common stock involves a high degree of risk. Before buying any
securities, you should read the discussion of material risks of investing in our
securities in “Risk factors” beginning on page __ of this
prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date
of this prospectus is __________, 2010
Table
of contents
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Page
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Forward-looking
statements
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1
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About
this prospectus
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1
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|
Summary
of offering
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2
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Our
business
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2
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Risk
factors
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4
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Ration
of earnings to fixed charges
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10
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Use
of proceeds
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10
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Determination
of offering price
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10
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Dilution
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11
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Plan
of distribution
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11
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Description
of securities to be registered
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14
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Interests
of named experts and counsel
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16
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Description
of our business
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16
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Description
of property
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18
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Legal
proceedings
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18
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Market
for common stock and related stockholder matters and purchases of equity
securities
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19
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Stock
quotation
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20
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Financial
statements
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20
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Management’s
discussion and analysis of financial condition and results of
operations
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22
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Directors
and executive officers
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26
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Executive
compensation
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30
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Security
ownership of certain beneficial owners and management
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31
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GetFugu
and the fugu logo are trademarks of GetFugu, Inc. This prospectus
also contains trademarks of other companies.
Dealer
Prospectus Delivery Obligation
Until
_____, all dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers’ obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
i
Forward-looking
statements
This
prospectus contains forward-looking statements within the meaning of the federal
securities laws. These statements relate to future events or our future
financial performance and involve known and unknown risks, uncertainties and
other factors that may cause our actual results, levels of activity, performance
or achievements to be materially different from those expressed or implied by
the forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as “may,” “likely,” “will,” “should,” “expect,”
“plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue”
or the negative of these terms or other comparable terminology. These
forward-looking statements are subject to a number of risks that could cause
them to differ from our expectations. These include, but are not limited to,
risks relating to:
•
Our
financial condition and results of operations, including expectations and
projections relating to our future performance and ability to achieve
profitability;
•
|
Our
ability to capitalize on our business
strategy
|
•
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Our
ability to take advantage of opportunities for revenue
development;
|
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•
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Increasing
competition in the mobile search engine industry with competitors with
significantly more ability to acquire
capital;
|
•
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Rapidly
evolving and changing competitive and industry conditions;
and
|
•
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The
impact of general economic recession and other market and economic
challenges on our business.
|
You
should not place undue reliance on these forward-looking statements, which are
based on our current views and assumptions. In evaluating these statements, you
should specifically consider various factors, including the foregoing risks and
those outlined under “Risk Factors.” Many of these factors are beyond our
control. Our forward-looking statements represent estimates and assumptions only
as of the date of this prospectus. Except as required by law, we undertake no
obligation to update any forward-looking statement to reflect events or
circumstances occurring after the date of this prospectus.
About
this prospectus
This
prospectus is part of a registration statement on Form S-1 that we filed with
the Securities and Exchange Commission (SEC). We may sell such
indeterminate shares of our common stock, preferred stock, debt securities,
warrants to purchase common stock, or units consisting of any combination of the
foregoing, resulting in gross proceeds up to $3,000,000. This prospectus
provides you with a general description of the securities we are
offering.
We may
also provide a prospectus supplement that may add, update or change information
contained in this prospectus. If there is any inconsistency between the
information in this prospectus and a prospectus supplement, you should rely on
the information in the prospectus supplement. Before making an investment
decision, you should read both this prospectus and any applicable prospectus
supplement. We are only offering these securities in states where such offer is
permitted.
We have
not authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. We are not making an offer to sell these securities in any state
where such an offer is prohibited. You should not assume that the information
contained in this prospectus or any related prospectus supplement is accurate as
of any date other than the date on the front cover of this prospectus or the
related prospectus supplement, or that the information contained in any document
incorporated by reference is accurate as of any date other than the date of the
document incorporated by reference. We undertake no obligation to publicly
update or revise such information, whether as a result of new information,
future events or any other reason, except to the extent required by
law.
1
Summary
of offering
Common stock offered
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Up
to ______ shares at a purchase price of $_____ per
share.
|
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Warrants to purchase common
stock
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For
every share purchased, we will issue a warrant to the investors
to purchase _____ shares of our common stock at an exercise price of $___
per share.
|
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Common
stock to be outstanding immediately following this
offering
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Up
to _____ shares, assuming none of the warrants are
exercised.
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Use
of proceeds
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For
capital expenditures, working capital needs and other general corporate
purposes. A portion of net proceeds, currently intended for
general corporate purposes, may be used to acquire or invest in
technologies, products or services that complement our business.
Pending any ultimate use of any portion of the proceeds from this
offering, we intend to invest the proceeds in a variety of capital
preservation investments, including short-term, interest-bearing
instruments such as United States government securities and municipal
bonds. See “Use of Proceeds.”
|
|
Warrant
terms
|
The
warrants issued to the investors will be issued at a price of $_____ per
share of common stock. The warrants will be exercisable for a period of
three years from the effective date of our registration
statement.
|
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OTC
Bulletin Board Symbol
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GFGU
|
This
investment involves risks. You should refer to the discussion of risk factors,
beginning on page __ of this
prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
Summary
Financial Information
We are a
smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are
not required to provide the information under this item.
Our
business
GetFugu,
Inc, (“GetFugu,” “Company,” “we,” “us,” or “our”), is developing next generation
mobile search tools. Our technology is designed to play on the strengths of
mobile handheld devices (mobile phones) and assist consumers to retrieve content
more expediently. Consumers can download GetFugu application tools to their
mobile phone device. The GetFugu applications allow consumers to
retrieve content and eliminates the need to type a website address or search
term into a browser.
2
We
currently have four products.
|
·
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See It (ARL): “Vision
recognition” The GetFugu application recognizes logos and products through
any mobile phone camera. Consumers simply point their phone at a logo and
retrieve content from the brand
owner.
|
|
·
|
Say It (VRL): “Voice
recognition” The consumer can simply speak into the phone to retrieve
content. In addition to brand names, the consumer can say generic keywords
such as “best pizza” or “ATM”.
|
|
·
|
Find It (GRL): “Location
recognition” For local content, GetFugu is designed to work with
the Global Positioning Systems of today’s mobile phones. The application
will return content, based on the proximity to the user. A keyword of
“pizza” will return the closest pizza parlors. Local businesses
can pay for voice-activated key words to position themselves at the top of
the search list within specified postal
codes.
|
|
·
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Get it (Hotspotting):
GetFugu provides advertisers with a way to monetize their marketing
efforts through a mobile ecommerce tool called Hot-Spotting, which enables
the consumer to purchase or retrieve information on any item featured in
the video simply by touching it on the screen. This function is currently
limited to touch-screen phones and select Blackberry
models.
|
Our
corporate information
The
Company was incorporated in the State of Nevada on March 14, 2007 under the name
Madero, Inc. On August 29, 2008, the Company entered into a stock
purchase agreement (the “Stock Purchase Agreement”) with Mike Lizarraga (sole
director, former President, Chief Executive Officer, and Chief Financial Officer
of Madero, Inc.), and Media Power, Inc. (“MPI”). Pursuant to the terms and
conditions of the Stock Purchase Agreement, MPI acquired 48,000,000 shares of
the Company’s common stock (this number, and all other share amounts presented,
is post the 12 for 1 forward stock split which was effectuated on February 11,
2009), or approximately 48.07% of the Company’s then issued and outstanding
shares of common stock from Mr. Lizarraga.
Prior to
the closing of the transactions referenced in the Stock Purchase Agreement, the
Company was a development stage company in an unrelated
industry. Through March 14, 2007, the Company’s activities had been
limited to its formation, business planning and raising capital, and since
August 29, 2008 has been involved in the development of next generation mobile
search tools.
On
January 23, 2009, the Company amended its Articles of Incorporation to increase
the number of authorized common stock, par value $0.001 per share, from
75,000,000 to 500,000,000. On February 11, 2009, there was a forward
split of common stock whereby each issued and outstanding share of common stock
was split into 12 shares of common stock.
Effective
March 25, 2009, the Company’s Articles of Incorporation were amended to change
the name to GetFugu, Inc.
Effective
April 9, 2009, we entered into an Agreement for the Assignment of Patent Rights
(the “Assignment Agreement”) with MARA Group Ltd. Pursuant to the
Assignment Agreement the Company acquired eight patent applications (the “Patent
Applications”) from MARA Group Ltd. in exchange for 25 million shares of Common
Stock of the Company. Prior to the closing of this transaction MARA
Group Ltd. was deemed to be an “affiliate” of ours, as an owner of more than ten
(10%) percent of our outstanding Common Stock.
On
October 19, 2009, the Company’s Board of Directors approved (i) the
reincorporation of the Company from Nevada to Delaware, (ii) increasing the
number of authorized shares of Common Stock from 500,000,000 to 750,000,000,
(iii) issuing up to 200,000,000 shares of “blank check” preferred stock, and
(iv) the creation of the 2009 Incentive Compensation Plan with a maximum of
250,000,000 shares of Common Stock to be issued with no more than 100,000,000
shares permitted to be issued in any fiscal year. As of April 15,
2010, the Company had not formally adopted the Incentive Compensation
Plan. All of the above noted items require shareholder
approval. Accordingly, at this meeting, the Board approved the filing
with the Securities and Exchange Commission (“SEC”) of a written consent
statement. As of April 15, 2010 the Company has not filed its amended
articles of incorporation with the appropriate regulatory
bodies.
3
Risk
factors
The
following important factors, and the important factors described elsewhere in
this report or in our other filings with the SEC, could affect (and in some
cases have affected) our results and could cause our results to be materially
different from estimates or expectations. Other risks and
uncertainties may also affect our results or operations
adversely. The following and these other risks could materially and
adversely affect our business, operations, results or financial condition. You
should carefully read the following risk factors when you evaluate our business
and the forward-looking statements that we make in this report, in our financial
statements and elsewhere. Any of the following risks could materially adversely
affect our business, our operating results, our financial condition and the
actual outcome of matters as to which we make forward-looking
statements.
Risks
related to our lack of liquidity
We
have no revenues and have incurred and expect to continue to incur substantial
losses. We will not be successful unless we reverse this trend.
We began
our sales efforts in late March 2010 and as of April 15, 2010, have recorded no
revenues. As a result, we have generated significant operating losses
since our formation and expect to incur substantial losses and negative
operating cash flows for the foreseeable future. We anticipate that
our existing cash and cash equivalents will not be sufficient to fund our
business needs. Our ability to continue may prove more expensive than we
currently anticipate and we may incur significant additional costs and
expenses.
We expect
that capital outlays and operating expenditures will continue to increase as we
attempt to expand our infrastructure and development activities and we will
require significant additional capital in order to implement our business plan
and continue our operations.
We expect
to generate revenues from product sales or the license of our technology, but
can provide no assurances as to our success in generating revenue.
If
we fail to raise additional capital or receive substantial cash inflows from
additional investors, our business objectives could be compromised.
We have
limited capital resources and operations to date have been funded with the
proceeds from equity and debt financings. Primarily as a result of our
recurring losses and our lack of liquidity in connection with our fiscal year
ended December 31, 2009, we received a report from our independent auditors that
includes an explanatory paragraph describing the substantial doubt as to our
ability to continue as a going concern.
Even if
we obtain additional short term financing, our business will require substantial
additional investment that we have not yet secured. We cannot be sure how much
we will need to spend in order to develop and market new products, services and
technologies in the future. We expect to continue to spend substantial amounts
on development. Further, we will not have sufficient resources to develop fully
any new products, services or technologies unless we are able to raise
substantial additional financing on acceptable terms or secure funds from new or
existing partners. Our failure to raise capital when needed would adversely
affect our business, financial condition and results of operations, and could
force us to reduce or discontinue our operations at some time in the future,
even if we obtain financing in the near term
4
If
we borrow money to expand our business, we will face the risks of
leverage.
Our
ability to borrow funds will depend upon a number of factors, including the
condition of the financial markets. The risk of loss in such circumstances
is increased because we would be obligated to meet fixed payment obligations on
specified dates regardless of our revenue. If we do not meet our debt
service payments when due, we may sustain the loss of our equity investment in
any of our assets securing such debt upon the foreclosure on such debt by a
secured lender.
Risks
related to our business
Going
Concern
Primarily
as a result of our recurring losses and our lack of liquidity in connection with
our fiscal year ended December 31, 2009 , we received a report from
our independent registered public accounting firm that includes an explanatory
paragraph describing the substantial doubt as to our ability to continue as a
going concern.
To this point, we have been in
product development and our success is uncertain.
We are a
development stage company and are subject to the risks associated with a
development stage company. Subsequent to December 31, 2009, we have determined
that our initial products and services are in a final completion stage. We may
fail to fully develop products or services, to implement our business model and
strategy successfully or to revise our business model and strategy should
industry conditions and competition change. We cannot make any assurances that
any of our product candidates, if successfully developed, would generate
sufficient revenues to enable us to be profitable. Furthermore, we cannot make
any assurances that we will be successful in addressing these risks. If we are
not, our business, results of operations and financial condition will be
materially adversely affected.
We
have a limited operating history and we may not be able to successfully develop
our business.
We have a
limited operating history and our financial health will be subject to all the
risks inherent in the establishment of a new business enterprise. The
likelihood of our success must be considered in the light of the problems,
expenses, difficulties, complications, and delays frequently encountered in
connection with the startup and growth of a new business, and the competitive
environment in which we will operate. Our success is dependent upon the
successful financing and development of our business plan. No assurance of
success is offered. Unanticipated problems, expenses, and delays are
frequently encountered in establishing a new business, and marketing and
developing products. These include, but are not limited to, competition,
the need to develop customers and market expertise, market conditions, sales,
marketing and governmental regulation. The failure to meet any of these
conditions would have a materially adverse effect and may force us to reduce or
curtail operations. No assurance can be given that we can or will ever
operate profitably.
Our
limited operating history makes predicting our future operating results
difficult. As a software development company with a limited history, we face
numerous risks and uncertainties in the competitive markets. In particular, we
have not proven that we can:
|
·
|
develop entertainment software in
a manner that enables us to be profitable and meet strategic partner and
customer requirements;
|
|
·
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develop and maintain
relationships with key customers and strategic partners that will be
necessary to optimize the market value of our products and
services;
|
|
·
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raise sufficient capital in the
public and/or private markets;
or
|
|
·
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respond effectively to
competitive pressures.
|
If we are
unable to accomplish these goals, our business is unlikely to succeed. Even if
we are able to license certain of our technology to generate revenue we will
still be operating at a significant loss during the course of our software
development program.
5
If
we are unable to establish sales and marketing capabilities or enter into
agreements with third parties to sell and market products and services we
develop, we may not be able to generate product revenue.
Subsequent
to December 31, 2009, we have entered into various strategic sales alliances
with third parties to market our products and services we develop. We do not
know if these relationships will result in revenues sufficient to support our
business model.
Our
software products and services are subject to the risk of failure inherent in
products or services based on new and unproven technologies.
Because
our software is and will be based on new technologies, it is subject to risk of
failure. These risks include the possibility that:
|
·
|
our new approaches will not
result in any products or services that gain market
acceptance;
|
|
·
|
our software will unfavorably
interact with other types of commonly used software, thus restricting the
circumstances in which it may be
used;
|
|
·
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proprietary rights of third
parties will preclude us from marketing a new product;
or
|
|
·
|
third parties will market
superior or more cost-effective products or
services.
|
As a
result, our activities, either directly or through corporate partners, may not
result in any commercially viable products or services.
Our
software products and related services may be subject to future product
liability claims. Such product liability claims could result in expensive and
time-consuming litigation and payment of substantial damages.
The
development, testing, marketing, sale and use of software runs a risk that
product liability claims may be asserted against us if it is believed that the
use or testing of our products and services have caused adverse technology
problems to existing systems. We cannot make assurances that claims, suits, or
complaints relating to the use of our technology will not be asserted against us
in the future. If a product liability claim asserted against us was successful,
we may be required to limit commercialization of our technology. Regardless of
merit or outcome, claims against us may result in significant diversion of our
management’s time and attention, expenditure of large amounts of cash on legal
fees, expenses and damages and a decreased demand for our products and services.
We cannot make any assurances that we will be able to acquire or maintain
insurance coverage at a reasonable cost or in sufficient amounts to protect
us.
We
do not hold any patents on our technology and it may be difficult to protect our
technology.
We do not
have any patents issued, but we do have patents pending. We do have
development work or source code which we believe has the potential for patent
protection. We will evaluate our business benefits in pursuing patents in
the future. We seek to protect all of our development work with
confidentiality agreements with our engineers, employees and any outside
contractors. However, third parties may, in an unauthorized manner,
attempt to use, copy or otherwise obtain and market or distribute our
intellectual property or technology or otherwise develop a product with the same
functionality as our software. Policing unauthorized use of our software and
intellectual property rights is difficult, and nearly impossible on a worldwide
basis. Therefore, we cannot be certain that the steps we have taken or will take
in the future will prevent misappropriation of our technology or intellectual
property, particularly in foreign countries where we plan to do business or
where our software will be sold or used, where the laws may not protect
proprietary rights as fully as do the laws of the United States or where the
enforcement of such laws is not common or effective.
6
A
dispute concerning the infringement or misappropriation of our proprietary
rights or the proprietary rights of others could be time consuming and costly
and an unfavorable outcome could harm our business
There is
significant litigation in the software field regarding patents and other
intellectual property rights. Software companies with greater financial and
other resources than us have gone out of business from the cost of patent
litigation or from losing a patent litigation. We may be exposed to future
litigation by third parties based on claims that our software, technologies or
activities infringe the intellectual property rights of others. Although we try
to avoid infringement, there is the risk that we will use a patented technology
owned or licensed by another person or entity and/or be sued for infringement of
a patent owned by a third party. Under current United States law, patent
applications are confidential for 18 months following their priority filing date
and may remain confidential beyond 18 months if no foreign counterparts are
applied for in jurisdictions that publish patent applications. If our products
are found to infringe any patents, we may have to pay significant damages or be
prevented from making, using, selling, offering for sale or importing such
products or services or from practicing methods that employ such products and
services.
Confidentiality
agreements with employees and others may not adequately prevent disclosure of
our trade secrets and other proprietary information and may not adequately
protect our intellectual property.
Our
success also depends upon the skills, knowledge and experience of our technical
personnel, our consultants and advisors as well as our licensors and
contractors. Because we operate in a highly competitive field, we rely almost
wholly on trade secrets to protect our proprietary technology and processes.
However, trade secrets are difficult to protect. We enter into confidentiality
and intellectual property assignment agreements with our corporate partners,
employees, consultants, outside scientific collaborators, developers and other
advisors. These agreements generally require that the receiving party keep
confidential and not disclose to third parties all confidential information
developed by the receiving party or made known to the receiving party by us
during the course of the receiving party’s relationship with us. These
agreements also generally provide that inventions conceived by the receiving
party in the course of rendering services to us will be our exclusive property.
However, these agreements may be breached and may not effectively assign
intellectual property rights to us. Our trade secrets also could be
independently discovered by competitors, in which case we would not be able to
prevent use of such trade secrets by our competitors. The enforcement of a claim
alleging that a party illegally obtained and used our trade secrets could be
difficult, expensive and time consuming and the outcome unpredictable. In
addition, courts outside the United States may be less willing to protect trade
secrets. The failure to obtain or maintain meaningful trade secret protection
could adversely affect our competitive position.
Raising
equity may result in a risk of potential significant shareholder
dilution.
From
our inception we have not yet received any sales
revenue. Accordingly, working capital has been obtained through debt
and equity financing activities. Our share price has proven to be
very volatile and the shares issued carry restrictive legends. As a
result, all equity-based transactions have been at significant discounts to the
quoted share price. The combination of the share volatility and
restricted transferability could result in a significant number of shares issued
to fund our operations. This potential significant issuance of shares
could result in a significant dilution to the shareholders.
Risks
related to our industry
Our
technology may become obsolete or lose its competitive advantage.
The
software and services business is very competitive, fast moving and intense, and
we expect it to be increasingly so in the future. Other companies have developed
and are developing software technologies and related services that, if not
similar in type to our software and services, are designed to address the same
end user or customer. Therefore, there is no assurance that our products or
services and any other products or services we may offer will be the best, the
first to market, or the most economical to make or use. If competitors’ products
or services are better than ours, for whatever reason, our sales could decrease,
our margins could decrease and our products and services may become
obsolete.
7
There are
many reasons why a competitor might be more successful than we are or will be,
including:
|
·
|
Competitors may have greater
financial resources and can afford more technical and development setbacks
than we can.
|
|
·
|
Competitors may have been in the
software business longer than we have. They may have greater experience
than us in critical areas like testing, sales and marketing. This
experience or their name recognition may give them a competitive advantage
over us.
|
|
·
|
Competitors may have a better
patent position protecting their technology than we either have or will
have. If we cannot prevent others from copying our technology or
developing similar technology, or if we cannot obtain a critical license
to another’s patent that we need to make and use our technology, we would
expect our competitive position to lessen. Because the company that is
“first to market” often has a significant advantage over latecomers, a
second place position could result in less than anticipated
sales.
|
If
potential customers do not accept our products or services, we may never achieve
enough sales to make our business profitable.
The
commercial success of our future products and services will be dependent on
their acceptance by potential customers. Our products and services will be based
on technology that has not been completely proven and is subject to the risks of
failure inherent in products and services based on new technologies. A
significant portion of our resources will be used for research and development
and marketing relating to our proposed products and services. There can be no
assurance that we can or will develop marketable products and services. The
failure of our products and services to achieve market acceptance would have a
material adverse effect on us.
Risks
related to our common stock
Our
stockholders may not be able to resell their shares at or above the purchase
price paid by such stockholders, or at all.
Our
common stock is listed on the Over The Counter Bulletin Board trading system
(“OTCBB”). An investment in our stock may be highly illiquid and subject
to significant market volatility. This volatility may be caused by a variety of
factors including low trading volume and market conditions.
In
addition, the value of our common stock could be affected by:
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·
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actual or anticipated variations
in our operating results;
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·
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changes in the market valuations
of other similarly situated companies providing similar services or
serving similar markets;
|
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·
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announcements by us or our
competitors of significant acquisitions, strategic partnerships, joint
ventures or capital
commitments;
|
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·
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adoption of new accounting
standards affecting our
industry;
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·
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additions or departures of key
personnel;
|
|
·
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introduction
of new products or services by us or our
competitors;
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8
|
·
|
sales of our common stock or
other securities in the open
market;
|
|
·
|
changes in financial estimates by
securities analysts;
|
|
·
|
conditions or trends in the
market in which we operate;
|
|
·
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changes in our earnings estimates
and recommendations by financial
analysts;
|
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·
|
our failure to meet financial
analysts’ performance expectations;
and
|
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·
|
other events or factors, many of
which are beyond our
control.
|
Stockholders
may experience wide fluctuations in the market price of our securities. These
fluctuations may have an extremely negative effect on the market price of our
securities and may prevent a stockholder from obtaining a market price equal to
the purchase price such stockholder paid when the stockholder attempts to sell
our securities in the open market. In these situations, the stockholder may be
required either to sell our securities at a market price which is lower than the
purchase price the stockholder paid, or to hold our securities for a longer
period of time than planned. An inactive market may also impair our ability to
raise capital by selling shares of capital stock, and may impair our ability to
acquire other companies by using common stock as consideration, or to recruit
and retain managers with equity-based incentive plans
Our
stock price may be highly volatile, because of several factors, including a
limited public float.
The
market price of our stock may be highly volatile because there has been a
relatively thin trading market for our stock, which causes trades of small
blocks of stock to have a significant impact on our stock price. You may not be
able to resell our common stock following periods of volatility because of the
market’s adverse reaction to volatility.
Other
factors that could cause such volatility may include, among other
things:
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·
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announcements concerning our
strategy;
|
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·
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litigation;
and
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·
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general market
conditions.
|
The
concentrated ownership of our capital stock may have the effect of delaying or
preventing a change in control of our company.
As of
April 15, 2010, our directors, officers, principal stockholders and their
affiliates beneficially own approximately 23.8% of our outstanding capital
stock. The interests of our directors, officers, principal stockholders and
their affiliates may differ from the interests of other stockholders. Our
directors, officers, principal stockholders and their affiliates will be able to
exercise significant influence over all matters requiring stockholder approval,
including the election of directors and approval of mergers, acquisitions and
other significant corporate transactions. (See “Principal
Stockholders.”)
9
Our
common stock is “a penny stock” and is subject to special regulations
promulgated by the SEC.
The
Securities and Exchange Commission (“SEC”) has adopted regulations that
generally define “penny stock” to be an equity security that has a market price
of less than $5.00 per share, subject to specific exemptions. The market price
of our common stock is less than $5.00 per share and therefore we are a “penny
stock” according to SEC rules. This designation requires any broker or dealer
selling these securities to disclose certain information concerning the
transaction, obtain a written agreement from the purchaser and determine that
the purchaser is reasonably suitable to purchase the securities. These rules may
restrict the ability of brokers or dealers to sell our common stock and may
affect the ability of investors hereunder to sell their shares.
We
have never paid nor do we expect in the near future to pay
dividends.
We have
never paid cash dividends on our capital stock and do not anticipate paying any
cash dividends for the foreseeable future.
Investors
may lose all of their investment in us.
Investment
in us involves a high degree of risk. Investors may never recoup all or
part of or realize any return on their investment. Accordingly, investors
may lose all of their investment and must be prepared to do so.
We may experience
difficulties in the future in complying with Section 404 of the Sarbanes-Oxley
Act.
As a
public company, we are required to evaluate our internal controls under Section
404 of the Sarbanes-Oxley Act of 2002. In this regard, we have and will continue
to comply with the internal control requirements of Section 404 of the
Sarbanes-Oxley Act. If we fail to maintain the adequacy of our internal
controls, we could be subject to regulatory scrutiny, civil or criminal
penalties and/or stockholder litigation. Any inability to provide reliable
financial reports could harm our business. Furthermore, any failure to
implement required new or improved controls, or difficulties encountered in the
implementation of adequate controls over our financial processes and reporting
in the future, could harm our operating results or cause us to fail to meet our
reporting obligations.
If we
fail to establish or maintain proper and effective internal controls in future
periods, it could adversely affect our operating results, financial condition
and our ability to run our business effectively and could cause investors to
lose confidence in our financial reporting.
Ratio
of earnings to fixed charges
For the
years ended December 31, 2009, 2008 and 2007, earnings were insufficient to
cover fixed charges by $98,490, $0 and $0, respectively.
Use
of proceeds
Unless we
state otherwise in the applicable prospectus supplement, we expect to use the
proceeds from the sale of our securities for capital expenditures, working
capital needs and other general corporate purposes.
Pending
any ultimate use of any portion of the proceeds from this offering, we intend to
invest the proceeds in a variety of capital preservation investments, including
short-term, interest-bearing instruments such as the United States government
securities and municipal bonds.
Determination
of offering price
The
offering price of the shares has been determined arbitrarily by
us. We considered no aspect of our capital structure in determining
the offering price or the number of shares to be offered. The price does not
bear any relationship to our assets, book value, earnings, or other established
criteria for valuing a privately held company. Accordingly, the offering price
should not be considered an indication of the actual value of our
securities.
10
Dilution
Dilution
represents the difference between the offering price and the net tangible book
value per share immediately after completion of this offering. Net tangible book
value is the amount that results from subtracting total liabilities and
intangible assets from total assets. Dilution arises mainly as a result of our
arbitrary determination of the offering price of the shares being offered.
Dilution of the value of the shares you purchase is also a result of the lower
book value of the shares held by our existing stockholders. As of December 31,
2009, the net tangible book value of our shares was $_____, or approximately
$___ per share, based upon _____ shares outstanding.
Upon
completion of this offering, but without taking into account any change in the
net tangible book value after completion of this offering, other than that
resulting from the sale of the shares and receipt of assumed maximum proceeds of
$3,000,000, of which there can be no guarantee, less offering expenses of $___,
the net tangible book value of the ______ shares to be outstanding, assuming a
maximum subscription, will be $_____, or approximately $___ per
share. Assuming a maximum subscription, without any additional
investment on their part, and the purchasers of shares in this offering will
incur immediate dilution (a reduction in net tangible book value per share from
the offering price of $___ per share) of $___ per share.
After
completion of the sale of the maximum number of shares in this offering, the new
shareholders will own approximately ___% of the total number of shares then
outstanding, for which they will have made a cash investment of $3,000,000, or
$___ per share. The existing stockholders will own approximately ___%
based on the maximum proceeds received of the total number of shares then
outstanding, for which they have made contributions of cash and/or services
and/or other assets, totaling $___ or $___ per share.
The
following table illustrates the per share dilution to new investors, assuming
both the minimum and maximum number of shares being offered, and does not give
any effect to the results of any operations subsequent to
December
31, 2009 or the date of this registration statement:
Public
Offering Price Per Share
|
$
|
|
Net
Tangible Book Value Prior To This Offering
|
$
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|
Net
Tangible Book Value After Offering
|
$
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|
Immediate
Dilution Per Share To New Investors
|
|
$
|
The
following table summarizes the number and percentage of shares purchased, the
amount and percentage of consideration paid and the average price per share paid
by our existing stockholders and by new investors in this offering:
Price
|
Number
of
|
Percent
of
|
Consideration
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|||||
Per
Share
|
Shares
Held
|
Ownership
|
Paid
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|||||
Existing
Stockholders
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||||||||
Investors
in This Offering
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|
Plan
of distribution
We may
offer and sell the securities described in this prospectus:
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•
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through
agents;
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•
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through
one or more underwriters or
dealers;
|
|
•
|
through
a block trade in which the broker or dealer engaged to handle the block
trade will attempt to sell the securities as agent; but may position and
resell a portion of the block as principal to facilitate the
transaction;
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•
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directly
to one or more purchasers (through a specific bidding or auction process
or otherwise); or
|
|
•
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through
a combination of any of these methods of
sale.
|
11
The
distribution of the securities described in this prospectus may be effected in
one or more transactions either:
|
•
|
at
a fixed price or prices, which may be
changed;
|
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•
|
at
market prices prevailing at the time of
sale;
|
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•
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at
prices relating to the prevailing market prices;
or
|
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•
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at
negotiated prices.
|
Offers to
purchase the securities may be solicited by agents designated by us. Any agent
involved in the offer or sale of the securities will be named, and any
commissions payable by us to the agent will be described, in the applicable
prospectus supplement. Unless otherwise indicated in the applicable prospectus
supplement, any such agent will be acting on a best efforts basis for the period
of its appointment. Any agent may be deemed to be an underwriter, as such term
is defined in the Securities Act of 1933, of the securities so offered and
sold.
If we
offer and sell the securities through an underwriter or underwriters, we will
execute an underwriting agreement with the underwriter or underwriters. The
names of the specific managing underwriter or underwriters, as well as any other
underwriters, and the terms of the transactions, including compensation of the
underwriters and dealers, which may be in the form of discounts, concessions or
commissions, if any, will be described in the applicable prospectus supplement,
which will be used by the underwriters to make resales of the securities. That
prospectus supplement and this prospectus will be used by the underwriters to
make resales of the securities. If underwriters are used in the sale of any of
the securities in connection with this prospectus, those securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at fixed
public offering prices or at varying prices determined by the underwriters and
us at the time of sale. The securities may be offered to the public either
through underwriting syndicates represented by managing underwriters or directly
by one or more underwriters. If any underwriter or underwriters are used in the
sale of the securities, unless otherwise indicated in a related prospectus
supplement, the underwriting agreement will provide that the obligations of the
underwriters are subject to some conditions precedent and that with respect to a
sale of these securities the underwriters will be obligated to purchase all such
securities if any are purchased.
We may
grant to the underwriters options to purchase additional securities to cover
over-allotments, if any, at the public offering price, with additional
underwriting commissions or discounts, as may be set forth in a related
prospectus supplement. The terms of any over-allotment option will be set forth
in the prospectus supplement for those securities.
If any
underwriters are involved in the offer and sale, they will be permitted to
engage in transactions that maintain or otherwise affect the price of our
securities. These transactions may include over-allotment transactions,
purchases to cover short positions created by the underwriter in connection with
the offering and the imposition of penalty bids. If an underwriter creates a
short position in the securities in connection with the offering, i.e., if it
sells more securities than set forth on the cover page of the applicable
prospectus supplement, the underwriter may reduce that short position by
purchasing the securities in the open market. In general, purchases of a
security to reduce a short position could cause the price of the security to be
higher than it might be in the absence of such purchases. As noted above,
underwriters may also choose to impose penalty bids on other underwriters or
selling group members.
Neither
we nor any underwriter make any representation or prediction as to the direction
or magnitude of any effect that the transactions described above may have on the
price of the securities. In addition, neither we nor any underwriter make any
representation that such underwriter will engage in such transactions or that
such transactions, once commenced, will not be discontinued without
notice.
If we
offer and sell the securities through a dealer, we or an underwriter will sell
the securities to the dealer, as principal. The dealer may then resell the
securities to the public at varying prices to be determined by the dealer at the
time of resale. Any such dealer may be deemed to be an underwriter, as such term
is defined in the Securities Act, of the securities so offered and sold. The
name of the dealer and the terms of the transactions will be set forth in the
applicable prospectus supplement.
We may
solicit offers to purchase the securities directly, and we may sell the
securities directly to institutional or other investors, who may be deemed an
underwriter within the meaning of the Securities Act with respect to any resales
of those securities. The terms of these sales, including the terms of any
bidding or auction process, if utilized, will be described in the applicable
prospectus supplement.
12
We may
enter into agreements with agents, underwriters and dealers under which we may
agree to indemnify the agents, underwriters and dealers against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments they may be required to make with respect to these liabilities. The
terms and conditions of this indemnification or contribution will be described
in the applicable prospectus supplement. Some of the agents, underwriters or
dealers, or their affiliates may be customers of, engage in transactions with or
perform services for us in the ordinary course of business.
In order
to comply with the securities laws of some states, if applicable, the securities
offered hereby will be sold in those jurisdictions only through registered or
licensed brokers or dealers. In addition, in some states securities may not be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and complied with.
Regulation
M
During
such time as we are engaged in a distribution of any of the securities being
registered by this prospectus, we are required to comply with Regulation M under
the Exchange Act. In general, Regulation M precludes any selling
security holder, any affiliated purchaser and any broker-dealer or other person
who participates in a distribution from bidding for or purchasing, or attempting
to induce any person to bid for or purchase, any security that is the subject of
the distribution until the entire distribution is complete.
Regulation
M defines a “distribution” as an offering of
securities that is distinguished from ordinary trading activities by the
magnitude of the offering and the presence of special selling efforts and
selling methods. Regulation M also defines a “distribution
participant” as an
underwriter, prospective underwriter, broker, dealer, or other person who has
agreed to participate or who is participating in a distribution.
Regulation
M prohibits, with certain exceptions, participants in a distribution from
bidding for or purchasing, for an account in which the participant has a
beneficial interest, any of the securities that are the subject of the
distribution. Regulation M also governs bids and purchases made in
order to stabilize the price of a security in connection with a distribution of
the security. We have informed the selling security holders that the
anti-manipulation provisions of Regulation M may apply to the sales of their
shares offered by this prospectus, and we have also advised the selling security
holders of the requirements for delivery of this prospectus in connection with
any sales of the shares offered by this prospectus.
With
regard to short sales, the selling security holders cannot cover their short
sales with securities from this offering. In addition, if a short
sale is deemed to be a stabilizing activity, then the selling security holders
will not be permitted to engage in such an activity. All of these
limitations may affect the marketability of our common stock.
Penny
Stock Rules
The SEC
has adopted rules that regulate broker-dealer practices in connection with
transactions in penny stocks. Penny stocks are generally equity securities
with a price of less than $5.00 (other than securities registered on certain
national securities exchanges, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system).
The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from those rules, to deliver a standardized risk disclosure
document prepared by the SEC which:
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·
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contains
a description of the nature and level of risk in the market for penny
stocks in both public offerings and secondary
trading;
|
|
·
|
contains
a description of the broker's or dealer's duties to the customer and of
the rights and remedies available to the customer with respect to
violations of such duties or other requirements of federal securities
laws;
|
|
·
|
contains
a brief, clear, narrative description of a dealer market, including "bid"
and "ask" prices for penny stocks and the significance of the spread
between the bid and ask prices;
|
13
|
·
|
contains
the toll-free telephone number for inquiries on disciplinary
actions;
|
|
·
|
defines
significant terms in the disclosure document or in the conduct of trading
in penny stocks; and
|
|
·
|
contains
such other information, and is in such form (including language, type
size, and format) as the SEC shall require by rule or
regulation.
|
Prior to
effecting any transaction in a penny stock, a broker-dealer must also provide a
customer with:
|
·
|
the
bid and ask prices for the penny
stock;
|
|
·
|
the
number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the market
for such stock;
|
|
·
|
the
amount and a description of any compensation that the broker-dealer and
its associated salesperson will receive in connection with the
transaction; and
|
|
·
|
a
monthly account statement indicating the market value of each penny stock
held in the customer's account.
|
In
addition, the penny stock rules require that prior to effecting any transaction
in a penny stock not otherwise exempt from those rules, a broker-dealer must
make a special written determination that the penny stock is a suitable
investment for the purchaser and receive (i) the purchaser's written
acknowledgment of the receipt of a risk disclosure statement, (ii) a written
agreement to transactions involving penny stocks, and (iii) a signed and dated
copy of a written suitability statement. These disclosure
requirements may have the effect of reducing the trading activity in the
secondary market for our securities, and therefore our stockholders may have
difficulty selling their shares.
Blue
Sky Restrictions on Resale
Any
person who purchases shares of our common stock pursuant to this prospectus, and
who subsequently wants to resell such shares will have to comply with state
securities laws, also known as “blue sky laws,” with regard to secondary
sales. All states offer a variety of exemptions from registration of
secondary sales. Many states, for example, have an exemption for secondary
trading of securities registered under section 12(g) of the Exchange Act or for
securities of issuers that publish continuous disclosure of financial and
non-financial information in a recognized securities manual, such as Standard
& Poor’s. The broker for a selling security holder will be able
to advise the stockholder as to which states have an exemption for secondary
sales of our common stock.
Description
of securities to be registered
The
descriptions of the securities contained in this prospectus, together with any
applicable prospectus supplements, summarize all the material terms and
provisions of the securities that we are offering. We are
offering:
|
·
|
common
stock; and
|
|
·
|
warrants
to purchase common stock; in
|
|
·
|
units
consisting of __ shares of common stock, together with warrants to
purchase an additional ___ shares of common
stock.
|
In this
prospectus, we refer to our common stock, warrants and units collectively as
“securities.” The total dollar amount of all securities that we may issue
pursuant to this prospectus will not exceed $3,000,000.
Common
stock
The terms
of our common stock are set forth in our certificate of incorporation and
bylaws. Our authorized capital stock consists of 500,000,000 shares
of common stock, par value $0.001 per share and no shares of preferred
stock. At April 15, 2010, a total of 482,927,956 common shares were
issued and outstanding.
14
The
holders of common stock are entitled to one vote for each share held. The
affirmative vote of a majority of votes cast at a meeting which commences with a
lawful quorum is sufficient for approval of most matters upon which shareholders
may or must vote, including the questions presented for approval or ratification
at the annual meeting. Common shares do not carry cumulative voting
rights, and holders of more than 50% of the common stock have the power to elect
all directors and, as a practical matter, to control the Company. Holders of
common stock are not entitled to preemptive rights, and the common stock may
only be redeemed at our election.
Shares
Eligible for Future Sale
When we
complete the maximum offering, we will have _____ outstanding shares of common
stock. The _____ shares of our common stock sold in this offering will be freely
transferable unless they are purchased by our affiliates, as that term is
defined in Rule 144 under the Securities Act. The remaining outstanding shares
of our common stock will be restricted, which means they were originally issued
in offerings that were not registered
on a
registration statement filed with the SEC. These restricted shares may be resold
only through registration under the Securities Act or under an available
exemption from registration, including the exemption provided by Rule
144.
Rule
144
In
general, under Rule 144, a person, or persons whose shares are aggregated,
including a person who may be deemed our affiliate, who has beneficially owned
restricted shares of common stock for at least six months would be entitled to
sell publicly within any three-month period a number of shares that does not
exceed the greater of: 1% of the number of shares of our common
stock then outstanding, which will equal approximately _____ shares immediately
after the maximum offering; or the average weekly trading volume of our common
stock on OTC Bulletin Board during the four calendar weeks before the filing of
a notice on Form 144 relating to the sale.
Sales
under Rule 144 are governed by manner of sale provisions and notice requirements
and to the availability of current public information about us. Most
of our current shareholders are eligible to begin selling up to _____ shares of
our common stock pursuant to Rule 144, if these volume and manner of sale
limitations are complied with. We are unable to estimate accurately the number
of restricted shares that will actually be sold under Rule 144 because this will
depend in part on the market price of our common stock, the personal
circumstances of the sellers and other factors.
Warrants
The
following description, together with the additional information we may include
in any applicable prospectus supplements, summarizes the material terms and
provisions of the warrants that we are offering under this prospectus and the
related warrant agreements and warrant certificates. While the terms summarized
below will apply generally to any warrants that we may offer, we will describe
the particular terms of any series of warrants in more detail in an applicable
prospectus supplement. If we indicate in the prospectus supplement, the terms of
any warrants offered under that prospectus supplement may differ from the terms
described below. Specific warrant agreements will contain additional important
terms and provisions and will be incorporated by reference as an exhibit to the
registration statement that includes this prospectus.
Before
exercising their warrants, holders of warrants will not have any of the rights
of holders of the securities purchasable upon such exercise, including the right
to receive dividends, if any, or, payments upon our liquidation, dissolution or
winding up or to exercise voting rights, if any.
The terms
of the warrants are summarized as follows: ___ warrants will be
offered for each share of common stock; the warrants will not be separately
transferable, and no public market is expected to develop with respect to the
warrants; shares of common stock may be purchased upon the exercise of one
warrant at an exercise price of $___ per share; the right to exercise the
warrants will commence on issuance and expire after ___ years.
Holders
of the warrants may exercise the warrants by delivering the warrant certificate
representing the warrants to be exercised together with specified information,
and paying the required amount in immediately available funds. Upon
receipt of the required payment and the warrant certificate properly completed
and duly executed at the corporate trust office, we will issue and deliver the
securities purchasable upon such exercise. If fewer than all of the warrants
represented by the warrant certificate are exercised, then we will issue a new
warrant certificate for the remaining amount of warrants. Holders of the
warrants may surrender securities as all or part of the exercise price for
warrants.
15
Units
We will
issue the common stock and warrants in units comprised of ___ shares of common
stock and a warrant to purchase ___ additional shares of common stock. Each unit
will be issued so that the holder of the unit is also the holder of each
security included in the unit. Thus, the holder of a unit will have the rights
and obligations of a holder of each included security. The warrants
are not transferrable. The shares of common stock may be sold
separately from the warrants.
The
preceding description and any description of units in the applicable prospectus
supplement does not purport to be complete and is subject to and is qualified in
its entirety by reference to the unit agreement and, if applicable, collateral
arrangements and depositary arrangements relating to such
units.
Dividend
policy
Holders
of our common stock are entitled to dividends if declared by the Board of
Directors out of funds legally available for payment of
dividends. From our inception we have not declared any
dividends.
We do not
intend to issue any cash dividends in the future. We intend to retain
earnings, if any, to finance the development and expansion of our
business. However, it is possible that our management may decide to
declare a stock dividend in the future. Our future dividend policy
will be subject to the discretion of our Board of Directors and will be
contingent upon future earnings, if any, our financial condition, our capital
requirements, general business conditions and other factors.
Interests
of named experts and counsel
No expert
or counsel named in this prospectus as having prepared or certified any part
thereof or having given an opinion upon the validity of the securities being
registered or upon other legal matters in connection with the registration or
offering of our common stock was employed on a contingency basis or had or is to
receive, in connection with the offering, a substantial interest, directly or
indirectly, in us. Additionally, no such expert or counsel was
connected with us as a promoter, managing or principal underwriter, voting
trustee, director, officer or employee.
Experts
Our
audited financial statements for the years ended December 31, 2008 and 2009 have
been included in this prospectus in reliance upon MSPC and Marcum LLP,
respectively, independent registered public accounting firms, as experts in
accounting and auditing.
Description
of our business
General
Information
GetFugu,
Inc, (“GetFugu,” “Company,” “we,” “us,” or “our”), is developing next generation
mobile search tools. Our technology is designed to play on the strengths of
mobile handheld devices (mobile phones) and assist consumers to retrieve content
more expediently. Consumers can download GetFugu application tools to their
mobile phone device. The GetFugu applications allow consumers to
retrieve content and eliminates the need to type a website address or search
term into a browser.
We
currently have four products.
16
1. See It (ARL): “Vision
recognition” The GetFugu application recognizes logos and products through any
mobile phone camera. Consumers simply point their phone at a logo and retrieve
content from the brand owner.
2. Say It (VRL): “Voice
recognition” The consumer can simply speak into the phone to retrieve content.
In addition to brand names, the consumer can say generic keywords such as “best
pizza” or “ATM”.
3. Find It (GRL): “Location
recognition” For local content, GetFugu is designed to work with the
Global Positioning Systems of today’s mobile phones. The application will return
content, based on the proximity to the user. A keyword of “pizza” will return
the closest pizza parlors. Local businesses can pay for
voice-activated key words to position themselves at the top of the search list
within specified postal codes.
4. Get it (Hotspotting): GetFugu
provides advertisers with a way to monetize their marketing efforts through a
mobile ecommerce tool called Hot-Spotting, which enables the consumer to
purchase or retrieve information on any item featured in the video simply by
touching it on the screen. This function is currently limited to touch-screen
phones and select Blackberry models.
Introduction
Since
April 9, 2009, we have developed mobile-based technology applications that allow
any camera-equipped mobile phone from any mobile phone carrier to access
information from advertisers and/or marketers by downloading the information
(“content”) by simply clicking on the logo of a company. Clicking on
the logo allows the individual to bypass traditional search engines such as
Google, Yahoo or MSN to retrieve the content they seek.
Market
Analysis
With
over 4 billion handheld devices in the world, mobile phones outnumber PCs nearly
4-to-1. We believe mobile phones provide an attractive advertising platform.
Currently, advertising to mobile phone customers (“MPC”) has been limited
because there is no industry standard for retrieving the content they
seek. When a MPC wishes to retrieve content they have to use
traditional methods via search engines like Google or Yahoo to receive the
information they seek. We seek to improve the way MPC search for
content by using the technology applications we have developed.
The
Challenges in Mobile Advertising
Today’s
mobile devices continue to improve at an exponential rate. Processing power is
increasing, displays are crisper and peripheral hardware such as cameras,
gyroscopes and accelerometers are being integrated. Because of this, it is
possible to develop new applications that offer rich multimedia experiences for
end users. However, though hardware continues to improve, data entry continues
to be an awkward process. While some phones contain physical keyboards, they are
often difficult to use because of their size and require the user to focus their
attention on the device. Virtual (on screen) keyboards can be awkward as well –
as they do not provide users with tactile feedback. Multi-tap interfaces are
even more burdensome, requiring the user to press a key multiple times to select
a corresponding letter.
Current
Mobile Phone Market
It
is estimated that currently over 90% of all cell phones contain a
camera. The Company believes that the mobile phone sector will be the
next large-scale arena for advertising campaigns. In addition, the number of
cell phones that contain a Global Positioning System (“GPS”) is increasing. It
is estimated that 60% of new cell phones contain a GPS
unit. Currently, the majority of cellular phones have a
microphone. We believe it is possible to leverage these core
components of the mobile phone to provide new advertising paths for businesses
while reaching a large target audience.
17
Simplifying
the Mobile Search Process
For
technology to be widely accepted it must be simple, otherwise, both consumers
and advertisers can be lost in a sea of complexity. In our implementation, we
present a comprehensive, unified interface that allows end users to perform
queries based on visual, auditory and location-based information. While running
the application, the user can speak a command, capture an image, or use their
location, and receive a wealth of information about specific products or nearby
vendors. The end goal is the same: to find out more about a product or
company. The technology must be simple for advertisers as well. In
our implementation, an advertiser simply uploads their logo for ARL, types in a
keyword for VRL, and uses standard postal codes for geographic designation of
the territory to be covered. Once they have entered this information into the
system, it becomes active for all end users.
Competitive
Analysis
With
the rapid deployment of internet-based smart phones, we believe we will have the
ability to introduce our technology applications to the mobile communication
world with little to no impediments. We believe the market “timing”
for the launch of our mobile technology platform is excellent, as it is being
introduced at a time when advertising in the mobile phone marketplace is in its
infancy.
Competition
We
could face substantial competition from companies such as Google, Apple, Yahoo
and Microsoft if they were to develop similar technologies and enter the
wireless mobile phone sector. The field of mobile augmented reality
is a new one. While there is not a dominant threat, there are several smaller
competitors such as SnapTell, Total Immersion and even Google (via their Google
Goggles mobile search application).
Revenue
Model
Our
revenue model is monthly subscription based, charging as little as $9.99/mo for
small businesses, and $99/mo for companies with ten or more employees. This fee
is based on a single log or keyword and includes a single ARL/VRL/GRL for an
unlimited amount of traffic. We believe that Fortune 500 companies that use
multiple forms of advertising will purchase multiple logos to track their
ads. Hotspotting involves revenue sharing with the advertiser on a
transaction basis. We believe the market potential for these
applications is global and includes both national and local advertisers in each
area. These advertisers have an estimated 400 million logos
worldwide. Each of these is a potential advertiser.
Employees
As
of December 31, 2009, we had 33 full time employees.
Description
of property
We
currently maintain an office address at 8560 West Sunset Blvd, Suite 700, Los
Angeles, California. We pay approximately $18,000 per month for rent
and other related fees for the use of this office. We own no physical
properties, plants or real estate.
Legal
proceedings
A lawsuit
was filed on November 25, 2009 against the Company, numerous former and current
Company officers and directors, and other individuals and entities. Plaintiffs
have made no direct claims against the Company, but have instead named it as a
“nominal” defendant, and have alleged “derivative” causes of action on its
behalf. The Plaintiffs appear at present to only claim damages
of approximately $26,000,000 resulting from loans they made to previous
companies, which Carl Freer, the President of the Company, allegedly personally
guaranteed. The Company’s counsel is preparing a motion to dismiss.
The Company and those officers and directors deny plaintiffs’ allegations, and
plan to vigorously defend the action. Accordingly, the Company has no
liability accrued as it relates to this matter.
18
By letter
dated February 24, 2010, fourteen former employees of a separate company made a
demand for $430,000 in unpaid wages against that company, and threatened to file
suit against the Company, on the ground that the separate company was merely an
instrumentality of GetFugu, Inc. To the Company’s knowledge, no claim has been
filed to date and the Company believes the demand is not an obligation of the
Company. Accordingly, as of December 31, 2009, the Company has no
liability accrued as it relates to this matter.
On
April 1, 2010, Hutton International Investments, Ltd (“Hutton”) filed a suit
claiming that it suffered damages as a result of the Company's breach of a
securities purchase agreement with the Company. The parties stipulated to settle
the claim in exchange for issuance to Hutton of 40,000,000 shares of the
Company’s common stock, subject to adjustment and the Court’s approval of the
settlement under Section 3(a)(10). The court approved the settlement and
dismissed the action on April 6, 2010 at which time 40,000,000 shares of the
Company’s common stock were issued to Hutton. The Company recorded a charge of
approximately $1,200,000 for the year ended December 31, 2009, based on the
share price of the Company’s stock on the date of settlement.
A demand
for arbitration filed on April 13, 2010, by six former employees and independent
contractors, seeking unpaid wages and unspecified damages. At
December 31, 2009, the Company had accrued a liability for all such
wages.
Market
for common stock and related stockholder matters and purchases of equity
securities
In
conjunction with an Amendment to our Articles of Incorporation, which changed
the name of the Company to GetFugu, Inc., effective March 25, 2009, the
Company’s trading symbol on the Over The Counter Bulletin Board is
“GFGU.” From February 22, 2009 through March 25, 2009, the Company’s
trading symbol was “MDEO”, and prior to then the symbol was “MDRQ”.
As of
April 15, 2010, we had 482,927,856 shares of $0.001 par value common stock
issued and outstanding. Of the 482,927,856 shares of
common stock outstanding as of April 15 2010, 114,915,474 shares are owned
by our officers and directors.
The stock
transfer agent for our securities is Empire Stock Transfer, Inc.
Equity
Compensation Plans
We do not
have a qualified stock option plan. We have issued non-qualified
stock options to various employees, officers, and directors.
Holders
As of
April 15, 2010, there were 192 holders of record of our common
stock.
Dividends
As of the
date of this prospectus, we have not paid any cash dividends to stockholders.
The declaration of any future cash dividend will be at the discretion of our
board of directors and will depend upon our earnings, if any, our capital
requirements and financial position, our general economic conditions, and other
pertinent conditions. It is our present intention not to pay any cash dividends
in the foreseeable future, but rather to reinvest earnings, if any, in our
business operations.
19
Stock
quotation
Our
common stock is traded on the Over the Counter Bulletin Board under the symbol
“GFGU.”
Financial
statements
We have
included audited financial statements for the years ended December 31, 2008 and
2009, respectively, beginning on page F-1 in this prospectus.
20
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
GetFugu,
Inc
(A
Development Stage Company)
(Formally
Known as Madero,
Inc.)
December
31, 2009
Index
|
||
Reports
of Independent Registered Public Accounting Firms
|
F-1
- 2
|
|
Consolidated
Balance Sheets
|
F-3
|
|
Consolidated
Statements of Operations
|
F-4
|
|
Consolidated
Statements of Shareholders’ Equity / (Deficiency)
|
F-5
|
|
Consolidated
Statements of Cash Flows
|
F-6
|
|
Notes
to the Consolidated Financial Statements
|
|
F-7
|
21
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of
GetFugu,
Inc. and Subsidiary
(Formerly
Known as Madero, Inc., A Development Stage Company)
We have
audited the accompanying consolidated balance sheet of GetFugu, Inc. and
Subsidiary (formerly known as Madero, Inc.) (a development stage company) as of
December 31, 2009 and the related consolidated statements of operations,
shareholders' deficiency and cash flows for the year then ended, and the
consolidated statements of operations and cashflows for the period from March
14, 2007 (date of inception) to December 31, 2009. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An
audit also includes examining on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of GetFugu, Inc.
and Subsidiary (a development stage company) as of December 31, 2009 and the
results of its operations and cash flows for the year then ended, and the
consolidated statements of operations and cashflows for the period from March
14, 2007 (date of inception) to December 31, 2009 in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, the Company has had recurring losses, and
has a working capital and stockholders' deficiency as of December 31,
2009. These conditions raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/
Marcum LLP
|
|
Marcum
LLP
|
|
New
York, New York
|
|
April
15, 2010
|
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of
GetFugu,
Inc.
[Formerly
Known as Madero, Inc., A Development Stage Company]
We have
audited the accompanying balance sheet of GetFugu, Inc. [Formerly Known as
Madero, Inc., A Development Stage Company] as of December 31, 2008, and the
related statements of operations, changes in shareholders’ equity/[deficiency],
and cash flows for the year then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board [United States]. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we do not express such an opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31, 2008
and the results of its operations and its cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.
MSPC
Certified
Public Accountants and Advisors,
A
Professional Corporation
New York,
New York
April 14,
2009
F-2
GetFugu,
Inc. and Subsidiary
(A
Development Stage Company)
(Formally
Known as Madero, Inc.)
Consolidated
Balance Sheets
December
31,
|
||||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
|
$
|
500
|
$
|
-
|
||||
Advances
to employees
|
30,000
|
|||||||
Prepaid
expenses and other current assets
|
61,769
|
-
|
||||||
Total
current assets
|
92,269
|
|||||||
Property
and equipment, net
|
278,287
|
-
|
||||||
Total
assets
|
$
|
370,556
|
$
|
-
|
||||
LIABILITIES
AND SHAREHOLDERS' DEFICIENCY
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable
|
$
|
1,429,968
|
$
|
1,625
|
||||
Accrued
payroll tax liabilities
|
932,267
|
-
|
||||||
Accrued
expenses
|
759,590
|
-
|
||||||
Advances
from related parties
|
865,542
|
-
|
||||||
Accrued
stock compensation
|
458,333
|
-
|
||||||
Accrued
stock issuance payable
|
2,000,000
|
-
|
||||||
Derivative
liability
|
229,635
|
-
|
||||||
Short
term notes payable
|
300,000
|
-
|
||||||
Total
current liabilities
|
6,975,335
|
1,625
|
||||||
Shareholders'
deficiency
|
||||||||
Common
stock, 500,000,000 shares authorized; $0.001 par value;
|
||||||||
191,523,525
and 99,840,000 shares issued and outstanding as of December 31, 2009 and
2008, respectively
|
191,524
|
99,840
|
||||||
Additional
paid-in capital
|
33,947,518
|
(53,215
|
)
|
|||||
Shares
issuable, net
|
12,109,000
|
-
|
||||||
Deficit
accumulated during development stage
|
(52,852,821
|
)
|
(48,250
|
)
|
||||
Total
shareholders’ deficiency
|
(6,604,779
|
)
|
(1,625
|
)
|
||||
Total
liabilities and shareholders’ deficiency
|
$
|
370,556
|
$
|
-
|
The
accompanying notes are an integral part of these consolidated financial
statements.
F-3
GetFugu,
Inc. and Subsidiary
(A
Development Stage Company)
(Formally
Known as Madero, Inc.)
Consolidated
Statements of Operations
December 31,
2009
|
December 31,
2008
|
Inception
(March 14, 2007)
through
December 31,
2009
|
||||||||||
Revenue
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
Operating
expenses
|
||||||||||||
Compensation
and related benefits
|
9,005,021
|
—
|
9,005,021
|
|||||||||
Legal
and professional fees
|
1,135,201
|
—
|
1,135,201
|
|||||||||
Marketing
|
997,402
|
—
|
997,402
|
|||||||||
Occupancy
related costs
|
191,103
|
—
|
191,103
|
|||||||||
Research
and development
|
4,360,944
|
—
|
4,360,944
|
|||||||||
Travel
and entertainment
|
666,134
|
—
|
666,134
|
|||||||||
Consulting
and outside services
|
36,822,286
|
—
|
36,822,286
|
|||||||||
Office
and other
|
425,505
|
21,802
|
490,780
|
|||||||||
Depreciation
|
17,212
|
—
|
17,212
|
|||||||||
Total operating expenses
|
53,620,808
|
21,802
|
53,686,083
|
|||||||||
Other
income
|
||||||||||||
Gain
on derivative financial instrument
|
816,237
|
—
|
816,237
|
|||||||||
Forgiveness
of debt
|
—
|
—
|
17,025
|
|||||||||
Net
Loss
|
$
|
(52,804,571
|
)
|
$
|
(21,802
|
)
|
$
|
(52,852,821
|
)
|
|||
Loss
per share:
|
||||||||||||
Basic
and dilutive loss per share
|
$
|
(0.37
|
)
|
$
|
(0.00
|
)
|
||||||
Basic
and diluted weighted average shares outstanding (1)
|
143,765,748
|
99,840,000
|
(1)
|
Weighted average shares
outstanding for the year ended December 31, 2009, includes the underlying
shares exercisable with respect to the issuance of a warrant to acquire
1,500,000 shares of Common Stock at $0.01 per share. In
accordance with Accounting Standard Codification (“ASC”) 260 “Earnings Per
Share”, the Company has given effect to the issuance of this warrant in
computing basic and diluted loss per
share.
|
The
accompanying notes are an integral part of these consolidated financial
statements.
F-4
GetFugu,
Inc. and Subsidiary
(A
Development Stage Company)
(Formally
Known as Madero, Inc.)
Consolidated
Statements of Shareholders' Equity (Deficiency)
For
the Period March 14, 2007 (Date of Inception) to December 31, 2009
|
Deficit
|
|||||||||||||||||||||||
|
Accumulated
|
|||||||||||||||||||||||
|
Common
Stock
|
Additional
|
During
|
Shareholders'
|
||||||||||||||||||||
|
Shares
|
Amount
|
Paid-in
Capital
|
Shares
Issuable
|
Development
Stage
|
Equity
(Deficiency)
|
||||||||||||||||||
|
||||||||||||||||||||||||
Balance
as of March 14, 2007
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
|
||||||||||||||||||||||||
Shares
issued for cash March 14, 2007 (at $.0001)
|
48,000,000
|
$
|
48,000
|
$
|
(40,000
|
)
|
$
|
-
|
$
|
-
|
$
|
8,000
|
||||||||||||
Shares
issued for cash August 30, 2007 (at $.0001)
|
51,840,000
|
51,840
|
(30,240
|
)
|
-
|
-
|
21,600
|
|||||||||||||||||
Net
loss for the year ended December 31, 2007
|
-
|
-
|
-
|
-
|
(26,448
|
)
|
(26,448
|
)
|
||||||||||||||||
Balance
as of December 31, 2007
|
99,840,000
|
$
|
99,840
|
$
|
(70,240
|
)
|
-
|
$
|
(26,448
|
)
|
$
|
3,152
|
||||||||||||
Conversion
of related party debt August 1, 2008
|
-
|
-
|
15,000
|
-
|
-
|
15,000
|
||||||||||||||||||
Conversion
of related party debt December 31, 2008
|
-
|
-
|
2,025
|
-
|
-
|
2,025
|
||||||||||||||||||
Net
loss for the year ended December 31, 2008
|
-
|
-
|
-
|
-
|
(21,802
|
)
|
(21,802
|
)
|
||||||||||||||||
Balance
as of December 31, 2008
|
99,840,000
|
$
|
99,840
|
$
|
(53,215
|
)
|
-
|
$
|
(48,250
|
)
|
$
|
(1,625
|
)
|
|||||||||||
Shares
issued for cash March 27, 2009 (at $.50)
|
5,000
|
5
|
2,495
|
-
|
2,500
|
|||||||||||||||||||
Shares
issued for cash March 30, 2009 (at $.50)
|
100,000
|
100
|
49,900
|
-
|
-
|
50,000
|
||||||||||||||||||
Shares
issued for consulting services January 6, 2009 (at $.005)
|
2,000,000
|
2,000
|
8,000
|
-
|
-
|
10,000
|
||||||||||||||||||
Shares
issued for consulting services January 21, 2009 (at $.005)
|
250,000
|
250
|
1,000
|
-
|
-
|
1,250
|
||||||||||||||||||
Shares
issued for consulting services March 4, 2009 (at $.50)
|
14,500,000
|
14,500
|
7,235,500
|
-
|
-
|
7,250,000
|
||||||||||||||||||
Shares
issued for consulting services March 18, 2009 (at $.50)
|
1,250,000
|
1,250
|
623,750
|
-
|
-
|
625,000
|
||||||||||||||||||
Shares
issued for cash April 3, 2009 (at $.50)
|
800,000
|
800
|
399,200
|
-
|
-
|
400,000
|
||||||||||||||||||
Shares
issued for services April 4, 2009 (at $.50)
|
10,000,000
|
10,000
|
1,333,750
|
-
|
-
|
1,343,750
|
||||||||||||||||||
Shares
issued for patent applications April 9, 2009 (at $.50) (1)
|
25,000,000
|
25,000
|
(25,000
|
)
|
-
|
-
|
-
|
|||||||||||||||||
Shares
issued for cash April 13, 2009 (at $.50)
|
100,000
|
100
|
49,900
|
-
|
-
|
50,000
|
||||||||||||||||||
Shares
issued for consulting services May 12, 2009 (at $.52)
|
1,800,000
|
1,800
|
904,200
|
-
|
-
|
906,000
|
||||||||||||||||||
Shares
issued for services May 12, 2009 (at $.52)
|
6,000,000
|
6,000
|
2,074,000
|
2,080,000
|
||||||||||||||||||||
Options
granted for services July 17, 2009 (23,000,000 at $.27)
|
-
|
-
|
2,024,480
|
-
|
-
|
2,024,480
|
||||||||||||||||||
Warrants
granted for services July 22, 2009 (8,000,000 at $.32)
|
-
|
-
|
8,486,388
|
-
|
-
|
8,486,388
|
||||||||||||||||||
Shares
issued for consulting services August 15, 2009 (at $.70)
|
1,000,000
|
1,000
|
524,000
|
-
|
-
|
525,000
|
||||||||||||||||||
Warrants
granted for consulting services to private placement agent
September 18, 2009 (500,000 at $.33)
|
337,485
|
337,485
|
||||||||||||||||||||||
Warrants
granted for consulting services to private placement agent September 18,
2009 (583,392 at $.33)
|
216,439
|
216,439
|
||||||||||||||||||||||
Shares
payable for cash, net September
18, 2009 (5,250,525vat $.50),
|
-
|
-
|
-
|
1,540,000
|
-
|
1,540,000
|
||||||||||||||||||
Shares
payable for consulting services November 5, 2009 (16,000,000 at
.32)
|
-
|
-
|
-
|
5,120,000
|
-
|
5,120,000
|
||||||||||||||||||
Shares
payable for investment banking services October 1, 2009 (40,00,000 at
$.62)
|
1,200,000
|
1,200,000
|
||||||||||||||||||||||
Options
granted for consulting services November 2, 2009 (5,400,000 at
$.37)
|
608,922
|
608,922
|
||||||||||||||||||||||
Options
granted to board of directors for services November 2, 2009 (10,000,000 at
$.37)
|
273,035
|
273,035
|
||||||||||||||||||||||
Shares
issued for payment of consulting services November 5, 2009 (at
$.32)
|
16,000,000
|
16,000
|
5,104,000
|
(5,120,000
|
)
|
-
|
||||||||||||||||||
Warrants
and shares payable for cash September 18, 2009 (1,500,000 at
$.01 and 3,000,000 at $.50, respectively)
|
(1,045,872
|
)
|
1,300,000
|
254,128
|
||||||||||||||||||||
Shares
issued previously accrued September 18, 2009 (at $.50)
|
5,250,525
|
5,251
|
1,534,749
|
(1,540,000
|
)
|
-
|
||||||||||||||||||
Shares
issued for asset acquisition November 13, 2009 (at $.40)
|
5,000,000
|
5,000
|
1,995,000
|
2,000,000
|
||||||||||||||||||||
Shares
issued to employees for services December 11, 2009 (at
$.18)
|
2,628,000
|
2,628
|
470,412
|
473,040
|
||||||||||||||||||||
Shares
issued with a note payable December 18, 2009 (50,000 at
$.18)
|
9,000
|
9,000
|
||||||||||||||||||||||
Shares
payable for cash December 8, 2009 (1,555,556 at $.225)
|
350,000
|
350,000
|
||||||||||||||||||||||
Shares
payable for cash December 29, 2009 (5,333,333 at $.15)
|
650,000
|
650,000
|
||||||||||||||||||||||
Shares
payable for consulting services November 5, 2009 ( 20,000,000 at
$.12)
|
2,400,000
|
2,400,000
|
||||||||||||||||||||||
Share
payable for consulting services October 1, 2009 (10,000,000 at
$.62)
|
6,200,000
|
6,200,000
|
||||||||||||||||||||||
Capital
contribution by shareholders for settlement of share based
compensation obligation
|
815,000
|
815,000
|
||||||||||||||||||||||
Net
loss for the year ended December 31, 2009
|
(52,804,571
|
)
|
(52,804,571
|
)
|
||||||||||||||||||||
Balance
as of December 31, 2009
|
191,523,525
|
$
|
191,524
|
$
|
33,947,519
|
$
|
12,109,000
|
$
|
(52,852,821
|
)
|
$
|
(6,604,779
|
)
|
(1)
|
In consideration for the transfer
of patents from MARA Group, Ltd., the Company recorded a deemed dividend
of $12,500,000. See Note 3.
|
The
accompanying notes are an integral part of these consolidated financial
statements.
F-5
GetFugu,
Inc. and Subsidiary
(A
Development Stage Company)
(Formally
Known as Madero, Inc.)
Consolidated
Statements of Cash Flows
December 31,
2009
|
December 31,
2008
|
Inception (March
14, 2007) through
December 31, 2009
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
loss
|
$
|
(52,804,571
|
)
|
$
|
(21,802
|
)
|
$
|
(52,852,821
|
)
|
|||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Stock-based
compensation expense
|
42,089,789
|
-
|
42,089,789
|
|||||||||
Accrued
stock based compensation for future issuance of equity instruments for
services
|
458,333
|
-
|
458,333
|
|||||||||
Acquisition
of in-process research of development
|
2,000,000
|
-
|
2,000,000
|
|||||||||
Gain
on derivative financial instrument
|
(816,237
|
)
|
-
|
(816,237
|
)
|
|||||||
Depreciation
|
17,212
|
-
|
17,212
|
|||||||||
Changes
in current assets and liabilities:
|
||||||||||||
Employees
advances
|
(30,000
|
)
|
-
|
(30,000
|
)
|
|||||||
Prepaid
expenses and other current assets
|
(61,769
|
)
|
250
|
(61,769
|
)
|
|||||||
Accounts
payable
|
1,428,343
|
1,625
|
1,429,968
|
|||||||||
Accrued
payroll tax liabilities
|
932,267
|
-
|
932,267
|
|||||||||
Accrued
expenses
|
1,574,590
|
-
|
1,574,590
|
|||||||||
Net
cash used in operating activities
|
(5,212,043
|
)
|
(19,927
|
)
|
(5,258,668
|
)
|
||||||
Cash
flows used in investing activities:
|
||||||||||||
Purchase
of property and equipment
|
(295,499
|
)
|
-
|
(295,499
|
)
|
|||||||
Cash
flows from financing activities
|
||||||||||||
Proceeds
from short term notes
|
400,000
|
-
|
400,000
|
|||||||||
Repayment
of short term notes
|
(100,000
|
)
|
-
|
(100,000
|
)
|
|||||||
Advances
from related parties
|
1,650,349
|
-
|
1,650,349
|
|||||||||
Repayment
of advances from related parties
|
(784,807
|
)
|
-
|
(784,807
|
)
|
|||||||
Proceeds
received from shares issuable, net
|
2,300,000
|
-
|
2,300,000
|
|||||||||
Proceeds
received from sale of common stock, net
|
2,042,500
|
-
|
2,042,500
|
|||||||||
Capital
contribution from related parties
|
-
|
17,025
|
46,625
|
|||||||||
Net
cash provided by financing activities
|
5,508,042
|
17,025
|
5,554,667
|
|||||||||
Increase
(decrease) in cash
|
500
|
(2,902
|
) |
500
|
||||||||
Cash -
beginning balance
|
-
|
2,902
|
-
|
|||||||||
Cash -
ending balance
|
$
|
500
|
$
|
-
|
$
|
500
|
||||||
Non-Cash
Investing and Financing Activities:
|
||||||||||||
Settlement
of accrued stock compensation for no consideration
|
$
|
815,000
|
$
|
815,000
|
The
accompanying notes are an integral part of these consolidated financial
statements.
F-6
GetFugu,
Inc. and Subsidiary
(A
Development Stage Company)
(FORMALLY
KNOWN AS MADERO, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2009 AND 2008
NOTE
1 – DESCRIPTION OF BUSINESS
GetFugu,
Inc, (“We”, “Our”, “GetFugu,” or “Company”), is developing next generation
mobile search tools. The Company’s technology is designed to play on the
strengths of mobile handheld devices (mobile phones) and assist consumers in
retrieving content more expediently. Consumers will be able to download GetFugu
application tools to their mobile phone device. The GetFugu
applications will allow consumers to retrieve content and eliminate the need to
type website addresses or search terms into the device’s internet
browser.
The
Company currently has four products under development.
1. See It (ARL): “Vision
recognition” The GetFugu application recognizes logos and products through any
mobile phone camera. Consumers simply point their phone at a logo and retrieve
content from the brand owner.
2. Say It (VRL): “Voice
recognition” The consumer can simply speak into the phone to retrieve content.
In addition to brand names, the consumer can say generic keywords such as “best
pizza” or “ATM”.
3. Find It (GRL): “Location
recognition” For local content, GetFugu is designed to work with the
Global Positioning Systems of today’s mobile phones. The application will return
content, based on the proximity to the user. A keyword of “pizza” will return
the closest pizza parlors. Local businesses can pay for
voice-activated key words to position themselves at the top of the search list
within specified postal codes.
4. Get it (Hotspotting): GetFugu
provides advertisers with a way to monetize their marketing efforts through a
mobile ecommerce tool called Hot-Spotting, which enables the consumer to
purchase or retrieve information on any item featured in the video simply by
touching it on the screen. This function is currently limited to touch-screen
phones and select Blackberry models.
The
Company was incorporated in the State of Nevada on March 14, 2007 under the name
Madero, Inc. On August 29, 2008, the Company entered into a stock
purchase agreement (the “Stock Purchase Agreement”) with Mike Lizarraga (sole
director, former President, Chief Executive Officer, and Chief Financial Officer
of Madero, Inc.), and Media Power, Inc. (“MPI”). Pursuant to the terms and
conditions of the Stock Purchase Agreement, MPI acquired 48,000,000 shares of
the Company’s common stock (this number, and all other share amounts presented,
is post the 12 for 1 forward stock split which was effectuated on February 11,
2009), or approximately 48.07% of the Company’s then issued and outstanding
shares of common stock from Mr. Lizarraga.
Prior to
the closing of the transactions referenced in the Stock Purchase Agreement, the
Company was a development stage company in an unrelated
industry. Through March 14, 2007, the Company’s activities had been
limited to its formation, business planning and raising capital, and since
August 29, 2008 involved in the development of next generation mobile search
tools.
On
January 23, 2009, the Company amended its Articles of Incorporation to increase
the number of authorized common stock, par value $0.001 per share, from
75,000,000 to 500,000,000. On February 11, 2009, there was a forward
split of common stock whereby each issued and outstanding share of common stock
was split into 12 shares of common stock.
Effective
March 25, 2009, our Articles of Incorporation were amended to change the name to
GetFugu, Inc.
F-7
Effective
April 9, 2009, we entered into an Agreement for the Assignment of Patent Rights
(the “Assignment Agreement”) with MARA Group Ltd. Pursuant to the
Assignment Agreement the Company acquired eight patent applications (the “Patent
Applications”) from MARA Group Ltd. in exchange for 25 million shares of Common
Stock of the Company. Prior to the closing of this transaction, MARA
Group Ltd. was deemed to be an “affiliate”, as it owned more than ten (10%)
percent of our outstanding Common Stock.
On
October 19, 2009, the Company’s Board of Directors approved (i) the
reincorporation of the Company from Nevada to Delaware, (ii) increasing the
number of authorized shares of Common Stock from 500,000,000 to 750,000,000,
(iii) issuing up to 200,000,000 shares of “blank check” preferred stock, and
(iv) the creation of the 2009 Incentive Compensation Plan with a maximum of
250,000,000 shares of Common Stock to be issued with no more than 100,000,000
shares permitted to be issued in any fiscal year. As of April 15,
2010, the Company had not formally adopted the Incentive Compensation
Plan. All of the above noted items require shareholder
approval. Accordingly, at this meeting, the Board approved the filing
with the Securities and Exchange Commission (“SEC”) of a written consent
statement. As of April 15, 2010 the Company has not filed its amended
articles of incorporation with the appropriate regulatory bodies.
NOTE
2 - BASIS OF PRESENTATION AND GOING CONCERN, LIQUIDITY AND FINANCIAL
CONDITION
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
(“GAAP”) and to the rules and regulations of the SEC. The principal
activities are expected to focus on the commercialization of the technologies of
the Company. The accompanying consolidated financial statements have
been prepared in accordance with Accounting Standards Codification (“ASC”) 915,
“Development Stage Entities.” The Company's consolidated statements of
operations, stockholders' deficiency and cash flows for the year ended December
31, 2009 and 2008 represent the financial information cumulative from inception
as required by ASC 915.
Going
Concern, Liquidity and Financial Condition
The
Company incurred a net loss of $52,804,571 and $21,802 for the years ended
December 31, 2009 and 2008, respectively. As of December 31, 2009, the
Company’s accumulated deficit from inception amounted to $52,852,821 and the
Company’s working capital deficit amounted to $6,883,066. During the year
ended December 31, 2009, net cash used in operating activities amounted to
approximately $5,212,043, During the year ended December 31, 2009, cash provided
by financing activities amounted to $5,508,042. As of December 31, 2009, the
Company’s cash position was $500. Subsequent to December 31, 2009, the Company
raised additional operating capital of approximately $554,500, by entering into
equity and debt financing arrangements.
The
Company needs to raise additional capital from external sources in order to
sustain its operations while continuing the longer term efforts contemplated
under its business plan. The Company expects to continue incurring losses for
the foreseeable future and must raise additional capital to pursue its product
development initiatives, to penetrate markets for the sale of its products and
to continue as a going concern. The Company cannot provide any assurance that it
will raise additional capital. If the Company is unable to secure additional
capital, it may be required to curtail its research and development initiatives,
modify its existing business plan and take additional measures to reduce costs
in order to conserve its cash in amounts sufficient to sustain operations and
meet its obligations. These measures could cause significant delays in the
Company’s efforts to commercialize its products, which is critical to the
realization of its business plan and the future operations of the Company. These
matters raise substantial doubt about the Company’s ability to continue as a
going concern. The accompanying consolidated financial statements do not
include any adjustments that may be necessary should the Company be unable to
continue as a going concern.
F-8
NOTE
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period.
Management
bases its estimates on historical experience and on various assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. The most
significant estimates, among other things, are used in accounting for allowances
for deferred income taxes, expected realizable values for long-lived assets
(primarily property and equipment and intangibles), contingencies, as well as
the recording, presentation and valuation of its common stock, related warrants,
option issuances and derivative liabilities. Estimates and
assumptions are periodically reviewed and the effects of any material revisions
are reflected in the consolidated financial statements in the period that they
are determined to be necessary. Actual results could differ from
those estimates and assumptions.
Principle
of Consolidation
The
consolidated financial statements of GetFugu, Inc. include accounts of the
company and its wholly-owned subsidiary, GetFugu Research,
Inc. Intercompany transactions and balances are eliminated in
consolidation.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments with an original maturity of
three months or less when purchased to be cash equivalents. As of
December 31, 2009 and 2008 the Company did not have any cash
equivalents.
Advances
to Employees
From time
to time and in the normal course of business, the Company may advance funds or
pay expenses on behalf of its employees. The Company generally establishes an
allowance for uncollectible amounts to reflect the amount of loss that can be
reasonably estimated by management and is included as part of operating expenses
in the accompanying consolidated statements of operations. The determination of
the amount of uncollectible accounts is based on the amount of credit extended
and the length of time each receivable has been outstanding, as it relates to
each individual registered representative or employee. As of December 31, 2009,
the Company had outstanding $30,000 of advances to an employee. Subsequent to
December 31, 2009 the Company collected the entire balance
outstanding.
Property
and Equipment
Property
and equipment consists primarily of equipment, furniture and fixtures and is
stated at cost. Depreciation and amortization are provided using the
straight-line method over the estimated useful lives (generally three to seven
years) of the related assets. Leasehold improvements, once placed in
service, are amortized over the shorter of the useful life or the remainder of
the lease term. Expenditures for maintenance and repairs, which do
not extend the economic useful life of the related assets, are charged to
operations as incurred. Gains or losses on disposal of property and
equipment are reflected in the consolidated statement of operations in the
period of disposal.
Impairment
of Long-Lived Assets
The
Company reviews long-lived assets, including intangible assets other than
goodwill, for impairment whenever events or changes in circumstances indicate
that the carrying value of the asset may not be recoverable. In connection with
this review, the Company also reevaluates the periods of depreciation and
amortization for these assets. The Company assesses recoverability by
determining whether the net book value of the related asset will be recovered
through the projected undiscounted future cash flows of the asset. If the
Company determines that the carrying value of the asset may not be recoverable,
it measures any impairment based on the projected future discounted cash flows
as compared to the asset’s carrying value. Through December 31, 2009, the
Company has not recorded any impairment charges on its long-lived
assets.
F-9
Stock-Based
Compensation
Stock-Based
Compensation
The
Company reports stock-based compensation under ASC 718 “Compensation – Stock
Compensation”. ASC 718 requires all share-based payments to
employees, including grants of employee stock options, warrants, non-employee
Directors and consultants to be recognized in the consolidated financial
statements based on their fair values over the requisite service
periods
The
Company accounts for stock option and warant grants issued to non-employees for
goods and services using the guidance of ASC 718 and ASC 505 “Accounting for
Equity Instruments that are Issued to Other Than Employees for Acquiring, or
inConjunction with Selling Goods or Services”, whereby fair value of such option
and warrant grants is determined using the Black Scholes option pricing model at
the earlier of the date at which the non-employee’s performance is completed or
a performance commitment is reached.
The
Black-Scholes option valuation model is used to estimate the fair value of the
warrants or options granted. The model includes subjective input
assumptions that can materially affect the fair value estimates. The
model was developed for use in estimating the fair value of traded options or
warrants. The expected volatility is estimated based on the most
recent historical period of time equal to the weighted average life of the
warrants or options granted.
The
Company’s determination of fair value of share-based payment awards to employees
and directors on the date of grant uses the Black Scholes model, which is
effected by the Comnpany’s stock price as well as assumptions regarding a number
of highly comples and subjective variables. These variables include but
are not limited tothe risk free interest rate, the expected term,
expected volatility, and actual projected employee stock option exercise
behaviors. The risk free interest rate is based on U.S. Treasury
zero-coupon yield curve over the expected term of the option. The
expected term assumption represents the average period the stock options are
expected to remain outstanding and is based on the expected term calculated
using the approach prescribed by SEC Staff Accounting Bulleting (“SAB”) 110 for
“plain vanilla options. Since the Company has limited historical
volatility information, it bases its expected volatility on the historical
volatility of similar entities whose share prices are publicly
available. In making its determination as to similarity, the Company
considered the industry, stage of life cycle, size, and financial leverage of
such other entities. The Company’s model includes a zero dividend
yield assumption, as the Company has not historically paid nor does it
anticipate paying dividends on its common stock. The periodic expense is then
determined based on the valuation of the options, and at that time an estimated
forfeiture rate is used to reduce the expense recorded. The Company’s
estimate of pre-vesting forfeitures is primarily based on the Company’s
historical experience and is adjusted to reflect actual forfeitures as the
options vest.
The
following assumptions were used to estimate the fair value of options granted
for the year ended December 31, 2009, using the Black-Scholes option-valuation
model:
Risk
free interest rate
|
1.3
to 3.2
|
%
|
||
Expected
term (years)
|
5
to 10
|
|||
Expected
volatility (based on peer companies)
|
171
|
%
|
||
Expected
dividend yield
|
-
|
%
|
The
effect of recording stock-based compensation expense for the year ended December
31, 2009, in accordance with the applicable provisions of ASC 718 is as
follows:
Compensation
and related benefits
|
$
|
6,194,405
|
||
Consulting
and outside services
|
34,353,717
|
|||
Research
and development
|
4,000,000
|
|||
Total
stock based compensation
|
$
|
44,548,122
|
F-10
Loss
Per Common Share
The
Company computes earnings per share in accordance with ASC 260, “Earnings Per
Share.” ASC 260 requires dual presentation of basic and diluted earnings per
share. Basic loss per common share is computed by dividing net loss by the
weighted average number of common shares outstanding (including vested
restricted stock awards) during the period. Diluted loss per common share is
computed by dividing net loss by the weighted average number of common shares
outstanding, plus the issuance of common shares, if dilutive, resulting from the
exercise of outstanding stock options and stock awards. These potentially
dilutive securities were not included in the calculation of loss per common
share for the years ended December 31, 2009 and 2008, respectively, because, due
to the loss incurred during such periods, their inclusion would have been
anti-dilutive. Accordingly, basic and diluted losses per common share are the
same for all periods presented.
In
accordance with ASC 260 the Company has given effect to the issuance of
1,500,000 warrants issued in conjunction with the Company’s September 2009
financing and exercisable at $0.01 per share in computing basic net loss per
share classified as a derivative liability.
Total
shares issuable upon the exercise of warrants and options for the years ended
December 31, 2009 and 2008, were comprised as follows:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Warrants
|
10,583,392
|
-
|
||||||
Options
|
42,400,000
|
-
|
||||||
Unvested
restricted stock grants
|
10,312,500
|
|||||||
Total
common stock equivalents
|
63,295,892
|
-
|
Income
Taxes
Income
taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in operations in the period that includes the
enactment date. A valuation allowance is provided when it is more
likely than not that some portion or all of a deferred tax asset will not be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income and the reversal of
deferred tax liabilities during the period in which related temporary
differences become deductible. The benefit of tax positions taken or expected to
be taken in the Company’s income tax returns are recognized in the consolidated
financial statements if such positions are more likely than not of being
sustained.
Derivative
Financial Instruments
The
Company does not use derivative instruments to hedge exposures to cash flow,
market or foreign currency risks. The Company evaluates all of its
financial instruments to determine if such instruments are derivatives or
contain features that qualify as embedded derivatives. For derivative
financial instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported in the consolidated
statements of operations. For stock-based derivative financial
instruments, the Company uses the Black-Scholes option valuation model to value
the derivative instruments at inception and on subsequent valuation
dates. The classification of derivative instruments, including
whether such instruments should be recorded as liabilities or as equity, is
evaluated at the end of each reporting period. Derivative instrument
liabilities are classified in the consolidated balance sheet as current or
non-current based on whether or not net-cash settlement of the derivative
instrument could be required within 12 months of the balance sheet
date.
F-11
Research
and Development
Research
and development expense relates to the development of new products and processes
including improvements to existing products. These costs are expensed as
incurred.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to a concentration of credit
risk consist of cash. The Company maintains its cash with high credit
quality financial institutions; at times, such balances with any one financial
institution may exceed FDIC insured limits. We had no cash subject to
such risk at December 31, 2009 and 2008.
Subsequent
Events
Management
has evaluated subsequent events or transactions occurring through, the date the
financial statements were issued, to determine if such events or transactions
require adjustment or disclosure in the financial statements.
Recent
Accounting Pronouncements
The FASB
has issued Accounting Standards Update (ASU) 2009-16, Transfers and Servicing (Topic 860)
- Accounting for Transfers of Financial Assets. ASU 2009-16 will require
more information about transfers of financial assets, including securitization
transactions, eliminates the concept of a qualifying special-purpose entity and
changes the requirements for derecognizing financial assets. ASU 2009-16 is
effective at the start of a reporting entity’s first fiscal year beginning after
November 15, 2009. The adoption of this standard is not expected to have a
material impact on the Company’s consolidated financial position and results of
operations.
The FASB
has issued Accounting Standards Update (ASU) No. 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. This ASU requires some new disclosures and clarifies some
existing disclosure requirements about fair value measurement as set forth in
Codification Subtopic 820-10. ASU 2010-06 amends Codification Subtopic 820-10
and now requires a reporting entity to use judgment in determining the
appropriate classes of assets and liabilities and to provide disclosures about
the valuation techniques and inputs used to measure fair value for both
recurring and nonrecurring fair value measurements. ASU 2010-06 is
effective for interim and annual reporting periods beginning after December 15,
2009, As this standard relates specifically to disclosures, the adoption will
not have an impact on the Company’s consolidated financial position and
results of operations.
In
May 2009, the FASB issued new accounting guidance, under ASC Topic 855 on
“Subsequent Events”, which sets forth: 1) the period after the balance sheet
date during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements; 2) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements; and 3) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. This guidance
was effective for interim and annual periods ending after June 15, 2009.
The adoption of this guidance did not have a material effect on the Company’s
consolidated financial statements.
In June
2008, the FASB issued new accounting guidance, under ASC Topic 260 on “Earnings
per Share”, related to the determination of whether instruments granted in
share-based payment transactions are participating securities. This guidance
clarifies that all outstanding unvested share-based payment awards that contain
rights to nonforfeitable dividends participate in undistributed earnings with
common shareholders. Awards of this nature are considered participating
securities and the two-class method of computing basic and diluted earnings per
share must be applied. This guidance is effective for financial statements
issued for fiscal years beginning on or after December 15, 2008, and
interim periods within those fiscal years. The adoption of this guidance did not
have a material effect on the Company’s consolidated financial
statements.
F-12
In June
2008, the FASB issued new accounting guidance, under ASC Topic 815 on
Derivatives and Hedging, as to how an entity should determine whether an
instrument, or an embedded feature, is indexed to an entity's own stock and
whether or not such instruments would be accounted for as equity or a derivative
liability. The adoption of this guidance can affect the accounting for warrants
and many convertible instruments with provisions that protect holders from a
decline in the stock price (or “down-round” provisions). For example, warrants
with such provisions will no longer be recorded in equity. Down-round provisions
reduce the exercise price of a warrant or convertible instrument if a company
either issues equity shares for a price that is lower than the exercise price of
those instruments or issues new warrants or convertible instruments that have a
lower exercise price. This guidance is effective for financial statements issued
for fiscal years beginning after December 15, 2008 and is applicable to
outstanding instruments as of the beginning of the fiscal year it is initially
applied. Early application is not permitted. The cumulative effect, if any, of
the change in accounting principle shall be recognized as an adjustment to the
opening balance of retained earnings. See Note 6 for the impact of
the adoption of this guidance on the Company’s consolidated financial
statements.
In
March 2008, the FASB issued new accounting guidance under standard ASC Topic
815, on Derivatives and Hedging which requires enhanced disclosures about how
and why an entity uses derivative instruments, how derivative instruments and
related hedged items are accounted under Topic 815 and its related
interpretations, and how derivative instruments and related hedged items affect
an entity’s financial position, results of operations and cash flows. This
standard is effective for fiscal years and interim periods beginning after
November 15, 2008. . The adoption of this pronouncement did not have an impact
on the Company’s consolidated financial position and results of
operations.
The FASB
has issued Accounting Standard Update (ASU) 2009-17, Consolidations (Topic 810) -
Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities. ASU 2009-17 changes how a reporting entity
determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. This
determination is based on, among other things, the other entity’s purpose and
design and the Company’s ability to direct the activities of the other entity
that most significantly impact the other entity’s economic performance.
ASU 2009-17 is effective at the start of the Company’s first fiscal year
beginning after November 15, 2009. The adoption of this standard is
not expected to have a material impact on the Company’s consolidated financial
position and results of operations
NOTE
4. PROPERTY AND EQUIMENT
Property
and equipment consisted of the following as of December 31, 2009:
2009
|
||||
Office
and computer equipment
|
$
|
258,612
|
||
Furniture
and fixtures
|
33,909
|
|||
Software
|
2,978
|
|||
295,499
|
||||
Less:
accumulated depreciation
|
(17,212
|
)
|
||
$
|
278,287
|
Depreciation
expense amounted to $17,212 and $0 for the years ended December 31, 2009 and
2008, respectively.
NOTE
5– EQUITY TRANSACTIONS
Private
Placements
On March
27, 2009, the Company entered into an unregistered securities purchase agreement
pursuant to which the Company sold 5,000 shares of common stock resulting in net
proceeds of $2,500.
On March
30, 2009, the Company entered into an unregistered securities purchase agreement
pursuant to which the Company sold 100,000 shares of common stock resulting in
net proceeds of $50,000.
On April
3, 2009, the Company entered into an unregistered securities purchase agreement
pursuant to which the Company sold 800,000 shares of common stock resulting in
net proceeds of $400,000.
F-13
On April
13, 2009, the Company entered into an unregistered securities purchase agreement
pursuant to which the Company sold 100,000 shares of common stock resulting in
net proceeds of $50,000.
In
September, 2009, the Company negotiated a securities purchase agreement whereby
investors agreed to invest $4,000,000 and $1,000,000,
respectively. The Company received $1,540,000, net of closing costs
of $210,000, in anticipation of closing. The originally
proposed agreement was never executed. Accordingly, the Company
recorded the cash receipt as shares issuable. Subsequently, on November 6, 2009,
the Company finalized the security purchase agreement with the investor for the
purchase of 5,250,525 shares of the Company's Common Stock in exchange for
the $1,540,000 previously received. Under the terms of the
Banking Agreement described below, the Company’s investment banker earned a fee
for this transaction in the form of a warrant to purchase 583,392 shares of
common stock at an exercise price of $0.33 per share. The warrant has a life of
5 years and was valued using Black-Scholes option valuation model for $216,439.
The warrants were recorded as stock compensation as of December 31,
2009.
On
September 18, 2009, the Company entered into an unregistered securities purchase
agreement pursuant to which the Company agreed to sell up to an aggregate of
10,000,000 shares of common stock and issue warrants to purchase up to 5,000,000
shares of common stock for an aggregate purchase price of $5,000,000. The
Company issued 3,000,000 shares of common stock together with a warrant to
purchase 1,500,000 shares of common stock for the aggregate purchase price of
$1,300,000 which is net of $200,000 of closing related costs under this
securities purchase agreement. At September 18, 2009 the amount of
$1,300,000 was received and as of December 31, 2009 the net amount is included
in the balance sheet as shares issuable. In addition on September 18, 2009, the
warrant was also recorded at a fair value of $1,045,872 as a derivative
liability (see Note 6). Under the Banking Agreement described below, the
Company’s investment banker earned a fee for this transaction in the form of a
warrant to purchase 500,000 shares of common stock at $.33 per share. The
warrant has a life of 5 years and was valued using Black-Scholes option
valuation model for $337,485. The warrant was recorded as stock
compensation as of December 31, 2009. Subsequent to December 31, 2009, the
3,000,000 applicable shares were issued. There are no
assurances that the remainder of the proceeds called for under this securities
purchase agreement will be received.
On
December 8, 2009, the Company entered into three separate stock purchase
agreements the sum of which totaled $350,000. At December 31, 2009,
the 1,555,556 shares were unissued and $350,000 was reported as shares
issuable.
On
December 29, 2009, the Company entered into an unregistered securities purchase
agreement pursuant to which the Company sold 5,333,333 shares of its common
stock resulting in net proceeds of $650,000. At December 31, 2009,
the shares were unissued and $650,000 was reported as shares
issuable.
Shares for
Services
During
the year ended December 31, 2009, the Company issued 20,800,000 shares of
common stock for various consulting services. Compensation
expense is recorded as the instruments vest and the Company recorded consulting
and outside service expenses totaling $9,317,250 associated with these issuances
of common stock based on the fair value determined at the time of the
individual issuances. Under the terms of one consulting agreement the Company is
obligated to issue an additional 3,000,000 common shares. The fair value of the
common shares approximated $1,500,000 and vest over terms ranging from three to
seven years. The Company incurred a stock based compensation charge of $458,333
which is for the vested portion of the award. As of December 31, 2009, the
Company has not issued the 3,000,000 shares and accordingly are included as part
of accrued stock compensation. The unvested portion of the award
amounted to $1,040,667 and will recorded in the future periods.
On April
4, 2009, the Company issued 10,000,000 shares to its former Chief Executive
Officer for services. The fair value of the award of $5,000,000 was determined
on the date the agreement was entered into and approximates the fair value of
the common stock. For the year ended December 31, 2009, the Company incurred a
stock based compensation charge of $1,343,750 which is for the vested portion of
the award. Subsequent to December 31, 2009, the former CEO resigned his position
with the Company. Under the terms of the employment agreement the shares became
fully vested and as such the Company recorded a charge to operation for the
remaining unvested portion of $3,656,250 for the year ending December 31,
2010.
F-14
On May
12, 2009, the Company issued 6,000,000 shares to its Chairman of the Board and
current Chief Financial Officer for services. The fair value of the award of
$3,120,000 and was determined on the date the agreement was entered into and
approximates the fair value of the common stock. For the year ended
December 31, 2009, the Company incurred a stock based compensation charge of
$2,080,000 which is for the vested portion of the award. The unvested
compensation charge that will vest over sixteen month is
$1,040,000.
On August
31, 2009, the Company entered into an agreement with a consultant for services.
Under the terms of the agreement the Company was obligated to issue 250,000
shares of common stock. Accordingly the Company accrued $175,000 as part of
accrued stock compensation. On behalf of the Company a shareholder transferred
their shares of the Company’s Common Stock to the consultant as payment for
services rendered. Subsequently the Company was relieved of the
liability by the shareholder for the shares payable to the consultant. The
Company recorded the transaction as a settlement of $175,000 to equity for no
consideration.
On
October 1, 2009, the Company entered into an agreement with a consultant for
services. Under the terms of the agreement the Company is obligated to issue
10,000,000 shares of common stock. Accordingly the Company recorded $6,200,000
as part of shares issuable.
On
November 2, 2009, the Company settled a claim with a consultant and in exchange
agreed to issue 16,000,000 shares of its common stock. The Company accrued as
part of shares issuable $5,120,000. Subsequently the Company issued the
16,000,000 shares for the full settlement of this obligation.
On
November 5, 2009, the Company settled a claim with a consultant and agreed to
issue 4,000,000 shares of its common stock. On February
2, 2010, a separate claim was settled whereby the Company agreed to issue an
additional 16,000,000 shares to the consultant since the original 4,000,000
shares had not been delivered and the quoted market value of the Company’s
common stock had declined subsequent to the November 5, 2009 settlement date.
The entire 20,000,000 shares were accrued as of December 31,
2009. The accompanying consolidated financial statements include
$2,400,000 in shares issuable and consulting and outside service expense which
reflects the entire obligation associated with this claim.
On
December 11, 2009, the Company issued 2,628,000 shares to its employees for
services provided. The shares vested immediately on the date of issuance and the
Company incurred a stock based compensation charge of $473,040.
Other
On
October 1, 2009, the Company entered into an agreement with an investment banker
for services. Under the terms of the agreement the Company was
obligated to pay the banker $500,000 as an initial commitment
fee. The Company did not pay the commitment fee and on April 6,
2010, the Company settled a claim with the banker and in exchange agreed to
issue 40,000,000 shares of its common stock. The Company accrued as part of
shares issuable $1,200,000 which represents the fair value of the award at the
settlement date.
On
November 13, 2009 the Company created a new wholly-owned subsidiary, GetFugu
Research, Inc. and entered in to a merger agreement with IKDATA, Inc. (“IKDATA”)
and its sole stockholder and employed the former sole stockholder as its Chief
Software Architect. Under the terms of the agreement the Company acquired IKDATA
and its intellectual property in exchange for 10,000,000 shares of the Company's
common stock. The Company issued 5,000,000 shares at closing and will issue an
additional 5,000,000 shares to the former shareholder in March
2010. The former sole stockholder also entered into an employment
agreement and a six-month non-competition agreement. The Company
evaluated the transaction and determined that the transaction was an asset
acquisition of in-process research and development comprising of patent pending
algorithms. The Company was unable to determine alternate future uses of the
algorithms and determined that the employment agreement and non-compete
agreement had no intrinsic value. Accordingly, the Company recorded a
charge of $4,000,000 for the year ended December 31, 2009, for in-process
research and development. At December 31, 2009, accrued stock
issuance payable includes $2,000,000 representing the fair value associated with
the 5,000,000 unissued shares. Subsequent to December 31, 2009 the Chief
Software Architect resigned from the Company.
F-15
Stock
Options
On July
17, 2009, the Company granted 27,000,000 options to an employee four employees
to purchase shares of common stock at exercise prices from $0.15 to $0.30 per
share. The options vest over a period from 3 to 5 years and have a life of 6 to
10 years. The fair value of the awards is $6,925,188 and was calculated using
the black scholes option model. For the year ended December 31, 2009,
the Company recorded a charge to operations for the vested portion of these
awards of $2,024,480. During the year ended December 31, 2009, one of the
employees was terminated for cause by the Company. As a result 4,000,000 options
granted to this employee were forfeited by the employee. As December 31, 2009
$4,276,102 remains unvested and will be charged to operations in future
periods.
On
November 2, 2009, the Company granted 10,000,000 options to five
independent members of the Company’s Board of Directors to purchase shares of
common stock at an exercise price of $0.37 and 333,333 options vest in six
months from the date of the grant and the remainder vest over a period of 3
years. The options have a life of 10 years. The Company recorded a charge
to operations for $273,035 for the year ended December 31, 2009 based on the
fair value determined at the time of the individual grant using the Black
Scholes Option Valuation Model. As of December 31, 2009, $3,301,245 remains
unvested and will be charged to operations in future periods.
On
November 13, 2009, the Company granted 5,400,000 options to a consultant to
purchase shares of common stock at an exercise price of $0.40 and 2,000,000
options vest in two months from the date of the grant and the remainder vest
over a period of approximately 2 years. The options have a life of 5
years. The Company recorded a charge to operations for $608,922 for the year
ended December 31, 2009 based on the fair value determined at the time of the
individual grant using the Black Scholes Option Valuation Model. As of December
31, 2009 $1,289,763 remains unvested and will be charged to operations in future
periods.
F-16
A summary
of the option activity for the year ended December 31, 2009 is as
follows:
Number
of Shares
|
Weighted
Average
Exercise
Price
|
Weighted Average
Remaining
Contractual Life
(In Years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Options
outstanding at January 1, 2009
|
-
|
$
|
-
|
|||||||||||||
Granted
|
42,400,000
|
0.26
|
8.5
|
|||||||||||||
Forfeited
|
(4,000,000
|
)
|
(0.30
|
)
|
-
|
|||||||||||
Cancelled
|
-
|
-
|
-
|
|||||||||||||
Exercised
|
-
|
-
|
-
|
|||||||||||||
Options
outstanding at December 31, 2009
|
38,400,000
|
$
|
0.25
|
7.33
|
$
|
200,000
|
||||||||||
Options
exercisable at December 31, 2009
|
9,221,000
|
$
|
0.25
|
5.95
|
$
|
56,000
|
Options Outstanding
|
Options Exercisable
|
||||||||||||||||
Exercise Price
|
Number of
Outstanding
Options
|
Weighted
Average
Remaining
Contractual
Life
|
Weighted
Average
Exercise Price
|
Number of
Exercisable
Options
|
Weighted Average
Exercise Price
|
||||||||||||
$
0.15- $0.40
|
38,400,000
|
7.33
years
|
$
|
0.25
|
9,221,000
|
$
|
0.23
|
The
tables above incorporate 5,400,000 of non-employee options with an exercise
price of $0.40 and a remaining life of approximately 2 years.
Warrants
On July
22, 2009, the Company entered in to an exclusive investment banking agreement
(the “Banking Agreement”) which included the issuance of 2,000,000 shares of
common stock and 28,000,000 warrants. The Banking Agreement also
provided for a cash fee as well as the issuance of warrants based on amounts
actually raised for the Company. The Company recorded a charge to
operations for the shares of $640,000 and warrants of $8,486,388. On
November 13, 2009, the Banking Agreement was modified to be
non-exclusive. As part of the amendment, the original warrant to
purchase 28,000,000 shares of the Company’s common stock was reduced to purchase
8,000,000 shares of the Company’s common stock. As of September 30, 2009, the
Company accrued $640,000 for the 2,000,000 as part of accrued stock
compensation. On behalf of the Company a shareholder transferred their shares of
the Company’s common stock to the consultant as payment for services rendered.
Subsequently the Company was relieved of the liability associated to the shares
payable to the consultant. The Company recorded the transaction as a settlement
of $640,000 to equity for no consideration.
F-17
The
following is additional information with respect to the Company's warrants as of
December 31, 2009:
Number
of Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual Life
(In Years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Warrants
outstanding at January 1, 2009
|
-
|
$
|
-
|
|||||||||||||
Granted
|
30,583,392
|
0.28
|
5.0
|
|||||||||||||
Cancelled
|
(20,000,000
|
)
|
(028
|
)
|
-
|
|||||||||||
Exercised
|
—
|
-
|
-
|
|||||||||||||
Warrants
outstanding at December 31, 2009
|
10,583,392
|
$
|
0.28
|
4.6
|
$
|
225,000
|
||||||||||
Warrants
exercisable at December 31, 2009
|
10,583,392
|
$
|
0.28
|
4.6
|
$
|
225,000
|
Warrants Outstanding
|
Warrants Exercisable
|
||||||||||||||||
Exercise Price
|
Number of
Outstanding
Warrants
|
Weighted
Average
Remaining
Contractual
Life
|
Weighted
Average
Exercise Price
|
Number of
Exercisable
Warrants
|
Weighted Average
Exercise Price
|
||||||||||||
$
0.01- $0.33
|
10,583,392
|
5
years
|
$
|
0.28
|
10,583,392
|
$
|
0.28
|
Nonvested
Shares of Common Stock
A summary
of the status of the Company’s nonvested shares of common stock as of December
31, 2009, and changes during the year then ended is presented
below:
Weighted
|
||||||||
Average
|
||||||||
Grant Date
|
||||||||
Nonvested Shares
|
Shares
|
Fair Value
|
||||||
Nonvested
at January 1, 2009
|
-
|
-
|
||||||
Granted
|
17,000,000
|
$
|
0.52
|
|||||
Vested
|
(6,687,500
|
)
|
(0.51
|
)
|
||||
Expired
|
-
|
-
|
||||||
Nonvested
at December 31, 2009
|
10,312,500
|
$
|
0.52
|
NOTE
6- DERIVATIVE LIABILITY
In June
2008, the FASB issued new accounting guidance, which requires entities to
evaluate whether an equity-linked financial instrument (or embedded feature) is
indexed to its own stock by assessing the instrument’s contingent exercise
provisions and settlement provisions. Instruments not indexed to
their own stock fail to meet the scope exception of ASC 815 “Derivative and
Hedging” and should be classified as a liability and
marked-to-market. The statement is effective for fiscal years
beginning after December 15, 2008 and is to be applied to outstanding
instruments upon adoption with the cumulative effect of the change in accounting
principle recognized as an adjustment to the opening balance of retained
earnings. The Company did not have any equity-linked financial instruments in
2008 or prior.
F-18
ASC
815-40 mandates a two-step process for evaluating whether an equity-linked
financial instrument or embedded feature is indexed to the entity’s own
stock. The Company entered into an unregistered securities purchase
agreement with attached warrants, which contain a strike price adjustment
feature. The anti-dilution provisions in the warrants trigger
liability treatment. During the third and fourth quarters of 2009,
the liability was adjusted for the change in fair value of the
warrants. In accordance with ASC 815-40, a derivative liability of
$229,635 related to the warrants is included in our consolidated balance sheet
as of December 31, 2009. During 2009, we recorded an a decrease in
that expense of $816,237 related to the change in fair value of the warrants as
of December 31, 2009.
The
derivative liability was valued using the Black-Scholes option valuation model
and the following assumptions on the following dates:
September 18,
2009
|
December 31,
2009
|
|||||||
Risk-free
interest rate
|
2.49
|
%
|
2.49
|
%
|
||||
Expected
volatility
|
171
|
%
|
171
|
%
|
||||
Expected
life (in years)
|
5.0
|
4.7
|
||||||
Expected
dividend yield
|
n/a
|
n/a
|
||||||
Number
of warrants
|
1,500,000
|
1,500,000
|
||||||
Fair
value
|
$
|
1,045,872
|
$
|
229,635
|
The
risk-free interest rate was based on rates established by the Federal
Reserve. The Company’s expected volatility was based on the
historical volatility of similar entities whose share prices are publicly
available. The expected life of the warrants was determined by the
expiration date of the warrants. The expected dividend yield was
based upon the fact that the Company has not historically paid dividends, and
does not expect to pay dividends in the future.
NOTE
7 — FAIR VALUE
ASC 820
“Fair Value Measurements and Disclosures” defines fair value, establishes a
framework for measuring fair value and requires enhanced disclosures about fair
value measurements. As defined in ASC 820, fair value is the price
that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The
Standard clarifies that the exchange price is the price in an orderly
transaction between market participants to sell an asset or transfer a liability
at the measurement date and emphasizes that fair value is a market-based
measurement and not an entity-specific measurement.
ASC 820
establishes the following hierarchy used in fair value measurements and expands
the required disclosures of assets and liabilities measured at fair
value:
1. Level
1 – Inputs use quoted prices in active markets for identical assets or
liabilities that the Company has the ability to access.
2. Level
2 – Inputs use other inputs that are observable, either directly or indirectly.
These inputs include quoted prices for similar assets and liabilities in active
markets as well as other inputs such as interest rates and yield curves that are
observable at commonly quoted intervals.
3. Level
3 – Inputs are unobservable inputs, including inputs that are available in
situations where there is little, if any, market activity for the related asset
or liability.
In
instances where inputs used to measure fair value fall into different levels in
the above fair value hierarchy, fair value measurements in their entirety are
categorized based on the lowest level input that is significant to the
valuation. The Company’s assessment of the significance of particular inputs to
these fair measurements requires judgment and considers factors specific to each
asset or liability.
Liabilities
measured at fair value on a recurring basis at December 31, 2009 are as
follows:
F-19
Fair Value Measurements at December 31, 2009
|
||||||||||||||||
Total carrying
value at
December 31,
2009
|
Quoted prices
in active
markets
(Level 1)
|
Significant
other
observable
inputs
(Level 2)
|
Significant
unobservable
inputs (Level 3)
|
|||||||||||||
Derivative
liability
|
$
|
229,635
|
$
|
-
|
$
|
-
|
$
|
229,635
|
Financial
assets are considered Level 3 when their fair values are determined using
pricing models, discounted cash flow methodologies or similar techniques and at
least one significant model assumption or input is unobservable. The Company’s
Level 3 liabilities consist of derivative liabilities associated with the
1,500,000 of warrants granted that contains a reset price provision. In addition
the Company entered into an asset purchase agreement for in process research and
development that carried a fair value of $4,000,000 on the measurement
date.
The
following table provides a summary of the changes in fair value, including net
transfers in and/or out, of all financial assets measured at fair value on a
recurring basis using significant unobservable inputs during the year ended
December 31, 2009.
Derivative
liability
|
||||
Balance
at January 1, 2009
|
$
|
-
|
||
Fair
value at issuance
|
1,045,872
|
|||
Reductions
|
(816,237
|
)
|
||
Transfer
in and /or out of Level 3
|
-
|
|||
Balance
at December 31, 2009
|
$
|
229,635
|
The
carrying amounts of cash, accounts payable, and accrued liabilities approximate
their fair value due to their short maturities. There were no changes
in the valuation techniques during the year ended December 31,
2009.
NOTE
8—NOTES PAYABLE
On August
18, 2009, the Company entered into an unsecured note payable in the amount of
$100,000, the note matures on November 18, 2009 and accrues interest at a rate
of 12% per annum. The note was repaid in full on September 9, 2009.
On
November 6, 2009, the Company entered into an unsecured note payable which
matures on December 6, 2009, in the amount of $250,000. The note
accrues interest at 10% per annum.
On
December 21, 2009, the Company entered into an unsecured note payable which
matured on January 20, 2010, in the amount of $50,000. As an
inducement to the loan, the Company agreed to issue the lender 50,000 shares of
the Company’s common stock valued at $9,000. The Company incurred a charge which
has been included as part of interest expense on the consolidated statement of
operations. At December 31, 2009, the shares were not yet issued and
consequently $9,000 was reported as shares issuable.
At
December 31, 2009, the $250,000 note was in default and as of April 15, 2010,
both notes are in default of the applicable repayment
provisions.
F-20
NOTE
9 – RELATED PARTY TRANSACTIONS
On August
29, 2008, the $15,000 loan from the Company’s then sole director was forgiven
without interest or penalty. This forgiven loan was reclassified to additional
paid-in capital.
During
the year ended December 31, 2008, an officer and shareholder of the Company paid
$2,025 of expenses on behalf of the Company. On December 31, 2008, this amount
was forgiven and recorded as additional paid-in capital.
Effective
April 9, 2009, the Company entered into an agreement for the assignment of
patent rights with MARA Group Ltd (“MARA”). Pursuant to the agreement
the Company acquired eight patent applications from MARA in exchange for 25
million shares of common stock of the Company. Prior to the closing of this
transaction MARA was deemed to be an “affiliate”, as Carl Freer
(“Freer”), co-founder of the Company and the then sole owner of MARA owned,
directly and indirectly, approximately 21% of the Company’s outstanding common
stock. Subsequent to this transaction, Freer beneficially owned
approximately 37.5% of the Company’s outstanding common stock. Since MARA is
under common control with the Company (due to the common ownership by Freer),
the Company recorded the acquisition of the patent rights at MARA’s carrying
value of $0, and the difference between the fair market value of the common
stock issued to MARA and the carrying value of the patent applications received
was recorded as a deemed dividend of $ 12,500,000 to MARA. Through
his role as co-founder and one of the single largest Company shareholders, Freer
is considered to have management control in accordance with ASC 850, “Related
Party Disclosures.”
On August
19, 2009 the Company and Freer executed a twelve month agreement which limits
Freer’s rights to vote shares of the Company’s Common Stock that he owns during
this twelve month period to a level of 17% of the total votes cast on any matter
brought to Company shareholders for a vote. On October 16, 2009,
Freer created a limited liability company controlled by three individuals
including Freer’s daughter. All shares of Company Common Stock owned
by Freer were transferred to this limited liability
company. Concurrent with the creation of this limited liability
company, the agreement which limited Freer's right to vote shares was
terminated.
On August
24, 2009, the Company entered into an unsecured revolving promissory note with a
lender whose owners include a founder and shareholder of the
Company. Under the terms of this revolving promissory note the
maximum available borrowings shall not exceed $5 million. Interest will be
accrued at an annual rate of 10% and will be payable on demand by the
lender. As of December 31, 2009, the Company had received borrowings
under the unsecured promissory note totaling $1,243,657, and repaid
$634,807. As of April 15, 2010, the amount due under this facility
totaled $665,042.
On
December 18, 2009, the Company entered into a revolving promissory note with
a founder and shareholder of the Company. During the year ended
December 31, 2009, the Company had received cash borrowings of $170,000 and
repaid $50,000. The borrowings have a stated interest rate of 10% and
is payable on demand. As of April 15, 2010 the amount due under this facility
totaled $120,000.
On July
17 2009, the Company agreed to issue Freer 10,000,000 shares of Series A
preferred stock with each such share having twenty votes on all matters brought
to a shareholder vote. The issuance of Series A preferred stock to Freer is
subject to Board and shareholder approval and the authorization of a sufficient
number of shares of Series A preferred. As of December 31, 2009, no Series A
preferred stock has been approved by either the Board or the shareholders and
accordingly, none have been authorized or issued. On April 15, 2010, the
Company’s Board of Directors and Freer agreed to rescind the commitment by the
Company to issue the preferred stock as defined in the employment agreement
dated July 17, 2009.
During
December 2009, the Company received borrowings a from a company owned by 2
individuals one being an officer and Director and the other a founder and
shareholder of the Company, of the Company. During the year ended December 31,
2009, the Company received advances of $236,692 and repaid
$100,000. As of April 15, 2010, the total amount owed to this related
party was $111,400.
F-21
NOTE
10 – INCOME TAXES
The
Company evaluates uncertain tax positions under ASC 740 “Income
Taxes”. ASC 740 prescribes a recognition threshold and a measurement
attribute for the financial statement recognition and measurement of tax
positions taken or expected to be taken in a tax return. For those
benefits to be recognized, a tax position must be more-likely-than-not to be
sustained upon examination by taxing authorities. Differences between
tax positions taken or expected to be taken in a tax return and the benefit
recognized and measured pursuant to the interpretation are referred to as
“uncertain tax positions.” A liability is recognized (or amount of
net operating loss carry forward or amount of tax refundable is reduced) for an
unrecognized tax benefit because it represents an enterprise’s potential future
obligation to the taxing authority for a tax position that was not recognized as
a result of applying the provisions of ASC 740.
In
accordance with ASC 740, interest costs related to unrecognized tax benefits are
required to be calculated (if applicable) and would be classified as “Interest
expense, net” in the consolidated statements of operations. Penalties
would be recognized as a component of “general and administrative
expenses.”
The
Company’s uncertain tax positions are related to tax years that remain subject
to examination by relevant tax authorities. The Company files income
tax returns in the United States (federal) and primarily in
California. The Company is not subject to federal and state income
tax examinations by tax authorities for years prior to 2007. As of
December 31, 2009, no liability for unrecognized tax benefits was required to be
recorded.
The
Company has significant net operating loss and business credit carryovers which
are subject to a valuation allowance due to the uncertain nature of the
realization of the losses. Section 382 of the Internal Revenue Code imposes
certain limitations on the utilization of net operating loss carryovers and
other tax attributes after a change in control. Since its formation,
the Company has raised capital through the issuance of capital stock which,
combined with purchasing shareholders' subsequent disposition of these
shares..
The
Company has net operating loss carryforwards (“NOLs”) of approximately
$8,740,000 and $21,802 as of December 31, 2009 and 2008, respectively that will
be available to offset future taxable income. Based on projections
for future taxable income over the periods that the deferred tax assets are
deductible, the Company believes it is more likely than not that the Company
will not realize the benefits of these deductible differences in the near future
and therefore a full valuation allowance increased approximately $ 3,489,000 and
$7,413, for the years ended December 31, 2009 and 2008, respectively related to
increased net operating losses.
The total
net deferred tax asset as of December 31, 2009 and 2008 consists of the
following:
2009
|
2008
|
|||||||
Net
operating loss carryforwards
|
$
|
3,611,000
|
$
|
7,413
|
||||
Less:
valuation allowance
|
(3,611,000
|
)
|
(7,413
|
)
|
||||
Total
net deferred tax asset
|
$
|
-
|
$
|
-
|
The
difference between the federal statutory and effective income tax rates for the
years ended December 31, 2009 and 2008 is as follows:
2009
|
2008
|
|||||||
Federal
statutory tax rate
|
(34.0
|
)%
|
(34.0
|
)%
|
||||
State
and local income taxes, net of federal benefit
|
(6.0
|
)%
|
(6.0
|
)%
|
||||
Other
permanent items
|
(0.4
|
)%
|
—
|
%
|
||||
Stock-based
compensation
|
33.8
|
%
|
—
|
%
|
||||
Less:
valuation allowance
|
6.6
|
%
|
40.0
|
%
|
||||
Provision
for income taxes
|
0.0
|
%
|
0.0
|
%
|
F-22
NOTE 11 - COMMITMENTS AND
CONTINGENCIES
Operating
Leases
In
August, 2009, the Company began leasing 7,343square feet of office space at its
headquarters in West Hollywood, CA under a sub-lease that expires in June 2010.
The monthly rent under the lease is $13,951.
Total
rent expense for the year ended December 31, 2009 and 2008 was $169,160 and
$0.
Other
At
December 31, 2009, the Company has an obligation totaling $932,266
related to unpaid payroll tax, including an estimate of penalties and
interest. The Company has filed the required payroll tax returns
required.
The
Company has not filed either federal or state income tax returns for the years
ended 2009, 2008, and 2007. There are no penalties or interest due or
recorded as a liability, as in all periods the Company reported
losses.
Litigation
A lawsuit
was filed on November 25, 2009 against the Company, numerous former and current
Company officers and directors, and other individuals and entities. Plaintiffs
have made no direct claims against the Company, but have instead named it as a
“nominal” defendant, and have alleged “derivative” causes of action on its
behalf. The Plaintiffs appear at present to only claim damages
of approximately $26,000,000 resulting from loans they made to previous
companies, which Carl Freer, the President of the Company, allegedly personally
guaranteed. The Company’s counsel is preparing a motion to dismiss.
The Company and those officers and directors deny plaintiffs’ allegations, and
plan to vigorously defend the action. Accordingly, the Company has no
liability accrued as it relates to this matter.
By letter
dated February 24, 2010, fourteen former employees of a separate company made a
demand for $430,000 in unpaid wages against that company, and threatened to file
suit against the Company, on the ground that the separate company was merely an
instrumentality of GetFugu, Inc. To the Company’s knowledge, no claim has been
filed to date, and the Company believes the demand is not an obligation of the
Company. Accordingly, as of December 31, 2009, the Company has no
liability accrued as it relates to this matter.
Although
the Company believes it will be successful in defending these matters there can
be no assurances that these legal matters will not result in any negative
outcomes.
On April
1, 2010, Hutton International Investments, Ltd (“Hutton”) filed a claim that it
suffered damages as a result of the Company's breach of a securities purchase
agreement with the Company. The parties stipulated to settle the claim in
exchange for issuance to Hutton of 40,000,000 shares of the Company’s common
stock, subject to adjustment and the Court’s approval of the settlement under
Section 3(a)(10). The court approved the settlement and dismissed the action on
April 6, 2010 at which time 40,000,000 shares of the Company’s common stock were
issued to Hutton. The Company recorded a charge of approximately $1,200,000 for
the year ended December 31, 2009, based on the share price of the Company’s
common stock on the date of settlement.
A demand
for arbitration filed on April 13, 2010, by six former employees and independent
contractors, seeking unpaid wages and unspecified damages.
NOTE
12 – SUBSEQUENT EVENTS
On
January 14, 2010, the Company entered into a joint venture agreement for the
purpose of establishing an operating entity in Japan. The Company
issued 3,000,000 shares of its common stock and will retain a 75% interest in
the joint venture.
F-23
On
January 15, 2010, the Company, through a wholly-owned subsidiary, entered into
an agreement and plan of merger with Health Matrix, Inc. Under the
terms of the agreement and plan of merger, 7,580,000 shares of the Company’s
common stock were issued in exchange for all of the ownership interest in Health
Matrix.
On
February 5, 2010, the Company entered into a short-term secured promissory note.
Under the terms of this secured promissory note, the Company
received $150,000. Interest accrues at an annual rate of 10%
and the note is payable on demand. Security for this note includes a
first priority interest in all of the Company’s assets owned on the date of the
loan as well as all assets acquired while the loan is outstanding.
On
February 9, 2010, the Company executed a consulting agreement with a public and
investor relations firm to which 10,000,000 shares of the Company’s common stock
were issued.
On
February 15, 2010, the Company entered into consulting agreements with two
individuals including monthly fees totaling $25,000 and the issuance of
non-qualified stock options totaling 20,000,000. On the date of the grant 25% of
the options vest immediately and the remaining will vest over a term of 5 years.
The options granted are exercisable at $0.13 per share and have a contractual
life of 5 years
On March
2, 2010, the Company received an advance totaling $83,000 from a former officer
of the Company. Interest accrues at an annual rate of 10% and the note is
payable on demand
On March
12, 2010, the Company entered into a short-term 8% convertible promissory note.
Under the terms of this promissory note, the Company received
$71,500. At any time prior to the maturity date, the note can be
converted at the option of the lender into the Company’s common stock based on a
40% discount to the weighted average price of the Company’s Common Stock for the
three lowest closing share prices during the ten trading days prior to the
conversion date.
On March
23, 2010, the Company entered into a short-term convertible promissory note.
Under the terms of this promissory note, the Company received
$150,000. The note matures on June 23, 2010. At any time prior to the
maturity date, the note can be converted at the option of the lender into the
Company’s common stock at a price of $0.02 per share. If the lender demands
repayment on the maturity date the conversion feature is terminated and the
Company is obligated to pay the lender $200,000. The lender was also
granted a warrant to acquire 3,000,000 shares of the Company’s common stock at
$0.10 per share for three years.
On March
24, 2010, we entered into an agreement and plan of merger with each of Mobile
Search Technologies, Inc. and Cellular Software Corporation, pursuant to which
we acquired both companies as our wholly-owned subsidiaries in exchange for
100,000,000 shares of our Common Stock each. Mobile Search Technologies, Inc.
was wholly-owned by Oscar Holdings, LLC, which is beneficially owned by our
President, Carl Freer. The primary assets of each company are intellectual
property rights relating to next generation mobile search technology. Each of
the principals also executed our standard form compatibility and intellectual
property assigned agreement.
On April
2, 2010, the Company entered into a short-term convertible promissory note.
Under the terms of this promissory note, the Company received
$100,000. The note matures on July 2, 2010. At any time prior to the
maturity date, the note can be converted at the option of the lender into the
Company’s common stock at a price of $0.02 per share. If the lender
demands repayment on the maturity date the conversion feature is terminated and
the Company is obligated to pay the lender $133,333. The lender was
also granted a warrant to acquire 3,000,000 shares of the Company’s common stock
at $0.10 per share and the warrant for three years.
F-24
Management’s
discussion and analysis of financial condition and results of
operations
This section of the prospectus
includes a number of forward-looking statements that reflect our current views
with respect to future events and financial performance. Forward-looking
statements are often identified by words like: believe, expect, estimate,
anticipate, intend, project and similar expressions, or words which, by their
nature, refer to future events. You should not place undue certainty on these
forward-looking statements, which apply only as of the date of this report.
These forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical results or
our predictions.
The
following discussion should be read in conjunction with the Financial Statements
and notes thereto included above.
Overview
We are
developing next generation mobile search tools. Our technology is designed to
play on the strengths of mobile handheld devices (mobile phones) and assist
consumers to retrieve content more expediently. Consumers can download GetFugu
application tools to their mobile phone device. The GetFugu
applications allow consumers to retrieve content and eliminates the need to type
a website address or search term into a browser.
We
currently have four products.
1. See It (ARL): “Vision
recognition” The GetFugu application recognizes logos and products through any
mobile phone camera. Consumers simply point their phone at a logo and retrieve
content from the brand owner.
2. 2. Say It (VRL): “Voice
recognition” The consumer can simply speak into the phone to retrieve content.
In addition to brand names, the consumer can say generic keywords such as “best
pizza” or “ATM”.
3. 3. Find It (GRL): “Location
recognition” For local content, GetFugu is designed to work with the GPS
systems of today’s mobile phones. The application will return content, based on
the proximity to the user. A keyword of “pizza” will return the five closest
pizza parlors. Local businesses can pay for voice-activated key words
to position themselves at the top of the search list.
4. 4. Get it (Hotspotting): GetFugu
provides advertisers with a way to monetize their marketing efforts through a
mobile ecommerce tool called Hot-Spotting, which enables the consumer to
purchase or retrieve information on any item featured in the video simply by
touching it on the screen. This function is currently limited to touch-screen
phones and selected Blackberry models.
Background
We were
incorporated in the State of Nevada on March 14, 2007 under the name Madero,
Inc. On August 29, 2008, the Company entered into a stock purchase
agreement (the “Stock Purchase Agreement”) with Mike Lizarraga (the then sole
director, and our former President, Chief Executive Officer, and Chief Financial
Officer), and Media Power, Inc. (“MPI”). Pursuant to the terms and conditions of
the Stock Purchase Agreement, MPI acquired 48,000,000 shares of our common stock
(this number and all other share and per share amounts are post the 12 for 1
forward split which was effectuated on February 11, 2009), or approximately
48.07% of our then issued and outstanding shares of common stock, from Mr.
Lizarraga. Pursuant to the terms and conditions set forth in the Stock
Purchase Agreement, Mike Lizarraga tendered his resignation as the sole
director, which resignation was effective October 9, 2008.
Prior to
the closing of the transactions referenced in the Stock Purchase Agreement, the
Company was a development stage company that intended to open and operate
children’s themed restaurants in Mexico. Through that date, the
Company’s activities had been limited to its formation, business plan, and
raising capital. Since that date, the Company has been involved with
developing next generation mobile search tools.
22
On
January 23, 2009, we amended our Articles of Incorporation to increase the
number of authorized common stock, par value $0.001 per share, from 75,000,000
to 500,000,000. On February 11, 2009, we conducted a forward split of
our Common Stock whereby every one issued and outstanding share of Common Stock
was automatically split into 12 shares of Common Stock.
Effective
March 25, 2009, we amended our Articles of Incorporation to change our name to
GetFugu, Inc.
Effective
April 9, 2009, we entered into an Agreement for the Assignment of Patent Rights
(the “Assignment Agreement”) with MARA Group Ltd. Pursuant to the
Assignment Agreement the Company acquired eight patent applications (the “Patent
Applications”) from MARA Group Ltd. in exchange for 25 million shares of Common
Stock of the Company. Prior to the closing of this transaction, MARA
Group Ltd. was deemed to be an “affiliate”, as it owned more than ten (10%)
percent of our outstanding Common Stock.
On
October 19, 2009, the Company’s Board of Directors approved (i) the
reincorporation of the Company from Nevada to Delaware, (ii) increasing the
number of authorized shares of Common Stock from 500,000,000 to 750,000,000,
(iii) issuing up to 200,000,000 shares of “blank check” preferred stock, and
(iv) the creation of the 2009 Incentive Compensation Plan with a maximum of
250,000,000 shares of Common Stock to be issued with no more than 100,000,000
shares permitted to be issued in any fiscal year. As of April 15,
2010, the Company had not formally adopted the Incentive Compensation
Plan. All of the above noted items require shareholder
approval. Accordingly, at this meeting, the Board approved the filing
with the Securities and Exchange Commission (“SEC”) of a written consent
statement. . As of the date of this registration statement, the
Company has not filed its amended articles of incorporation with the appropriate
regulatory bodies.
2009 Compared to
2008
Revenues
Revenues
were zero for the years ended December 31, 2009 and 2008,
respectively.
Cost
of Sales
Cost of
sales were zero for the years ended December 31, 2009 and 2008,
respectively.
Operating
Expenses
Operating
expenses totaled $53,620,808 and $21,802 for the years ended December 31, 2009
and 2008, respectively. The operating expenses in 2008 related to
legal and other incorporating expenses. The increase results from the
Company beginning operations on March 14 2009. Prior to March 14,
2009, the Company was categorized as a “shell” without any
operations. Following are the primary components of operating
expenses:
Compensation and Related
Benefits —Compensation and related benefits totaled $9,005,021 for the
year ended December 31, 2009 of which $6,361,486 relates to employees and
$2,643,535 relates to the Company’s Board of Directors. Included in the total
expense for the year are $6,194,304 of non-cash expenses consisting of
$2,024,479 associated with employee stock options, $1,816,790 associated with
the issuance of the Company’s common stock to various employees, $273,035
associated with director stock options, and $2,080,000 associated with the
issuance of the Company’s common stock to the Company’s directors.
Legal and Professional
Fees —Legal and professional fees totaled $1,135,201 for the year ended
December 31, 2009 representing $205,941 of accounting fees associated with the
cost of the Company’s public company filing requirements, and $929,260 of legal
fees associated with capital raising activities, contract development,
litigation and other corporate purposes.
23
Marketing -Marketing
expenses totaled $997,402 for the year ended December 31, 2009 primarily
consisting of public relations related activities, development of the corporate
website, media related activities, and development of the marketing campaign for
the Company’s consumer launch.
Occupancy and Related
Costs —Occupancy and related costs totaled $191,103 for the year ended
December 31, 2009. Rent expense of the Company’s office in San
Francisco totaled $98,988 and the office in Los Angeles totaled
$70,171. The Company closed the San Francisco office in December 2009
as it had moved all operation to Los Angeles.
Research and
Development — Research and development expense relates to the development
of new products and processes including improvements to existing products. These
costs are expensed as incurred and totaled $4,360,944 for the year ended
December 31, 2009. The Company recorded a charge of $4,000,000 for
the year ended December 31, 2009, related to the agreement entered with IKDATA,
Inc. and its sole stockholder and employed the former sole stockholder as its
Chief Software Architect. Under the terms of the agreement the Company acquired
intellectual property in exchange for 10,000,000 shares of the Company's common
stock. The Company issued 5,000,000 shares at closing and will issue an
additional 5,000,000 shares to the former shareholder in March
2010. The Company evaluated the transaction and determined that the
transaction was an asset acquisition of patent pending algorithms. The Company
was unable to determine alternate future uses of the algorithms.
Travel and
Entertainment —Travel and entertainment expenses totaled $666,134 for the
year ended December 31, 2009. The majority of such costs were travel,
meals, and lodging related to financing activities and similar costs related to
consultants traveling to work in the Company’s offices.
Consulting and Outside
Services —Consulting and outside services totaled $36,822,286 for the
year ended December 31, 2009. Due to the liquidity issues related to
a new venture, the Company utilized its common stock as a primary means of
compensating consultants. During 2009, the Company issued warrants to
an investment banker resulting in non-cash expenses of $9,040,31 and the
Company’s common stock to a variety of consultants resulting in non-cash
expenses of $24,919,505. In addition, the Company contracted with
specialized developers and contractors on an as needed basis to assist in the
development of the Company’s mobile search technology.
Office and Other
Expenses —Office and other expenses totaled $425,505 for the year ended
December 31, 2009. These expenses included postage and delivery
charges, telephone, Internet services, stock transfer agent fees, closing down
and relocation of the San Francisco office to Los Angeles, insurance, and other
miscellaneous office related expenses.
Depreciation
—Depreciation expense for the year ended December 31, 2009, totaled
$17,212. The Company began depreciating computer and other fixed
assets beginning the month following the quarter in which the assets were
acquired. The primary fixed assets as computers and related equipment
which is being depreciated over 3 years on a straight-line basis.
Other
Income (Expense)
Gain on Derivative Financial
Instrument —The gain on derivative financial instrument totaled
$816,237. Financial instruments which do not have fixed settlement
provisions are deemed to be derivative instruments. The
warrants issued with the Company’ September 18, 2009 common stock financing, do
not have fixed settlement provisions because the exercise price may be lowered
if the Company issues securities at lower prices in the future. The
Company was required to include the reset provisions in order to protect the
warrant holders from the potential dilution associated with future
financings. In accordance with ASC 815-40, the warrants were
recognized as a derivative instrument.
24
2008 Compared to
2007
Results from
Operations
Revenues
Revenues
were zero for the years ended December 31, 2008 and 2007,
respectively.
Cost
of Sales
Cost of
sales was zero for the years ended December 31, 2008 and 2007,
respectively.
Operating
Expenses
Operating
expenses were $21,802 and $26,448 for the years ended December 31, 2008 and
2007, respectively, representing legal and compliance related
expenditures.
Liquidity and Capital
Resources
Net
cash used in operating activities was $5,212,043 and $19,927 in the years ended
December 31, 2009 and 2008, respectively.
Net
cash used in investing activities was $295,499 and zero in 2009 and 2008,
respectively.
Net
cash provided by financing activities was $5,508,042 and $17,025 in 2009 and
2008, respectively.
We have
an accumulated deficit of $52,852,821 as of December 31, 2009.
The
Company had cash of $500 at December 31, 2009. Subsequent to December
31, 2009, the Company raised $554,500 though convertible debt and the sale of
common shares. The Company’s monthly cash burn approximates $200,000
and the Company is deferring payments to vendors, suppliers, employees, and
contractors.
Going
Concern
We
incurred a net loss of $52,804,571 and $21,802 for the years ended December 31,
2009 and 2008, respectively. At December 31, 2009, our accumulated deficit
amounted to $52,852,821. During the year ended December 31, 2009, net cash used
in operating activities amounted to $5,212,043. At December 31, 2009,
our working capital deficit amounted to $6,883,066. The Company needs to raise
additional capital from external sources in order to sustain its operations
while continuing the longer term efforts contemplated under its business plan.
The Company expects to continue incurring losses for the foreseeable future and
must raise additional capital to pursue its product development initiatives, to
penetrate markets for the sale of its products and to continue as a going
concern. We cannot provide any assurance that we will raise additional capital.
If we are unable to secure additional capital, we may be required to curtail our
research and development initiatives and take additional measures to reduce
costs in order to conserve our cash in amounts sufficient to sustain operations
and meet it obligations. These measures could cause significant delays in our
efforts to commercialize our products, which is critical to the realization of
our business plan and our future operations. These matters raise substantial
doubt about our ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments that may be
necessary should we be unable to continue as a going concern.
25
Capital
Expenditures
During
the year ended December 31, 2009, the Company purchased property and equipment
totaling $295,499 and reported depreciation expense for 2009 of
$17,212.
Contractual
Obligations
As
a “smaller reporting company” as defined by Item 10 of Regulation S-K, the
Company is not required to provide this information.
Off-Balance Sheet
Arrangements
As of
December 31, 2009, we did not have any off-balance sheet arrangements as defined
in Item 303(a)(4)(ii) of Regulation S-K.
Recent Accounting
Pronouncements
For
a discussion of the impact of recent accounting pronouncements, see Note 3 to
the accompanying consolidated financial statements.
We have
not had any disagreements with our independent public accountants during the
last two fiscal years.
On March
5, 2009, the Company dismissed Moore & Associates, Chartered (“Moore &
Associates”) as its principal independent accountant. Moore &
Associates report on the Company’s financial statements for the year ended
December 31, 2007 did not contain an adverse opinion or disclaimer of opinion.
The Board of Directors approved the decision to dismiss Moore & Associates
as the Company’s principal independent accountant. During the Company’s recent
fiscal year and through the date of Moore & Associates dismissal, there were
no disagreements with Moore & Associates on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to the satisfaction of Moore & Associates,
would have caused it to make reference to the subject matter of the
disagreement(s) in connection with its report.
On March
6, 2009, the Company retained MSPC Certified Public Accountants and Advisors, a
Professional Corporation (“MSPC”) to serve as the Company’s principal
independent accountant.
On
August 14, 2009, the Board of Directors voted to dismiss MSPC, which had
previously served as the Company’s independent accountants, and engaged Marcum
LLP (“Marcum”) as the Company’s new independent accountants. The Board of
Directors recommended that the Company change audit firms and made the decision
to engage Marcum. The reports of MSPC on the financial statements of
the Company for the past fiscal year ended 2008 contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle.
Directors
and executive officers
Our
directors will serve until successor(s) are elected and qualified. Our chief
executive officer is elected by the board of directors to a term of one (1) year
and serves until his successor is duly elected and qualified, or until he is
removed from office. In November 2009, the board of directors established ,
Audit, Compensation, Nominating and Governance, Strategic Planning, and Special
Committees.
26
Background
of officers and directors
The name,
address, age and position of our present officers and directors are set forth
below:
Name
|
Title
|
Age
|
||
Michael
J. Solomon
|
Chairman
of the Board since July 2009 and CEO since April 2, 2010
|
71
|
||
Carl
Freer
|
President
and Director since November 2009
|
39
|
||
Leathem
Stearn
|
Director
since January 2009
|
61
|
||
Chuck
Timpe
|
Director
and Audit Committee Chairman since November 2009
|
63
|
||
Alan
J. Bailey
|
Director
since November 2009
|
62
|
||
Michael
O’Connor
|
Director
since July 2009
|
43
|
Biographical
Information
Michael
Jay Solomon
CEO
and Chairman of the Board of Directors
Michael
Jay Solomon, 71, was appointed to our board of directors on May 18, 2009, and
has served as chairman since July. Mr. Solomon served as President of
Warner Bros. International Television (NYSE: TWX) from 1989 to
1994. Since that time, he has helmed television communications
company Solomon Entertainment Enterprises, distributing independent content to
the international market. Mr. Solomon co-founded television
syndication company Telepictures Corporation (Nasdaq) in 1978, and served as
president of Lorimar Telepictures Corp. until 1989. He also served
eight years with United Artists and fourteen years with
MCA/Universal. Mr. Solomon was a founder of the American Film Market
Association and The Sam Spiegel Film & Television School, and has served on
the Board of Overseers of New York University’s Stern School of Business for
twenty year
Carl
Freer
President
and Director
Carl
Freer, 39, was appointed as our president and as a member of our board of
directors effective November 2, 2009. Mr. Freer has more than 15
years experience as a marketing and technology entrepreneur, successfully
raising over $350 million in investment capital, and amassing $2.5 billion in
market capitalization for his companies. Prior to co-founding
GetFugu in April 2009, he served as SVP Business Development of Media Power Inc.
in 2008. Mr. Freer founded mobile gaming platform Gizmondo in 2002,
and was chairman of the board of directors at its parent company, Tiger
Telematics Inc. until October 2005. He has been recognized as a
pioneer in mobile technology and innovative approaches to
advertising.
Leathem
Stearn
Director
Mr.
Leathem Stearn, 61, has been the Managing Partner of Stearn Enterprises LLC
since 1995. During his career Mr. Stearn has developed business
plans, strategic models and operational plans covering all aspects of product
development, production, administration, organization and
finance. Among the companies Mr. Stearn founded were Stearn Sailing
Systems ("SSS") and Scunci International Ltd. At SSS, he invented the
first roller-furling jib and 2-groove head stays. He also developed the first
hydraulic system for offshore racing boats and first offshore bending mast
system for racing boats. Sold the company with 70% of world racing
market for racing masts and rigging. At Scunci Int Ltd., he incepted,
designed and launched, to date, the most successful fashion accessory ever sold,
the Scunci hairpiece. Stearn Enterprises, his current company,
provides consulting services to startup companies. Mr Stearn has been
awarded three patents in a variety of industries. Mr Stearn
holds masters degrees in Naval Architecture, Marine Engineering and Aeronautical
Engineering. His sailboat racing career includes a number of world
championships, inclusive of being a member of the US Olympic sailing tea and
skippering an America’s Cup contender.
Chuck
Timpe
Director, Audit Committee
Chairman
Chuck
Timpe, 63, joined our board effective November 2, 2009. Mr. Timpe is
a senior financial executive with extensive experience in public company
finance, compliance and technical accounting issues. He has served as
a director and chairman of the audit committee since 1998 for IPC The
Hospitalist Company, Inc. (NasdaqGM: IPCM), and as a director of Internet social
network CrowdGather, Inc. (CRWG.OB) since May 2009. From 2003 to
November 2008, Mr. Timpe served as the chief financial officer of Hythiam,
Inc. (NasdaqGM: HYTM). He was chief financial officer from its inception in 1998
to 2003 of Protocare, Inc. Mr. Timpe was a principal in two
consulting firms he co-founded, chief financial officer of National Pain
Institute, treasurer and corporate controller for American Medical
International, Inc., now Tenet Healthcare Corp. (NYSE: THC). He
specialized in public company audits at Arthur Andersen,
LLP. Mr. Timpe received a B.S. from University of Missouri,
School of Business and Public Administration, and is a certified public
accountant (inactive).
27
Alan
J. Bailey
Director
Alan
J. Bailey, 62, joined our board effective November 2, 2009. Mr.
Bailey is a veteran of the entertainment industry with 35 years of senior level
corporate finance, audit and compliance experience. He served as
Senior Vice President and Treasurer at Paramount Pictures from 1975 through
March 2009. Mr. Bailey is an operating partner in Transworld Capital
Group which specializes in structuring complex financial
transactions. Mr. Bailey is also Vice President of the Shanghai Film
Art Academy , a motion picture and television college based in
Shanghai with more than 3,000 active film students. In April 2009, he
formed new media company Dynamic Media International Inc. where he serves as
chief operating officer and chief financial officer. Mr. Bailey
previously served as Vice President in charge of offshore financial operations
at Gulf + Western Industries, and served in public accounting with an affiliate
of Ernst & Young and with Grant Thornton as a senior audit
supervisor. He is a Fellow of the English Institute of Chartered
Accountants.
Michael
J. O’Connor
Director
Michael
J. O’Connor, 43, joined our board effective July 26, 2009. Mr.
O'Connor has served as Vice-Chairman of telecommunications provider Globalive
Communications Corporation since August 2008. He has twenty years experience in
finance, mergers and acquisitions in telecommunications, as well as designing
and implementing sophisticated financial planning tools in support of major
capital raises. Mr. O’Connor served as one of six founding
members of the Executive Committee of Orascom Telecom from November
1999 to July 2008, whose parent company Weather Investments boasts more
than 110 million subscribers. He founded the Center for Economic and
Financial Analysis at Science Applications International Corporation, one of the
largest consultancy companies in the country. He began his career at
the Economic Council of Canada/School of Policy Studies Queens
University. He holds a Masters Degree in Economics from Carleton
University.
Audit
Committee and Charter
Our Audit
Committee consists of Chuck Timpe (Chair), Alan Bailey and Michael
O’Connor. Our board of directors has determined that all three are
independent directors under the independence standards of the American Stock
Exchange, as well as audit committee financial experts as defined in Item
407(d)(5) of Regulation S-B.
The
Committee shall consist of no fewer than three members, as determined annually
by the board of directors. The members of the Committee shall meet
the independence and expertise requirements of the American Stock Exchange,
Nasdaq National Market, or any other exchange on which the Company’s securities
are traded, Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) and the rules and regulations of the Securities and
Exchange Commission (the “SEC”). Committee members shall not serve
simultaneously on the audit committees of more than two other public companies
without the approval of the full board of directors.
The basic
responsibility of the members of the Committee is to exercise their business
judgment to act in what they reasonably believe to be in the best interests of
the Company and its shareholders. In discharging that obligation,
members should be entitled to rely on the honesty and integrity of the Company’s
senior executives and its outside auditors, attorneys and advisors, to the
fullest extent permitted by applicable law.
The
Committee shall be directly responsible for the appointment (subject, if
applicable, to shareholder ratification), compensation and oversight of the work
of the Auditors, including without limitation retention, terms of engagement,
evaluation and termination of the Auditors. The Committee shall also
be responsible for the resolution of any disagreements between management and
the Auditors, including without limitation disputes regarding accounting,
internal control and auditing matters. The Auditors shall report
directly to the Committee.
28
Compensation
Committee
Our
Compensation Committee consists of Leathem Stearn. Our board of
directors has determined that Mr. Stearn is an independent director under
independence standards of the American Stock Exchange.
Nominating
and Governance Committee
Our
Nominating and Governance Committee consists of Alan Bailey. As noted
above, our board of directors has determined that Mr. Bailey is an independent
director under independence standards of the American Stock
Exchange.
Strategic
Planning Committee
Our
Strategic Planning Committee consists of Michael O’Connor (Chair) and Leathem
Stearn. As noted above, our board has determined that both are
independent directors under independence standards of the American Stock
Exchange.
Special
Committee
Our
Special Committee consists of Leathem Stearn (Chair) and Michael
Solomon. Our board of directors has determined
that Mr. Stearn is an independent director under the independence
standards of the American Stock Exchange. Mr. Solomon also serves as
chairman of our board of
directors.
Code
of Ethics
The
purpose of the Company’s Code of Ethics (the “Code”) is to codify the standards
that the Company believes are reasonably designed to deter wrong-doing and to
promote adherence to the following principles:
|
·
|
Honest and ethical conduct,
including the ethical handling of actual or apparent conflicts of interest
between personal and professional
relationships;
|
|
·
|
Full, fair, accurate, timely and
understandable disclosure in reports and documents that the Company files
with, or submits to, the United States Securities and Exchange
Commission;
|
|
·
|
Compliance with applicable
governmental laws, rules, regulations and
agreements;
|
|
·
|
The prompt internal reporting of
violations of this Code; and
|
|
·
|
Accountability for adherence to
the Code.
|
Section
16(a) of the Securities Exchange Act of 1934
Based
solely upon a review of Forms 3 and 4 and amendments thereto furnished to us
pursuant to Rule 16a-3(e) under the Securities Exchange Act of 1934 during our
most recent fiscal year and Forms 5 and amendments thereto furnished to us with
respect to our most recent fiscal year, all officers, directors and owners of
10% or more of our outstanding shares have filed all Forms 3, 4 and 5 required
by Section 16(a) of the Securities Exchange Act of 1934, as
amended.
Conflicts
of Interest
There are
no conflicts of interest. Further, we have not established any policies to deal
with possible future conflicts of interest.
29
Executive
Compensation
The
following table sets forth information with respect to compensation paid by us
to our officers and directors during the three most recent fiscal years. This
information includes the dollar value of base salaries, bonus awards and number
of stock options granted, and certain other compensation, if any.
NonEquity
|
Nonqualified
Deferred
|
All
|
||||||||||||||||||||||||||||||||||
Name
|
Principal Position
|
Year
|
Salary
|
Bonus
|
Stock
Awards
|
Option
Awards
|
Incentive Plan
Compensation
|
Compensation
Earnings
|
Other
Compensation
|
Total
|
||||||||||||||||||||||||||
Bernard
Stolar
|
Former
CEO and
CFO
|
2009
|
$
|
157,647
|
$
|
0
|
10,000,000
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
|||||||||||||||||||||
Carl
Freer
|
President
and Director
|
2009
|
75,500
|
0
|
0
|
0
|
0
|
0
|
||||||||||||||||||||||||||||
Michael
J. Solomon
|
Chairman
of the Board and CEO
|
2009
|
0
|
0
|
3,000,000
|
0
|
0
|
0
|
42,500
|
42,500
|
||||||||||||||||||||||||||
Leatham
Stearn
|
Director
|
2009
|
0
|
0
|
0
|
2,000,000
|
0
|
0
|
||||||||||||||||||||||||||||
Chuck
Timpe
|
Director
|
2009
|
0
|
0
|
0
|
2,000,000
|
0
|
0
|
20,000
|
20,000
|
||||||||||||||||||||||||||
Don
Kurz
|
Former
Director
|
2009
|
0
|
0
|
0
|
2,000,000
|
0
|
0
|
20,000
|
20,000
|
||||||||||||||||||||||||||
Alan
Bailey
|
Director
|
2009
|
0
|
0
|
0
|
2,000,000
|
0
|
0
|
20,000
|
20,000
|
||||||||||||||||||||||||||
Mike
O,Connor
|
Director
|
2009
|
0
|
0
|
0
|
2,000,000
|
0
|
0
|
30,000
|
30,000
|
||||||||||||||||||||||||||
Former
President
|
2008
|
3,500
|
0
|
0
|
0
|
0
|
0
|
3,500
|
||||||||||||||||||||||||||||
Mike
Lizarranga
|
CEO,
CFO, Secy
|
2007
|
3,500
|
0
|
0
|
0
|
0
|
0
|
0
|
3,500
|
||||||||||||||||||||||||||
|
CEO,
CFO
|
2007
|
3,000
|
0
|
0
|
0
|
0
|
0
|
0
|
3,000
|
||||||||||||||||||||||||||
Richard
Jenkins (4)
|
Former
President,
|
2008
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
||||||||||||||||||||||||||
CEO,
CFO , Secty.
|
2007
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|||||||||||||||||||||||||||
Jason
Irwin (5)
|
Former
President,
|
2008
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
||||||||||||||||||||||||||
CEO,
CFO, Secty.
|
2007
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
(1)
|
Mr.
Stolar became the CEO and CFO on April 4, 2009. He resigned on
April 2, 2010.
|
(2)
|
Mr.
Freer became the President and a Director on November 2,
2009. In addition to the salary amount noted above, Mr. Freer
received $37,824 as consulting fees prior to the point he became an
employee.
|
(3)
|
Mr.
Solomon became a Director on May 18, 2009, Chairman on July 26, 2009, and
CEO on April 2, 2010.
|
(4)
|
Mr.
Stearn became a Director in May,
2009.
|
(5)
|
Mr.
O’Connor
became a Director of July 22, 2009.
|
(6)
|
Mr.
Timpe; Mr. Kurz: and Mr. Bailey became Directors on November 2,
2009. Mr. Kurz resigned on April 2,
2010.
|
(7)
|
Mr.
Lizarraga resigned as President, CEO and CFO of the Company on August 29,
2008.
|
(8)
|
Mr.
Jenkins served as President, CEO, CFO and Secretary of the Company from
August 29, 2008 through January 30,
2009.
|
(9)
|
Dr.
Irwin became President, CEO, CFO and Secretary of the Company on January
30, 2009. Effective as of April 2, 2009 Jason Irwin resigned as
a member of the Board of Directors and as President, Chief Executive
Officer, Chief Financial Officer and
Secretary.
|
(10)
|
Subsequent
to Mr. Stolar’s resignation, the Company and Mr. Stolar agreed that the
10,000,000 shares would be retired and in their place the Company agreed
to issue Mr. Stolar a warrant to acquire 12,000,000 shares of the
Company’s common stock at an exercise price of $.02 per share which was
the market value on the date this was agreed to by Mr. Stolar and the
Company.
|
Long-Term
Incentive Plan Awards
We not
have any long-term incentive plans that provide compensation intended to serve
as incentive for performance.
Employment
Agreements
On April
4, 2009, we entered into an executive employment agreement with Bernard Stolar
to serve as President and Chief Executive Officer. The employment
contract is at will. Under the agreement, Mr. Stolar is to be paid an
annual rate of $250,000 for the first year, $325,000 for the second year, and a
5% increase every year there after. Additionally, Mr. Stolar is
entitled to an annual bonus equal to 2% of our net profits before income taxes.
Under this agreement, Mr. Stolar was granted 10 million shares of our Common
Stock (subject to a repurchase option by the Company). Mr. Stolar
resigned on April 2, 2010. There was no severance provisions
associated with his resignation.
30
On April
5, 2009, we entered into a Consulting, Confidentiality and Proprietary Rights
Agreement (the “CCP Agreement”) with Venor, Inc. (an entity wholly owned by Mr.
Stoppenhagen, our then Interim Chief Financial Officer and
Secretary). Effective April 8, 2009, Mr. Stoppenhagen performed
duties normally assigned to a chief financial officer of a reporting
entity. Mr. Stoppenhagen resigned on May 4,
2009.
Security
ownership of certain beneficial owners and management
The
following table sets forth, as of April 15, 2010, the date of this annual
report, the total number of shares owned beneficially by our directors, officers
and key employees, individually and as a group, and the present owners of 5% or
more of our total outstanding shares. The stockholders listed below have direct
ownership of their shares and possesses sole voting and dispositive power with
respect to the shares.
Name and Address of Beneficial Owner (1)
|
Amount and Nature of
Beneficial Ownership
|
Percentage of
Common Stock
(2)
|
||||||
Carl
Freer
|
106,165,474
|
(3)
|
22.0
|
%
|
||||
Leathem
Stearn
|
5,750,000
|
(4)
|
1.2
|
%
|
||||
Michael
J. Solomon
|
(5)
|
0.6
|
%
|
|||||
Steve
Carroll
|
100,000,000
|
20.7
|
%
|
|||||
All
officers and Directors as a group (_6_persons)
|
114,915,474
|
23.8
|
%
|
(1)
|
Unless
otherwise indicated in the footnotes to the table, each shareholder shown
on the table has sole voting and investment power with respect to the
shares beneficially owned by him or it. Percentages of less
than one percent have been omitted from the
table.
|
(2)
|
Calculated
on the basis of 482,927,956 shares of Common Stock
outstanding.
|
(3)
|
Mr.
Freer’s created Oscar Holdings, LLC (“Oscar LLC”) which
holds 106,165,474 shares of Company common stock, representing
approximately 22% of the shares outstanding at April 15,
2010. Management of Oscar LLC is with three individuals one of
which is Mr. Freer’s daughter.
|
(4)
|
Mr.
Stearn was the Chairman of the Board of Directors of the Company from
January 2009 until July 26, 2009. Since then, Mr. Stearn has
been a director. In addition to the shares noted in the
table above, Mr. Stearn was granted 2,000,000 non-qualified stock options
which vest ratably over 3 years.
|
(5)
|
Mr.
Solomon has been the Chairman of the Board since July 26, 2009 and became
CEO on April 2, 2010. In addition to the shares noted in the
table above, as of April 15, 2010, Mr. Solomon was granted 13,000,000
non-qualified stock options all of which have
vested.
|
Where
you can find additional information
We make
our annual reports on Form 10-K, our proxy statement, our quarterly reports on
Form 10-Q, our current reports on Form 8-K, and any amendments to these reports
available free of charge through links on our corporate website as soon as
reasonably practicable after such reports are filed with, or furnished to, the
Securities and Exchange Commission (SEC). Our corporate website is located on
the Internet at http://www.getfugu.com. Only those reports specifically
described above are incorporated by reference herein. The public may read and
copy any materials we file with the SEC at the SEC’s Public Reference Room at
100 F Street, NE, Washington, DC 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Additionally, the SEC maintains an Internet site that contains reports, proxy
and information statements, and other information regarding issuers that file
electronically with the SEC, which can be found at http://www.sec.gov.
31
PART II
INFORMATION NOT REQUIRED IN
PROSPECTUS
Item 13. Other
Expenses of Issuance and Distribution
The
following table sets forth the various costs and expenses payable by the
Registrant in connection with the sale of the securities being
registered. All such costs and expenses shall be borne by the
undersigned Registrant. Except for the SEC registration fee, all the
amounts shown are estimates.
SEC
registration fee
|
$ | ____ | ||
Legal
fees and expenses
|
____ | |||
Accounting
fees and expenses
|
____ | |||
Printing
and related expenses
|
____ | |||
Miscellaneous
|
____ | |||
Total
|
$ |
Item 14. Indemnification
of Officers and Directors
The
Certificate of Incorporation and the Bylaws of the Registrant provide that the
Registrant will indemnify, to the fullest extent permitted by Nevada Law, each
person who is or was a director, officer, employee or agent of the Registrant,
or who serves or served any other enterprise or organization at the request of
the Registrant. Pursuant to Nevada law, this includes elimination of liability
for monetary damages for breach of the directors’ fiduciary duty of care to the
Registrant and its stockholders. These provisions do not eliminate the
directors’ duty of care and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director’s duty of loyalty to the Registrant, for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for any transaction from which the director derived
an improper personal benefit, and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Nevada law. The provision
also does not affect a director’s responsibilities under any other laws, such as
the federal securities laws or state or federal environmental laws.
The
Registrant has entered into agreements with its directors and executive officers
that require the Registrant to indemnify these persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that the person is or was a director or officer of the
Registrant or any of its affiliated enterprises, provided the person acted in
good faith and in a manner the person reasonably believed to be in or not
opposed to the Registrant’s best interests and, with respect to any criminal
proceeding, had no reasonable cause to believe that his or her conduct was
unlawful. The indemnification agreements will also establish procedures that
will apply if a claim for indemnification arises under the
agreements.
The
Registrant maintains a policy of directors’ and officers’ liability insurance
that insures its directors and officers against the cost of defense, settlement
or payment of a judgment under some circumstances.
Item
15. Recent Sales of Unregistered Securities
On March
27, 2009, the Company entered into an unregistered securities purchase agreement
pursuant to which the Company sold 5,000 shares of common stock resulting in net
proceeds of $2,500.
On March
30, 2009, the Company entered into an unregistered securities purchase agreement
pursuant to which the Company sold 100,000 shares of common stock resulting in
net proceeds of $50,000.
On April
3, 2009, the Company entered into an unregistered securities purchase agreement
pursuant to which the Company sold 800,000 shares of common stock resulting in
net proceeds of $400,000.
On April
13, 2009, the Company entered into an unregistered securities purchase agreement
pursuant to which the Company sold 100,000 shares of common stock resulting in
net proceeds of $50,000.
In
September, 2009, the Company negotiated a securities purchase agreement whereby
investors agreed to invest $4,000,000 and $1,000,000,
respectively. The Company received $1,540,000, net of closing costs
of $210,000, in anticipation of closing. The originally
proposed agreement was never executed. Accordingly, the Company
recorded the cash receipt as shares issuable. Subsequently, on November 6, 2009,
the Company finalized the security purchase agreement with the investor for the
purchase of 5,250,525 shares of the Company's Common Stock in exchange for
the $1,540,000 previously received. Under the terms of the
Banking Agreement described below, the Company’s investment banker earned a fee
for this transaction in the form of a warrant to purchase 583,392 shares of
common stock at an exercise price of $0.33 per share. The warrant has a life of
5 years and was valued using Black-Scholes option valuation model for $216,439.
The warrants were recorded as stock compensation as of December 31,
2009.
On
September 18, 2009, the Company entered into an unregistered securities purchase
agreement pursuant to which the Company agreed to sell up to an aggregate of
10,000,000 shares of common stock and issue warrants to purchase up to 5,000,000
shares of common stock for an aggregate purchase price of $5,000,000. The
Company issued 3,000,000 shares of common stock together with a warrant to
purchase 1,500,000 shares of common stock for the aggregate purchase price of
$1,300,000 which is net of $200,000 of closing related costs under this
securities purchase agreement. At September 18, 2009 the amount of
$1,300,000 was received and as of December 31, 2009 the net amount is included
in the balance sheet as shares issuable. In addition on September 18, 2009, the
warrant was also recorded at a fair value of $1,045,872 as a derivative
liability (see Note 6). Under the Banking Agreement described below, the
Company’s investment banker earned a fee for this transaction in the form of a
warrant to purchase 500,000 shares of common stock at $.33 per share. The
warrant has a life of 5 years and was valued using Black-Scholes option
valuation model for $337,485. The warrant was recorded as stock
compensation as of December 31, 2009. Subsequent to December 31, 2009, the
3,000,000 applicable shares were issued. There are no
assurances that the remainder of the proceeds called for under this securities
purchase agreement will be received.
On
December 8, 2009, the Company entered into three separate stock purchase
agreements the sum of which totaled $350,000. At December 31, 2009,
the 1,555,556 shares were unissued and $350,000 was reported as shares
issuable.
32
On
December 29, 2009, the Company entered into an unregistered securities purchase
agreement pursuant to which the Company sold 5,333,333 shares of its common
stock resulting in net proceeds of $650,000. At December 31, 2009,
the shares were unissued and $650,000 was reported as shares
issuable.
On
January 14, 2010, the Company entered into an agreement for services related to
establishing a joint venture and operating entity in Japan. Under the
terms of the agreement the Company will obtain a 75% interest in the joint
venture. Pursuant to this agreement the Company issued 3,000,000 shares of its
common stock. The shares were fully vested on the date of the issuance and
accordingly the Company recorded a stock based compensation charge of $480,000,
which represented the fair value of the shares on the date of the
agreement.
On
January 15, 2010, the Company, through GetFugu Research Inc, entered into an
agreement and plan of merger with Health Matrix, Inc. Under the terms
of the agreement and plan of merger, 7,580,000 shares of the Company’s common
stock were issued in exchange for all of the ownership interest in Health
Matrix. The former owners of Health Matrix also entered into employment
agreements which included six-month non-competition provisions. The
Company evaluated the transaction and determined that the transaction was an
asset acquisition of in-process research and development comprising of
trademarks and tradenames. The Company was unable to determine alternate future
uses of the trademark and tradenames and determined that the employment
agreement and non-compete agreement had no intrinsic
value. Accordingly, the Company recorded a charge of $1,212,800 for
the three months ended March 31, 2010, for in-process research and
development
On March
9, 2010 the Company issued 180,000 shares of common stock for services to an
employee, the shares were fully vested on the date of issuance. The fair value
of the shares was calculated to be $16,200 based on the share price on the date
of the issuance and accordingly, the Company recorded a stock based compensation
charge to the condensed consolidated financial statements for the three months
ended March 31, 2010.
On March
11, 2010 the Company issued 1,000,000 shares of common stock for services to an
employee, the shares were fully vested on the date of issuance. The fair value
of the shares was calculated to be $80,000 based on the share price on the date
of the issuance and accordingly, the Company recorded a stock based compensation
charge to the condensed consolidated financial statements for the three months
ended March 31, 2010.
On
January 14, 2010, the Company entered into an agreement for services related to
establishing a joint venture and operating entity in
Japan. Under the terms of the agreement the Company will obtain a 75%
interest in the joint venture. Pursuant to this agreement the Company issued
3,000,000 shares of its common stock. The shares were fully vested on the date
of the issuance and accordingly the Company recorded a stock based compensation
charge of $480,000, which represented the fair value of the shares on the date
of the agreement.
On March
11, 2010, the Company accepted the resignation of a consultant and the
simultaneous agreement to enter into a master sales agreement. The
Company agreed to terminate the 10,000,000 options previously granted and issued
10,000,000 shares of the Company’s common stock to the consultant. The shares
fully vested on the date of issuance. Accordingly, the Company accounted for the
transaction as a modification of a stock based compensation award under ASC
718. The Company recorded a charge of $1,854,742 for stock based
compensation with respect to the modification of the original
award.
On
January 14, 2010, the Company entered into an agreement for services related to
establishing a joint venture and operating entity in
Japan. Under the terms of the agreement the Company will obtain a 75%
interest in the joint venture. Pursuant to this agreement the Company issued
3,000,000 shares of its common stock. The shares were fully vested on the date
of the issuance and accordingly the Company recorded a stock based compensation
charge of $480,000, which represented the fair value of the shares on the date
of the agreement.
On March
17, 2010, the Company entered into a consulting agreement pursuant to which
100,000 shares of the Company’s common stock were issued. The Company
recorded this as stock based compensation expense of $6,000 based on the share
price of $0.09 per share.
On March
24, 2010, the Company entered into an agreement and plan of merger with each of
Mobile Search Technologies, Inc. and Cellular Software Corporation, pursuant to
which the Company acquired both companies as wholly-owned subsidiaries in
exchange for 100,000,000 shares of common stock each. Mobile Search
Technologies, Inc. was wholly-owned by Oscar Holdings, LLC, which is
beneficially owned by the President of the Company, Carl Freer. The primary
assets of each company are intellectual property rights relating to next
generation mobile search technology. Each of the principals also executed
standard form compatibility and intellectual property assigned agreement. The
Company evaluated the transaction and determined that the transaction was an
asset acquisition of in-process research and development comprising of patent
pending algorithms. The principals were determined to be affiliates and
accordingly the shares issued were considered a deemed
distribution.
Item 16. Exhibits
Exhibit
No.
|
Description
|
|
3.1
|
Certificate
of Incorporation of the Company, previously filed exhibit of same number
to the Current Report on Form 8-K filed with the SEC on
September 30, 2003, and incorporated by reference
herein
|
|
3.2
|
Bylaws
of the Company, previously filed exhibit of same number to the Current
Report on Form 8-K filed with the SEC on September 30, 2003, and
incorporated by reference herein
|
|
4.1
|
Specimen
of Common Stock Certificate, previously filed exhibit of same number to
the Annual Report of Form 10-K filed with the SEC on March 16, 2006, and
incorporated by reference herein
|
|
4.2
|
Form
of Indenture
|
|
5.1
|
Opinion
of Luce Forward Hamilton & Scripps LLP
|
|
23.1
|
Consent
of Luce Forward Hamilton & Scripps LLP (included in
Exhibit 5.1)
|
|
23.2
|
Consent
of Marcum, LLP Independent Registered Public Accounting Firm and MSPC
Certified Public Accountants and Advisors
|
|
24.1
|
Power
of Attorney (included in signature page
hereof)
|
Item 17. Undertakings
The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
33
(i) To
include any prospectus required by section 10(a)(3) of the Securities Act of
1933;
(ii)
To reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than 20% change in the maximum aggregate offering price set forth in the
“Calculation of Registration Fee” table in the effective registration
statement.
(iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
Provided,
however, that:
The
undertakings set forth in subparagraphs (i), (ii) and (iii) above do not apply
and the information required to be included in a post-effective amendment by
those paragraphs is contained in reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement, or is contained in a form of prospectus filed pursuant
to Rule 424(b) (§230.424(b) of this chapter) that is part of the registration
statement.
(2) That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) That,
for the purpose of determining liability under the Securities Act of 1933 to any
purchaser:
(i) If
the registrant is relying on Rule 430B:
(A) Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to
be part of the registration statement as of the date the filed prospectus was
deemed part of and included in the registration statement; and
(B) Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as
part of a registration statement in reliance on Rule 430B relating to an
offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of
providing the information required by section 10(a) of the Securities Act of
1933 shall be deemed to be part of and included in the registration statement as
of the earlier of the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of securities in the
offering described in the prospectus. As provided in Rule 430B, for liability
purposes of the issuer and any person that is at that date an underwriter, such
date shall be deemed to be a new effective date of the registration statement
relating to the securities in the registration statement to which that
prospectus relates, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof. Provided, however, that no
statement made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed incorporated
by reference into the registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of contract of sale
prior to such effective date, supersede or modify any statement that was made in
the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such effective date;
or
34
(ii) If
the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering, other than
registration statements relying on Rule 430B or other than prospectuses filed in
reliance on Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after effectiveness.
Provided, however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as to a purchaser
with a time of contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such date of first use.
(5) That,
for the purpose of determining liability of the registrant under the Securities
Act of 1933 to any purchaser in the initial distribution of the
securities:
The
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(i) Any
preliminary prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule 424;
(ii) Any
free writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant;
(iii) The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
(iv) Any
other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
The
undersigned registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(6) If
the securities to be registered are to be offered to existing security holders
pursuant to warrants or rights and any securities not taken by security holders
are to be reoffered to the public, the undersigned registrant hereby undertakes
to supplement the prospectus, after the expiration of the subscription period,
to set forth the results of the subscription offer, the transactions by the
underwriters during the subscription period, the amount of unsubscribed
securities to be purchased by the underwriters, and the terms of any subsequent
reoffering thereof. If any public offering by the underwriters is to be made on
terms differing from those set forth on the cover page of the prospectus, a
post-effective amendment will be filed to set forth the terms of such
offering.
(7) If
the securities to be registered are to be offered at competitive bidding, the
undersigned registrant hereby undertakes (1) to use its best efforts to
distribute prior to the opening of bids, to prospective bidders, underwriters,
and dealers, a reasonable number of copies of a prospectus which at that time
meets the requirements of section 10(a) of the Act, and relating to the
securities offered at competitive bidding, as contained in the registration
statement, together with any supplements thereto, and (2) to file an amendment
to the registration statement reflecting the results of bidding, the terms of
the reoffering and related matters to the extent required by the applicable
form, not later than the first use, authorized by the issuer after the opening
of bids, of a prospectus relating to the securities offered at competitive
bidding, unless no further public offering of such securities by the issuer and
no reoffering of such securities by the purchasers is proposed to be
made.
(8) The
undersigned registrant hereby undertakes to deliver or cause to be delivered
with the prospectus, to each person to whom the prospectus is sent or given, the
latest annual report to security holders that is incorporated by reference in
the prospectus and furnished pursuant to and meeting the requirements of Rule
14a–3 or Rule 14c–3 under the Securities Exchange Act of 1934; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
35
(9) If
the registration statement will become effective upon filing with the Commission
pursuant to Rule 462 (e) or (f) under the Securities Act, and:
(1) Any
provision or arrangement exists whereby the registrant may indemnify a director,
officer or controlling person of the registrant against liabilities arising
under the Securities Act, or
(2) The
underwriting agreement contains a provision whereby the registrant indemnifies
the underwriter or controlling persons of the underwriter against such
liabilities and a director, officer or controlling person of the registrant is
such an underwriter or controlling person thereof or a member of any firm which
is such an underwriter, and
(3) The
benefits of such indemnification are not waived by such persons:
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(10) The
undersigned registrant hereby undertakes that:
(1) For
purposes of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For
the purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(11) If
the registrant intends to rely on section 305(b)(2) of the Trust Indenture Act
of 1939 for determining the eligibility of the trustee under indentures for
securities to be issued, offered, or sold on a delayed basis by or on behalf of
the registrant, the undersigned registrant hereby undertakes to file an
application for the purpose of determining the eligibility of the trustee to act
under subsection (a) of section 310 of the Trust Indenture Act in accordance
with the rules and regulations prescribed by the Commission under section
305(b)(2) of such Act.
36
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of West Hollywood, State of California, on
the 5th day of May,
2010.
GETFUGU,
INC.
|
||
By:
|
/s/
Michael Jay Solomon
|
|
Michael
Jay Solomon
|
||
Chairman
and Chief Executive
Officer
|
POWER
OF ATTORNEY
KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Michael Jay Solomon and Carl Freer, or any one of them,
as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitutes or substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature
|
Title(s)
|
Date
|
||
/s/ Michael Jay Solomon
|
Chairman
of the Board of Directors and Chief
|
May
5, 2010
|
||
Michael
Jay Solomon
|
Executive
Officer (Principal Executive Officer)
|
|||
/s/ Carl Freer
|
Director
and President
|
May
5, 2010
|
||
Carl
Freer
|
||||
/s/ Alan Bailey
|
Director
|
May
5, 2010
|
||
Allen
Bailey
|
||||
/s/ Chuck Timpe
|
Director
|
May
5, 2010
|
||
Chuck
Timpe
|
||||
/s/ Michael O’Connor
|
Director
|
May
5, 2010
|
||
Michael
O’Connor
|
||||
/s/ Leathem Stearn
|
Director
|
May
5, 2010
|
||
Leathem
Stearn
|
37