NOTE 3 - INTANGIBLE ASSETS
On or around June 8, 2010, Generation Zero Group, Inc. entered into an agreement to acquire the Uniform Resource Locator (URL) www.beach.org (Beach.org), which included full and unrestricted control over the URL. The agreed purchase price for Beach.org was $95,000, payable by us at any time prior to December 31, 2011. The Company operated Beach.org as a portal for information about the April 2010 BP oil spill in the Gulf of Mexico and the beach areas that were affected and agreed to donate 5% of the gross revenues generated by Beach.org to not-for-profit causes dedicated to helping individuals or entities impacted by the BP oil spill. The BP oil spill was contained much sooner than the Company had anticipated and as a result no revenue was generated from Beach.org through the operation of the website as a BP oil spill portal. The agreement required the Company to pay the seller a license fee of $50 per month (beginning on July 1, 2010) for the use of Beach.org (until such time as the entire purchase price was paid in full) and to pay all costs associated with the operations of Beach.org. The Company failed to pay the required license fees to the seller and during the quarter ended December 31, 2010, the Company permitted the seller to recover control of Beach.org. As such, the Company owns no interest or rights to Beach.org, and has no liability in connection with the acquisition.
The intangible assets represented on the audited financials all relate to the URL www.Find.com and the related underlying technology driving the website at the time of acquisition. These intangibles are deemed to be amortized over a fifteen year period. During the quarter ended June 30, 2010, Generation Zero entered into three separate agreements to acquire two specific intangible assets.
During April 2010, Generation Zero entered into an Asset Purchase Agreement with Find.com Acquisition, Inc. to acquire all of Find.com Acquisitions interest in and ownership of the technology assets that powered the operations of the www.Find.com website and all associated intellectual property rights necessary to enable Generation Zero to register the technology and intellectual property in Generation Zeros name. The purchase also included all service contracts related to the operations of the technology that at the time of acquisition related to the operation of www.Find.com, and other related domain names. The purchase did not include any liabilities of Find.com Acquisition or the Find.com URL. The purchase price paid to Find.com Acquisition in consideration for the Find.com Assets was 10,000,000 shares of Generation Zeros restricted common stock. The asset was valued at $1.3 million based upon a fair market valuation report prepared by a third party valuation specialist.
In January 2011, Find.com Acquisition liquidated its assets and distributed the 10,000,000 shares which it then held of Generation Zeros restricted common stock to its shareholders.
Since the acquisition of the technology assets, the Company has been pursuing an alternative strategy for the Find.com URL. Generation Zero intends to utilize the functionality and design of the technology assets on future initiatives unrelated to Find.com, and accordingly has recorded an impairment charge of $1,100,000 based on the current status of Find.com and the fact that the timing of the future initiatives is unknown and uncertain.
www.Find.com URL (URL)
On June 30, 2010 Generation Zero entered into a Share Exchange Agreement with various members of Find.com URL Holding LLC, a Georgia limited liability company. Find.com URL Holding LLC owned 100% of the URL known as www.find.com, which together with the technology assets acquired in April 2010, are the only assets of the Company. The purchase price to the selling members in consideration for their membership interests was a total of 988,567 shares of restricted common stock plus notes in the aggregate principal of $3,070,250 (of which $49,219 was paid at closing in cash by Generation Zero). This share exchange resulted in Generation Zero obtaining over 99% of the ownership interest in URL Holding, LLC as of June 30, 2010 and the remaining interests were acquired subsequent to June 30, 2010. Subsequent to the closing, additional shares were issued when 100% of the consents were received from URL Holdings selling members, accordingly, in total 1,000,000 shares were issued. Also, on June 30, 2010, and concurrent with this acquisition, Generation Zero entered into an Asset Purchase Agreement with Scientigo, Inc. (Scientigo) to acquire an option held by Scientigo that allowed the holder to purchase a 40% interest in URL Holdings, LLC.
The purchase price paid to Scientigo in consideration for the Option was 14,000,000 shares of restricted common stock plus $15,000 in cash, a delayed payment of $50,000 and a note for $55,000. The delayed payment has no interest component and was due July 30, 2010. This payment was not made. Generation Zero has included the consideration for the option acquisition to be part of the cost of acquiring 100% of the intangible asset. The URL was valued at $4.0 million based upon a fair market valuation report prepared by a third party valuation specialist. The Company allocated this value to the consideration issued based on the relative fair value of the debt incurred and equity issued related to this purchase. Fair value of the debt was based upon the face value of the instrument while the fair value of the common stock was based on the quoted market price of the stock on June 30, 2010.
The Company did not make the required payments under the Find.com notes to the holders thereof when due. The Collateral Agent for the Notes has declared the Notes in default. As a result of the Default, the balance of the Notes is accruing interest at the default rate of 14% per annum. The Company paid $150,000 to an escrow agent for the benefit of the Note Holders in November 2010 in connection with the Default. The purpose of this payment was to effect a forbearance from the Note Holders for four months through March 15, 2011 and to make a $50,000 payment toward the amount owed to Scientigo, satisfying the delayed payment. The $55,000 Scientigo note is in Default. Forbearance has been granted until January 1, 2014.
Pursuant to the terms and conditions of a Forbearance Agreement, the Collateral Agent would forbear from taking any action in connection with the Default until March 15, 2011 and the Notes would continue to bear interest at the rate of 14% per annum during the Forbearance Period. Additionally, the Company agreed to pay the Note Holders $100,000 of principal reduction from the amount held in escrow and issued an aggregate of 200,000 shares of common stock to the Note Holders; reimburse the Collateral Agent for attorneys fees in connection with the preparation of the Forbearance Agreement; and pay the Note Holders, before the end of the Forbearance Period, $332,903 of accrued but unpaid interest and $249,837 of principal on the Notes (collectively, the Cure Payment), which if paid prior to the end of the Forbearance Period, would result in the waiver of the Default.
Finally, the Forbearance Agreement required that Matthew Krieg, the Companys sole officer and Director and holder of the Companys Series A Preferred Stock (which provides Mr. Krieg super-majority voting rights), enter into an agreement to cancel the shares of Series A Preferred Stock which he holds in exchange for an aggregate of 3,000,000 shares of common stock upon the payment in full of the Notes, among other things.
More than 90% of the Note Holders consented to the Forbearance Agreement which was enough to bind all Note Holders to the terms of the Forbearance.
Payments per the Forbearance Agreement have not been paid. A Forbearance extension has been granted until January 1, 2014.