Attached files
| file |
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| EX-3.7 - IVDESK HOLDINGS, INC. | ex3ii.2bylawsivdeskmn.txt |
| EX-3.4 - IVDESK HOLDINGS, INC. | ex3i.4artofamendname.txt |
| EX-10.9 - IVDESK HOLDINGS, INC. | ex10.9ingwersennote.txt |
| EX-10.5 - IVDESK HOLDINGS, INC. | ex10.5kellyagr.txt |
| EX-4.1 - IVDESK HOLDINGS, INC. | ex4.1stockincentplan.txt |
| EX-10.7 - IVDESK HOLDINGS, INC. | ex10.7xpartnersnote.txt |
| EX-5.1 - IVDESK HOLDINGS, INC. | ex5.1.txt |
| EX-3.2 - IVDESK HOLDINGS, INC. | ex3i.2certofcorrectde.txt |
| EX-10.1 - IVDESK HOLDINGS, INC. | ex10.1assetpurchaseagr.txt.txt |
| EX-10.8 - IVDESK HOLDINGS, INC. | ex10.8hilldalenote.txt |
| EX-10.6 - IVDESK HOLDINGS, INC. | ex10.6polakowskiagr.txt.txt |
| EX-10.11 - IVDESK HOLDINGS, INC. | ex10.11polakowskinote.txt |
| EX-21.1 - IVDESK HOLDINGS, INC. | ex21.1.txt |
| EX-10.2 - IVDESK HOLDINGS, INC. | ex10.2fivexagr.txt.txt |
| EX-10.4 - IVDESK HOLDINGS, INC. | ex10.4sorensonagr.txt |
| EX-10.3 - IVDESK HOLDINGS, INC. | ex10.3bignallagr.txt.txt |
| EX-3.3 - IVDESK HOLDINGS, INC. | ex3i.3artofincmn.txt |
| EX-3.1 - IVDESK HOLDINGS, INC. | ex3i.1certofincde.txt |
| EX-3.6 - IVDESK HOLDINGS, INC. | ex3ii.1bylawsivdesk.txt |
| EX-10.10 - IVDESK HOLDINGS, INC. | ex10.10sorensonnote.txt |
| EX-3.5 - IVDESK HOLDINGS, INC. | ex3i.5artofamendadd.txt |
| EX-23.2 - IVDESK HOLDINGS, INC. | ex23.2.txt |
As filed with the Securities and Exchange Commission on November 3, 2014
Registration No.________
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
IVDESK HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 7372 45-4916705
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1515 CENTRAL AVENUE NE, SUITE 100, MINNEAPOLIS, MN 55413/ PHONE (612) 605-5461
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(Address and telephone number of principal executive offices)
ALAN F. BIGNALL, CHIEF EXECUTIVE OFFICER
1515 CENTRAL AVENUE, NE, SUITE 100, MINNEAPOLIS, MN 55413/ PHONE (612) 605-5461
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(Name, address and telephone number of agent for service)
COPIES OF ALL COMMUNICATIONS TO:
Michael A. Littman, Attorney at Law
7609 Ralston Road, Arvada, CO 80002 phone 303-422-8127 / fax 303-431-1567
Approximate date of commencement of proposed sale to the public: As soon as
possible after this Registration Statement becomes effective.
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. [X]
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. [ ]
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. [ ]
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. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
----------------------------- ----------- -------------------------- -----------
Large accelerated filer [___] Accelerated filer [___]
----------------------------- ----------- -------------------------- -----------
Non-accelerated filer [___] Smaller reporting company [_X_]
(Do not check if a smaller
reporting company)
----------------------------- ----------- -------------------------- -----------
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER SHARE PRICE(1) FEE
---------------------------- ------------------ ------------------------- --------------------------- ----------------
Common Stock by Selling 1,588,603 $2.50 $3,971,507.50 $461.49
Shareholders
----------------------------
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(a) under the Securities Act.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
(SUBJECT TO COMPLETION)
PROSPECTUS
IVDESK HOLDINGS, INC.
1,588,603 SHARES OF COMMON STOCK OF SELLING SHAREHOLDERS
We are registering securities for sale on behalf of selling shareholders.
1,588,603 shares of common stock are being registered for sale on behalf of
selling shareholders.
We will NOT receive any proceeds from sales of shares by selling shareholders.
Our selling shareholders plan to sell common shares at $2.50 publicly or
privately, until such time as a market develops for any of the securities and
thereafter at such prices as the market may dictate from time to time or in
privately negotiated transactions at a price subject to negotiation. There is no
market price for the stock, as it is not listed for public trading, and our
pricing is arbitrary with no relation to market value, liquidation value,
earnings or dividends. The price was arbitrarily set at $2.50 per share, based
on speculative concept unsupported by any other comparables. We have set the
initial fixed price as follows:
TITLE PRICE PER SHARE
-------------------------- ----------------------------------------------------
Common Stock $2.50
At any time after a market develops, our security holders may sell their
securities at market prices or at any price in privately negotiated
transactions.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK; SEE "RISK FACTORS" BEGINNING ON
PAGE 6 TO READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF THE
COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") OR ANY STATE OR PROVINCIAL SECURITIES
COMMISSION, NOR HAS THE SEC OR ANY STATE OR PROVINCIAL SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Currently there is no public trading market for our stock, and we have not
applied to have the common stock quoted for trading in any venue. We intend to
apply to have the common stock quoted on the OTC Bulletin Board immediately
after this registration statement becomes effective. No trading symbol has yet
been assigned.
This offering will be on a delayed and continuous basis only for sales of
selling shareholders shares. The selling shareholders are not paying any of the
offering expenses and we will not receive any of the proceeds from the sale of
the shares by the selling shareholders. (See "Description of Securities -
Shares").
The information in this prospectus is not complete and may be changed. Our
Shareholders may not sell these securities until the date that the registration
statement relating to these securities, which has been filed with the Securities
and Exchange Commission, becomes effective. This prospectus is not an offer to
sell these securities and we are not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
The date of this Prospectus is November 3, 2014.
TABLE OF CONTENTS
====================== ================================================== ======
PART I - INFORMATION Page
REQUIRED IN PROSPECTUS No.
---------------------- -------------------------------------------------- ------
ITEM 1. Front of Registration Statement and Outside Front
Cover Page of Prospectus
---------------------- -------------------------------------------------- ------
ITEM 2. Prospectus Cover Page
---------------------- -------------------------------------------------- ------
ITEM 3. Prospectus Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges 3
---------------------- -------------------------------------------------- ------
ITEM 4. Use of Proceeds 18
---------------------- -------------------------------------------------- ------
ITEM 5. Determination of Offering Price 18
---------------------- -------------------------------------------------- ------
ITEM 6. Dilution 18
---------------------- -------------------------------------------------- ------
ITEM 7. Selling Security Holders 19
---------------------- -------------------------------------------------- ------
ITEM 8. Plan of Distribution 22
---------------------- -------------------------------------------------- ------
ITEM 9. Description of Securities 22
---------------------- -------------------------------------------------- ------
ITEM 10. Interest of Named Experts and Counsel 23
---------------------- -------------------------------------------------- ------
ITEM 11. Information with Respect to the Registrant 23
---------------------- -------------------------------------------------- ------
a. Description of Business 23
b. Description of Property 29
c. Legal Proceedings 29
d. Market for Common Equity and Related
Stockholder Matters 29
e. Financial Statements 30
f. Selected Financial Data 65
g. Supplementary Financial Information 65
h. Management's Discussion and Analysis of
Financial Condition and Results of Operations 65
i. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure 71
j. Quantitative and Qualitative Disclosures
About Market Risk 71
k. Directors and Executive Officers 71
l. Executive and Directors Compensation 73
m. Security Ownership of Certain Beneficial Owners
and Management 78
n. Certain Relationships, Related Transactions,
Promoters And Control Persons 79
---------------------- -------------------------------------------------- ------
ITEM 11 A. Material Changes 80
---------------------- -------------------------------------------------- ------
ITEM 12. Incorporation of Certain Information by Reference 81
---------------------- -------------------------------------------------- ------
ITEM 12 A. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities 81
---------------------- -------------------------------------------------- ------
PART II - INFORMATION
NOT REQUIRED IN
PROSPECTUS
---------------------- -------------------------------------------------- ------
ITEM 13. Other Expenses of Issuance and Distribution 83
---------------------- -------------------------------------------------- ------
ITEM 14. Indemnification of Directors and Officers 83
---------------------- -------------------------------------------------- ------
ITEM 15. Recent Sales of Unregistered Securities 84
---------------------- -------------------------------------------------- ------
ITEM 16. Exhibits and Financial Statement Schedules 85
---------------------- -------------------------------------------------- ------
ITEM 17. Undertakings 87
---------------------- -------------------------------------------------- ------
Signatures 88
---------------------- -------------------------------------------------- ------
-2-
ITEM 3. PROSPECTUS SUMMARY INFORMATION, RISK FACTORS AND RATIO OF EARNINGS TO
FIXED CHARGES
--------------------------------------------------------------------------------
OUR COMPANY
Our Company, IVDesk Holdings, Inc. ("IVDesk", the "Company", or "We", "us"),
incorporated in the State of Delaware in March 2012 with operations located in
Minneapolis, Minnesota, provides complete, cloud computing services (information
technology) to small to mid-sized organizations ("SMB").
Our primary service offering is Private Cloud Services, which eliminates all on
premise servers by delivering all of each customer's existing applications and
data from our data center which houses our high-speed servers, security systems,
and support equipment. The customer's employees can then access their own
personal desktop, familiar application screens, and all data - anytime, from
anywhere, with any internet connected device (i.e. personal computer, tablets or
smart phones.)
CORPORATE HISTORY
On September 14, 2012, we entered into an Asset Purchase Agreement ("the Asset
Purchase Agreement") with Focused Solutions Consulting, Inc. ("FSC"). FSC was a
Minneapolis, Minnesota based company providing online computing services
including its cloud services businesses known as the Internet Virtual Desktop or
"IVDesk" since 2001. The Asset Purchase Agreement provided for us to acquire FSC
assets in exchange for 4,000,000 newly issued shares of our common stock. Prior
to the Agreement, we were newly formed to acquire the FSC assets and had nominal
net assets and operations.
Our acquisition of FSC was accounted for as a reverse acquisition and
recapitalization using accounting principles applicable to reverse acquisitions.
Under reverse acquisition accounting, the FSC business, the legal acquiree, was
treated as our accounting acquirer. Consequently our financial results are
reported for all periods presented, consolidated with those of the prior FSC
business from September 14, 2012 onwards. All outstanding shares have been
adjusted to reflect the effect of the acquisition.
COMPANY OVERVIEW
The IVDesk platform provides customers with the ability to have their entire IT
(information technology) operations (all applications and data) delivered to
them from enterprise class data centers without changing the workflow for
employees.
Our service offerings are described below:
PRIVATE CLOUD SERVICES. Our primary offering has two revenue
components: i) a one-time installation fee for each customer, and ii) a
monthly reoccurring fee which is based on a fixed monthly fee for each
user in the customer organization. Contract periods are generally 3
years and per user pricing for any customer depends on the number and
complexity of the applications needed. This monthly fee includes
ongoing customer support, application updates, system maintenance, and
system upgrades. Customers can add, subtract or change users with one
call and the fees are adjusted on the next billing.
CLOUD HOSTING SERVICES. Our technology makes it possible for
application developers to deliver a specific application from the cloud
to users across one or more companies. We are providing this service to
a limited number of customers during 2013 and during 2014 have begun to
offer it to a greater number of customers.
PROFESSIONAL SERVICES. We offer a limited (and decreasing) amount of
consulting, equipment purchasing and other services which are typically
one-time billings and occur on an as needed basis.
We have developed a market-hardened private cloud solution that hosts each
customer's entire IT system, all data and applications. We replicate the desktop
of every employee so that workflow does not change, rather production increases
in speed, becomes more mobile and more reliable. The benefits include:
-3-
IMPROVED RELIABILITY THROUGH REDUNDANCY. Each customer's private vault
is built with redundant components and paths at all levels. Our
equipment breaks like all other equipment but we include a failover
capability for all core facilities such as power, security, storage,
and databases so users keep on working. Customers know that their
system failures will increase with equipment ageing, applications
ageing, malware infections, update mistakes and other issues. Most
on-premises and cloud computing IT vendors provide non-redundant
equipment and use backup & restore as their only protection to system
failures but we go further. Although we provide backup & restore and
disaster recovery, our highly redundant systems with failover
procedures for continuous operation are clearly more reliable.
ZERO DOWNTIME INSTALLATION. Customers have learned to dread new IT
implementation projects, but moving to our Private Cloud Service is
pain free. We install and fully test each new Private Cloud Service
solution while the customer is still running on their historic system.
When testing is complete, employee production is seamlessly cutover
with each employee fully functioning on familiar desktops and
application screens.
BYOD ("BRING YOUR OWN DEVICE") MOBILE SOLUTION. Many solutions restrict
access to specific devices that have special software installed on
them. Our Private Cloud Service can be accessed at anytime from
anywhere on the device of the user's choice ... including computers,
tablets, and smart phones.
SINGLE-PROVIDER SOLUTION. We deliver all applications chosen by each
customer for their operations whether the applications are cloud ready
or not. We have the capability to provide applications to customers in
different industry segments such as Legal, Accounting and Auditing,
Healthcare, Non-Profit, Manufacturing, and Retail businesses.
Factors that make this offering highly speculative or risky are:
o There is a limited market for any securities;
o We have little experience with the requirements of a public reporting
company; and
o We are undercapitalized.
Our executive offices are located at 1515 Central Avenue, NE, Suite 100,
Minneapolis, MN 55413 and the telephone number is (612) 605-5461. We maintain a
website at www.ivdesk.com, such website is not incorporated into or a part of
this filing.
IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY
We qualify as an emerging growth company as that term is used in the JOBS Act.
An emerging growth company may take advantage of specified reduced reporting and
other burdens that are otherwise applicable generally to public companies. These
provisions include:
o A requirement to have only two years of audited financial statements
and only two years of related MD&A ;
o Exemption from the auditor attestation requirement in the assessment
of the emerging growth company's internal control over financial
reporting under Section 404 of the Sarbanes-Oxley Act of 2002;
o Reduced disclosure about the emerging growth company's executive
compensation arrangements; and
o No non-binding advisory votes on executive compensation or golden
parachute arrangements.
We have already taken advantage of these reduced reporting burdens in this
prospectus, which are also available to us as a smaller reporting company as
defined under Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
-4-
In addition, Section 107 of the JOBS Act also provides that an emerging growth
company can take advantage of the extended transition period provided in Section
7(a)2(B) of the Securities Act of 1933, as amended (the "Securities Act") for
complying with new or revised accounting standards. We have elected to use the
extended transition period provided above and therefore our financial statements
may not be comparable to companies that comply with public company effective
dates.
We could remain an emerging growth company for up to five years, or until the
earliest of (i) the last day of the first fiscal year in which our annual gross
revenues exceed $1 billion, (ii) the date that we become a "large accelerated
filer" as defined in Rule 12b-2 under the Exchange Act, which would occur if the
market value of our common stock that is held by non-affiliates exceeds $700
million as of the last business day of our most recently completed second fiscal
quarter, or (iii) the date on which we have issued more than $1 billion in
non-convertible debt during the preceding three year period.
For more details regarding this exemption, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Critical Accounting
Policies."
SUMMARY OF FINANCIAL INFORMATION
The Summary Financial Information presented below is as of and for the six
months ended June 30, 2014:
------------------------ ----------------------------------------------------
As of June 30, 2014
------------------------ ----------------------------------------------------
Total Assets $1,229,190
------------------------ ----------------------------------------------------
Current Liabilities $770,594
------------------------ ----------------------------------------------------
Stockholders' Deficit $(308,400)
------------------------ ----------------------------------------------------
------------------------ ----------------------------------------------------
For the Six Months Ended June 30, 2014
------------------------ ----------------------------------------------------
Revenues $1,187,840
------------------------ ----------------------------------------------------
Net Loss $(871,187)
------------------------ ----------------------------------------------------
At June 30, 2014, the accumulated deficit was $(3,231,866). At December 31,
2013, the accumulated deficit was $(2,360,679). We anticipate that we will
operate in a deficit position and continue to sustain net losses for the
foreseeable future.
THE OFFERING
We are registering 1,588,603 shares for sale on behalf of selling shareholders.
We will not receive any proceeds of sales.
Our common stock as registered herein, only will be transferable by Selling
Shareholders immediately after the effectiveness of this Registration Statement.
(See "Description of Securities")
=================================================================== ===========
Common shares outstanding before this offering 6,222,001
------------------------------------------------------------------- -----------
Maximum common shares being offered by our existing
selling shareholders 1,588,603
------------------------------------------------------------------- -----------
Maximum common shares outstanding after this offering 6,222,001
=================================================================== ===========
We are authorized to issue 100,000,000 shares of common stock with a par value
of $0.0001 and 5,000,000 shares of preferred stock with a par value of $0.0001.
Our current shareholders, officers and directors collectively own 6,222,001
shares of restricted common stock as of June 30, 2014.
Currently there is no public trading market for our stock, and we have not
applied to have the common stock quoted for trading in any venue. We intend to
apply to have the common stock quoted on the OTC Markets immediately after this
registration statement becomes effective. No trading symbol has yet been
assigned.
-5-
RISK FACTORS RELATED TO OUR COMPANY
Our securities, as offered hereby, are highly speculative and should be
purchased only by persons who can afford to lose their entire investment in us.
Each prospective investor should carefully consider the following risk factors,
as well as all other information set forth elsewhere in this prospectus, before
purchasing any of the shares of our common stock.
WE CAN GIVE NO ASSURANCE OF SUCCESS OR PROFITABILITY TO OUR INVESTORS.
There is no assurance that we will ever recognize positive net income. During
the years ended December 31, 2013 and 2012, we did recognize gross profits of
$1,233,313 and $738,976, respectively, but during the same periods we recognized
net losses of $(1,582,045) and $(512,809), respectively. During the six months
ended June 30, 2014 and 2013, we recognized gross profits of $789,229 and
$512,212, respectively, but during the same periods we recognized net losses of
$(871,187) and $(974,905), respectively. There is no assurance that we will
generate sufficient revenues or profits to recognize positive net income, or
that the market price of our common stock, when listed, will be increased
thereby.
OUR AUDITORS HAVE IDENTIFIED MATERIAL WEAKNESSES IN OUR INTERNAL CONTROL OVER
FINANCIAL REPORTING.
Although we are not yet subject to the certification or attestation requirements
of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, in
connection with their audits of the financial statements of December 31, 2013
and 2012 in preparation for this offering, our independent registered public
accounting firm identified deficiencies that it concluded represented material
weaknesses in our internal control over financial reporting. The first finding
by our independent registered public accounting firm relates to our internal
controls over the monthly financial statement close process and that our Company
did not perform detailed reconciliations and appropriate reviews of certain
critical accounts and estimates. The second identified material weakness was a
result of a lack of segregation of duties, particularly surrounding the
financial statement close process. Under auditing standards established by the
Public Company Accounting Oversight Board, a material weakness is a deficiency
or combination of deficiencies in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of our
annual or interim financial statements will not be prevented or detected and
corrected on a timely basis. We cannot provide any assurance that there will not
be other material weaknesses that our independent registered public accounting
firm or we will identify. If such issues are identified or if we are unable to
produce accurate and timely financial statements, our stock price may be
adversely affected and we may be unable to maintain compliance with listing
requirements of our stock exchange.
WE MAY IN THE FUTURE ISSUE MORE SHARES, WHICH COULD CAUSE A LOSS OF CONTROL BY
OUR PRESENT MANAGEMENT AND CURRENT STOCKHOLDERS.
We may issue further shares as consideration for the cash or assets or services
out of our authorized but unissued common stock that would, upon issuance,
represent a majority of the voting power and equity of our Company. The result
of such an issuance would be that those new stockholders would control our
Company, and persons unknown could replace our management. Such an occurrence
would result in a greatly reduced percentage of ownership of our Company by our
current shareholders, which could present significant risks to investors.
WE HAVE OPTIONS ISSUED AND OUTSTANDING WHICH ARE CONVERTIBLE INTO OUR COMMON
STOCK. A CONVERSION OF SUCH EQUITY INSTRUMENTS COULD HAVE A DILUTIVE EFFECT TO
EXISTING SHAREHOLDERS.
At June 30, 2014, we had options issued and outstanding exercisable into
1,398,352 shares of our common stock and warrants issued and outstanding
exercisable into 50,000 shares of our common stock at ranges from $0.38 to $2.50
per share. The options have vesting terms and, at June 30, 2014, 581,834 shares
were exercisable. All of the warrants were exercisable. The exercise of the
options and warrants into shares of our common stock could have a dilutive
effect to the holdings of our existing shareholders.
-6-
OUR OFFICERS AND DIRECTORS MAY HAVE CONFLICTS OF INTERESTS AS TO CORPORATE
OPPORTUNITIES, WHICH WE MAY NOT BE ABLE OR ALLOWED TO PARTICIPATE IN.
Presently there is no requirement contained in our Articles of Incorporation,
Bylaws, or minutes which requires officers and directors of our business to
disclose to us conflict of interest business opportunities which come to their
attention. Our officers and directors do, however, have a fiduciary duty of
loyalty to us to disclose to us any conflicting business opportunities which
come to their attention, in their capacity as an officer and/or director or
otherwise. Excluded from this duty would be opportunities which the person
learns about through his involvement as an officer and director of another
company. We have no intention of merging with or acquiring business opportunity
from any affiliate or officer or director.
WE HAVE AGREED TO INDEMNIFICATION OF OFFICERS AND DIRECTORS AS IS PROVIDED BY
DELAWARE GENERAL CORPORATION LAW.
Delaware General Corporation Law provides for the indemnification of our
directors, officers, employees, and agents, under certain circumstances, against
attorney's fees and other expenses incurred by them in any litigation to which
they become a party arising from their association with or activities our
behalf. We will also bear the expenses of such litigation for any of our
directors, officers, employees, or agents, upon such person's promise to repay
us therefore if it is ultimately determined that any such person shall not have
been entitled to indemnification. This indemnification policy could result in
substantial expenditures by us that we will be unable to recoup.
OUR DIRECTORS' LIABILITY TO SHAREHOLDERS AND US IS LIMITED.
Delaware General Corporation Law excludes personal liability of our directors
and our stockholders for monetary damages for breach of fiduciary duty except in
certain specified circumstances. Accordingly, we will have a much more limited
right of action against our directors that otherwise would be the case. This
provision does not affect the liability of any director under federal or
applicable state securities laws.
RISK FACTORS RELATING TO OUR BUSINESS PLAN
Any person or entity contemplating an investment in the securities offered
hereby should be aware of the high risks involved and the hazards inherent
therein. Specifically, the investor should consider, among others, the following
risks:
WE MAY BE UNABLE TO FULLY IMPLEMENT OUR BUSINESS PLAN WITHOUT RAISING ADDITIONAL
MONEY THROUGH THE SALE OF DEBT OR EQUITY SECURITIES, OR OBTAINING OTHER
FINANCING.
We may not be able to successfully implement our business strategy. Any such
failure may adversely affect the business and results of operations. Unless we
can generate revenues sufficient to implement our Business Plan, we may need to
obtain additional financing through debt or bank financing, or through the sale
of shareholder interests to execute our Company's Business Plan. We may not be
able to obtain this financing at all or on terms that are favorable or
acceptable to us. Moreover, if we issue additional equity securities to support
our operations, Investor holdings may be diluted.
We rely on the sales force of third-party sales organizations with limited
support from our own selling resources. The third party relationships and
internal organization are not fully developed at this time and must be
developed. We may not be able to hire effective inside sales people to help our
third party sales organizations close sales. There is no assurance that these
approaches will improve sales. Further, using only a direct sales force would be
less cost-effective than our plan to use third-party sales organizations. In
addition, a direct sales model may be ineffective if we were unable to hire and
retain qualified salespeople and if the sales force fails to complete sales.
Moreover, even if we successfully implement our business strategy, we may not
have positive operating results. We may decide to alter or discontinue aspects
of our business strategy and may adopt different strategies due to business or
competitive factors.
The growth of our business is dependent, in large part, upon the development of,
and market opportunities for, our services offerings. Market opportunities that
we expect to exist may not develop as expected, or at all. For example, a
substantial percentage of our service offering is oriented around data sharing,
-7-
storage and off-site protection. If lower cost alternatives are developed, our
sales would decrease and our operating results would be negatively affected.
Moreover, even if market opportunities develop as expected, new technologies and
services offerings introduced by competitors may significantly limit our ability
to capitalize on any such market opportunity. Our failure to capitalize on
expected market opportunities would adversely affect revenue growth.
The lack of operating history and the rapidly changing nature of the market in
which we compete make it difficult to accurately forecast revenues and operating
results. We anticipate that revenues and operating results might fluctuate in
the future due to a number of factors including the following:
o The timing of sales for current services offerings
o The timing of new product implementations
o Unexpected delays in introducing new services offerings
o Increased expense related to sales and marketing, product development
or administration
o The mix of products in our Company's services offerings
o Costs related to possible acquisitions of technology or business.
WE MAY BE UNABLE TO COMPETE WITH LARGER, MORE ESTABLISHED COMPETITORS.
The market for providing cloud computing services is competitive. We expect
competition to intensify in the future. Many of our Company's potential
competitors have longer operating histories, larger customer bases, greater
recognition and significantly greater resources. As a result, competitors may be
able to respond more quickly to emerging technologies and changes in customer
requirements than us. The continuous and timely introduction of competitively
priced services offerings into the market is critical to our success, and there
can be no assurance that we will be able to introduce such services offerings.
We may not be able to compete successfully against competitors, and the
competitive pressures we face may have an adverse effect on our business.
IF WE ARE UNABLE TO SUCCESSFULLY DEVELOP AND MARKET ADDITIONAL SERVICES AND/OR
NEW GENERATIONS OF OUR SERVICES OFFERINGS OR MARKET OUR SERVICES OFFERINGS TO A
BROAD NUMBER OF CUSTOMERS, WE MAY NOT REMAIN COMPETITIVE.
Our future success and our ability to increase net revenue and earnings depend,
in part, on our ability to develop and market new additional services and/or new
generations of our current services offerings and market our existing services
offerings to a broad number of customers. However, we may not be able to, among
other things:
o successfully develop or market new services offerings or enhance
existing services offerings;
o educate third-party sales organizations adequately for them to promote
and sell our services offerings;
o develop, market, and distribute existing and future services offerings
in a cost-effective manner; or
o operate the facilities needed to provide its services offerings.
If we fail to develop new services offerings, or if we incur unexpected expenses
or delays in product development or integration, we may lose our competitive
position and incur substantial additional expenses or may be required to curtail
or terminate all or part of the present planned business operations.
Our failure to do any of the foregoing could have a material adverse effect on
our business, financial condition and results of operations. In addition, if any
of our current or future services offerings contain undetected errors or design
defects or do not work as expected for our customers, our ability to market
these services offerings could be substantially impeded, resulting in lost
sales, potential reputation damage and delays in obtaining market acceptance of
these services offerings. We cannot assure you that we will continue to
successfully develop and market new or enhanced applications for our services
offerings. If we do not continue to expand our services offerings portfolio on a
timely basis or if those products and applications do not receive market
acceptance, become regulatory restricted, or become obsolete, we will not grow
our business as currently expected.
WE OPERATE IN A VERY COMPETITIVE ENVIRONMENT.
There are four types of competitors for our service offerings.
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(1) The value-added resellers and other vendors of hardware and software
for on-site installation do not typically have an offering similar to
our cloud-based services. However, they are the primary historic IT
suppliers to our targeted customers and will actively work to defend
their customer base.
(2) There are a number of providers offering cloud based applications but
they typically offer only one or two applications of their choosing
instead of our offering which moves all of a customer's chosen
applications to the cloud.
(3) There are a few providers that offer more than two applications from
the cloud. However currently, these providers typically offer only
those applications they have chosen.
(4) There are a few integrators or outsourcers that will move a customer's
hardware and software to the cloud. These solutions tend to be priced
much higher and are currently not considered a direct competitor to
our services offering.
The cloud based services industry is characterized by rapid change resulting
from technological advances and new services offerings. Certain competitors have
substantially greater capital resources, larger customer bases, larger sales
forces, greater marketing and management resources, larger research and
development staffs and larger facilities than ours and have more established
reputations with our target customers, as well as distribution channels that are
entrenched and may be more effective than us. Competitors may develop and offer
technologies and products that are more effective, have better features, are
easier to use, are less expensive and/or are more readily accepted by the
marketplace than our offerings. Their products could make our technology and
service offerings obsolete or noncompetitive. Competitors may also be able to
achieve more efficient operations and distribution than we may be able to and
may offer lower prices than we could offer profitably. We may decide to alter or
discontinue aspects of our business and may adopt different strategies due to
business or competitive factors or factors currently unforeseen, such as the
introduction by competitors of new products or services technologies that would
make part or all of our service offerings obsolete or uncompetitive.
In addition, the industry could experience some consolidation. There is also a
risk that larger companies will enter our markets.
IF WE FAIL TO MAINTAIN EFFECTIVE RELATIONSHIPS WITH OUR MAJOR VENDORS, OUR
SERVICES OFFERINGS AND PROFITABILITY COULD SUFFER.
We use third party data center providers to house our cloud-based hardware and
software. In addition, we lease/purchase hardware, software and services from
external suppliers. Accordingly, we must maintain effective relationships with
our supply base to source our needs, maintain continuity of supply, and achieve
reasonable costs. If we fail to maintain effective relationships with our supply
base, this may adversely affect our ability to deliver the best products to our
customers and our profitability could suffer.
OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS MAY BE ADVERSELY
AFFECTED BY THE PERFORMANCE OF THIRD-PARTY DISTRIBUTORS ,CONSULTANTS , AND
SERVICES PROVIDERS AND OUR ABILITY TO MAINTAIN THESE RELATIONSHIPS ON TERMS THAT
ARE FAVORABLE.
We will use third-party sales organizations, along with our sales employees, to
sell our services. These third party sales organizations operate independently,
and we have limited control over their operations, which exposes us to
significant risks. These sales organizations may not commit the necessary
resources to market and sell our service offerings and these sales organizations
have non-exclusive relationships with us, meaning they may also market and sell
competitive products and services. In addition, many of these third party sales
organizations may not comply with the laws and regulatory requirements in their
local jurisdictions, which may limit their ability to market or sell our service
offerings. If current or future distributors do not perform adequately, or if we
are unable to locate and retain competent distributors and secure their services
on favorable terms, or at all, we may be unable to increase or maintain our
level of net revenue in these markets or enter new markets, and we may not
realize our expected growth.
-9-
We rely to some degree upon third parties to augment product development and
licensed software. For example, we rely on Microsoft or others to supply certain
software or applications for our service offerings and third parties also assist
with product development and testing activities. To the extent any of these
parties fail to deliver their components and other services in a timely manner
or within required specifications or pricing, we could be adversely affected.
WE WILL CONDUCT SUBSTANTIALLY ALL OF OUR OPERATIONS AT CENTRALLY LOCATED
FACILITIES AND AT COMMERCIAL DATA CENTERS AND ANY FIRE, EXPLOSION, VIOLENT
WEATHER CONDITIONS OR OTHER UNANTICIPATED EVENTS AFFECTING THESE FACILITIES
COULD ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
We will conduct the majority of our operations, as well as most of our sales,
and administrative activities, at our headquarter facility. We will use
commercial data centers to operate our cloud based services and connect to the
Internet. Any of these facilities are subject to the risk of catastrophic loss
due to unanticipated events, such as fires, explosions or violent weather
conditions. The facilities that we use to sell and provide services would need
to be replaced or repaired. We may also experience data center shutdowns or
periods of reduced operations as a result of regulatory issues, equipment
failure or delays in deliveries. Any disruption or other unanticipated events
affecting our facilities and therefore our sales, operations, research and
development and administrative activities would adversely affect our business,
financial condition and the results of operations. We carry insurance for damage
to property and the disruption of business. Such insurance coverage, however,
may not be sufficient to cover all potential losses and may not continue to be
available to us on acceptable terms, or at all.
ANY FAILURE OF THE PHYSICAL OR ELECTRONIC SECURITY THAT RESULTED IN UNAUTHORIZED
PARTIES GAINING ACCESS TO CUSTOMER DATA COULD ADVERSELY AFFECT OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We use commercial data centers to house our cloud based services and the
associated customer data. Any data center is subject to the risk of physical or
electronic intrusion by unauthorized parties. We have a multi-homed firewalls
and Intrusion Detection / Prevention systems to protect against electronic
intrusion and two physical security levels in our data centers. Our policy is to
close all external ports as a default. Robust anti-virus software runs on all
client servers. Systems have automated monitoring and alerting for unusual
activity. We also have a Security Officer who monitors these systems. Although
we have better security systems and expertise than the vast majority of our
clients currently have in place, any failure of these systems could adversely
affect our business growth and financial condition.
ANY FAILURE OF OUR MANAGEMENT INFORMATION SYSTEMS COULD HARM OUR BUSINESS AND
RESULTS OF OPERATIONS.
Our rapid growth may continue to place a significant strain on our managerial,
operational and financial resources and systems. We depend on our management
information systems to support our customer support, sales, development and
administrative staff and to manage our service offerings. We also depend on our
management information system to actively monitor our services and for billing
and other customer related invoicing. The inability of our management
information systems to operate as we anticipate could damage our reputation with
customers, disrupt business or result in, among other things, decreased net
revenue and increased overhead costs. As a result, any such failure could harm
our business, financial condition and results of operations.
DEMAND FOR OUR SERVICE OFFERINGS MAY DECREASE IF NEW GOVERNMENT REGULATIONS
SUBSTANTIALLY INCREASE COSTS, LIMIT DELIVERY OR CHANGE THE USE OF INTERNET
ACCESS AND OTHER PRODUCTS ON WHICH OUR SERVICE OFFERINGS DEPEND.
We are dependent on Internet access to deliver our service offerings. If new
regulations are imposed that limit the use of the Internet or impose significant
taxes on services delivered via the Internet it could change our cost structure
and/or affect its business model. The significant changes in regulatory costs or
new limitations on Internet use could impact our ability to operate as we
anticipate, could damage our reputation with our customers, disrupt our business
or result in, among other things, decreased net revenue and increased overhead
costs. As a result, any such failure could harm our business, financial
condition and results of operations.
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RISKS RELATING TO OUR COMPANY'S INTELLECTUAL PROPERTY AND POTENTIAL LITIGATION
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS,
IF ANY.
There can be no assurances that we will be able to obtain intellectual property
protection that will effectively prevent any competitors from developing or
marketing the same or a competing technology. In addition, we cannot predict
whether we will be subject to intellectual property litigation the outcome of
which is subject to uncertainty and which can be very costly to pursue or
defend. We will attempt to continue to protect our proprietary designs and to
avoid infringing on the intellectual property of third parties. However, there
can be no assurance that we will be able to protect our intellectual property or
avoid suits by third parties claiming intellectual property infringement.
IF OUR FUTURE PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS DO NOT ADEQUATELY
PROTECT OUR SERVICE OFFERING, WE MAY LOSE MARKET SHARE TO COMPETITORS AND BE
UNABLE TO OPERATE OUR BUSINESS PROFITABLY.
Patents and other proprietary rights which we may develop are anticipated to be
of value to our future business, and our ability to compete effectively with
other companies depends on the proprietary nature of our current or future
technologies. We also rely upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop, maintain, and
strengthen its competitive position. We cannot assure you that any future patent
applications will result in issued patents, that any patents issued or licensed
to us will not be challenged, invalidated or circumvented or that the rights
granted there under will provide a competitive advantage to us or prevent
competitors from entering markets which we currently serve. Any required license
may not be available to us on acceptable terms, if at all or may become invalid
if the licensee's right to such technology become challenged and/or revoked. In
addition, some licenses may be non-exclusive, and therefore competitors may have
access to the same technologies as we do. Furthermore, we may have to take legal
action in the future to protect our trade secrets or know-how, or to defend them
against claimed infringement of the rights of others. Any legal action of that
type could be costly and time-consuming to us, and we cannot assure you that
such actions will be successful. The invalidation of key patents or proprietary
rights which we may own or unsuccessful outcomes in lawsuits to protect our
intellectual property may have a material adverse effect on our business,
financial condition and results of operations.
WE MAY IN THE FUTURE BECOME SUBJECT TO CLAIMS THAT SOME, OR THE ENTIRE SERVICE
OFFERING VIOLATES THE PATENT OR INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH
COULD BE COSTLY AND DISRUPTIVE TO US.
We operate in an industry that is susceptible to patent litigation. As a result,
we or the parties we license technology from may become subject to patent
infringement claims or litigation. Further, one or more of our future patents or
applications may become subject to interference proceedings declared by the U.S.
Patent and Trademark Office, ("USPTO") or the foreign equivalents thereof to
determine the priority of claims to inventions. The defense of intellectual
property suits, USPTO interference proceedings or the foreign equivalents
thereof, as well as related legal and administrative proceedings, are both
costly and time consuming and may divert management's attention from other
business concerns. An adverse determination in litigation or interference
proceedings to which we may become a party could, among other things:
o subject us to significant liabilities to third parties, including
treble damages;
o require disputed rights to be licensed from a third party for
royalties that may be substantial;
o requires us to cease using such technology; or
o prohibit us from selling certain of our service offerings.
Any of these outcomes could have a material adverse effect on our business,
financial condition and results of operations.
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WE MAY INITIATE PATENT AND TRADEMARK LITIGATION CLAIMS IN THE U.S. AND FOREIGN
JURISDICTIONS IN THE FUTURE TO PROTECT OUR INTELLECTUAL PROPERTY, IF ANY. IF WE
ARE UNSUCCESSFUL IN THESE CLAIMS, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS
OF OPERATIONS COULD BE ADVERSELY AFFECTED.
We may initiate litigation to assert claims of infringement, enforce any of its
patents and trademarks, protect trade secrets and know-how, or determine the
enforceability, scope and validity of the proprietary rights of others. Any
lawsuits that we initiate could be expensive, time consuming and divert
management's attention from other business concerns. Furthermore, litigation may
provoke third parties to assert claims against us and may put our patents and
trademarks (if any) at risk of being invalidated or interpreted narrowly and our
patent applications at risk of not being issued. Further, we may not prevail in
lawsuits that we initiate, and the damages or other remedies awarded, if any,
may not be commercially valuable. The occurrence of any of these events may have
a material adverse effect on our business, financial condition and results of
operations.
RISK FACTORS RELATED TO OUR STOCK
NO PUBLIC MARKET EXISTS FOR OUR COMMON STOCK AT THIS TIME, AND THERE IS NO
ASSURANCE OF A FUTURE MARKET.
There is no public market for our common stock, and no assurance can be given
that a market will develop or that a shareholder ever will be able to liquidate
his investment without considerable delay, if at all. If a market should
develop, the price may be highly volatile. Factors such as those discussed in
the "Risk Factors" section may have a significant impact upon the market price
of the shares offered hereby. Due to the low price of our securities, many
brokerage firms may not be willing to effect transactions in our securities.
Even if a purchaser finds a broker willing to effect a transaction in our
shares, the combination of brokerage commissions, state transfer taxes, if any,
and any other selling costs may exceed the selling price. Further, many lending
institutions will not permit the use of our shares as collateral for any loans.
OUR STOCK WILL IN ALL LIKELIHOOD BE THINLY TRADED AND AS A RESULT SHAREHOLDERS
MAY BE UNABLE TO SELL AT OR NEAR ASK PRICES OR AT ALL THEY NEED TO LIQUIDATE
THEIR SHARES.
The shares of our common stock, if listed, may be thinly-traded on the OTC
Market, meaning that the number of persons interested in purchasing our common
shares at or near ask prices at any given time may be relatively small or
non-existent. This situation is attributable to a number of factors, including
the fact that we are a small company which is relatively unknown to stock
analysts, stock brokers, institutional investors and others in the investment
community that generate or influence sales volume, and that even if we came to
the attention of such persons, they tend to be risk-averse and would be
reluctant to follow an unproven, early stage company such as ours or purchase or
recommend the purchase of any of our Securities until such time as we became
more seasoned and viable. As a consequence, there may be periods of several days
or more when trading activity in our Securities is minimal or non-existent, as
compared to a seasoned issuer which has a large and steady volume of trading
activity that will generally support continuous sales without an adverse effect
on Securities price. We cannot give you any assurance that a broader or more
active public trading market for our common Securities will develop or be
sustained, or that any trading levels will be sustained. Due to these
conditions, we can give Shareholders no assurance that they will be able to sell
their shares at or near ask prices or at all if they need money or otherwise
desire to liquidate their securities of our Company.
THE REGULATION OF PENNY STOCKS BY SEC AND FINRA MAY DISCOURAGE THE TRADABILITY
OF OUR SECURITIES.
We are a "penny stock" company. None of our securities currently trade in any
market and, if ever available for trading, will be subject to a Securities and
Exchange Commission rule that imposes special sales practice requirements upon
broker-dealers who sell such securities to persons other than established
customers or accredited investors. For purposes of the rule, the phrase
"accredited investors" means, in general terms, institutions with assets in
excess of $5,000,000, or individuals having a net worth in excess of $1,000,000
or having an annual income that exceeds $200,000 (or that, when combined with a
spouse's income, exceeds $300,000). For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Effectively, this discourages broker-dealers from executing trades in
penny stocks. Consequently, the rule will affect the ability of purchasers in
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this offering to sell their securities in any market that might develop
therefore because it imposes additional regulatory burdens on penny stock
transactions.
In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange
Act of 1934, as amended. Because our securities constitute "penny stocks" within
the meaning of the rules, the rules would apply to us and to our securities. The
rules will further affect the ability of owners of shares to sell our securities
in any market that might develop for them because it imposes additional
regulatory burdens on penny stock transactions.
Shareholders should be aware that, according to Securities and Exchange
Commission, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include (i) control of the market for
the security by one or a few broker-dealers that are often related to the
promoter or issuer; (ii) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; (iii) "boiler room"
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (iv) excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and (v) the
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired consequent investor losses. Our
management is aware of the abuses that have occurred historically in the penny
stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our securities.
Investors in penny stocks have limited remedies in the event of violations of
penny stock rules. While the courts are always available to seek remedies for
fraud against us, most, if not all, brokerages require their customers to sign
mandatory arbitration agreements in conjunctions with opening trading accounts.
Such arbitration may be through an independent arbiter. Investors may file a
complaint with FINRA against the broker allegedly at fault, and FINRA may be the
arbiter, under FINRA rules. Arbitration rules generally limit discovery and
provide more expedient adjudication, but also provide limited remedies in
damages usually only the actual economic loss in the account. Investors should
understand that if a fraud case is filed against a company in the courts it may
be vigorously defended and may take years and great legal expenses and costs to
pursue, which may not be economically feasible for small investors.
Absent arbitration agreements, specific legal remedies available to investors of
penny stocks include the following:
If a penny stock is sold to the investor in violation of the requirements
discussed above, or other federal or states securities laws, the investor may be
able to cancel the purchase and receive a refund of the investment.
If a penny stock is sold to the investor in a fraudulent manner, the investor
may be able to sue the persons and firms that committed the fraud for damages.
The fact that we are a penny stock company will cause many brokers to refuse to
handle transactions in the stocks, and may discourage trading activity and
volume, or result in wide disparities between bid and ask prices. These may
cause investors significant illiquidity of the stock at a price at which they
may wish to sell or in the opportunity to complete a sale. Investors will have
no effective legal remedies for these illiquidity issues.
WE WILL PAY NO DIVIDENDS IN THE FORESEEABLE FUTURE.
We have not paid dividends on our common stock and do not anticipate paying such
dividends in the foreseeable future.
RULE 144 SALES IN THE FUTURE MAY HAVE A DEPRESSIVE EFFECT ON OUR STOCK PRICE.
All of the outstanding shares of common stock held by our present officers,
directors, and affiliate stockholders are "restricted securities" within the
meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted
Shares, these shares may be resold only pursuant to an effective registration
statement or under the requirements of Rule 144 or other applicable exemptions
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from registration under the Act and as required under applicable state
securities laws. We are registering some of our outstanding shares owned by
officers, directors and affiliates who may be able to sell their shares if this
Registration Statement becomes effective. Rule 144 provides in essence that an
officer, director or affiliate who has held restricted securities for six
months, under certain conditions, may sell every three months, in brokerage
transactions, a number of shares that does not exceed the greater of 1.0% of a
company's outstanding common stock. There is no limit on the amount of
restricted securities that may be sold by a non-affiliate after the owner has
held the restricted securities for a period of six months. A sale under Rule 144
or under any other exemption from the Act, if available, or pursuant to
subsequent registration of shares of common stock of present stockholders, may
have a depressive effect upon the price of the common stock in any market that
may develop.
OUR COMMON STOCK, IF LISTED, MAY BE VOLATILE, WHICH SUBSTANTIALLY INCREASES THE
RISK THAT YOU MAY NOT BE ABLE TO SELL YOUR SHARES AT OR ABOVE THE PRICE THAT YOU
MAY PAY FOR THE SHARES.
Because of the limited private market for our common stock and because of the
possible price volatility, you may not be able to sell your shares of common
stock when you desire to do so. The inability to sell your shares in a rapidly
declining market may substantially increase your risk of loss because of such
illiquidity and because the price for our Securities may suffer greater declines
because of our price volatility.
The price of our common stock that will prevail in the market after this
offering may be higher or lower than the price you may pay. Certain factors,
some of which are beyond our control, that may cause our share price to
fluctuate significantly include, but are not limited to the following:
o Variations in our quarterly operating results;
o Loss of a key relationship or failure to complete significant
transactions;
o Additions or departures of key personnel; and
o Fluctuations in stock market price and volume.
Additionally, in recent years the stock market in general, and the
over-the-counter markets in particular, have experienced extreme price and
volume fluctuations. In some cases, these fluctuations are unrelated or
disproportionate to the operating performance of the underlying company. These
market and industry factors may materially and adversely affect our stock price,
regardless of our operating performance. In the past, class action litigation
often has been brought against companies following periods of volatility in the
market price of those companies common stock. If we become involved in this type
of litigation in the future, it could result in substantial costs and diversion
of management attention and resources, which could have a further negative
effect on your investment in our stock.
ANY SALES OF OUR COMMON STOCK, IF IN SIGNIFICANT AMOUNTS, ARE LIKELY TO DEPRESS
THE FUTURE MARKET PRICE OF OUR SECURITIES.
Assuming all of the shares of common stock, under this Registration Statement
are sold and all of the shares of common stock held by the selling security
holders registered hereby are sold, we would have 1,588,603 shares that are
freely tradable and therefore available for sale, if a market develops for our
stock, and we become approved for trading. Unrestricted sales of 1,588,603
shares of stock by our selling stockholders could have a huge negative impact on
our share price, and the market for our shares. Officers and directors are
registering a portion of their shares for sale under this prospectus.
ANY NEW POTENTIAL INVESTORS WILL SUFFER A DISPROPORTIONATE RISK AND THERE WILL
BE IMMEDIATE DILUTION OF EXISTING INVESTOR'S INVESTMENTS.
Our present shareholders have acquired their securities at a cost significantly
less than that which the investors purchasing pursuant to shares will pay for
their stock holdings or at which future purchasers in the market may pay.
Therefore, any new potential investors will bear most of the risk of loss.
-14-
WE CAN ISSUE SHARES OF PREFERRED STOCK WITHOUT SHAREHOLDER APPROVAL, WHICH COULD
ADVERSELY AFFECT THE RIGHTS OF COMMON SHAREHOLDERS.
Our Articles of Incorporation permit its Board of Directors to establish the
rights, privileges, preferences and restrictions, including voting rights, of
future series of stock and to issue such stock without approval from our
shareholders. The rights of holders of common stock may suffer as a result of
the rights granted to holders of preferred stock that may be issued in the
future. In addition, we could issue preferred stock to prevent a change in
control of us, depriving common shareholders of an opportunity to sell their
stock at a price in excess of the prevailing market price.
THE OFFERING PRICE OF THE SHARES HAS BEEN DETERMINED BY MANAGEMENT AND IS NOT
INDICATIVE OF THE POTENTIAL RESALE PRICE OF THE SHARES.
We have arbitrarily determined the offering price of the shares of common stock
we are offering on behalf of our Selling Shareholders. Such price does not bear
any relationship to our assets, income or net worth, nor any market value.
The offering price should NOT be considered an indication of the actual value of
the shares or securities. Any market price is subject to change as a result of
market conditions and other factors, and no assurance can be given that the
shares can ever be resold at the offering price or any market price, if at all.
WE WILL BECOME A REPORTING COMPANY UPON THE EFFECTIVENESS OF THIS REGISTRATION
STATEMENT.
We will become subject to the reporting requirements under the Securities and
Exchange Act of 1934, Section 13a, after the effectiveness of this offering,
pursuant to Section 15d of the Securities Act and we intend to be registered
under Section 12(g). As a result, shareholders will have access to the
information required to be reported by publicly held companies under the
Exchange Act and the regulations thereunder. As a result, we will be subject to
legal and accounting expenses that private companies are not subject to and this
could affect our ability to generate a positive net income.
WE WILL INCUR SIGNIFICANT COSTS TO BE A PUBLIC COMPANY TO ENSURE COMPLIANCE WITH
U.S. CORPORATE GOVERNANCE AND ACCOUNTING REQUIREMENTS AND WE MAY NOT BE ABLE TO
ABSORB SUCH COSTS.
We may incur significant costs associated with our public company reporting
requirements, costs associated with newly applicable corporate governance
requirements, including requirements under the Sarbanes-Oxley Act of 2002 and
other rules implemented by the Securities and Exchange Commission. We expect
these costs to be approximately $50,000-$75,000 per year. We expect all of these
applicable rules and regulations to significantly increase our legal and
financial compliance costs and to make some activities more time consuming and
costly. We also expect that these applicable rules and regulations may make it
more difficult and more expensive for us to obtain director and officer
liability insurance and we may be required to accept reduced policy limits and
coverage or incur substantially higher costs to obtain the same or similar
coverage. As a result, it may be more difficult for us to attract and retain
qualified individuals to serve on our board of directors or as executive
officers. We are currently evaluating and monitoring developments with respect
to these newly applicable rules, and we cannot predict or estimate the amount of
additional costs we may incur or the timing of such costs. In addition, we may
not be able to absorb these costs of being a public company which will
negatively affect our business operations.
WE ARE AN "EMERGING GROWTH COMPANY," AND ANY DECISION ON OUR PART TO COMPLY ONLY
WITH CERTAIN REDUCED DISCLOSURE REQUIREMENTS APPLICABLE TO "EMERGING GROWTH
COMPANIES" COULD MAKE OUR COMMON STOCK LESS ATTRACTIVE TO INVESTORS.
We are an "emerging growth company," as defined in the JOBS Act, and, for as
long as we continue to be an "emerging growth company," we expect and fully
intend to take advantage of exemptions from various reporting requirements
applicable to other public companies but not to "emerging growth companies,"
including, but not limited to, not being required to comply with the auditor
attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002,
reduced disclosure obligations regarding executive compensation in our periodic
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reports and proxy statements, and exemptions from the requirements of holding a
nonbinding advisory vote on executive compensation and shareholder approval of
any golden parachute payments not previously approved. We could be an "emerging
growth company" for up to five years, or until the earliest of (i) the last day
of the first fiscal year in which our annual gross revenues exceed $1 billion,
(ii) the date that we become a "large accelerated filer" as defined in Rule
12b-2 under the Exchange Act, which would occur if the market value of our
common stock that is held by non-affiliates exceeds $700 million as of the last
business day of our most recently completed second fiscal quarter, or (iii) the
date on which we have issued more than $1 billion in non-convertible debt during
the preceding three year period.
In addition, Section 107 of the JOBS Act also provides that an "emerging growth
company" can take advantage of the extended transition period provided in
Section 7(a)2(B) of the Securities Act for complying with new or revised
accounting standards. In other words, an "emerging growth company" can delay the
adoption of certain accounting standards until those standards would otherwise
apply to private companies. We have elected to opt in to the extended transition
period for complying with the revised accounting standards. We have elected to
rely on these exemptions and reduced disclosure requirements applicable to
"emerging growth companies" and expect to continue to do so.
WE MAY NOT BE ABLE TO MEET THE FILING AND INTERNAL CONTROL REPORTING
REQUIREMENTS IMPOSED BY THE SEC WHICH MAY RESULT IN A DECLINE IN THE PRICE OF
OUR COMMON SHARES AND AN INABILITY TO OBTAIN FUTURE FINANCING.
As directed by Section 404 of the Sarbanes-Oxley Act, as amended by SEC Release
No. 33-8934 on June 26, 2008, the SEC adopted rules requiring each public
company to include a report of management on our Company's internal controls
over financial reporting in its annual reports. In addition, the independent
registered public accounting firm auditing a company's financial statements must
also attest to and report on management's assessment of the effectiveness of our
Company's internal controls over financial reporting. We will be required to
include a report of management on its internal control over financial reporting.
The internal control report must include a statement
o Of management's responsibility for establishing and maintaining
adequate internal control over its financial reporting;
o Of management's assessment of the effectiveness of its internal
control over financial reporting as of year end; and
o Of the framework used by management to evaluate the effectiveness of
our internal control over financial reporting.
Furthermore, our independent registered public accounting firm will be required
to file its attestation on whether it believes that we have maintained, in all
material respects, effective internal control over financial reporting.
While we expect to expend significant resources in developing the necessary
documentation and testing procedures required by Section 404 of the
Sarbanes-Oxley Act, there is a risk that we may not be able to comply timely
with all of the requirements imposed by this rule. In the event that we are
unable to receive a positive attestation from our independent registered public
accounting firm with respect to our internal controls, investors and others may
lose confidence in the reliability of our financial statements and our stock
price and ability to obtain equity or debt financing as needed could suffer.
In addition, in the event that our independent registered public accounting firm
is unable to rely on our internal controls in connection with its audit of our
financial statements, and in the further event that it is unable to devise
alternative procedures in order to satisfy itself as to the material accuracy of
our financial statements and related disclosures, it is possible that we would
be unable to file our Annual Report on Form 10-K with the SEC, which could also
adversely affect the market price of our Common Stock and our ability to secure
additional financing as needed.
-16-
THE JOBS ACT ALLOWS US TO DELAY THE ADOPTION OF NEW OR REVISED ACCOUNTING
STANDARDS THAT HAVE DIFFERENT EFFECTIVE DATES FOR PUBLIC AND PRIVATE COMPANIES.
Since, we have elected to use the extended transition period for complying with
new or revised accounting standards under Section 102(b)(1) of the JOBS Act,
this election allows us to delay the adoption of new or revised accounting
standards that have different effective dates for public and private companies
until those standards apply to private companies. As a result of this election,
our financial statements may not be comparable to companies that comply with
public company effective dates.
OUR COMMON SHARES WILL NOT INITIALLY BE REGISTERED UNDER THE EXCHANGE ACT AND AS
A RESULT WE WILL HAVE LIMITED REPORTING DUTIES WHICH COULD MAKE OUR COMMON STOCK
LESS ATTRACTIVE TO INVESTORS.
Our common shares are not registered under the Exchange Act. As a result, we
will not be subject to the federal proxy rules and our directors, executive
officers and 10% beneficial holders will not be subject to Section 16 of the
Exchange Act. In additional our reporting obligations under Section 15(d) of the
Exchange Act may be suspended automatically if we have fewer than 300
shareholders of record on the first day of our fiscal year. Our common shares
are not registered under the Securities Exchange Act of 1934, as amended, and we
do not intend to register our common shares under the Exchange Act for the
foreseeable future, provided that, we will register our common shares under the
Exchange Act if we have, after the last day of our fiscal year, more than either
(i) 2000 persons; or (ii) 500 shareholders of record who are not accredited
investors, in accordance with Section 12(g) of the Exchange Act. As a result,
although, upon the effectiveness of the registration statement of which this
prospectus forms a part, we will be required to file annual, quarterly, and
current reports pursuant to Section 15(d) of the Exchange Act, as long as our
common shares are not registered under the Exchange Act, we will not be subject
to Section 14 of the Exchange Act, which, among other things, prohibits
companies that have securities registered under the Exchange Act from soliciting
proxies or consents from shareholders without furnishing to shareholders and
filing with the Securities and Exchange Commission a proxy statement and form of
proxy complying with the proxy rules. In addition, so long as our common shares
are not registered under the Exchange Act, our directors and executive officers
and beneficial holders of 10% or more of our outstanding common shares will not
be subject to Section 16 of the Exchange Act. Section 16(a) of the Exchange Act
requires executive officers and directs, and persons who beneficially own more
than 10% of a registered class of equity securities to file with the SEC initial
statements of beneficial ownership, reports of changes in ownership and annual
reports concerning their ownership of common shares and other equity securities,
on Forms 3, 4 and 5, respectively. Such information about our directors,
executive officers, and beneficial holders will only be available through this
(and any subsequent) registration statement, and periodic reports we file
thereunder. Furthermore, so long as our common shares are not registered under
the Exchange Act, our obligation to file reports under Section 15(d) of the
Exchange Act will be automatically suspended if, on the first day of any fiscal
year (other than a fiscal year in which a registration statement under the
Securities Act has gone effective), we have fewer than 300 shareholders of
record. This suspension is automatic and does not require any filing with the
SEC. In such an event, we may cease providing periodic reports and current or
periodic information, including operational and financial information, may not
be available with respect to our results of operations.
BECAUSE OUR COMMON STOCK IS NOT REGISTERED UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED, OUR REPORTING OBLIGATIONS UNDER SECTION 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, MAY BE SUSPENDED AUTOMATICALLY IF
WE HAVE FEWER THAN 300 SHAREHOLDERS OF RECORD ON THE FIRST DAY OF OUR FISCAL
YEAR.
Our common stock is not registered under the Exchange Act, and we do not intend
to register our common stock under the Exchange Act for the foreseeable future
(provided that, we will register our common stock under the Exchange Act if we
have, after the last day of our fiscal year, $10,000,000 in total assets and
either more than 2,000 shareholders of record or 500 shareholders of record who
are not accredited investors (as such term is defined by the Securities and
Exchange Commission), in accordance with Section 12(g) of the Exchange Act). As
long as our common stock is not registered under the Exchange Act, our
obligation to file reports under Section 15(d) of the Exchange Act will be
automatically suspended if, on the first day of any fiscal year (other than a
fiscal year in which a registration statement under the Securities Act has gone
effective), we have fewer than 300 shareholders of record. This suspension is
automatic and does not require any filing with the SEC. In such an event, we may
cease providing periodic reports and current or periodic information, including
operational and financial information, may not be available with respect to our
results of operations.
-17-
ITEM 4. USE OF PROCEEDS
-----------------------
We will not receive any proceeds from the sale of the shares being registered on
behalf of our selling shareholders.
We may raise additional funds through a placement of shares of our common stock.
At this time there is no committed source for such funds and we cannot give any
assurances of being able to raise such funds. We will require additional funds
to carry out our business plan. The availability and terms of any future
financing will depend on market and other conditions.
The monies we have raised thus far from selling stock to our current
Shareholders is anticipated to be sufficient to pay all expenses of this
registration statement, which is estimated to be $50,000.
ITEM 5. DETERMINATION OF OFFERING PRICE
---------------------------------------
We have no established market for our common stock.
Our selling shareholders initially may sell shares at $2.50 per share in public
or private transactions, until such time as a market develops for any of the
securities and thereafter at such prices as the market may dictate from time to
time. There is no market price for the stock and our pricing is arbitrary with
no relation to market value, liquidation value, earnings or dividends.
-------------------------------------- -----------------------------------------
Title Per Security
-------------------------------------- -----------------------------------------
Common Stock $2.50
-------------------------------------- -----------------------------------------
We have arbitrarily determined our offering price for shares to be sold pursuant
to this offering at $2.50. We are authorized to issue 100,000,000 shares of
$0.0001 par value voting common stock. As of June 30, 2014, there were 6,222,001
shares of common stock issued and outstanding. There were a total of 6,053,524
shares of common stock issued during the years ended December 31, 2013 and 2012.
During the period of January 1, 2014 through June 30, 2014, there were a total
of 168,477 shares issued. The share price bears no relationship to any criteria
of goodwill value, asset value, market price or any other measure of value and
was arbitrarily determined in the judgment of our Board of Directors.
ITEM 6. DILUTION
----------------
The following table sets forth with respect to existing selling shareholders,
the number of our shares of common stock purchased the percentage ownership of
such shares, the total consideration paid, the percentage of total consideration
paid and the average price per share. All percentages are computed based upon
cumulative shares and consideration assuming sale of all shares in the line item
as compared to maximum in each previous line.
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE/SHARE
(1) (2)
------------------------------------------------------------
Existing Selling
Shareholders 1,588,603 25.53% $1,985,754 100% $1.25
(1) Percentage relates to total percentage of shares to be sold by
existing selling shareholders.
(2) Percentage relates to total percentage of capital raised to date.
-18-
From Inception our shares were issued in the following amounts and at the
following prices:
---------------------------- ----------------------------- ---------------------
Number of Shares Consideration Price Per Share
---------------------------- ----------------------------- ---------------------
1,000,000 Founders Services $0.0001
---------------------------- ----------------------------- ---------------------
4,000,000 FSC Asset Acquisition $0.38
---------------------------- ----------------------------- ---------------------
16,477 Warrant Exercise $0.38
---------------------------- ----------------------------- ---------------------
788,724 Conversion of $985,905 $1.25
Convertible Promissory Notes
---------------------------- ----------------------------- ---------------------
416,800 $1,042,000 Private Placement $2.50
---------------------------- ----------------------------- ---------------------
"Net tangible book value" is the amount that results from subtracting the total
liabilities and intangible assets from the total assets of an entity. Dilution
occurs because we determined the offering price based on factors other than
those used in computing book value of our stock. Dilution exists because the
book value of shares held by existing stockholders is lower than the offering
price offered to new investors.
As of June 30, 2014 and December 31, 2013, the net tangible book value of our
stock was $(0.05) and $(0.03) per share, respectively.
ITEM 7. SELLING SECURITY HOLDERS
--------------------------------
The selling shareholders, including officers and directors, obtained their
shares of our stock in the following transactions:
---------------------------- ----------------------------- ---------------------
Number of Shares Consideration Price Per Share
---------------------------- ----------------------------- ---------------------
113,600 Services at Formation $0.0001
---------------------------- ----------------------------- ---------------------
442,800 FSC Asset Acquisition $0.38
---------------------------- ----------------------------- ---------------------
16,477 Exercise of Warrant $0.38
---------------------------- ----------------------------- ---------------------
598,926 Conversion of Convertible $1.25
Promissory Notes
---------------------------- ----------------------------- ---------------------
416,800 Private Placement $2.50
---------------------------- ----------------------------- ---------------------
Other than the stock transactions discussed above, we have not entered into any
transaction nor are there any proposed transactions in which any founder,
director, executive officer, significant shareholder of our company or any
member of the immediate family of any of the foregoing had or is to have a
direct or indirect material interest.
No person who may, in the future, be considered a promoter of this offering,
will receive or expects to receive assets, services or other considerations from
us except those persons who are our salaried employees or directors. No assets
will be, nor expected to be, acquired from any promoter on behalf of us. We have
not entered into any agreements that require disclosure to the shareholders.
-19-
(a) All of the securities listed below are being registered in this
Registration Statement.
--------------------------------------------------------------------------------------------------------------------------------
COMMON SHARES HELD % OWNED SHARES OWNED
BY EACH SHAREHOLDER COMMON SHARES TO BEFORE AFTER % OWNED AFTER
NAME BEFORE OFFERING BE REGISTERED OFFERING (1) OFFERING OFFERING
--------------------------------------------------------------------------------------------------------------------------------
Roderick D. Johnson 421,089 33,600 6.77% 387,489 6.23%
--------------------------------------------------------------------------------------------------------------------------------
T. Scott Fortman 80,000 80,000 1.29% * *
--------------------------------------------------------------------------------------------------------------------------------
William E. Sorenson (2) 890,000 33,600 14.30% 856,400 13.76%
--------------------------------------------------------------------------------------------------------------------------------
Julia A. Sorenson (6) 1,000,000 33,600 16.07% 966,400 15.53%
--------------------------------------------------------------------------------------------------------------------------------
Joseph Sorenson (6) 20,000 20,000 0.32% * *
--------------------------------------------------------------------------------------------------------------------------------
Stephanie Myers 50,000 50,000 0.80% * *
--------------------------------------------------------------------------------------------------------------------------------
Katherine Wentlink 20,000 20,000 0.32% * *
--------------------------------------------------------------------------------------------------------------------------------
John Sorenson (6) 20,000 20,000 0.32% * *
--------------------------------------------------------------------------------------------------------------------------------
James J. Polakowski (2) 1,768,000 33,600 28.42% 1,734,400 27.88%
--------------------------------------------------------------------------------------------------------------------------------
Eric Bach Polakowski (7) 34,000 34,000 0.55% * *
--------------------------------------------------------------------------------------------------------------------------------
Joseph Reed Polakowski (7) 34,000 34,000 0.55% * *
--------------------------------------------------------------------------------------------------------------------------------
Thomas Zachary Polakowski (7) 34,000 34,000 0.55% * *
--------------------------------------------------------------------------------------------------------------------------------
Thomas Allen Polakowski (7) 20,000 20,000 0.32% * *
--------------------------------------------------------------------------------------------------------------------------------
Elizabeth Jane Polakowski (7) 20,000 20,000 0.32% * *
--------------------------------------------------------------------------------------------------------------------------------
Marie Aline Lee 20,000 20,000 0.32% * *
--------------------------------------------------------------------------------------------------------------------------------
William Eric Polakowski (7) 20,000 20,000 0.32% * *
--------------------------------------------------------------------------------------------------------------------------------
Steven Froman 20,000 20,000 0.32% * *
--------------------------------------------------------------------------------------------------------------------------------
Pamela Sherlock Larson (7) 20,000 20,000 0.32% * *
--------------------------------------------------------------------------------------------------------------------------------
John William Orrison 10,000 10,000 0.16% * *
--------------------------------------------------------------------------------------------------------------------------------
Robert S. Krocak 21,089 21,089 0.34% * *
--------------------------------------------------------------------------------------------------------------------------------
James V. Glynn 84,356 84,356 1.36% * *
--------------------------------------------------------------------------------------------------------------------------------
John R. Page 21,089 21,089 0.34% * *
--------------------------------------------------------------------------------------------------------------------------------
Barbara & Stephen Fisher 21,089 21,089 0.34% * *
--------------------------------------------------------------------------------------------------------------------------------
Keith A. & Janet K. Springer 21,089 21,089 0.34% * *
--------------------------------------------------------------------------------------------------------------------------------
Lloydsville Corporation N.V. (3) 21,089 21,089 0.34% * *
--------------------------------------------------------------------------------------------------------------------------------
Kristine C. Albright 21,089 21,089 0.34% * *
--------------------------------------------------------------------------------------------------------------------------------
Nexus Direct IRA, LC FBO Barry L. Schalkle Account 33,742 33,742 0.54% * *
--------------------------------------------------------------------------------------------------------------------------------
Stephen L. Becher 29,524 29,524 0.47% * *
--------------------------------------------------------------------------------------------------------------------------------
David W. Shannon 42,178 42,178 0.68% * *
--------------------------------------------------------------------------------------------------------------------------------
Ted Yoch 84,356 84,356 1.36% * *
--------------------------------------------------------------------------------------------------------------------------------
Duane B. Melling Living Trust 84,356 84,356 1.36% * *
--------------------------------------------------------------------------------------------------------------------------------
Daniel D. Melling 21,089 21,089 0.34% * *
--------------------------------------------------------------------------------------------------------------------------------
Thomas J. Mahoney 21,089 21,089 0.34% * *
--------------------------------------------------------------------------------------------------------------------------------
Richard J. Cochrane 21,089 21,089 0.34% * *
--------------------------------------------------------------------------------------------------------------------------------
Steve J. Baschnagel 50,613 50,613 0.81% * *
--------------------------------------------------------------------------------------------------------------------------------
Robert Krocak 16,477 16,477 0.26% * *
--------------------------------------------------------------------------------------------------------------------------------
Steve J. Baschnagel 24,000 24,000 0.39% * *
--------------------------------------------------------------------------------------------------------------------------------
Judith H. Stenehjem (JMR) Limited Partnership (3) 14,000 14,000 0.23% * *
--------------------------------------------------------------------------------------------------------------------------------
-20-
Steve J. Baschnagel 12,000 12,000 0.19% * *
--------------------------------------------------------------------------------------------------------------------------------
Trust Company of America FBO Rebekah M. Schmitz 24,000 24,000 0.39% * *
--------------------------------------------------------------------------------------------------------------------------------
Keith Reisenauer 6,000 6,000 0.10% * *
--------------------------------------------------------------------------------------------------------------------------------
Todd P. Young 80,000 80,000 1.29% * *
--------------------------------------------------------------------------------------------------------------------------------
Trust Company of America FBO Douglas G. Schmitz 4,800 4,800 0.08% * *
--------------------------------------------------------------------------------------------------------------------------------
Gene Olson 20,000 20,000 0.32% * *
--------------------------------------------------------------------------------------------------------------------------------
David M. Pote 20,000 20,000 0.32% * *
--------------------------------------------------------------------------------------------------------------------------------
BJC Investments (3)(4) 10,000 10,000 0.16% * *
--------------------------------------------------------------------------------------------------------------------------------
Todd S. Nicholson 10,000 10,000 0.16% * *
--------------------------------------------------------------------------------------------------------------------------------
CPL Investments (3)(5) 10,000 10,000 0.16% * *
--------------------------------------------------------------------------------------------------------------------------------
Draft Company (3)(5) 10,000 10,000 0.16% * *
--------------------------------------------------------------------------------------------------------------------------------
Richard and Nancy Nicholson Fund of the Nicholson
Family Trust (3)(5) 10,000 10,000 0.16% * *
--------------------------------------------------------------------------------------------------------------------------------
Nicholson Boys LP (3)(5) 10,000 10,000 0.16% * *
--------------------------------------------------------------------------------------------------------------------------------
Douglas M. Schmitz 1,000 1,000 0.02% * *
--------------------------------------------------------------------------------------------------------------------------------
Lindsey Schmitz 1,000 1,000 0.02% * *
--------------------------------------------------------------------------------------------------------------------------------
Alex and Renae Schanilec 1,000 1,000 0.02% * *
--------------------------------------------------------------------------------------------------------------------------------
Chelsey Schmitz 1,000 1,000 0.02% * *
--------------------------------------------------------------------------------------------------------------------------------
Dalen Schmitz 1,000 1,000 0.02% * *
--------------------------------------------------------------------------------------------------------------------------------
Floyd O. Weiler 4,000 4,000 0.06% * *
--------------------------------------------------------------------------------------------------------------------------------
Wendy Weiler 4,000 4,000 0.06% * *
--------------------------------------------------------------------------------------------------------------------------------
John A. Unger 10,000 10,000 0.16% * *
--------------------------------------------------------------------------------------------------------------------------------
Ciana C. Larson 10,000 10,000 0.16% * *
--------------------------------------------------------------------------------------------------------------------------------
Joseph R. Unger 5,000 5,000 0.08% * *
--------------------------------------------------------------------------------------------------------------------------------
Todd D. Ampe 4,000 4,000 0.06% * *
--------------------------------------------------------------------------------------------------------------------------------
Michael M. Erpelding 40,000 40,000 0.64% * *
--------------------------------------------------------------------------------------------------------------------------------
Paul E. Von Kuster Trust 4,000 4,000 0.06% * *
--------------------------------------------------------------------------------------------------------------------------------
Steve J. Bashnagel 12,000 12,000 0.19% * *
--------------------------------------------------------------------------------------------------------------------------------
Steven E. Jorgensen 10,000 10,000 0.16% * *
--------------------------------------------------------------------------------------------------------------------------------
Nancy J. Hamilton 4,000 4,000 0.06% * *
--------------------------------------------------------------------------------------------------------------------------------
Debra Lynn Parsons - Trolson 40,000 40,000 0.64% * *
--------------------------------------------------------------------------------------------------------------------------------
TOTAL 5,533,292 1,588,603 88.93% 3,944,689 57.17%
--------------------------------------------------------------------------------------------------------------------------------
* Less than 1%
(1) Based upon 6,222,001 shares of common stock issued and outstanding at
June 30, 2014.
(2) Officer and/or director of our Company.
(3) The individuals have voting control for the entities noted in the list
below (b).
(4) We are also registering 10,000 shares held by Todd S. Nicholson,
individually.
(5) We are registering a total of 40,000 shares of which Mr. Richard
Nicholson is considered to have beneficial ownership of.
(6) Are the siblings and adult children of William Sorenson, an officer
and director of our Company. Ms. Julia Sorenson is the ex-wife of Mr.
Sorenson.
(7) Are the siblings and adult children of James Polakowski, an officer
and director of our Company.
-21-
(b)
NAME OF THE ENTITY PERSON WITH VOTING NUMBER OF AFFILIATE OF COMPANY?
COMMON SHARES
CONTROL BEING REGISTERED
---------------------------------------------- -------------------------- ----------------- --------------------------
Lloydsville Corporation N.V. David Erickson 21,089 No
Judith H. Stenehjem (JMR) Limited Partnership Judith H. Stenehjem 14,000 No
BJC Investments Todd Nicholson (1) 10,000 No
CPL Investments Richard Nicholson (2) 10,000 No
Draft Company Richard Nicholson (2) 10,000 No
Richard and Nancy Nicholson Fund of the
Nicholson Family Trust Richard Nicholson (2) 10,000 No
Nicholson Boys LP Richard Nicholson (2) 10,000 No
----------------------------------------------
(1) We are registering 10,000 shares held by Todd S. Nicholson,
individually.
(2) We are registering a total of 40,000 shares of which Mr. Richard
Nicholson is considered to have beneficial ownership of.
ITEM 8. PLAN OF DISTRIBUTION
----------------------------
Upon effectiveness of this amendment to the registration statement, of which
this prospectus is a part, our existing selling shareholders may sell their
securities at market prices or at any price in privately negotiated
transactions.
Our selling shareholders may be deemed underwriters in this offering.
The selling shareholders are not paying any of the offering expenses and we will
not receive any of the proceeds from the sale of the shares by the selling
shareholders.
ITEM 9. DESCRIPTION OF SECURITIES
---------------------------------
The securities being registered and/or offered by this Prospectus are common
shares.
COMMON STOCK
We are presently authorized to issue one hundred million (100,000,000) shares of
our $0.0001 par value common stock. A total of six million, two hundred
twenty-two thousand, one (6,222,001) common shares are issued and outstanding at
June 30, 2014.
COMMON SHARES
All shares are equal to each other with respect to voting, liquidation, and
dividend rights. Special shareholders' meetings may be called by the officers or
director, or upon the request of holders of at least one-tenth (1/10th) of the
outstanding shares. Holders of shares are entitled to one vote at any
shareholders' meeting for each share they own as of the record date fixed by the
board of directors. There is no quorum requirement for shareholders' meetings.
Therefore, a vote of the majority of the shares represented at a meeting will
govern even if this is substantially less than a majority of the shares
outstanding. Holders of shares are entitled to receive such dividends as may be
declared by the board of directors out of funds legally available therefore, and
upon liquidation are entitled to participate pro rata in a distribution of
assets available for such a distribution to shareholders. There is no
conversion, pre-emptive or other subscription rights or privileges with respect
to any shares. Reference is made to our Articles of Incorporation and our
By-Laws as well as to the applicable statutes of the State of Delaware for a
more complete description of the rights and liabilities of holders of shares. It
should be noted that the board of directors without notice to the shareholders
may amend the By-Laws. Our shares do not have cumulative voting rights, which
mean that the holders of more than fifty percent (50%) of the shares voting for
election of directors may elect all the directors if they choose to do so. In
-22-
such event, the holders of the remaining shares aggregating less than fifty
percent (50%) of the shares voting for election of directors may not be able to
elect any director.
PREFERRED SHARES
We are authorized to issue five million (5,000,000) shares of preferred stock.
At the time of this filing there are no classes of preferred stock designated,
nor are there any preferred shares issued and outstanding.
The Board of Directors will have complete discretion to authorize Series and
Classes, and to negotiate and set the rights, privileges, and preferences of the
classes and series. Management will have also the discretion, subject to Board
of Director approval of how, when, and for what consideration the Preferred
Shares may be issued.
OPTIONS & WARRANTS
Effective February 13, 2013, we adopted the IVDesk Holdings, Inc. 2012 Omnibus
Stock Incentive Plan (the "Plan"). The Plan provides for grants of nonqualified
stock options and other stock awards, including warrants, to designated
employees, officers, directors, advisors and independent contractors. A maximum
of 2,500,000 shares of our common stock were reserved for options and other
stock awards under the Plan. We have the ability to issue either options or
warrants under the Plan.
As of June 30, 2014, all warrants were 100% vested on the date of grant. Option
grants have varying vesting schedules, but the February 2013 grants have a 3
year vesting period, in which 16.66% are vested on the date of grant, an
additional 16.66% six months after the date of grant and 2.777% each month
thereafter until the end of the vesting period. Option expiration can happen in
a number of ways such as termination from duties with us or 10 years from the
date of grant.
At June 30, 2014, we had options issued and outstanding exercisable into
1,398,352 shares of our common stock and warrants issued and outstanding
exercisable into 50,000 shares of our common stock all with exercise prices
ranging from $0.38 to $2.50 per share. The options have vesting terms ranging up
to three years and, at June 30 2014, 581,834 shares were exercisable. At June
30, 2014, all of the warrants were exercisable.
TRANSFER AGENT
The transfer agent for our securities is Fidelity Transfer Company, with offices
at 8915 South 700 East, Suite 102, Sandy, UT 84070 and Phone (801)562-1300.
ITEM 10. INTEREST OF NAMED EXPERTS AND COUNSEL
----------------------------------------------
We have not hired or retained any experts or counsel on a contingent basis, who
would receive a direct or indirect interest in us, or who is, or was, our
promoter, underwriter, voting trustee, director, officer or employee.
ITEM 11. INFORMATION WITH RESPECT TO THE REGISTRANT
---------------------------------------------------
A. DESCRIPTION OF BUSINESS
---------------------------
Our Company, IVDesk Holdings, Inc. ("IVDesk", the "Company", or "We", "Us"),
incorporated in the State of Delaware in March 2012 with operations located in
Minneapolis, Minnesota, provides complete cloud computing services (information
technology) to small to mid-sized organizations ("SMB").
Our primary service offering is Private Cloud Services, which eliminates all on
premise servers by delivering all of each customer's existing applications and
data from our data center which contains our high-speed servers, security
systems, and support equipment. The customer's employees can then access their
own personal desktop, familiar application screens, and all data - anytime, from
anywhere, with any internet connected device (i.e. personal computer, tablets or
smart phones.)
-23-
CORPORATE HISTORY
On September 14, 2012, we entered into an Asset Purchase Agreement ("the Asset
Purchase Agreement") with Focused Solutions Consulting, Inc. ("FSC"). FSC was a
Minneapolis, Minnesota based company providing online computing services
including its cloud services businesses known as the Internet Virtual Desktop or
"IVDesk" since 2001. The Asset Purchase Agreement provided for us to acquire FSC
in exchange for 4,000,000 newly issued shares of our common stock. Prior to the
Agreement, we were newly formed to acquire the FSC assets and had nominal net
assets and operations.
The acquisition was accounted for as a reverse acquisition and recapitalization
using accounting principles applicable to reverse acquisitions. Under reverse
acquisition accounting, the FSC business, the legal acquiree, was treated as our
accounting acquirer. Consequently our financial results are reported for all
periods presented, while our Company's financial results have only been
consolidated with those of the existing FSC business from September 14, 2012
onwards. All outstanding shares have been restated to reflect the effect of the
acquisition.
COMPANY OVERVIEW
The IVDesk platform provides customers with the ability to have their entire IT
(information technology) operations (all applications and data) delivered to
them from enterprise class data centers without changing the workflow for
employees.
Our service offerings are described below:
PRIVATE CLOUD SERVICES. Our primary offering has two revenue
components: i) a one-time installation fee for each customer, and ii) a
monthly reoccurring fee, a fixed monthly fee for each computer user in
the customer organization. Contract periods are generally 3 years and
per user pricing for any customer depends on the number and complexity
of the applications needed. This monthly fee includes ongoing customer
support, application updates, system maintenance, and system upgrades.
Customers can add, subtract or change users with one call and the fees
are adjusted on the next billing.
CLOUD HOSTING SERVICES. Our technology makes it possible for
application developers to deliver a specific application from the cloud
to users across one or more companies. We are providing this service to
a limited number of customers during 2013 and during 2014 have begun to
offer it to a greater number of customers.
PROFESSIONAL SERVICES. We offer a limited amount of consulting,
equipment purchasing and other services which are typically one-time
billings and occur on an as needed basis. We have been decreasing our
offerings in this area.
We have developed a market-hardened solution that hosts each customer's entire
IT system, all data and applications. We replicate the desktop of every employee
so that workflow does not change, rather production increases in speed, becomes
more mobile and more reliable. The benefits include:
IMPROVED RELIABILITY THROUGH REDUNDANCY. Each customer's Private Cloud
Service is built with redundant components and paths at all levels. Our
equipment breaks like all other equipment but we include a failover
capability for all core facilities such as power, security, storage,
and databases so users keep on working. Customers know that system
failures increase with equipment ageing, applications ageing, malware
infections, update mistakes and more. Most on-premises and cloud
computing IT vendors provide non-redundant equipment and use backup &
restore as their only protection to system failures but we go further.
Although we provide backup & restore and disaster recovery, highly
redundant systems with failover procedures for continuous operation is
clearly better.
ZERO DOWNTIME INSTALLATION. Customers have learned to dread new IT
implementation projects, but moving to our Private Cloud Service is
pain free. We install and fully test each new Private Cloud Service
while the customer is still running on their historic system. When
testing is complete, employee production is seamlessly cutover with
each employee fully functioning on familiar desktops and application
screens.
-24-
BYOD ("BRING YOUR OWN DEVICE") MOBILE SOLUTION. Many solutions restrict
access to specific devices that have special software installed on
them. Our Private Cloud Service can be accessed at anytime from
anywhere on the device of the user's choice ... including computers,
tablets, and smart phones.
SINGLE-PROVIDER SOLUTION. We deliver all applications chosen by each
customer for their operations whether the applications are cloud ready
or not. We have the capability to provide applications to customers in
such industry segments as Legal, Accounting and Auditing, Healthcare,
Non-Profit, Manufacturing and Retail.
We have focused on standardization for our Private Cloud Services architecture.
Every customer's Private Cloud Services solution is architecturally standard,
using identical connection paths, application servers, database servers,
security systems, etc. Management believes that it is our capability to deliver
ALL of that customer's applications, including applications that are not "cloud
ready", from our standard architecture, that sets us apart from our competitors.
Our standardization has multiple benefits including:
o Enabling installation automation,
o Enabling smooth and easy customer cutovers,
o Enabling application update automation,
o Reducing support calls, and
o Speeding up user issue resolution.
Standardization means that we can rapidly grow our customer base more easily
because we scale by adding equipment to our data centers more than by adding
staff to our operations.
THE MARKET
"Cloud computing" means that IT applications reside and operate in a data center
instead of in user PCs or on-site servers. Our customers access and control
applications via a network connection ... usually the Internet. Cloud computing
eliminates on premise: (i) server purchasing, (ii) updates, (iii) maintenance,
and (iv) repair, while enabling: a "pay for what you use" model. Done correctly,
Cloud computing vendors can also provide improved operational flexibility, lower
downtime cost, and simplification of management.
Another trend enabled by cloud computing is Bring Your Own Device (BYOD) which
offers employees and corporations countless business benefits from increased
efficiency to cost containment for an increasingly mobile workforce. Over the
last few years, buyers have made the move to tablets and smart phones leaving
business application software vendors working to make their applications operate
on these devices.
Management believes that the convergence of cloud computing and BYOD mobile
technologies has benefits that continually transform how business organizations
access, share, protect, enhance and manage their system of applications and
data.
Enterprise size companies have been moving to cloud computing for several years.
They have the financial ability to deploy the wide range of specialists
(virtualization, security, app. development, networking, etc.) needed to
implement a cloud computing solution for their internal needs. SMB organizations
have only recently begun to follow this trend.
Adoption of cloud computing solutions by large companies has been accelerating
for several years, but these solutions are also appealing to the SMB
organizations for many of the same reasons:
- Significant reductions in overall IT expenses;
- "Pay for what you use" monthly fees;
- No capital equipment expenses;
- Painless scaling up or down;
- Reduced dependence on IT staff/services;
- Faster deployments;
-25-
- Automatic software updates;
- Support mobile/remote employees and offices;
- Increased and flexible security;
- Improved disaster recovery; and
- Improved regulatory compliance.
Large companies have the financial ability to deploy the wide range of
specialists needed to implement a custom cloud solution for their internal needs
but SMB organizations typically cannot afford such an effort. Our services give
SMB organizations the ability to get the cloud computing and BYOD benefits
normally available only to large companies.
In a December 2013 presentation, International Data Corporation's Frank Gens
says businesses prefer complete solutions from a single cloud provider:
o 63% expect to have a single major cloud provider;
o 67% expect purchase a wide variety of cloud services from a single
vendor; and
o 84% want an established relationship with a vendor to trust them as a
cloud services provider.
As it has become clear that SMB buyers will move to cloud computing and
eliminate in-house solutions, hundreds if not thousands of IT vendors have
jumped into the market. Many of these offerings are just tools, such as virtual
desktop software or selected application hosting. These offerings are not
complete solutions but SMB buyers find it difficult to sort out the differences
between these offerings that use many of the same technical terms. Thus, the
market for our offering is highly competitive, rapidly evolving, fragmented,
confused, and subject to changing technology, and frequent introductions of new
products and services.
We believe that we have the opportunity to become a market leader in the SMB
market because of our unique ability to deliver and support a complete BYOD
cloud solution.
THE COMPETITION
The details that set us apart from competitors are described in prior sections
of this document. In summary, our differentiation is: 100% of the clients' exact
applications, user interfaces, configurations and data are swept into and
delivered from highly redundant data centers.
We have three types of competitors in the SMB Market:
IN-HOUSE IT DEPARTMENTS. SMB organizations are starting to move away
from In-house SMB IT departments. The demand for more and more specific
skill sets make this approach increasingly expensive for SMB companies.
Outsourcing IT solves this problem.
ON-PREMISE VENDORS. Our primary competitors are the outsourcing vendors
of last generation, on-site PC/server solutions. These include
Value-Added Resellers (VARs) and/or Managed Services Providers (MSPs).
These vendors make money by selling hardware; integrating, updating,
maintaining, and repairing in-house systems; and providing user
support.
PARTIAL OR HYBRID SOLUTION CLOUD COMPUTING VENDORS. This arena consists
of service providers that combine on-site and cloud computing solutions
(hybrid solutions). Often one vendor does not provide a complete hybrid
solution. For example, Software-as-a-Service (SaaS) vendors just
provide their own cloud application leaving it to other vendors provide
the other cloud or on-site applications needed to have a complete IT
solution.
We have a competitive advantage over these indirect competitors. We provide a
complete, single vendor cloud computing solution without regard for the number
and cloud-readiness of the customer's current production applications. We are
application agnostic.
-26-
THE SALES STRATEGY
Key elements of our sales strategy include:
BUILDING NATIONWIDE DISTRIBUTION. In March 2014, we launched our Select 100
national sales program. Select 100 is focused on a close relationship with 100
carefully selected national Partners who have strong sales and customer support
organizations. Partners are typically regional leaders in outsourcing IT
services who are committed to entering the cloud computing market. Partners are
selected based on the quality of their plan to actively sell to new customers in
addition to migrating their existing customer base from on-premises solutions to
our Private Cloud Service.
As of the date of this filing we have entered into relationships with 8 Partners
located in Chicago, Portland, Fargo, Milwaukee and Minneapolis.
ACCELERATING OUR GROWTH. We are focused on growing our revenue and market share,
both regionally and nationally. With highly redundant delivery operations, good
customer benefits and pricing, we plan to spend heavily on sales and marketing
programs that enhance the effectiveness of the Select 100 Partnering Program to
deliver new customers for the next few quarters.
AUTOMATING OUR INSTALLATION AND OPERATIONAL PROCESSES. Key to growth is
efficient customer installation. Over the last 3 quarters, our research and
development activities have successfully improved our installation process and
we expect to continue this effort. Our installation efficiency per user is
higher for larger sized customers so as we expand the Select 100 Partnering
Program, we are seeking Partners with existing customers that are larger.
STRENGTHENING OUR PRIVATE CLOUD SERVICES. We have designed our Private Cloud
Service to easily accommodate new features and functionality. We intend to
continue to extend our core solutions with new features, functions, increased
security and increased customer up-time. Through development and partnerships,
we expect to continue to invest in solution enhancement. We also expect to
continue to replace our leased data center application servers, storage,
database, and security equipment with the latest equipment available on a
periodic basis.
TITLE TO PROPERTIES.
We do not own any Real Estate.
BACKLOG OF ORDERS.
We have a backlog of orders in the installation process. As of October 28, 2014,
we had 4 new customers in the installation process.
GOVERNMENT CONTRACTS.
We have no government contracts.
COMPANY SPONSORED RESEARCH AND DEVELOPMENT.
We are continuously doing in-house research and development on virtualization,
installation, support and other tools that enhance our Private Cloud Services.
We do not sponsor R & D at other organizations.
NUMBER OF PERSONS EMPLOYED.
As of October 28, 2014, we had 22 full-time employees. Our CFO works 5 days per
week and our directors work on an as needed basis. Mr. Ingwersen, a director,
works up to 60 hours per week and receives compensation for his time and
efforts.
-27-
PLAN OF OPERATIONS
We typically update our budget on a quarterly basis to adjust for the current
market conditions. Any or all of the above budget categories may change. None of
the line items are to be considered fixed or unchangeable. We may need
substantial additional capital to support its growth plans.
During the year ended December 31, 2012, we issued $475,000 in convertible
promissory notes. During the year ended December 31, 2013, we issued an
additional $460,000 in convertible promissory notes to investors. During the
year ended December 31, 2013, we issued 788,724 shares of common stock upon the
conversion of such convertible promissory notes.
The convertible promissory notes carried interest at 10% simple interest and
convert to shares of our common stock at $1.25 per share. The notes converted to
common stock on March 29, 2013, including accrued interest charged for the
period from the issuance of the notes through the conversion date, amounting to
$50,905. The total number of shares of common stock issued amounted to 788,724
upon conversion of the notes. We are registering 598,926 of the shares issued as
a part of this filing, of which 264,800 shares were received prior to December
31 2013.
Starting May 2013, we commenced a private offering of our common stock. Through
December 2013, we received commitments for the purchase of 416,800 shares of our
restricted common stock at a price of $2.50 per share and the offering was
completed with $1,042,000 in proceeds to us. We are registering all of the
416,800 shares issued as a part of this filing.
We cannot give any assurances that we will be able to raise additional funds.
Further, we will need to raise additional funds to support our proposed growth
budget. We cannot make any assurances that we will be able to raise such funds
or whether we would be able to raise such funds with terms that are favorable to
us.
We will NOT receive any proceeds from sales of shares by the selling
shareholders being registered as a part of this filing.
Our plan of operations is as follows:
MILESTONES
-------------------- ----------------------------------------------------------
4th Quarter 2014 Filing of Registration Statement
-------------------- ----------------------------------------------------------
1st Quarter 2015 15c211 FINRA Filing pending SEC approval of the
Registration Statement
-------------------- ----------------------------------------------------------
Raise additional capital through offering of common stock
to support sales growth strategy
-------------------- ----------------------------------------------------------
2nd Quarter 2015 Addition of New Data Centers to Operations.
-------------------- ----------------------------------------------------------
3rd Quarter 2015 Expansion of National Sales System
-------------------- ----------------------------------------------------------
We will need substantial additional capital to support our proposed growth
strategy and to continue operations. We have NO committed source for any funds
as of the date of this filing. No representation is made that any funds will be
available when needed. In the event funds cannot be raised when needed, we may
not be able to carry out our business plan, may never achieve sales growth, and
could fail in business as a result of these uncertainties.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
-28-
B. DESCRIPTION OF PROPERTY
--------------------------
DESCRIPTION OF PROPERTIES/ASSETS
------- ------------------------- ------------------------------
(a) Real Estate. None.
------- ------------------------- ------------------------------
(b) Title to properties. None.
------- ------------------------- ------------------------------
(c) Patents. None.
------- ------------------------- ------------------------------
C. LEGAL PROCEEDINGS
--------------------
We have no past, pending or threatened litigation that may have a material
effect upon our business, financial condition, or operations. In addition, there
are no proceedings in which any of our directors, officers or affiliates, or any
registered or beneficial stockholder is an adverse party or has a material
interest adverse to our interest.
D. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
-----------------------------------------------------------
MARKET INFORMATION
Currently there is no public trading market for our stock, and we have not
applied to have the common stock quoted for trading in any venue. We intend to
apply to have the common stock quoted on the OTC Bulletin Board immediately
after this registration statement becomes effective. No trading symbol has yet
been assigned.
RULES GOVERNING LOW-PRICE STOCKS THAT MAY AFFECT OUR SHAREHOLDERS' ABILITY TO
RESELL SHARES OF OUR COMMON STOCK
--------------------------------------------------------------------------------
Our stock currently is not traded on any stock exchange or quoted on any stock
quotation system. After filing of this registration statement, we intend to
solicit a broker to apply for quotation of common stock on the FINRA's OTC/BB.
Quotations on the OTC/BB reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not reflect actual transactions. Our common stock
will be subject to certain rules adopted by the SEC that regulate broker-dealer
practices in connection with transactions in "penny stocks." Penny stocks
generally are securities with a price of less than $5.00, other than securities
registered on certain national exchanges or quoted on the NASDAQ system,
provided that the exchange or system provides current price and volume
information with respect to transaction in such securities. The additional sales
practice and disclosure requirements imposed upon broker-dealers are and may
discourage broker-dealers from effecting transactions in our shares which could
severely limit the market liquidity of the shares and impede the sale of shares
in the secondary market.
The penny stock rules require broker-dealers, prior to a transaction in a penny
stock not otherwise exempt from the rules, to make a special suitability
determination for the purchaser to receive the purchaser's written consent to
the transaction prior to sale, to deliver standardized risk disclosure documents
prepared by the SEC that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer must also
provide the customer with current bid and offer quotations for the penny stock.
In addition, the penny stock regulations require the broker-dealer to deliver,
prior to any transaction involving a penny stock, a disclosure schedule prepared
by the SEC relating to the penny stock market, unless the broker-dealer or the
transaction is otherwise exempt. A broker-dealer is also required to disclose
commissions payable to the broker-dealer and the registered representative and
current quotations for the securities. Finally, a broker-dealer is required to
send monthly statements disclosing recent price information with respect to the
penny stock held in a customer's account and information with respect to the
limited market in penny stocks.
-29-
HOLDERS
As of the filing of this prospectus, we have 65 shareholders of record of our
common stock. Sales under Rule 144 are also subject to manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 144(k), a person who has not been one of our affiliates at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least 6 months, is entitled to sell
shares without complying with the manner of sale, volume limitation or notice
provisions of Rule 144.
As of the date of this prospectus, our selling shareholders hold 1,588,603
Shares, all of which may be sold pursuant to this Registration Statement.
DIVIDENDS
As of the filing of this prospectus, we have not paid any dividends to
shareholders. There are no restrictions which would limit our ability to pay
dividends on common equity or that are likely to do so in the future. The
Delaware General Corporation Laws, however, do prohibit us from declaring
dividends where, after giving effect to the distribution of the dividend; we
would not be able to pay our debts as they become due in the usual course of
business; or our total assets would be less than the sum of the total
liabilities plus the amount that would be needed to satisfy the rights of
shareholders who have preferential rights superior to those receiving the
distribution.
E. FINANCIAL STATEMENTS
-----------------------
The following is a complete list of the financial statements filed as a part of
this Report.
o Unaudited consolidated financial statements of IVDesk Holdings, Inc.
and subsidiary for the six months ended June 30, 2014 and June 30,
2013
o Audited consolidated financial statements of IVDesk Holdings, Inc. and
subsidiary for the years ended December 31, 2013 and December 31, 2012
-30-
IVDESK HOLDINGS, INC.
AND
SUBSIDIARY
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 2014 AND 2013
-31-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (AUDITED)
JUNE 30, 2014 DECEMBER 31, 2013
--------------------- --------------------------
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 317,660 $ 423,600
ACCOUNTS RECEIVABLE NET 238,769 199,753
PREPAID EXPENSES 55,045 24,276
--------------------- --------------------------
TOTAL CURRENT ASSETS 611,474 647,629
PROPRETY AND EQUIPMENT, NET 594,851 519,324
DEPOSITS/OTHER 22,865 18,000
--------------------- --------------------------
TOTAL ASSETS 1,229,190 1,184,953
===================== ==========================
LIABILITIES
CURRENT LIABILITIES
ACCOUNTS PAYABLE 131,243 89,616
DEFERRED REVENUE 183,752 142,939
ACCRUED EXPENSES 205,873 224,458
BANK LOAN - CURRENT 39,723 38,351
CAPITAL LEASES - CURRENT 196,427 157,541
LEASEHOLD IMPROVEMENT LOAN - CURRENT 13,576 13,100
--------------------- --------------------------
TOTAL CURRENT LIABILITIES 770,594 666,005
LONG TERM LIABILITIES
BANK LOAN - LONG TERM 84,457 104,672
CAPITAL LEASES - LONG TERM 201,704 131,950
LEASEHOLD IMPROVEMENT LOAN - LONG TERM 39,835 46,744
INVESTOR NOTE - LONG TERM 441,000 441,000
--------------------- --------------------------
TOTAL LONG TERM LIABILITIES 766,996 724,366
--------------------- --------------------------
TOTAL LIABILITIES 1,537,590 1,390,371
STOCKHOLDERS' DEFICIT
Preferred Stock; $0.0001 par value; 5,000,000 shares authorized - -
No Shares Issued as of June 30, 2014 and December 31, 2013
Common Stock; $0.0001 par value; 100,000,000 shares authorized; 622 605
6,222,001 and 6,053,524 Shares Issued and Outstanding
as of June 30, 2014 and December 31, 2013, respectively
ADDITIONAL PAID-IN CAPITAL 2,922,844 2,154,656
ACCUMULATED DEFICIT (3,231,866) (2,360,679)
--------------------- --------------------------
TOTAL STOCKHOLDERS' DEFICIT (308,400) (205,418)
--------------------- --------------------------
TOTAL LIABILITIES & EQUITY (DEFICIT) $ 1,229,190 $ 1,184,953
===================== ==========================
See the accompanying notes to these consolidated financial statements.
-32-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE SIX MONTHS
ENDED JUNE 30
----------------------------------------------------
2014 2013
Revenue $ 1,187,840 $ 914,397
COST OF SALES 398,611 402,185
------------------------ ------------------------
GROSS PROFIT 789,229 512,212
OPERATING EXPENSES
GENERAL AND ADMINISTRATIVE 1,074,436 999,247
SALES AND MARKETING 423,840 295,371
RESEARCH AND DEVELOPMENT 139,050 136,452
------------------------ ------------------------
OPERATING LOSS (848,097) (918,858)
COMMISSIONS AND INTEREST INCOME 3,690 7,438
INTEREST EXPENSE (26,780) (63,485)
------------------------ ------------------------
NET OTHER (EXPENSE) (23,090) (56,047)
------------------------ ------------------------
INCOME TAXES - -
----------------------------------------------------
NET LOSS (871,187) (974,905)
======================== ========================
NET LOSS PER SHARE
BASIC AND DILUTED $ (0.14) $ (0.18)
======================== ========================
BASIC AND DILUTED WEIGHTED-AVERAGE OUTSTANDING SHARES 6,170,996 5,405,256
======================== ========================
See the accompanying notes to these consolidated financial statements.
-33-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2014
COMMON STOCK ADDITIONAL
----------------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
--------------- ---------------- ---------------- ----------------- --------------
Balance at December 31, 2013 6,053,524 $ 605 $ 2,154,656 $ (2,360,679) $ (205,418)
Share-based Compensation 324,063 324,063
Warrants Issued for services 57,878 57,878
Warrant Exercise 16,477 2 6,260 6,262
Common shares issued for Cash 152,000 15 379,987 380,002
Net Loss (871,187) (871,187)
--------------- ---------------- ---------------- ----------------- --------------
Balance at June 30, 2014 6,222,001 $ 622 $ 2,922,844 $ (3,231,866) $ (308,400)
=============== ================ ================ ================= ==============
See the accompanying notes to these consolidated financial statements.
-34-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE SIX MONTHS
ENDED JUNE 30
2014 2013
------------------------- -------------------------
OPERATING ACTIVITIES
Net Loss $ (871,187) $ (974,905)
Adjustments to reconcile Net Loss to net cash (used in) operations:
Depreciation and Amortization 140,213 178,463
Provision for Bad Debt (10,531) 35,887
Share-based Compensation 324,063 241,008
Warrants issued for services 57,878 15,218
Charges in Operating Assets and Liabilities
Accounts Receivable (28,485) (35,439)
Prepaid Expenses and Deposits/Other (35,633) 19,976
Accounts Payable 41,627 84,696
Deferred Revenue 40,813 (879)
Accrued Expenses (18,584) 4,917
------------------------- -------------------------
Net cash used in Operating Activities $ (359,826) $ (431,058)
INVESTING ACTIVITIES
Purchased Property and Equipment (6,608) (7,625)
------------------------- -------------------------
Net cash used in Investing Activities (6,608) (7,625)
FINANCING ACTIVITIES
Repayments of Bank Borrowings (18,844) (17,561)
Proceeds from Investor Note Payable - 50,000
Payments on Capital Leases (100,490) (154,739)
Payments on Tenant Improvement Loan (6,434) (6,434)
Conversion of promissory notes to stock - 510,905
Proceeds from Equity Investment 386,262 -
------------------------- -------------------------
Net cash provided by Financing Activities 260,494 382,171
------------------------- -------------------------
Net change in cash and cash equivalents (105,940) (56,512)
Cash and cash equivalents at beginning of period 423,600 156,225
------------------------- -------------------------
Cash and cash equivalents at end of period $ 317,660 $ 99,713
========================= =========================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Property and Equipment Acquired Under Capital Leases $ 209,132 $ 265,669
------------------------- -------------------------
Cash Paid for Interest $ 25,737 $ 25,737
------------------------- -------------------------
See the accompanying notes to these consolidated financial statements.
-35-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
(UNAUDITED)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION:
------------------------------------------------
IVDesk Holdings, Inc. ("IVDesk Holdings"), through its wholly owned subsidiary,
IVDesk Minnesota, Inc. ("IVDesk Minnesota"), (collectively "the Company") is
focused on offering complete private cloud solutions to the 15-150 employee
segment of the small and medium sized business (SMB) market ("Mid-Market").
The Company has the ability to move its customers' entire Information Technology
("IT") systems (all software and all data) out of the customers' offices and
into the IVDesk product, a highly redundant Tier III data center, and delivers
IT as a service to the customers via a private cloud solution. The Company
implements a custom-fitted solution for each individual customer that includes
maintenance, upgrades, support, data backup, disaster recovery solution, remote
access, and additional benefits.
IVDesk Holdings was incorporated on March 6, 2012, in the state of Delaware and
on March 19, 2012 issued 1 million shares of its common stock to its Founders at
their par value of $100. On March 6, 2012, IVDesk Minnesota was incorporated in
the state of Minnesota and is an operating subsidiary of IVDesk Holdings. IVDesk
Holdings owns 1,000 shares of IVDesk Minnesota and is the sole owner. On
September 14, 2012, the Company entered into an Asset Purchase Agreement ("the
Agreement") with Focused Solutions Consulting, Inc. ("FSC"). FSC was a
Minneapolis, Minnesota based company providing online computing services
including its cloud services businesses known as the Internet Virtual Desktop or
"IVDesk" since 2001. The Agreement provided for the Company to acquire FSC in
exchange for 4,000,000 newly issued shares of the Company's common stock. Prior
to the Agreement, the Company had nominal net assets and operations.
The acquisition has been accounted for as a reverse acquisition and
recapitalization using accounting principles applicable to reverse acquisitions.
Under reverse acquisition accounting, the FSC business, the legal acquiree, was
treated as the accounting acquirer of the Company. Consequently FSC's financial
results are reported for all periods presented, while the Company's financial
results have only been consolidated with those of the existing FSC business from
September 14, 2012 onwards. All outstanding shares have been restated to reflect
the effect of the acquisition.
The consolidated financial statements include the results of the FSC business
for all periods presented and for the Company from September 14, 2012 onwards.
All intercompany balances and transactions have been eliminated in
consolidation.
The Company has prepared the condensed consolidated financial statements
included herein without audit, pursuant to the rules and regulations of the
United States ("U.S.") Securities and Exchange Commission ("SEC"). The condensed
consolidated financial statements include the Company's wholly owned subsidiary.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with U.S. generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures are adequate to
ensure the information presented is not misleading. These unaudited condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and the notes thereto included within this
S-1. The Company believes that all necessary adjustments, which consist only of
normal recurring items, have been included in the accompanying condensed
consolidated financial statements to present fairly the results of the interim
periods. The results of operations for the interim periods presented are not
necessarily indicative of the operating results to be expected for any
subsequent interim period or for the year ending December 31, 2014.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
----------------------------------------------
USE OF ESTIMATES -- The financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
requiring management to make estimates and assumptions that affect the reported
amounts of assets and liabilities as well as disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates.
-36-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
(UNAUDITED)
SEGMENTS - The Company's chief operating decision maker is its Chief Executive
Officer ("CEO"), who reviews financial information presented on a consolidated
basis. Accordingly, the Company has determined that it has a single reportable
segment, specifically, the provision of private cloud-based business services.
REVENUE RECOGNITION -- The Company generates revenue from: (i) service fees
related to shared hosting services, (ii) service fees related to dedicated
hosting services, and (iii) professional services
SHARED HOSTING SERVICES
IVDesk provides shared hosting services for clients within its computer
infrastructure. All clients share and run systems across multiple enterprise
level computer servers, SANs, switches, and other network devices. All customers
share different pieces based on their specific needs. These services such as
file sharing are provided to all IVDesk service users. 24/7 support is included
in the subscription fee.
DEDICATED HOSTING SERVICES
Hosting Services revenue is derived from providing specific server resources for
each customer within this categorization. These services are dedicated to the
customer and may be comprised of specific hardware, virtual servers, back up
servers, etc. IVDesk provides support services to these users as well including
system updates, monitoring, and maintenance. 24/7 support is included in the
subscription fee.
PROFESSIONAL SERVICES
Periodically IVDesk is requested to perform specific service projects for
clients. These consulting projects include software package selection, business
process optimization, software design, systems analysis, and other professional
services. These services are typically provided on a time-and-materials basis.
The Company typically enters into three-year contracts, with automatic renewals,
with its customers for the IVDesk service. Fees are collected monthly. The
subscription agreements typically provide service level commitments of specified
uptime per period, excluding scheduled maintenance. The Company will typically
credit qualifying customers' one-day of revenue for a one-hour disruption of
service, and a maximum of two-days of revenue for a two-hour disruption of
service. In light of the Company's historical experience with meeting its
service level commitments, and that credits are provided customers during the
same month of service, the Company does not currently have any obligations
related to these commitments. Amounts that have been invoiced are recorded in
accounts receivable and in deferred revenue or revenue, depending on whether the
revenue recognition criteria have been met.
The Company commences revenue recognition when all of the following conditions
are met:
o There is persuasive evidence of an arrangement;
o The service has been provided to the customer;
o The collection of the fees is reasonably assured; and
o The amount of fees to be paid by the customer is fixed or
determinable.
In most instances, revenue from new customer acquisitions is generated under
sales agreements with multiple elements, comprised of subscription and support
fees from customers accessing its cloud-based application suite and professional
services associated with consultation services. The Company evaluates each
element in a multiple-element arrangement to determine whether it represents a
separate unit of accounting. An element constitutes a separate unit of
-37-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
(UNAUDITED)
accounting when the delivered item has standalone value and delivery of the
undelivered element is probable and within the Company's control. Subscription
and support have standalone value because the Company routinely sells them
separately. Professional services have standalone value because the Company
sells professional services separately and there are several third party vendors
that routinely provide similar professional services to its customers on a
standalone basis.
The Company allocates revenue to each element in an arrangement based on a
selling price hierarchy. The selling price for a deliverable is based on its
vendor-specific objective evidence ("VSOE"), if available, third-party evidence
("TPE"), if VSOE is not available, or estimated selling price ("ESP"), if
neither VSOE nor TPE is available. The consideration allocated to subscription
and support is recognized as revenue over the contract period commencing when
the subscription service is made available to the customer. The consideration
allocated to professional services is recognized as revenue using the
proportional performance method.
The total arrangement fee for a multiple element arrangement is allocated based
on the relative ESP of each element. However, since the professional services
are generally completed prior to completion of delivery of subscription and
support services, the revenue recognized for professional services in a given
reporting period does not include fees subject to delivery of subscription and
support services. This results in the recognition of revenue for professional
services that is generally no greater than the contractual fees for those
professional services.
For single element sales agreements, subscription and support revenue is
recognized ratably over the contract term beginning on the provisioning date of
the contract. The Company recognizes professional services revenue using the
proportional performance method for single element arrangements.
Sales and other taxes collected from customers to be remitted to government
authorities are excluded from revenues.
DEFERRED REVENUE - Deferred revenue consists of billings or payments received in
advance of revenue recognition and are recognized as the revenue recognition
criteria are met. The Company generally invoices its customers monthly one month
prior to providing its hosting service.
RESEARCH AND DEVELOPMENT EXPENSE - Research and development expenses consist
primarily of development personnel and non-employee contractor costs related to
the development of new products and services, enhancement of existing products
and services, quality assurance and testing. "FASB ASC 985-20-25," ACCOUNTING
FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED,
requires certain software development costs to be capitalized upon the
establishment of technological feasibility.
The establishment of technological feasibility and the ongoing assessment of the
recoverability of these costs require considerable judgment by management with
respect to certain external factors such as anticipated future revenue,
estimated economic life, and changes in software and hardware technologies.
Software development costs incurred beyond the establishment of technological
feasibility have not been significant. Therefore, no software development costs
were capitalized during the year ended December 31, 2013 and the six months
ended June 30, 2014. Software development costs have been recorded as research
and development expense. The Company incurred research and development expenses
of $275,039 in 2013, and $139,050 for the six months ended June 30, 2014. The
Company incurred research and development expenses of $136,452 for the six
months ended June 30, 2013. Expenditures increased significantly in 2013 to
upgrade the capacity of its operations to support increased demand and to
develop new processes that speed the time required to transition new customers
into IVDesk's cloud infrastructure.
INCOME TAXES - The Company accounts for income taxes under the asset and
liability approach. Deferred income taxes are recognized in the financial
statements for the tax consequences in future years of differences between the
tax basis of assets and liabilities and their financial reporting amounts based
on enacted tax laws and statutory tax rates. Temporary differences arise from
net operating losses, reserves for uncollectible accounts receivables and
inventory, differences in depreciation methods, and accrued expenses. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
-38-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
(UNAUDITED)
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE - Basic and diluted loss per
common share for all periods presented is computed using the weighted average
number of common shares outstanding. Basic weighted average shares outstanding
include only outstanding common shares. Diluted net loss per common share is
computed by dividing net loss by the weighted average common and potential
dilutive common shares outstanding computed in accordance with the treasury
stock method. Shares reserved for outstanding stock warrants and options
totaling 1,448,532 and 1,337,771 for June 30, 2014 and 2013, respectively, were
excluded from the computation of net loss per share as their effect was
antidilutive due to the Company's net loss in each of those years.
CASH AND CASH EQUIVALENTS -- The Company considers cash and all highly liquid
investments with original maturities of three months or less to be cash and cash
equivalents. Cash and cash equivalents are recorded at cost, which approximates
fair value. The balance is insured by the Federal Deposit Insurance Corporation
up to $250,000.
FINANCIAL INSTRUMENTS -- "FASB ASC 820-10," FAIR VALUE MEASUREMENTS AND
DISCLOSURES, requires disclosure of the estimated fair value of an entity's
financial instruments. Such disclosures, which pertain to the Company's
financial instruments, do not purport to represent the aggregate net fair value
of the Company. The carrying value of cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities approximates fair value
because of the short maturity of those instruments. The fair value of the
various loans and capital lease obligations approximates carrying value based on
the interest rate in the loans and leases compared to current market interest
rates.
ACCOUNTS RECEIVABLE -- The Company reviews accounts receivable for
collectability and establishes an allowance for doubtful accounts and records
bad debt expense when deemed necessary. Significant management judgment is
required to determine the allowance for doubtful accounts. Accounts receivable
are charged off against the allowance when collectability is determined to be
permanently impaired. As of June 30, 2014 and December 31, 2013, the Company
reserved $65,500 and $76,031, respectively.
CONCENTRATION OF RISKS - Credit risk arising from accounts receivable is
mitigated due to the large number of customers comprising the Company's customer
base and their dispersion across various industries. At December 31, 2013, five
customers represented more than 10% of the net accounts receivable balance. One
customer individually exceeded 10% of the Company's revenue for the six months
ended June 30, 2013. For the six months ended June 30, 2014, no customers
individually exceeded 10% of the Company's revenue.
LEASES - The Company leases its office and computing equipment under
non-cancelable lease agreements. The terms of its office lease agreement
provides for rental payments on a graduated basis. The Company recognizes rent
expense on a straight-line basis over the lease period and accrues for rent
expense incurred but not paid.
The Company also received an allowance for leasehold improvements. This
allowance is a lease incentive, which is recognized as a liability and is
amortized on a straight-line basis over the term of the lease as a component of
minimum rental expense. The leasehold improvements are included in property,
plant and equipment and are amortized over the shorter of the estimated useful
life of the improvements or the lease term, or five years.
PROPERTY AND EQUIPMENT -- Property and equipment are recorded at cost.
Depreciation is computed using the straight-line method based on estimated
useful lives ranging from three to five years, with Furniture and Fixtures at
five years, Computer Equipment and Software at three years. Repair and
maintenance expense is expensed as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS -- The Company reviews the carrying value of all
long-lived assets, including property and equipment with definite lives, for
impairment in accordance with "FASB ASC 360-10-05-4," ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. Under FASB ASC 360-10-05-4,
impairment losses are recorded whenever events or changes in circumstances
indicate the carrying value of an asset may not be recoverable.
-39-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
(UNAUDITED)
If the impairment tests indicate that the carrying value of the asset is greater
than the expected undiscounted cash flows to be generated by such asset, an
impairment loss would be recognized. The impairment loss is determined by the
amount by which the carrying value of such asset exceeds its fair value. We
generally measure fair value by considering sale prices for similar assets or by
discounting estimated future cash flows from such assets using an appropriate
discount rate. Assets to be disposed of are carried at the lower of their
carrying value or fair value less costs to sell.
Considerable management judgment is necessary to estimate the fair value of
assets, and accordingly, actual results could vary significantly from such
estimates. There have been no impairment losses for long-lived assets recorded
in 2014 or 2013.
STOCK-BASED COMPENSATION - The Company accounts for stock-based compensation in
accordance with FASB ASC 718-10 which requires the measurements and recognition
of compensation expense for all stock-based payments including warrants, stock
options, restricted stock grants and stock bonuses based on estimated fair
value. For purposes of determining estimated fair value under FASB ASC
718-10-30, the Company computes the estimated fair values of stock options using
the Black-Scholes option-pricing model. The fair value of restricted stock and
stock award grants are determined based on the number of shares granted and the
closing price of the Company's common stock on the date of grant. Compensation
expense for all share based payment awards is recognized using the straight-line
amortization method over the vesting period. The Company recognized stock-based
compensation expense of $324,063 and $241,008 respectively for the six months
ended June 30, 2014 and June 30, 2013.
The Company accounts for equity instruments issued for services and goods to
non-employees under "FASB ASC 505-50-1" ACCOUNTING FOR EQUITY INSTRUMENTS THAT
ARE ISSUED TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH
SELLING, GOODS OR SERVICES and "FASB ASC 505-50-25" ACCOUNTING RECOGNITION FOR
CERTAIN TRANSACTIONS INVOLVING EQUITY INSTRUMENTS GRANTED TO OTHER THAN
EMPLOYEES. Generally, the equity instruments issued for services and goods are
shares of the Company's common stock, or warrants or options to purchase shares
of the Company's common stock. These shares, warrants or options are either
fully vested and exercisable at the date of grant or vest over a certain period
during which services are provided. The Company expenses the fair market value
of these securities over the period in which the related services are received.
During the six month period ended June 30, 2014 and 2013, the Company recognized
$57,878 and $15,218, respectively, of stock-based compensation expense related
to the fair market value of stock options and warrants that were issued to
outside vendors for professional services.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - In May 2014, the Financial
Accounting Standards Board (FASB) issued guidance creating Accounting Standards
Codification ("ASC") Section 606, "Revenue from Contracts with Customers". The
new section will replace Section 605, "Revenue Recognition" and creates
modifications to various other revenue accounting standards for specialized
transactions and industries. The section is intended to conform revenue
accounting principles with a concurrently issued International Financial
Reporting Standards with previously differing treatment between United States
practice and those of much of the rest of the world, as well as, to enhance
disclosures related to disaggregated revenue information. The updated guidance
is effective for annual reporting periods beginning on or after December 15,
2016, and interim periods within those annual periods. The Company will adopt
the new provisions of this accounting standard at the beginning of fiscal year
2017, given that early adoption is not an option. The Company will further study
the implications of this statement in order to evaluate the expected impact on
the consolidated financial statements.
3. LIQUIDITY
------------
During the year ended December 31, 2013, and the period ended June 30, 2014, the
Company incurred losses of $1,582,045 and $871,187, and a stockholders' deficit
of $3,231,866 as of June 30, 2014.
The Company's ability to continue as a going concern is dependent upon the
Company generating profitable operations in the future and/or obtaining the
-40-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
(UNAUDITED)
necessary financing to meet its obligations and repay its liabilities arising
from normal business operations when they come due. There is no assurance that
this series of events will be satisfactorily completed.
The Company believes it will have the ability to operate through at least March
of 2015. The Company has adjusted and will continue to align expenses to match
revenues. The Company also continues to pursue new customers and raised $380,000
of equity during the first six months of 2014.
4. PROPERTY AND EQUIPMENT:
--------------------------
Property and equipment consisted of the following:
JUNE 30, DECEMBER 31,
2014 2013
------------------ ----------------
Leased computer equipment $ 1,075,145 $ 867,944
Purchased property and equipment 72,332 63,794
Software 10,465 10,465
Leasehold improvements 243,297 243,297
------------------ ----------------
Total Property and Equipment 1,401,239 1,185,500
Less accumulated depreciation (806,388) (666,176)
------------------ ----------------
Property and equipment, net $ 594,851 $ 519,324
================== ================
Depreciation and amortization expense for the six months ended June 30, 2014 and
June 30, 2013 was $140,213 and $178,463 respectively.
5. OTHER STATEMENT FINANCIAL INFORMATION
----------------------------------------
ACCRUED EXPENSES: Accrued expenses include:
JUNE 30, DECEMBER 31,
2014 2013
----------- ------------
Sales tax $ 6,707 $ 12,642
Deferred rent 199,166 211,816
----------- ------------
Total $ 205,873 $ 224,458
=========== ============
6. RELATED PARTIES:
--------------------
On September 14, 2012, the Company entered into a corporate development services
agreement with 5X Partners to provide research and development planning, raise
investor financing, registration of investor stock, and the initiation of public
trading. A member of 5X partners, Larry Ingwersen, serves on the board of
directors and is an officer of the Company. 5X Partners is currently paid
$27,500 per month for its services, and for the six months ended June 30, 2014
and June 30, 2103 5X Partners billed the Company $155,000 and $165,000,
respectively.
-41-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
(UNAUDITED)
7. LEASE COMMITMENTS:
---------------------
The Company rents office space for its corporate needs. The Company entered into
a 62-month lease agreement in December 2012 to lease 16,494 square feet, which
terminates February 28, 2018. The Company incurred expenses of $95,885 and
$96,774 for their corporate offices for the six months ended June 30, 2014 and
June 30, 2013, respectively, which includes rent, operating expenses excluding
utility expenses, and real estate taxes. In addition to the minimum annual rent
payments, the Company is obligated to pay its share of utility expenses, which
totaled $11,634 and $6,986 for the six months ended June 30, 2014 and June 30
2013, respectively.
The Facility Lease agreement allowed the Company up to $170,000 in tenant
improvements, with the option to borrow up to $100,000 for additional tenant
improvements. The Company made a total of $243,297 in tenant improvements as of
June 30 2014.
The Company leases its office and computing equipment under non-cancelable lease
agreements. Most Leases are for 36 months with a bargain purchase option. During
the six months ended June 30, 2014 the Company entered into three leases
totaling $207,201, with lease terms of 36 months, and interest rates between
11.6% and 5.3%. During the year ended December 31, 2013, the Company entered
into three leases totaling $265,669, with lease terms of 36 months, and interest
rates between 10.4% and 5.5%.
Future minimum lease payments under non-cancelable capital leases and the
facility lease as of June 30, 2014 are as follows:
CAPITAL OFFICE
LEASES LEASE TOTAL
---------- -------- ----------
6 Months ending 12/31/14 $ 119,877 $ 81,045 $ 200,922
2015 180,482 201,867 382,349
2016 109,391 180,309 289,700
2017 18,662 182,963 201,625
2018 -0- 30,568 30,568
---------- --------- ----------
Total 428,412 676,752 1,105,164
Amount representing interest 30,281
----------
Present value of future minimum lease payments $ 398,131
Less: current obligations under capital leases 196,427
----------
Long-term obligations under capital leases $ 201,704
==========
Gross value of leased assets, depreciation and outstanding amounts for these
leases are as follows:
JUNE 30, 2014 DECEMBER 31, 2013
----------------- ------------------
Capitalized Leases, gross amount $ 1,075,145 $ 867,944
Less accumulated depreciation (677,014) (569,005)
----------------- ------------------
Net book value $ 398,131 $ 298,939
================= ==================
-42-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
(UNAUDITED)
8. DEBT:
--------
Debt consists of the following:
JUNE 30, DECEMBER 31,
2014 2013
----------- -----------
Bank Debt $ 124,179 $ 143,023
Leasehold Improvement Loan 53,411 59,844
Investor Notes 441,000 441,000
----------- -----------
Total $ 618,590 $ 643,867
Less current portion 53,298 51,451
----------- -----------
Long term portion $ 565,292 $ 592,416
=========== ===========
BANK DEBT
The Company has a secured promissory note with a bank. On January 1, 2011, the
note had a principal balance of $195,714 with a fixed interest rate of 8.00%.
The note was increased by $7,500 on September 8, 2011 and by $10,000 on March
23, 2012. The note was amended on April 30, 2012 to change the fixed interest
rate to 7.00%. The weighted-average interest rate was 7.00% for the six months
ended June 30, 2014 and June 30, 2013. Monthly payments of principal and
interest total $3,938 and the maturity date is May 5, 2017. The promissory note
is collateralized by substantially all of the Company's assets and is guaranteed
by two directors of the Company. There are no bank covenants.
LEASEHOLD IMPROVEMENT LOAN
The amount of tenant improvements made in excess of the allowance of $170,000
was $72,483, which was financed by a loan from the landlord. The loan, which was
entered into in December 2012, is to be repaid over five years, has a fixed
interest rate of 7%, and has annual payments totaling $16,926. The tenant
improvements serve as collateral for this loan.
9. 2013 AND 2014 COMMON STOCK OFFERING
--------------------------------------
Effective May 15, 2013, the Company issued a Private Placement Memorandum,
offering up to one million (1,000,000) shares of Restricted Common Stock in
IVDesk Holdings, Inc. from May 15, 2013 through December 31, 2013 at $2.50 per
share. Each share has a par value of $0.0001. As of December 31, 2013, the
Company raised $662,000 in proceeds from offerings represented 264,800 shares.
As of June 30, 2014, the Company raised $380,002 in proceeds from common stock
offerings. The common stock offerings represent 152,000 shares. The Company also
issued 16,477 shares in connection with a warrant exercise. The warrants were
issued for services rendered during the year ended December 31, 2013. There were
no issuance costs related to these offerings.
10. 2012 OMNIBUS STOCK INCENTIVE PLAN
--------------------------------------
Effective February 13, 2013, the Company adopted the IVDesk Holdings, Inc. 2012
Omnibus Stock Incentive Plan (the "Plan"). The Plan provides for grants of
nonqualified stock options and other stock awards, including warrants, to
designated employees, officers, directors, advisors and independent contractors.
A maximum of 2,500,000 shares of the Company's common stock were reserved for
options and other stock awards under the Plan.
Upon adoption of the Plan, the Company granted the following options and
warrants. The warrants vested upon grant at 100%. The options have a three-year
vesting period as follows: 16.66% at the date of the grant, an additional 16.66%
six months after the date of the grant and subsequently vest at 2.777% each
month until the end of the three year vesting period. The options expire ten
years from the date of the grant. A summary of the Company's stock option
activity for the period ended June 30, 2014 was as follows:
-43-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
(UNAUDITED)
WEIGHTED-AVERAGE
WEIGHTED-AVERAGE REMAINING
EXERCISE PRICE PER CONTRACTUAL TERM (IN AGGREGATE INTRINSIC
SHARES SHARE YEARS) VALUE
------------- --------------------- ---------------------- ---------------------
Outstanding at January 1, 2013 -
Granted below fair value 1,296,324 0.38
Exercised -
Cancelled & Forfeited (25,488) 0.38
-------------
Outstanding at December 31, 2013 1,270,836 0.38
Granted 165,784 2.50
Exercised -
Cancelled & Forfeited (38,268) 0.38
-------------
Outstanding at June 30, 2014 1,398,352 0.63 8.8 2,748,207
Exerciseable at June 30, 2014 581,834 0.38 8.6 2,748,207
The Company incurred $324,063 and $468,175 of share-based compensation expense
during the six months ended June 30, 2014 and the year ended December 31, 2013,
respectively. For the six months ended June 30, 2013, the Company recognized
$241,008 of share-based compensation expense. There were unrecognized
compensation costs of $848,544 and $909,285 as of June 30, 2014 and December 31,
2013, respectively. These costs are expected to be recognized over a
weighted-average period of 1.74 years.
During the year ended December 31, 2013, the Company granted warrants to
purchase 41,477 shares of common stock, which expire five years from the date of
the grant. During the year ended December 31, 2013, the Company incurred $38,681
of share-based compensation costs. For the six months ended June 30, 2013, the
Company incurred $15,218 of share-based compensation expense related to the
warrants. As of June 30, 2014, there was no unrecognized compensation costs
related to these warrants. During the six months ended June 30, 2014, the
Company issued an additional 50,000 warrants to purchase common stock. The
Company recognized $57,878 of share-based compensation expense related to these
warrants during the six months ended June 30, 2014 and as of that date, there
was no unrecognized compensation costs remaining. As of June 30, 2014 and
December 31, 2013, there were 50,000 and 41,477 warrants issued and outstanding.
The Company uses the Black-Scholes pricing model to determine the fair value of
stock options and warrants. The fair value of each award is estimated on the
date of the grant. The weighted-average grant date fair value of awards granted
and the range of assumptions using the model are as follows for the periods
presented:
2014 2013
------------------ ------------------
Weighted-average fair value $2.50 $1.25
Expected term 5.00 - 5.71 Years 2.50 - 5.78 years
Expected volatility 86.34% - 95.70% 75.75% - 90.85%
Risk-free interest rate 1.63% - 2.00% 0.38% - 1.16%
Dividend yield -0- -0-
The assumptions are based on the following for each of the years presented.
EXPECTED TERM. The Company does not have sufficient historical
information to develop reasonable expectations about future exercise
patterns and post-vesting employment behavior, so we estimate the
expected term of awards granted by taking the average of the vesting
term and the contractual term of the awards, referred to as the
simplified method.
-44-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
(UNAUDITED)
VOLATILITY. The expected volatility being used is based on a blend of
comparable small- to mid-size public companies serving similar markets.
RISK FREE INTEREST RATE. The risk free interest rate is based on the
U.S. Treasury's zero coupon issues with remaining terms similar to the
expected term on the award.
DIVIDEND YIELD. The Company has never declared or paid any cash
dividends and does not plan to pay cash dividends in the foreseeable
future, and, therefore, used an expected dividend yield of zero in the
valuation model.
FORFEITURES. As we do not have sufficient historical information to
develop reasonable expectations about forfeitures, we currently apply
actual forfeitures.
11. STOCK DEFICIT:
------------------
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock with a
$.0001 par value, which may be subdivided into various classes or series with
rights, privileges and preferences to be hereafter determined and designated by
the Board of Directors. No shares of preferred stock have been issued or are
outstanding, and no rights, privileges or preferences have been determined and
designated by the board of directors.
COMMON STOCK
The Company is authorized to issue 100,000,000 shares of common stock with a
$0.0001 par value. Effective March 29, 2013, the Company issued 788,724 shares
for the conversion of $985,905 in convertible promissory notes at $1.25 per
share. From September 6, 2013 through June 30, 2014, the Company issued 168,477
shares of common stock relating to the Company's Common Stock Offering in
exchange for cash totaling $386,262.
12. INCOME TAXES
----------------
FSC was constituted as an "S" corporation and therefore had no direct liability
for income taxes, which are the responsibility of its shareholders. Accordingly
no asset or liability for income tax has been recognized in these financial
statements prior to September 14, 2012.
IVDesk Holdings and IVDesk Minnesota are constituted as "C" corporations;
consequently following the transfer of the business and substantially all the
assets of FSC to the Company on September 14, 2012, the Company accounts for
income taxes in accordance with FASB ASC 740 "Income Taxes".
Deferred income taxes reflect the net effect of (a) temporary difference between
carrying amounts of assets and liabilities for financial purposes and the
amounts used for income tax reporting purposes, and (b) net operating loss
carry-forwards. No net provision for refundable Federal income tax has been made
in the accompanying statement of loss because no recoverable taxes were paid
previously. Similarly, no deferred tax asset attributable to the net operating
loss carry-forward has been recognized, as it is not deemed likely to be
realized. The valuation allowance has been established due to the uncertainty of
future taxable income, which is necessary to realize the benefits of the
deferred tax assets. The utilization of a portion of the Company's NOLs and
carryforwards is subject to annual limitations under Internal Revenue Code
Section 382 ("382"). Subsequent equity changes could further limit the
utilization of these NOLs and credit carryforwards.
The calculation of the Company's income tax provision involves dealing with
uncertainties in the application of complex tax regulations. The Company
recognizes tax liabilities for uncertain income tax positions based on
management's estimate of whether it is more likely than not that additional
taxes will be required.
-45-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
(UNAUDITED)
The Company recognizes accrued interest and penalties related to uncertain tax
positions in income tax expense. The Company's federal and state tax returns are
potentially open to examinations for all years since 2012 due to net operating
loss carryforwards.
The Company will continue to assess and evaluate strategies to enable the
deferred tax asset, or a portion thereof, to be utilized, and will reduce the
valuation allowance appropriately at such time when it is determined that the
"more likely than not" criteria is satisfied.
13. SUBSEQUENT EVENTS
---------------------
On August 1, 2014, the Company authorized a private placement memorandum to
raise up to $2,000,000 through the sale of common stock to accredited investors.
Each share of common stock would cost $2.50. As of the date of this filing,
$393,000 has been raised and 157,200 shares have been purchased. The Company
expects to close this offering in November. The Company does not pay commissions
or fees on the sale of shares and less than $10,000 of legal expenses has been
spent in support of this offering.
On August 4, 2014, the Company issued 146,000 options to purchase common stock
to Company management, employees, and business development contractors with an
exercise price of $2.50 and vesting periods ranging from zero to three years.
-46-
IVDESK HOLDINGS, INC.
AND
SUBSIDIARY
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 2013 AND 2012
-47-
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 49
CONSOLIDATED BALANCE SHEETS 50
CONSOLIDATED STATEMENTS OF OPERATIONS 51
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT 52
CONSOLIDATED STATEMENTS OF CASH FLOWS 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 54
-48-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
IVDesk Holdings, Inc. and Subsidiary
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of IVDesk Holdings,
Inc. and Subsidiary (the Company) as of December 31, 2013 and 2012, and the
related consolidated statements of operations, stockholders' deficit and cash
flows for the years then ended. 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 audits.
We conducted our audits 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 audits included consideration of
its 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
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of IVDesk Holdings,
Inc. and Subsidiary as of December 31, 2013 and 2012 and the results of their
operations and cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
/s/ Baker Tilly Virchow Krause, LLP
Minneapolis, MN
May 29, 2014
-49-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------------------------------
2013 2012
---------------- --------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 423,600 $ 156,225
Accounts Receivable, net 199,753 145,612
Prepaid Expenses 24,276 73,977
---------------- --------------
TOTAL CURRENT ASSETS 647,629 375,814
PROPERTY AND EQUIPMENT, NET 519,324 223,738
DEPOSITS 18,000 18,000
---------------- --------------
TOTAL ASSETS $ 1,184,953 $ 617,552
================ ==============
LIABILITIES & STOCKHOLDER'S DEFICIT
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 89,616 $ 384,488
Deferred Revenue 142,939 122,585
Accrued Expenses 224,458 20,779
Convertible Promissory Notes, Net - 475,000
Bank Loan - Current 38,351 35,723
Capital Leases - Current 157,541 162,793
Leasehold Improvement Loan - Current 13,100 -
---------------- --------------
TOTAL CURRENT LIABILITIES 666,005 1,201,368
LONG TERM LIABILITIES
Bank Loan - Long Term 104,672 143,023
Capital Leases - Long Term 131,950 51,295
Leasehold Improvement Loan - Long Term 46,744 -
Investor Notes - Long Term 441,000 -
---------------- --------------
TOTAL LONG TERM LIABILITIES 724,366 194,318
---------------- --------------
TOTAL LIABILITIES 1,390,371 1,395,686
STOCKHOLDERS' DEFICIT
Preferred Stock; $0.0001 par value; 5,000,000 shares authorized - -
No shares issued as of December 31, 2013 and 2012
Common Stock; $0.0001 par value; 100,000,000 shares authorized; 605 500
6,053,524 and 5,000,000 shares issued and outstanding
as of December 31, 2013 and 2012 respectively
Additional Paid-In Capital 2,154,656 -
Accumulated Deficit (2,360,679) (778,634)
---------------- --------------
TOTAL STOCKHOLDERS' DEFICIT (205,418) (778,134)
---------------- --------------
TOTAL LIABILITIES & EQUITY $ 1,184,953 $ 617,552
================ ==============
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED STATEMENTS.
-50-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS
ENDED DECEMBER 31
-------------------------------
2013 2012
-------------- -------------
Revenue $ 1,859,553 $ 1,735,335
COST OF GOODS SOLD 626,240 996,359
-------------- -------------
GROSS PROFIT 1,233,313 738,976
OPERATING EXPENSES
GENERAL AND ADMINISTRATIVE 1,944,992 958,051
SALES AND MARKETING 513,691 228,417
RESEARCH AND DEVELOPMENT 275,039 20,166
-------------- -------------
OPERATING LOSS (1,500,409) (467,658)
COMMISSIONS AND INTEREST INCOME 11,949 14,157
INTEREST EXPENSE 93,585 59,308
-------------- -------------
NET OTHER INCOME (EXPENSE) (81,636) (45,151)
-------------- -------------
INCOME TAXES - -
-------------- -------------
NET LOSS $ (1,582,045) $ (512,809)
============== =============
NET LOSS PER SHARE
-------------- -------------
Basic and diluted $ (0.28) $ (0.12)
============== =============
Basic and diluted: Weighted-average
Outstanding Shares 5,620,837 4,295,890
============== =============
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED STATEMENTS.
-51-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
COMMON STOCK ADDITIONAL
------------ PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------------- ------------ --------------- ------------------ --------------
Balance at December 31, 2011 4,000,000 $ 400 $ - $ (169,390) $ (168,990)
Recapitalization of Shares as of 9-14-12 1,000,000 100 - - 100
Distribution to Stockholders - - - (96,435) (96,435)
Net Loss - - - (512,809) (512,809)
------------- ------------ --------------- ------------------ --------------
Balance at December 31, 2012 5,000,000 $ 500 $ - $ (778,634) $ (778,134)
Share-based Compensation - - 506,856 - 506,856
Conversion of promissory notes and
interest to Common Stock 788,724 79 985,826 - 985,905
Common shares issued for Cash 264,800 26 661,974 - 662,000
Net Loss - - - (1,582,045) (1,582,045)
------------- ------------ --------------- ------------------ --------------
Balance at December 31, 2013 6,053,524 $ 605 $ 2,154,656 $ (2,360,679) $ (205,418)
============= ============ =============== ================== ==============
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED STATEMENTS.
-52-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS
ENDED DECEMBER 31
2013 2012
-------------- ------------
OPERATING ACTIVITIES
Net Loss $ (1,582,045) $ (512,809)
Adjustments to reconcile Net Loss to net cash (used in) operations:
Depreciation and Amortization 227,781 156,867
Provision for Bad Debt 14,053 (34,410)
Share-based Compensation 506,856 -
Changes in Operating Assets and liabilities
Accounts Receivable (68,194) 34,430
Prepaid Expenses 49,701 (73,977)
Deposit - (18,000)
Accounts Payable 118,655 308,750
Deferred Revenue 20,354 21,342
Accrued Expenses 33,679 18,085
Other Current Liabilities
-------------- ------------
NET CASH USED IN OPERATING ACTIVITIES $ (679,160) $ (99,722)
INVESTING ACTIVITIES
Purchase of Property and Equipment (15,215) (19,036)
-------------- ------------
NET CASH USED IN INVESTING ACTIVITIES $ (15,215) $ (19,036)
FINANCING ACTIVITIES
Repayment of Bank Borrowings (35,723) (8,139)
Payments on Capital Leases (162,793) (145,217)
Payments on Tenant Improvement Loan (12,639) -
Distribution to Stockholders - (96,435)
Proceeds from Convertible Notes Payable 510,905 475,000
Proceeds from Equity Investment 662,000 100
-------------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 961,750 $ 225,309
-------------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 267,375 106,551
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 156,225 49,674
-------------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 423,600 $ 156,225
============== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Property and Equipment Acquired Under Capital Leases $ 265,669 $ 186,768
============== ============
Leasehold Improvements Acquired by Landlord allowance and loan $ 242,483 $ -
============== ============
Conversion of Convertible Notes Payable and accrued interest to Common Stock $ 985,905 $ -
============== ============
Cash Paid for:
Interest $ 90,967 $ 62,467
============== ============
Income Taxes $ 300 $ -
============== ============
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED STATEMENTS.
-53-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION:
-----------------------------------------------
IVDesk Holdings, Inc. ("IVDesk Holdings"), through its wholly owned subsidiary,
IVDesk Minnesota, Inc. ("IVDesk Minnesota"), (collectively "the Company") is
focused on offering complete private cloud solutions to the 15-150 employee
segment of the small and medium sized business (SMB) market ("Mid-Market").
The Company has the ability to move its customers' entire Information Technology
("IT") systems (all software and all data) out of the customers' offices and
into the IVDesk product, a highly redundant Tier III data center, and delivers
IT as a service to the customers via a private cloud solution. The Company
implements a custom-fitted solution for each individual customer that includes
maintenance, upgrades, support, data backup, disaster recovery solution, remote
access, and additional benefits.
IVDesk Holdings was incorporated on March 6, 2012, in the state of Delaware and
on March 19, 2012 issued 1 million shares of its common stock to its Founders at
their par value of $100. On March 6, 2012, IVDesk Minnesota was incorporated in
the state of Minnesota and is an operating subsidiary of IVDesk Holdings. IVDesk
Holdings owns 1,000 shares of IVDesk Minnesota and is the sole owner. On
September 14, 2012, the Company entered into an Asset Purchase Agreement ("the
Agreement") with Focused Solutions Consulting, Inc. ("FSC"). FSC was a
Minneapolis, Minnesota based company providing online computing services
including its cloud services businesses known as the Internet Virtual Desktop or
"IVDesk" since 2001. The Agreement provided for the Company to acquire FSC in
exchange for 4,000,000 newly issued shares of the Company's common stock. Prior
to the Agreement, the Company had nominal net assets and operations.
The acquisition has been accounted for as a reverse acquisition and
recapitalization using accounting principles applicable to reverse acquisitions.
Under reverse acquisition accounting, the FSC business, the legal acquiree, was
treated as the accounting acquirer of the Company. Consequently FSC's financial
results are reported for all periods presented, while the Company's financial
results have only been consolidated with those of the existing FSC business from
September 14, 2012 onwards. All outstanding shares have been restated to reflect
the effect of the acquisition.
The consolidated financial statements include the results of the FSC business
for all periods presented and for the Company from September 14, 2012 onwards.
All intercompany balances and transactions have been eliminated in
consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
----------------------------------------------
USE OF ESTIMATES -- The financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
requiring management to make estimates and assumptions that affect the reported
amounts of assets and liabilities as well as disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates.
SEGMENTS - The Company's chief operating decision maker is its Chief Executive
Officer ("CEO"), who reviews financial information presented on a consolidated
basis. Accordingly, the Company has determined that it has a single reportable
segment, specifically, the provision of private cloud-based business services.
REVENUE RECOGNITION -- The Company generates revenue from: (i) service fees
related to shared hosting services, (ii) service fees related to dedicated
hosting services, and (iii) professional services
SHARED HOSTING SERVICES
IVDesk provides shared hosting services for clients within its computer
infrastructure. All clients share and run systems across multiple enterprise
level computer servers, SANs, switches, and other network devices. All customers
share different pieces based on their specific needs. These services such as
file sharing are provided to all IVDesk service users. 24/7 support is included
in the subscription fee.
-54-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
DEDICATED HOSTING SERVICES
Hosting Services revenue is derived from providing specific server resources for
each customer within this categorization. These services are dedicated to the
customer and may be comprised of specific hardware, virtual servers, back up
servers, etc. IVDesk provides support services to these users as well including
system updates, monitoring, and maintenance. 24/7 support is included in the
subscription fee.
PROFESSIONAL SERVICES
Periodically IVDesk is requested to perform specific service projects for
clients. These consulting projects include software package selection, business
process optimization, software design, systems analysis, and other professional
services. These services are typically provided on a time-and-materials basis.
The Company typically enters into three-year contracts, with automatic renewals,
with its customers for the IVDesk service. Fees are collected monthly. The
subscription agreements typically provide service level commitments of specified
uptime per period, excluding scheduled maintenance. The Company will typically
credit qualifying customers' one-day of revenue for a one-hour disruption of
service, and a maximum of two-days of revenue for a two-hour disruption of
service. In light of the Company's historical experience with meeting its
service level commitments, and that credits are provided customers during the
same month of service, the Company does not currently have any obligations
related to these commitments. Amounts that have been invoiced are recorded in
accounts receivable and in deferred revenue or revenue, depending on whether the
revenue recognition criteria have been met.
The Company commences revenue recognition when all of the following conditions
are met:
o There is persuasive evidence of an arrangement;
o The service has been provided to the customer;
o The collection of the fees is reasonably assured; and
o The amount of fees to be paid by the customer is fixed or
determinable.
In most instances, revenue from new customer acquisitions is generated under
sales agreements with multiple elements, comprised of subscription and support
fees from customers accessing its cloud-based application suite and professional
services associated with consultation services. The Company evaluates each
element in a multiple-element arrangement to determine whether it represents a
separate unit of accounting. An element constitutes a separate unit of
accounting when the delivered item has standalone value and delivery of the
undelivered element is probable and within the Company's control. Subscription
and support have standalone value because they are routinely sold separately by
the Company. Professional services have standalone value because the Company
sells professional services separately and there are several third party vendors
that routinely provide similar professional services to its customers on a
standalone basis.
The Company allocates revenue to each element in an arrangement based on a
selling price hierarchy. The selling price for a deliverable is based on its
vendor-specific objective evidence ("VSOE"), if available, third-party evidence
("TPE"), if VSOE is not available, or estimated selling price ("ESP"), if
neither VSOE nor TPE is available. The consideration allocated to subscription
and support is recognized as revenue over the contract period commencing when
the subscription service is made available to the customer. The consideration
allocated to professional services is recognized as revenue using the
proportional performance method.
The total arrangement fee for a multiple element arrangement is allocated based
on the relative ESP of each element. However, since the professional services
are generally completed prior to completion of delivery of subscription and
support services, the revenue recognized for professional services in a given
reporting period does not include fees subject to delivery of subscription and
support services. This results in the recognition of revenue for professional
services that is generally no greater than the contractual fees for those
professional services.
-55-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
For single element sales agreements, subscription and support revenue is
recognized ratably over the contract term beginning on the provisioning date of
the contract. The Company recognizes professional services revenue using the
proportional performance method for single element arrangements.
Sales and other taxes collected from customers to be remitted to government
authorities are excluded from revenues.
DEFERRED REVENUE - Deferred revenue consists of billings or payments received in
advance of revenue recognition and is recognized as the revenue recognition
criteria are met. The Company generally invoices its customers monthly one month
prior to providing its hosting service.
RESEARCH AND DEVELOPMENT EXPENSE - Research and development expenses consist
primarily of development personnel and non-employee contractor costs related to
the development of new products and services, enhancement of existing products
and services, quality assurance and testing. "FASB ASC 985-20-25," ACCOUNTING
FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED,
requires certain software development costs to be capitalized upon the
establishment of technological feasibility.
The establishment of technological feasibility and the ongoing assessment of the
recoverability of these costs require considerable judgment by management with
respect to certain external factors such as anticipated future revenue,
estimated economic life, and changes in software and hardware technologies.
Software development costs incurred beyond the establishment of technological
feasibility have not been significant. Therefore, no software development costs
were capitalized during the years ended December 31, 2013 and 2012. Software
development costs have been recorded as research and development expense. The
Company incurred research and development expenses of $275,039 in 2013 and
$20,166 in 2012. Expenditures increased significantly in 2013 to upgrade the
capacity of its operations to support increased demand and to develop new
processes that speed the time required to transition new customers into IVDesk's
cloud infrastructure.
INCOME TAXES - The Company accounts for income taxes under the asset and
liability approach. Deferred income taxes are recognized in the financial
statements for the tax consequences in future years of differences between the
tax basis of assets and liabilities and their financial reporting amounts based
on enacted tax laws and statutory tax rates. Temporary differences arise from
net operating losses, reserves for uncollectible accounts receivables and
inventory, differences in depreciation methods, and accrued expenses. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE - Basic and diluted loss per
common share for all periods presented is computed using the weighted average
number of common shares outstanding. Basic weighted average shares outstanding
include only outstanding common shares. Diluted net loss per common share is
computed by dividing net loss by the weighted average common and potential
dilutive common shares outstanding computed in accordance with the treasury
stock method. Shares reserved for outstanding stock warrants and options
totaling 1,287,313 and -0- for 2013 and 2012, respectively, were excluded from
the computation of net loss per share as their effect was antidilutive due to
the Company's net loss in each of those years.
CASH AND CASH EQUIVALENTS -- The Company considers cash and all highly liquid
investments with original maturities of three months or less to be cash and cash
equivalents. Cash and cash equivalents are recorded at cost, which approximates
fair value. The balance is insured by the Federal Deposit Insurance Corporation
up to $250,000.
FINANCIAL INSTRUMENTS -- "FASB ASC 820-10," FAIR VALUE MEASUREMENTS AND
DISCLOSURES, requires disclosure of the estimated fair value of an entity's
financial instruments. Such disclosures, which pertain to the Company's
financial instruments, do not purport to represent the aggregate net fair value
of the Company. The carrying value of cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities approximates fair value
because of the short maturity of those instruments. The fair value of the
various loans and capital lease obligations approximates carrying value based on
the interest rate in the loans and leases compared to current market interest
rates.
-56-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
ACCOUNTS RECEIVABLE - The Company reviews accounts receivable for collectability
and establishes an allowance for doubtful accounts and records bad debt expense
when deemed necessary. Significant management judgment is required to determine
the allowance for doubtful accounts. Accounts receivable are charged off against
the allowance when collectability is determined to be permanently impaired. As
of December 31, 2013 and 2012, the Company reserved $76,031 and $61,978
respectively for bad debts.
CONCENTRATION OF RISKS - Credit risk arising from accounts receivable is
mitigated due to the large number of customers comprising the Company's customer
base and their dispersion across various industries. At December 31, 2013 and
2012, five and four customers represented more than 10% of the net accounts
receivable balance. One customer individually exceeded 10% of the Company's
revenue in 2013 and 2012.
LEASES - The Company leases its office and computing equipment under
non-cancelable lease agreements. The terms of its office lease agreement
provides for rental payments on a graduated basis. The Company recognizes rent
expense on a straight line basis over the lease period and accrues for rent
expense incurred but not paid.
The Company also received an allowance for leasehold improvements. This
allowance is a lease incentive which is recognized as a liability and is
amortized on a straight line basis over the term of the lease as a component of
minimum rental expense. The leasehold improvements are included in property,
plant and equipment and are amortized over the shorter of the estimated useful
life of the improvements or the lease term, or five years.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation is computed using the straight-line method based on estimated
useful lives ranging from three to five years, with Furniture and Fixtures at
five years, Computer Equipment and Software at three years. Repair and
maintenance expense is expensed as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company reviews the carrying value of all
long-lived assets, including property and equipment with definite lives, for
impairment in accordance with "FASB ASC 360-10-05-4," ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. Under FASB ASC 360-10-05-4,
impairment losses are recorded whenever events or changes in circumstances
indicate the carrying value of an asset may not be recoverable.
If the impairment tests indicate that the carrying value of the asset is greater
than the expected undiscounted cash flows to be generated by such asset, an
impairment loss would be recognized. The impairment loss is determined by the
amount by which the carrying value of such asset exceeds its fair value. We
generally measure fair value by considering sale prices for similar assets or by
discounting estimated future cash flows from such assets using an appropriate
discount rate. Assets to be disposed of are carried at the lower of their
carrying value or fair value less costs to sell.
Considerable management judgment is necessary to estimate the fair value of
assets, and accordingly, actual results could vary significantly from such
estimates. There have been no impairment losses for long-lived assets recorded
in 2013 or 2012.
STOCK-BASED COMPENSATION - The Company accounts for stock-based compensation in
accordance with FASB ASC 718-10 which requires the measurements and recognition
of compensation expense for all stock-based payments including warrants, stock
options, restricted stock grants and stock bonuses based on estimated fair
value. For purposes of determining estimated fair value under FASB ASC
718-10-30, the Company computes the estimated fair values of stock options using
the Black-Scholes option pricing model. The fair value of restricted stock and
stock award grants are determined based on the number of shares granted and the
closing price of the Company's common stock on the date of grant. Compensation
expense for all share-based payment awards is recognized using the straight-line
amortization method over the vesting period. Stock-based compensation expense of
$506,856 and $-0- was charged to expense during 2013 and 2012, respectively.
The Company accounts for equity instruments issued for services and goods to
non-employees under "FASB ASC 505-50-1" ACCOUNTING FOR EQUITY INSTRUMENTS THAT
ARE ISSUED TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH
SELLING, GOODS OR SERVICES and "FASB ASC 505-50-25" ACCOUNTING RECOGNITION FOR
-57-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
CERTAIN TRANSACTIONS INVOLVING EQUITY INSTRUMENTS GRANTED TO OTHER THAN
EMPLOYEES. Generally, the equity instruments issued for services and goods are
shares of the Company's common stock, or warrants or options to purchase shares
of the Company's common stock. These shares, warrants or options are either
fully-vested and exercisable at the date of grant or vest over a certain period
during which services are provided. The Company expenses the fair market value
of these securities over the period in which the related services are received.
During the years ended December 31, 2013 and 2012, and included in the total
expense above, the Company recognized $182,151 and $0, respectively, of
stock-based compensation expense related to the fair market value of stock
options and warrants that were issued to outside vendors for professional
services.
3. LIQUIDITY
------------
During the year ended December 31, 2013, the Company incurred losses of
$1,582,045 and a stockholders' deficit of $2,360,679.
The Company's ability to continue as a going concern is dependent upon the
Company generating profitable operations in the future and/or obtaining the
necessary financing to meet its obligations and repay its liabilities arising
from normal business operations when they come due. There is no assurance that
this series of events will be satisfactorily completed.
The Company believes it will have the ability to operate for the next twelve
months. The Company has adjusted and will continue to align expenses to the
extent possible to match revenues. The Company also continues to pursue new
customers and raised $270,000 of equity during the first quarter 2014.
4. PROPERTY AND EQUIPMENT:
--------------------------
Property and equipment consisted of the following at December 31:
2013 2012
------------- -------------
Leased computer equipment $ 867,944 $ 602,274
Purchased property and equipment 63,794 120,252
Software 10,465 10,465
Leasehold improvements 243,297 -0-
------------- -------------
Total Property and Equipment 1,185,500 732,991
Less accumulated depreciation (666,176) (509,253)
------------- -------------
Property and equipment, net $ 519,324 $ 223,738
============= =============
Depreciation expense for the years ended December 31, 2013 and 2012 was $227,781
and $156,867, respectively.
5. OTHER STATEMENT FINANCIAL INFORMATION
----------------------------------------
ACCRUED EXPENSES: Accrued expenses as of December 31 include:
2013 2012
------------- -------------
Sales tax $ 12,642 $ 6,529
Deferred rent 211,816 -0-
Accrued interest -0- 14,250
------------- -------------
Total $ 224,458 $ 20,779
============= =============
6. RELATED PARTIES:
-------------------
On September 14, 2012, the Company entered into a corporate development services
agreement with 5X Partners to provide research and development planning, raise
investor financing, registration of investor stock, and the initiation of public
trading. A member of 5X partners, Larry Ingwersen, serves on the board of
directors and is an officer of the Company. 5X Partners is currently paid
$27,500 per month for its services. In 2013, 5X partners billed the Company
-58-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
$330,000 for its services and later converted $265,000 into a long term note due
January 19, 2016. In 2012, 5X billed the Company $162,000.
Amounts owed to related parties included in accounts payable totaled $19,928 and
$186,064 as of December 31, 2013 and 2012, respectively. In addition to the
conversion of accounts payable due to 5X Partners described above, other related
parties converted $176,000 into long term notes maturing in January 2016, for a
total of $441,000.
7. LEASE COMMITMENTS:
---------------------
The Company rents office space for its corporate needs. The Company entered into
a 62-month lease agreement in December 2012 to lease 16,494 square feet, which
terminates February 28, 2018. We incurred expenses of $182,925 and $31,242 for
our corporate offices for the year ended December 31, 2013 and 2012,
respectively, which includes rent, operating expenses excluding utility
expenses, and real estate taxes. In addition to the minimum annual rent
payments, the Company is obligated to pay its share of utility expenses, which
currently totaled $17,856 and $7,116 in 2013 and 2012, respectively.
The Facility Lease agreement allowed the Company up to $170,000 in tenant
improvements, with the option to borrow up to $100,000 for additional tenant
improvements. The Company made a total of $242,483 in tenant improvements.
The Company leases its office and computing equipment under non-cancelable lease
agreements. Most Leases are for 36 months with a bargain purchase option. During
the year ended December 31, 2013, the Company entered into three leases totaling
$265,669, with lease terms of 36 months, and interest rates were between 10.4%
and 5.5%. During the year ended December 31, 2012, the Company entered into
three leases totaling $186,768, with lease terms of 36 months, and interest
rates were between 10.4% and 7.3%. During the year ended December 31, 2011, the
Company entered into three leases totaling $150,266, with lease terms of 36
months, and interest rates were between 12.0% and 18.4%.
Future minimum lease payments under non-cancelable capital leases and the
facility lease as of December 31, 2013 are as follows:
CAPITAL OFFICE
YEARS ENDING: LEASES LEASE TOTAL
--------------------------------------------- ------------ --------- ----------
2014 $ 173,681 $162,090 $ 335,771
2015 104,811 201,867 306,678
2016 33,820 180,309 214,129
2017 -0- 182,963 182,963
2018 -0- 30,568 30,568
------------ --------- ----------
Total 312,312 $757,797 $1,070,109
Amount representing interest 22,821
------------
Present value of future minimum lease payments $ 289,491
Less: current obligations under capital 157,541
------------
leases
Long-term obligations under capital leases $ 131,950
============
Gross value of leased assets, depreciation and outstanding amounts in respect of
these leases are as follows:
2013 2012
------------------- ------------------
Capitalized Leases, gross amount $ 867,944 $ 602,275
Less accumulated depreciation (569,005) (401,834)
------------------- ------------------
Net book value $ 298,939 $ 200,441
=================== ==================
-59-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
8. DEBT:
--------
Debt consists of the following as of December 31:
2013 2012
--------- ---------
Bank Debt $ 143,023 $178,746
Leasehold Improvement Loan 59,844 -0-
Convertible Promissory Notes (Note 9) -0- 475,000
Investor Notes (Note 6) 441,000 -0-
--------- ---------
Total $ 643,867 $653,746
Less current portion 51,451 510,723
--------- ---------
Long term portion $ 592,416 $143,023
========= =========
BANK DEBT
The Company has a secured promissory note with a bank. On January 1, 2011, the
note had a principal balance of $195,714 with a fixed interest rate of 8.00%.
The note was increased by $7,500 on September 8, 2011 and by $10,000 on March
23, 2012. The note was amended on April 30, 2012 to change the fixed interest
rate to 7.00%. The weighted-average interest rate was 7.00% and 7.35% in 2013
and 2012, respectively. Monthly payments of principal and interest total $3,938
and the maturity date is May 5, 2017. The promissory note is collateralized by
substantially all of the Company's assets and is guaranteed by two directors of
the Company. There are no bank covenants.
LEASEHOLD IMPROVEMENT LOAN
The amount of tenant improvements made in excess of the allowance of $170,000
was $72,483, which was financed by a loan from the landlord. The loan, which was
entered into in December 2012, is to be repaid over five years, has a fixed
interest rate of 7%, and has annual payments totaling $16,926. The tenant
improvements serve as collateral for this loan.
9. CONVERTIBLE PROMISSORY NOTES:
--------------------------------
Between September 14, 2012 and December 19, 2012, the Company issued $475,000 in
convertible promissory notes to 11 investors. Between April 15, 2013 and June
24, 2013, the Company issued an additional $460,000 in convertible promissory
notes to investors.
The convertible promissory notes carry interest at 10% simple interest and
convert to shares of the Company's common stock at $1.25 per share. The notes
converted to common stock on March 29, 2013, including accrued interest charged
for the period from the issuance of the notes through the conversion date,
amounting to $50,905. The total number of shares of common stock issued amounted
to 788,724 upon conversion of the notes.
10. 2013 COMMON STOCK OFFERING
------------------------------
Effective May 15, 2013, the Company issued a Private Placement Memorandum,
offering up to one million (1,000,000) shares of Restricted Common Stock in
IVDesk Holdings, Inc. from May 15, 2013 through December 31, 2013 at $2.50 per
share. Each share has a par value of $0.0001. As of December 31, 2013, the
Company raised $662,000 in proceeds from this offering, representing 264,800
shares. There were no issuance costs related to this offering.
11. 2012 OMNIBUS STOCK INCENTIVE PLAN
-------------------------------------
Effective February 13, 2013, the Company adopted the IVDesk Holdings, Inc. 2012
Omnibus Stock Incentive Plan (the "Plan"). The Plan provides for grants of
nonqualified stock options and other stock awards, including warrants, to
designated employees, officers, directors, advisors and independent contractors.
A maximum of 2,500,000 shares of the Company's common stock were reserved for
options and other stock awards under the Plan.
-60-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
Upon adoption of the Plan, the Company granted the following options and
warrants. The warrants vested upon grant at 100%. The options have a three-year
vesting period as follows: 16.66% at the date of the grant, an additional 16.66%
six months after the date of the grant and subsequently vest at 2.777% each
month until the end of the three year vesting period. The options expire ten
years from the date of the grant.
A summary of the Company's stock option activity during the year ended December
31, 2013 was as follows:
WEIGHTED-AVERAGE
WEIGHTED-AVERAGE REMAINING
EXERCISE PRICE PER CONTRACTUAL TERM (IN AGGREGATE
SHARES SHARE YEARS) INTRINSIC VALUE
---------------- -------------------- ---------------------- -------------------
Outstanding at January 1, 2013 -0-
Granted below fair value 1,296,324 $ 0.38
Exercised -0-
Cancelled and forfeited (25,488) 0.38
----------------
Outstanding at December 31, 2013 1,270,836 0.38 9.1 $ 2,694,172
----------------
Exercisable at December 31, 2013 423,443 0.38 9.1 $ 897,698
----------------
The Company incurred $468,175 and $-0- of share based compensation expense in
2013 and 2012, respectively; and, as of December 31, 2013, there was $909,285 of
total unrecognized compensation costs that are expected to be recognized over a
weighted-average period of 2.1 years.
The Company also granted 16,477 warrants. The warrants expire five years from
the date of the grant. The Company incurred $38,681 and $-0- of share-based
compensation expense in 2013 and 2012, respectively; and, as of December 31,
2013, there was $-0- of total unrecognized compensation costs.
The Company uses the Black-Scholes pricing model to determine the fair value of
stock options and warrants. The fair value of each award is estimated on the
date of the grant. The weighted-average grant date fair value of awards granted
and the range of assumptions using the model are as follows for the periods
presented as of December 31:
2013
--------------------
Weighted-average fair value $ 1.25
Expected term 2.50 - 5.78 years
Expected volatility 75.75% - 90.85 %
Risk-free interest rate 0.38% - 1.16 %
Dividend yield -0-
The assumptions are based on the following for each of the years presented.
EXPECTED TERM. The Company does not have sufficient historical
information to develop reasonable expectations about future exercise
patterns and post-vesting employment behavior, so we estimate the
expected term of awards granted by taking the average of the vesting
term and the contractual term of the awards, referred to as the
simplified method.
VOLATILITY. The expected volatility being used is based on a blend of
comparable small- to mid-size public companies serving similar markets.
RISK FREE INTEREST RATE. The risk free interest rate is based on the
U.S. Treasury's zero coupon issues with remaining terms similar to the
expected term on the award.
DIVIDEND YIELD. The Company has never declared or paid any cash
dividends and does not plan to pay cash dividends in the foreseeable
future, and, therefore, used an expected dividend yield of zero in the
valuation model.
-61-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
FORFEITURES. As we do not have sufficient historical information to
develop reasonable expectations about forfeitures, we currently apply
actual forfeitures.
12. STOCK DEFICIT:
------------------
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock with a
$.0001 par value, which may be subdivided into various classes or series with
rights, privileges and preferences to be hereafter determined and designated by
the Board of Directors. No shares of preferred stock have been issued or are
outstanding, and no rights, privileges or preferences have been determined and
designated by the board of directors.
COMMON STOCK
The Company is authorized to issue 100,000,000 shares of common stock with a
$0.0001 par value. Effective March 29, 2013, the Company issued 788,724 shares
for the conversion of $985,905 in convertible promissory notes at $1.25 per
share. From September 6, 2013 through December 30, 2013, the Company issued
264,800 shares of common stock relating to the Company's Common Stock Offering
in exchange for cash totaling $662,000.
13. INCOME TAXES
----------------
FSC was constituted as an "S" corporation and therefore had no direct liability
for income taxes, which are the responsibility of its shareholders. Accordingly
no asset or liability for income tax has been recognized in these financial
statements prior to September 14, 2012.
IVDesk Holdings and IVDesk Minnesota are constituted as "C" corporations;
consequently following the transfer of the business and substantially all the
assets of FSC to the Company on September 14, 2012, the Company accounts for
income taxes in accordance with FASB ASC 740 "Income Taxes".
Deferred income taxes reflect the net effect of (a) temporary difference between
carrying amounts of assets and liabilities for financial purposes and the
amounts used for income tax reporting purposes, and (b) net operating loss
carry-forwards. No net provision for refundable Federal income tax has been made
in the accompanying statement of loss because no recoverable taxes were paid
previously. Similarly, no deferred tax asset attributable to the net operating
loss carry-forward has been recognized, as it is not deemed likely to be
realized. The valuation allowance has been established due to the uncertainty of
future taxable income, which is necessary to realize the benefits of the
deferred tax assets. As of December 31, 2013, the Company had federal net
operating losses, or NOL carryforwards of approximately $1,485,094 which will
begin to expire in 2032. The Company also has various state net operating loss
carryforwards for income tax purposes of approximately $1,484,234, which will
begin to expire in 2027. The utilization of a portion of the Company's NOLs and
carryforwards is subject to annual limitations under Internal Revenue Code
Section 382 ("382"). Subsequent equity changes could further limit the
utilization of these NOLs and credit carryforwards. The Company had not
undertaken a 382 study as of December 31, 2013.
The temporary differences between financial statement carrying amounts and the
tax basis of assets and liabilities and tax credit and operating loss
carryforwards that create deferred tax assets and liabilities are as follows:
-62-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
SUMMARY OF DEFERRED TAX ASSETS / (LIABILITIES) 2013 2012
-------------- ------------
Current Asset / (Liability)
Allowance for Doubtful Accounts $ 30,768 $ 27,709
Deferred Rent 85,718 -0-
Contribution Carryover 506 506
Non-current Asset / (Liability)
Non-qualified Stock Options 205,115 -0-
Fixed Assets (68,796) -0-
Net Operating Loss Carryforwards - Federal 504,932 158,940
Net Operating Loss Carryforwards - State 96,000 30,236
-------------- ------------
Total Net Operating Loss Carryforwards 600,932 189,176
-------------- ------------
Deferred Tax Asset 854,243 217,391
Less: Valuation Allowance (854,243) (217,391)
-------------- ------------
Net Deferred Tax Asset $ -0- $ -0-
=========== ============
The calculation of the Company's income tax provision involves dealing with
uncertainties in the application of complex tax regulations. The Company
recognizes tax liabilities for uncertain income tax positions based on
management's estimate of whether it is more likely than not that additional
taxes will be required. The Company had no uncertain tax positions as of
December 31, 2013 and 2012.
The Company recognizes accrued interest and penalties related to uncertain tax
positions in income tax expense. At December 31, 2013 and 2012, the Company had
no accruals for the payment of tax-related interest and there were no tax
interest or penalties recognized in the statement of operations. The Company's
federal and state tax returns are potentially open to examinations for all years
since 2012 due to net operating loss carryforwards. As of December 31, 2013, the
Company is not under any income tax audits by tax authorities.
The components of income tax expense (benefit) consist of the following:
2013 2012
-------------- -------------
Income tax provision:
Current
Federal $ -0- $ -0-
State -0- -0-
-------------- -------------
Total Current -0- -0-
Deferred
Federal 482,698 145,532
State 154,154 46,505
-------------- -------------
Total Deferred 636,852 192,037
Change in valuation allowance (636,852) (192,037)
-------------- -------------
Total income tax expense / (benefit) $ -0- $ -0-
============= =============
The Company will continue to assess and evaluate strategies to enable the
deferred tax asset, or a portion thereof, to be utilized, and will reduce the
valuation allowance appropriately at such time when it is determined that the
"more likely than not" criteria is satisfied.
The Company's provision for income taxes differs from the expected tax benefit
amount computed by applying the statutory federal income tax rate of 34.0% to
loss before taxes as a result of the following:
2013 2012
--------------- ------------
Federal statutory rate 34.0% 34.0%
State taxes, net of federal benefit 6.5% 6.5%
Other -0.2% 0.0%
Change in valuation allowance -40.3% -40.5%
--------------- ------------
Total 0.0% 0.0%
=============== ============
-63-
IVDESK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
14. SUBSEQUENT EVENTS
---------------------
2013 COMMON STOCK OFFERING
Subsequent to December 31, 2013, there were additional subscriptions to a
Private Offering amounting to $270,000 for 108,000 shares of common stock.
We have evaluated subsequent events through May 29, 2014. Other than as
described above, there have been no subsequent events after December 31, 2013
-64-
F. SELECTED FINANCIAL INFORMATION
---------------------------------
Not applicable.
G. SUPPLEMENTARY FINANCIAL INFORMATION
--------------------------------------
Not applicable.
H. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR AUDITED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED HEREIN. IN CONNECTION WITH, AND
BECAUSE WE DESIRE TO TAKE ADVANTAGE OF, THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WE CAUTION READERS REGARDING
CERTAIN FORWARD LOOKING STATEMENTS IN THE FOLLOWING DISCUSSION AND ELSEWHERE IN
THIS REPORT AND IN ANY OTHER STATEMENT MADE BY, OR ON OUR BEHALF, WHETHER OR NOT
IN FUTURE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. FORWARD-LOOKING
STATEMENTS ARE STATEMENTS NOT BASED ON HISTORICAL INFORMATION AND WHICH RELATE
TO FUTURE OPERATIONS, STRATEGIES, FINANCIAL RESULTS OR OTHER DEVELOPMENTS.
FORWARD LOOKING STATEMENTS ARE NECESSARILY BASED UPON ESTIMATES AND ASSUMPTIONS
THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND OUR CONTROL AND MANY
OF WHICH, WITH RESPECT TO FUTURE BUSINESS DECISIONS, ARE SUBJECT TO CHANGE.
THESE UNCERTAINTIES AND CONTINGENCIES CAN AFFECT ACTUAL RESULTS AND COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD LOOKING
STATEMENTS MADE BY, OR ON OUR BEHALF. WE DISCLAIM ANY OBLIGATION TO UPDATE
FORWARD-LOOKING STATEMENTS.
We provide a complete cloud computing service for small to midsized (SMB)
customers. Private Cloud Services, our primary service eliminates on premise
servers by delivering each customer's existing applications and data from our
data center filled with our high-speed servers, security systems, and support
equipment. Customer employees can access their own personal desktop, familiar
application screens, and all data -- anytime, from anywhere, with any internet
connected device (PC, laptop, tablet and/or smart phone).
Our primary method of selling is through Partners using an agreement that
provides a monthly fee for us and commissions for our Partners.
Our plan of operations for the next 12 months is as follows:
MILESTONES
-------------------- ----------------------------------------------------------
4th Quarter 2014 Filing of Registration Statement
-------------------- ----------------------------------------------------------
1st Quarter 2015 15c211 FINRA Filing pending SEC approval of the
Registration Statement
-------------------- ----------------------------------------------------------
Raise additional capital through offering of common stock
to support sales growth strategy
-------------------- ----------------------------------------------------------
2nd Quarter 2015 Addition of New Data Centers to Operations.
-------------------- ----------------------------------------------------------
3rd Quarter 2015 Expansion of National Sales System
-------------------- ----------------------------------------------------------
-65-
RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2014 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
2013
During the six months ended June 30, 2014, we recognized total revenues of
$1,187,840 compared to the six months ended June 30, 2013 of $914,397. The
increase of $273,443 was a result of monthly reoccurring fees and installation
fees from new Private Cloud and Cloud Hosting Services customers added along
with a planned decrease in Professional Services revenue. Historically, our
Professional Services offerings have been used to facilitate customer adoption
of our Private Vault Services and not to make a profit. For this reason, only
the net revenues have been recognized. Since many of these services will be
offered by our Select 100 sales Partners in the future, we expect our
Professional Services efforts to be drastically reduced from fiscal 2013 levels,
in 2014.
During the six months ended June 30, 2014, we recognized a gross profit of
$789,229 compared to $512,212 during the six months ended June 30, 2013. The
increase of $277,017 was a result of increased revenues resulting from our
expanded marketing and sales efforts while focusing on improving efficiency of
our operations evidenced by cost of goods sold of remaining essentially flat to
prior year. During the six months ended June 30, 2014, cost of goods sold
primarily consisted of software licensing, data center operations, installation,
and customer help desk.
During the six months ended June 30, 2014, we recognized an operating loss of
$848,097 compared to $918,858 during the six months ended June 30, 2013. An
improvement of $70,761 resulting from an increase in operating expenses of
$206,256 offset by the increase of $277,017 in gross profits. Operating expenses
included $1,074,436 in general and administrative expenses, $423,840 in sales
and marketing expenses and $139,050 in research and development expenses.
General and administrative expenses increased $75,189, sales and marketing
increased by $128,469 and research and development expenses increased by $2,598.
The increase of $128,469 in sales and marketing expenses was a result of our
expansion of our marketing and sales efforts, while the increases in general and
administrative expenses increased as a result of increases in share-based
compensation and depreciation and amortization over the prior period.
During the six months ended June 30, 2014, we recognized a net loss of $871,187
compared to $974,905 for the prior period. The improvement of $103,718 was a
result of the increase in gross profits over operating cost increases plus a
reduction in interest expense incurred year-over-year.
FOR THE YEARS ENDED DECEMBER 31, 2013 COMPARED TO THE YEAR ENDED DECEMBER 31,
2012
During the year ended December 31, 2013, we recognized total revenue of
$1,859,553 compared to $1,735,335 during the year ended December 31, 2012. The
increase of $124,218 was a result of the growth of Private Cloud and Cloud
Hosting Services. During the year ended December 31, 2013, we recognized a gross
profit of $1,233,313 compared to $738,976 during the year ended December 31,
2013. The increase of $494,337 was a result of the $370,119 decrease in costs of
goods sold. During the year ended December 31, 2013, cost of goods sold
primarily consisted of software licensing, data center operations, installation,
and customer help desk.
During the year ended December 31, 2013, total operating expenses of $1,500,409
compared to $467,658 during the year ended December 31, 2012. The increase of
$1,032,751 was a result of the $986,941 increase in general and administration
expenses, a $285,274 increase in sales and marketing expense and the $254,873
increase in research and development expenses. The increase in general and
administration expenses is primarily attributable to non-cash stock compensation
expense of $506,856 related to the issuance of options and warrants. Other
increases were a result of added personnel.
During the year ended December 31, 2013, we recognized a net loss of $1,582,045
compared to a net loss of $512,089. The increase of $1,069,956 is a result of
the $1,032,751 increase in operational expenses offset by the $494,337 increase
in gross profits.
-66-
LIQUIDITY
JUNE 30, 2014
At June 30, 2014, we have total current assets of $611,474 consisting of
$317,660 in cash and cash equivalents, accounts receivables of $238,769 and
prepaid expenses of $55,045. Current liabilities at June 30, 2014, consisted of
$131,243 in accounts payables, $183,752 in deferred revenue, $205,873 in accrued
expenses, the current portion of the bank loan of $39,723, of capital leases of
$196,427 and of leasehold improvements of $13,576. At June 30, 2014, we had a
working capital deficit of $159,120.
During the six months ended June 30, 2014, we used $359,826 in our operating
activities. A net loss of $871,187 for the period was reconciled by such
non-cash items as $140,213 in depreciation and amortization, $(10,531) provision
for bad debt and $381,941 in share based compensation and warrants issued for
services.
During the six months ended June 30, 2013, we used $431,058 in our operating
activities. A net loss of $974,905 was reconciled for such non-cash items as
$178,463 in depreciation and amortization, $35,887 provision for bad debt and
$256,226 in stock based compensation and warrants issued for services.
During the six months ended June 30, 2014, we used $6,608 in investing
activities, solely on the purchase of property and equipment. During the six
months ended June 30, 2013, we used $7,625 in investing activities, solely on
the purchase of property and equipment.
During the six months ended June 30, 2014, $260,494 was received from financing
activities compared to $382,171 during the six months ended June 30, 2013.
Our revenues have increased $273,000 or 30% for the period ended June 30, 2014
along with a 10-point improvement in margins. This is somewhat offset by a
$206,166 or 14% increase in operating expenses. We will continue to look at ways
to increase revenues and margins while managing operating costs appropriately.
On September 14, 2012, we entered into a corporate development services
agreement with 5X Partners to provide research and development planning, raise
investor financing, registration of investor stock, and the initiation of public
trading. A member of 5X partners, Larry Ingwersen, serves on the board of
directors and is an officer of our Company. 5X Partners is currently paid
$27,500 per month for its services. For the six months ended June 30, 2014, 5X
Partners billed us $164,500. In 2013, 5X Partners billed our Company $330,000
for its services and later converted $265,000 into a long-term note due January
19, 2016.
We have a secured promissory note with a bank. On January 1, 2011, the note had
a principal balance of $195,714 with a fixed interest rate of 8.00%. The note
was increased by $7,500 on September 8, 2011 and by $10,000 on March 23, 2012.
The note was amended on April 30, 2012 to change the fixed interest rate to
7.00%. The weighted-average interest rate was 7.00% and 7.35% in 2013 and 2012,
respectively. Monthly payments of principal and interest total $3,938 and the
maturity date is May 5, 2017. The promissory note is collateralized by
substantially all of our assets and is guaranteed by two of our directors. There
are no bank covenants.
We have only a very limited amount of cash and an accumulated deficit, and have
incurred operating losses and negative cash flows from operations since
inception. As of June 30, 2014, we had an accumulated deficit of approximately
$3.2 million, and we will require additional working capital to fund operations
through 2014 and beyond. The Company's ability to continue as a going concern is
dependent on the Company generating profitable operations in the future and/or
obtaining the necessary financing to meet its obligations and repay its
liabilities arising from normal business operations when they come due. There is
no assurance that this series of events will be satisfactorily completed. The
Company believes that it will have the ability to operate through at least March
2015. The Company has raised $393,000 in financing subsequent to June 30, 2014.
-67-
DECEMBER 31, 2013
At December 31, 2013, we have total current assets of $647,629 consisting of
$423,600 in cash and cash equivalents, accounts receivables of $199,753 and
prepaid expenses of $24,276. Current liabilities at December 31, 2013 were
$666,005 and consisted of accounts payable of $89,616, deferred revenues of
$142,939, accrued expenses of $224,458, the current portion of a bank loan of
$38,351 and of capital leases of $157,541, and capital leasehold improvements of
$13,100. At December 31, 2013, we had a working capital deficit of $18,376.
During the year ended December 31, 2013, we used $679,160 in support of
operations. Net losses of $1,582,045, which were reconciled for such non-cash
items as $227,781 in depreciation and amortization, $14,503 in bad debt expenses
and $506,856 in stock compensation expenses.
During the year ended December 31, 2012, we used $99,722 in support of
operations. Net losses of $512,809 were reconciled for such non-cash items as
$159,867 in depreciation and amortization expenses and $34,410 gain in bad debt
expense.
During the year ended December 31, 2013, we used $15,215 in investing activities
consisting solely of the purchase of property and equipment. During the year
ended December 31, 2012, we used $19,306 in investing activities in the purchase
of property and equipment.
During the year ended December 31, 2013, we received $961,750 from our financing
activities and during the year ended December 31, 2012 we received $225,309 from
financing activities.
During the year ended December 31, 2013, we issued 264,800 shares of our
restricted common stock at $2.50 per share for total funds of $662,000.
We have a secured promissory note with a bank. On January 1, 2011, the note had
a principal balance of $195,714 with a fixed interest rate of 8.00%. The note
was increased by $7,500 on September 8, 2011 and by $10,000 on March 23, 2012.
The note was amended on April 30, 2012 to change the fixed interest rate to
7.00%. The weighted-average interest rate was 7.00% and 7.35% in 2013 and 2012,
respectively. Monthly payments of principal and interest total $3,938 and the
maturity date is May 5, 2017. The promissory note is collateralized by
substantially all of our assets and is guaranteed by two of our directors. There
are no bank covenants.
The amount of tenant improvements made in excess of the allowance of $170,000
was $72,483, which was financed by a loan from the landlord. The loan, which was
entered into in December 2012, is to be repaid over five years, has a fixed
interest rate of 7%, and has annual payments totaling $16,926. The tenant
improvements serve as collateral for this loan.
During the year ended December 31, 2012, we issued $475,000 in convertible
promissory notes. During the year ended December 31, 2013, we issued an
additional $460,000 in convertible promissory notes to investors. The
convertible promissory notes carry interest at 10% simple interest and convert
to shares of our common stock at $1.25 per share. The notes converted to common
stock on March 29, 2013, including accrued interest charged for the period from
the issuance of the notes through the conversion date, amounting to $50,905. The
total number of shares of common stock issued amounted to 788,724 upon
conversion of the notes.
On September 14, 2012, we entered into a corporate development services
agreement with 5X Partners to provide research and development planning, raise
investor financing, registration of investor stock, and the initiation of public
trading. A member of 5X partners, Larry Ingwersen, serves on our board of
directors. 5X Partners is currently paid $27,500 per month for its services
regarding three operating consultants. In 2013, 5X Partners billed us $330,000
for its services and later converted $265,000 into a long term note due January
19, 2016. In 2012, 5X billed us $162,000.
Amounts owed to related parties included in accounts payable totaled $19,928 and
$186,064 as of December 31, 2013 and 2012, respectively. In addition to the
conversion of accounts payable due to 5X Partners described above, other related
parties converted $176,000 into long term notes maturing in January 2016, for a
total of $441,000.
-68-
SHORT TERM
On a short-term basis, we have not generated revenues sufficient to cover our
growth oriented operations plan. Based on prior history, we may continue to
incur losses until such a time that our revenues are sufficient to cover our
operating expenses. As a result we may need additional capital in the form of
equity or loans, none of which is committed as of this filing.
CAPITAL RESOURCES
We have only common stock as our capital resource, and our assets, cash and
receivables.
We have no material commitments for capital expenditures within the next year,
however, as operations are expanded substantial capital will be needed to pay
for expansion, acquisition and working capital.
NEED FOR ADDITIONAL FINANCING
We do not have capital sufficient to meet our growth plans. We have made equity
and debt offerings in order to support our growth plans, to date, and may do so
in the future.
No commitments to provide additional funds have been made by our management or
other stockholders. Accordingly, there can be no assurance that any additional
funds will be available to us to allow coverage of our expenses as they may be
incurred.
CRITICAL ACCOUNTING POLICIES
REVENUE RECOGNITION -- We generate revenue from: (i) service fees related to
shared hosting services, (ii) service fees related to dedicated hosting
services, and (iii) professional services
PRIVATE CLOUD SERVICES
We provide shared hosting services for clients within its computer
infrastructure. All clients share and run systems across multiple enterprise
level computer servers, SANs, switches, and other network devices. All customers
share different pieces based on their specific needs. These services such as
file sharing are provided to all IVDesk service users. 24/7 support is included
in the subscription fee.
CLOUD HOSTING SERVICES
Our Hosting Services revenue is derived from providing specific server resources
for each customer within this categorization. These services are dedicated to
the customer and may be comprised of specific hardware, virtual servers, back up
servers, etc. We provide support services to these users as well including
system updates, monitoring, and maintenance. 24/7 support is included in the
subscription fee.
PROFESSIONAL SERVICES
Periodically we are requested to perform specific service projects for clients.
These consulting projects include software package selection, business process
optimization, software design, systems analysis, and other professional
services. These services are typically provided on a time-and-materials basis.
We typically enters into three-year contracts, with automatic renewals, with its
customers for our service. Fees are collected monthly. The subscription
agreements typically provide service level commitments of specified uptime per
period, excluding scheduled maintenance. We will typically credit qualifying
customers' one-day of revenue for a one-hour disruption of service, and a
maximum of two-days of revenue for a two-hour disruption of service. In light of
our historical experience with meeting its service level commitments, and that
credits are provided customers during the same month of service, we do not
currently have any obligations related to these commitments. Amounts that have
been invoiced are recorded in accounts receivable and in deferred revenue or
revenue, depending on whether the revenue recognition criteria have been met.
We recognize revenue when all of the following conditions are met:
-69-
o There is persuasive evidence of an arrangement;
o The service has been provided to the customer;
o The collection of the fees is reasonably assured; and
o The amount of fees to be paid by the customer is fixed or
determinable.
In most instances, revenue from new customer acquisitions is generated under
sales agreements with multiple elements, comprised of subscription and support
fees from customers accessing its cloud-based application suite and professional
services associated with consultation services. We evaluate each element in a
multiple-element arrangement to determine whether it represents a separate unit
of accounting. An element constitutes a separate unit of accounting when the
delivered item has standalone value and delivery of the undelivered element is
probable and within the Company's control. Subscription and support have
standalone value because they are routinely sold separately by the Company.
Professional services have standalone value because we sell professional
services separately and there are several third party vendors that routinely
provide similar professional services to its customers on a standalone basis.
We allocate revenue to each element in an arrangement based on a selling price
hierarchy. The selling price for a deliverable is based on its vendor-specific
objective evidence ("VSOE"), if available, third-party evidence ("TPE"), if VSOE
is not available, or estimated selling price ("ESP"), if neither VSOE nor TPE is
available. The consideration allocated to subscription and support is recognized
as revenue over the contract period commencing when the subscription service is
made available to the customer. The consideration allocated to professional
services is recognized as revenue using the proportional performance method.
The total arrangement fee for a multiple element arrangement is allocated based
on the relative ESP of each element. However, since the professional services
are generally completed prior to completion of delivery of subscription and
support services, the revenue recognized for professional services in a given
reporting period does not include fees subject to delivery of subscription and
support services. This results in the recognition of revenue for professional
services that is generally no greater than the contractual fees for those
professional services.
For single element sales agreements, subscription and support revenue is
recognized ratably over the contract term beginning on the provisioning date of
the contract. We recognize professional services revenue using the proportional
performance method for single element arrangements.
Sales and other taxes collected from customers to be remitted to government
authorities are excluded from revenues.
RESEARCH AND DEVELOPMENT EXPENSE - Research and development expenses consist
primarily of development personnel and non-employee contractor costs related to
the development of new products and services, enhancement of existing products
and services, quality assurance and testing. "FASB ASC 985-20-25," ACCOUNTING
FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED,
requires certain software development costs to be capitalized upon the
establishment of technological feasibility.
The establishment of technological feasibility and the ongoing assessment of the
recoverability of these costs require considerable judgment by management with
respect to certain external factors such as anticipated future revenue,
estimated economic life, and changes in software and hardware technologies.
Software development costs incurred beyond the establishment of technological
feasibility have not been significant. Therefore, no software development costs
were capitalized during the six months ended June 30, 2014 and the years ended
December 31, 2013 and 2012. Software development costs have been recorded as
research and development expense. Expenditures increased significantly in 2013
to upgrade the capacity of its operations to support increased demand and to
develop new processes that speed the time required to transition new customers
into our cloud infrastructure. Such expenses have been incurred in 6 months
ended June 30, 2014.
STOCK-BASED COMPENSATION - We account for stock-based compensation in accordance
with FASB ASC 718-10 which requires the measurements and recognition of
compensation expense for all stock-based payments including warrants, stock
options, restricted stock grants and stock bonuses based on estimated fair
value. For purposes of determining estimated fair value under FASB ASC
718-10-30, we compute the estimated fair values of stock options using the
Black-Scholes option pricing model. The fair value of restricted stock and stock
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award grants are determined based on the number of shares granted and the
closing price of our common stock on the date of grant. Compensation expense for
all share-based payment awards is recognized using the straight-line
amortization method over the vesting period.
We account for equity instruments issued for services and goods to non-employees
under "FASB ASC 505-50-1" ACCOUNTING FOR EQUITY INSTRUMENTS THAT ARE ISSUED TO
OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH SELLING, GOODS OR
SERVICES and "FASB ASC 505-50-25" ACCOUNTING RECOGNITION FOR CERTAIN
TRANSACTIONS INVOLVING EQUITY INSTRUMENTS GRANTED TO OTHER THAN EMPLOYEES.
Generally, the equity instruments issued for services and goods are shares of
our common stock, or warrants or options to purchase shares of our common stock.
These shares, warrants or options are either fully-vested and exercisable at the
date of grant or vest over a certain period during which services are provided.
We expense the fair market value of these securities over the period in which
the related services are received.
During the years ended December 31, 2013 and 2012, and included in the total
expense above, we recognized $182,151 and $0, respectively, of stock-based
compensation expense related to the fair market value of stock options and
warrants that were issued to outside vendors for professional services.
I. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
--------------------------------------------------------------------------------
Not applicable.
J. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------
Not applicable.
K. DIRECTORS AND EXECUTIVE OFFICERS
-----------------------------------
NAME AGE POSITION TERM
--------------------- ----- ------------------------------------------ -------
Alan F. Bignall 63 Chief Executive Officer and Director Annual
James J. Polakowski 59 President, Chief Operating Officer
and Director Annual
William E. Sorenson 54 Chief Technology Officer and Director Annual
Thomas E. Kelly 52 Chief Financial Officer, Secretary and
Treasurer Annual
Larry D. Ingwersen 69 Chairman of the Board Annual
Dieter L. Pape 67 Director Annual
Marc S. Usem 50 Director Annual
ALAN F. BIGNALL - CHIEF EXECUTIVE OFFICER AND DIRECTOR
Mr. Bignall was appointed Chief Executive Officer and a Director on August 25,
2014. Prior to his appointment with our Company, Mr. Bignall served as the CEO
and President of Reconrobotics Inc. from July 2006 until May 2014. Mr. Bignall
earned an undergraduate degree from Derby College of Technology (England) in
1973 and an MBA from the University of St. Thomas (St. Paul, Minnesota) in 1985.
Mr. Bignall brings 35 years of product development, IT, finance and senior
executive experience to the Board of Directors.
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JAMES J. POLAKOWSKI - PRESIDENT, CHIEF OPERATING OFFICER AND DIRECTOR
Prior to IVDesk, Mr. Polakowski served as the President of Focused Solutions
Consulting (FSC) from 2001 until FSC was acquired into our Company in 2012. At
such time, Mr. Polakowski was appointed President, Chief Operating Officer and
Director. Mr. Polakowski completed a Bachelor of Science Degree in Computer
Science from the University of Minnesota in 1979.
Mr. Polakowski brings 35 years of experience in large, complex IT systems and
senior management to us and Board of Directors along with a detailed experience
in the development of the technology.
WILLIAM E. SORENSON - CHIEF TECHNOLOGY OFFICER AND DIRECTOR
Prior to IVDesk, Mr. Sorenson served as the CEO of Focused Solutions Consulting
(FSC) from 2001 until FSC was acquired into our Company in 2012. Mr. Sorenson
attended Bethel College in Accounting/Finance from 1986 to 1989 but did not
complete a degree. Mr. Sorenson has been an officer and director since September
2012.
Mr. Sorenson brings a 25 year background in finance, IT and senior management to
our Company and Board of Directors along with detailed experience in the history
of our business.
THOMAS E. KELLY - CHIEF FINANCIAL OFFICER, SECRETARY AND TREASURER
Mr. Kelly was appointed the Chief Financial Officer, Secretary and Treasurer of
our Company on June 1, 2014. In 2005, Mr. Kelly founded T > Edward, Inc., a
strategic and operational SaaS consultancy, providing cloud expertise and
C-level services to clients. Mr. Kelly is a CPA (inactive) in the states of New
York and Minnesota, and holds a B.A. degree in Accounting from North Carolina
State University (1984) and an MBA in Finance from Fordham University (1992).
Mr. Kelly brings 30 years of public and private finance and senior management
experience to us along with a strong background in cloud computing.
LARRY D. INGWERSEN - CHAIRMAN OF THE BOARD
Mr. Ingwersen has served as a director of our Company since founding our
Company. Mr. Ingwersen leads our sales channel development and capital raising
programs. He has led initial public offerings (from Star Technologies in 1982 to
Tricord Systems in 1993), reverse mergers (1995 - 2003) and, since 2008, direct
public offerings. He is a founder of 5X Partners LLC (2008) and the Zebulon
Group LLC (2006), firms that have planned, financed and implemented growth
initiatives for early stage IT companies. He currently serves as CEO and
Director of 5X Partners, LLC and Zebulon Group, LLC. For the past 5 years, 5X
Partners, LLC has focused on rapidly growing public and private businesses that
sell data center delivered solutions. Mr. Ingwersen earned a BSEE degree in 1967
from South Dakota School of Mines and other colleges while completing advanced
coursework in electronics engineering and business administration at Arizona
State, Nebraska, Iowa State and South Dakota School of Mines.
Mr. Ingwersen brings 45 years of P&L Management, CEO, and Board-level experience
with IT companies to our Company and Board of Directors.
DIETER L. PAPE - DIRECTOR
Mr. Pape has been a Director since the formation of our Company in March 2012.
Mr. Pape has been the President and CEO of American Time and Signal (ATS) since
November 2012. Prior to ATS, Mr. Pape was the President/CEO of North American
Bison Cooperative and prior to that he led the turnaround of Morey's Seafood
International LLC, multi-site geographically diverse manufacturing and
distribution company. Mr. Pape serves and has served on the Boards of ATS,
Central MN YMCA, Central MN Boy Scouts, St. Cloud Technical College, North
American Bison Cooperative, North Dakota Natural Beef, St. Cloud Economic
Development, and Morey's Seafood International. Mr. Pape earned an MBA degree
(major in marketing and a minor in management) from Michigan State University in
1972. In 1969, Mr. Pape earned his Bachelor's degree at Michigan State with a
marketing major and a mechanical engineering minor.
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Mr. Pape brings a leadership background to our board of directors. He has had
leadership experience in start-ups, private & publicly held companies, growth
development, turnarounds, and acquisitions.
MARC S. USEM - DIRECTOR
Mr. Usem has been a Director since 2012. Mr. Usem has been a hedge fund
portfolio manager at Usem Bergstrand Capital Management, LLC since the firm's
inception in 1999. Formerly, Mr. Usem was a vice president and Sr. Publishing
Internet Technology Analyst in the equity research department at Salomon Smith
Barney in New York. He is active in the local community, serving as a past
president and board member of the Edina Morningside Rotary Club and as a
commissioner on the City of Edina's Transportation Commission. He is also a
judge for the high-tech division of the Minnesota Cup, the largest statewide new
venture competition sponsored by the University of Minnesota and Wells Fargo.
Mr. Usem earned an MBA from the University of Chicago Booth School of Business
in 1993 and a Bachelor's degree in computer science from Boston University in
1986.
Mr. Usem brings a portfolio management and financial background to our Board of
Directors.
Our officers work full time with us, with the exception of our CFO, Mr. Kelly
who works 4 days a week. Our directors have other outside responsibilities and
contributed up to 10 hours a week with the exception of Mr. Ingwersen who spends
100% of his time with us.
CONFLICTS OF INTEREST - GENERAL.
Our directors and officers are, or may become, in their individual capacities,
officers, directors, controlling shareholders and/or partners of other entities
engaged in a variety of non-profit and for-profit organizations. Thus, there
exist potential conflicts of interest including, among other things, time,
efforts and corporation opportunity, involved in participation with such other
business entities.
CONFLICTS OF INTEREST - CORPORATE OPPORTUNITIES
Presently no requirement contained in our Articles of Incorporation, Bylaws, or
minutes which requires officers and directors of our business to disclose to us
business opportunities which come to their attention. Our officers and directors
do, however, have a fiduciary duty of loyalty to us to disclose to us any
business opportunities which come to their attention, in their capacity as an
officer and/or director or otherwise. Excluded from this duty would be
opportunities which the person learns about through his involvement as an
officer and director of another company. We have no intention of merging with or
acquiring an affiliate, associate person or business opportunity from any
affiliate or any client of any such person.
L. EXECUTIVE AND DIRECTORS COMPENSATION
---------------------------------------
COMPENSATION
The following table sets forth the compensation paid to our officers and board
members during the fiscal years ended December 31, 2013 and 2012. The table sets
forth this information for our Company, IVDesk Holdings, Inc., including salary,
bonus, and certain other compensation to our Board members and named executive
officers for the fiscal years ended December 31, 2013 and 2012.
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SUMMARY EXECUTIVES COMPENSATION TABLE
----------------------------- ------- ---------- --------- ------ ---------- ------------ ------------- ------------ -----------
NON-EQUITY NON-QUALIFIED
INCENTIVE DEFERRED ALL
STOCK OPTION PLAN COMPENSATION OTHER
SALARY BONUS AWARD AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
NAME & POSITION YEAR ($) ($) ($) ($) ($) ($) ($) ($)
----------------------------- ------- ---------- --------- ------ ---------- ------------ ------------- ------------ -----------
Alan F. Bignall, CEO (1) 2013 0 0 0 0 0 0 0 0
----------------------------- ------- ---------- --------- ------ ---------- ------------ ------------- ------------ -----------
William E. Sorenson, CEO 2013 150,000 0 0 299,443 0 0 6,000 $249,774
and CTO (2) 2012 150,000 30,000 0 0 0 0 6,000 $150,000
----------------------------- ------- ---------- --------- ------ ---------- ------------ ------------- ------------ -----------
Thomas E. Kelly, CFO (3) 2013 0 0 0 0 0 0 0 0
----------------------------- ------- ---------- --------- ------ ---------- ------------ ------------- ------------ -----------
James Polakowski, President 2013 150,000 0 0 299,443 0 0 6,000 $249,774
and COO (4) 2012 150,000 30,000 0 0 0 0 6,000 $150,000
----------------------------- ------- ---------- --------- ------ ---------- ------------ ------------- ------------ -----------
Thomas J. Mahoney, Former 2013 96,000 0 0 138,210 0 0 0 $142,051
CFO (3) 2012 24,000 0 0 0 0 0 0 $24,000
----------------------------- ------- ---------- --------- ------ ---------- ------------ ------------- ------------ -----------
(1) Effective August 25, 2014, Mr. Bignall was appointed Chief Executive
Officer.
(2) Effective August 25, 2014, Mr. Sorenson resigned as our Company's CEO while
retaining his CTO role and Mr. Alan F. Bignall was appointed Chief
Executive Officer on August 15, 2014. A portion of the salary paid to Mr.
Sorenson was paid to his consulting company firm, though our employment
agreement with Mr. Sorenson is with him individually. In 2013, Mr. Sorenson
was issued an option for 299,443 shares of common stock.
(3) Effective June 1, 2014 Mr. Mahoney resigned as our Company's Chief
Financial Officer and Mr. Tom Kelly was appointed our Company' Chief
Financial Officer on June 1, 2014. Mr. Mahoney was issued an option in 2013
for 138,210 shares of common stock.
(4) A portion of the salary paid to Mr. Polakowski was paid to his consulting
company firm, though our Company's employment agreement with Mr. Polakowski
is with him individually. In 2013, Mr. Polakowski was issued an option for
299,443 shares of common stock.
OPTION/WARRANT GRANTS IN THE LAST FISCAL YEAR
On February 13, 2013, the Board of Directors and the stockholders of our Company
approved the 2012 IVDesk Holdings, Inc.'s Stock Option Award and Incentive Plan
("the 2012 Plan.") There are 2,500,000 shares of our common stock reserved under
the 2012 Plan. During the year ended December 31, 2013, options exercisable for
1,296,324 shares and warrants exercisable for 91,477 shares were granted were
issued under the 2012 Plan as of date hereof. Options for 63,756 shares and
warrants for 25,000 shares have since expired unexercised. Warrants for 16,477
shares were exercised in April 2014.
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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table sets forth certain information concerning outstanding equity awards held by our Company's appointed
executive officers for the fiscal year ended December 31, 2013 (the "Named Executive Officers"):
Option Awards Stock awards
---------------------------------------------------------- --------------------------------------------
------------ ------------- ------------ -------- --------- ---------- ----------- ---------- ----------
Equity
incentive
Equity plan
incentive awards:
plan Market
awards: or
Equity Number payout
incentive of value of
plan Number unearned unearned
awards: of Market shares, shares,
Number of Number of shares value of units or units or
securities Number of securities or units shares of other others
underlying securities underlying of stock units of rights rights
unexercised underlying unexercised Option that stock that that
options unexercised unearned exercise Option have not that have have not have not
(#) options (#) options price expiration vested not vested vested vested
Name exercisable unexercisable (#) ($) date (#) ($) (#) ($)
--------------- ------------ ------------- ------------ -------- --------- ---------- ----------- ---------- ----------
William E. 92,051 184,213 0 0.38 2023 0 0 0 0
Sorenson,
CEO/CTO (2)
James
Polakowski,
President and
COO 92,051 184,213 0 0.38 2023 0 0 0 0
Thomas J.
Mahoney, CFO
(1) 42,487 85,025 0 0.38 2023 0 0 0 0
---------------
(1) On June 1, 2014 Mr. Mahoney resigned as our Company's Chief Financial
Officer and Mr. Tom Kelly was appointed our Company' Chief Financial
Officer on June 1, 2014.
(2) Effective August 25, 2014, Mr. Sorenson resigned as our Company's CEO while
retaining his CTO role and Mr. Alan F. Bignall was appointed CEO.
DIRECTOR COMPENSATION
All of our officers and/or directors will continue to be active in other
companies. All officers and directors have retained the right to conduct their
own independent business interests.
We do not pay any fees to Directors for meeting attendance.
The following table sets forth certain information concerning compensation paid
to our directors during the year ended December 31, 2013:
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Fees Non-qualified
earned or deferred
paid in Non-equity compensation
cash Stock Option incentive plan earnings All other Total
Name ($) awards ($) awards ($) compensation ($) ($) compensation ($) ($)
----------------- ------------ ------------- ------------ ------------------ ----------------- ------------------ ----------
William E. $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
Sorenson (1)
James J. $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
Polakowski (2)
Larry D. $13,000 $ -0- $138,210 $ -0- $ -0- $ -0- $151,210
Ingwersen (3)
Dieter L. Pape $ -0- $ -0- $41,479 $ -0- $ -0- $ -0- $41,479
(4)
Marc S. Usem (4) $ -0- $ -0- $41,479 $ -0- $ -0- $ -0- $41,479
-----------------
(1) Mr. Sorenson is also an officer of our Company and as such he receives the
compensation as disclosed in the Executive Compensation Table. He does not
receive payment for his services as a director.
(2) Mr. Polakowski is also an officer of our Company and as such he receives
the compensation as disclosed in the Executive Compensation Table. He does
not receive payment for his services as a director.
(3) Mr. Ingwersen, is a member of 5X Partners, which has a consulting agreement
with our Company, paying $10,000 per month, for a month-to-month term,
renewable automatically. During the year Mr. Ingwersen was issued options
exercisable for 127,512 shares of common stock.
(4) Mr. Pape and Mr. Usem were award stock options for their services as
directors. Each was issued an option exercisable for 38,268 shares of
common stock.
EMPLOYMENT AGREEMENTS WITH OFFICERS AND DIRECTORS OF OUR COMPANY
We have employment/consultant agreements as of October 28, 2014, with our key
officers, as listed below. Described below are the compensation packages our
Board approved for our executive officers. The compensation agreements were
approved by our board based upon recommendations conducted by the board.
NAME POSITION ANNUAL
COMPENSATION
--------------------- ---------------------------- ------------
Alan Bignall CEO & Director $200,000 (1)
William Sorenson CTO & Director $150,000 (2)
James Polakowski President & COO & Director $150,000 (3)
Thomas E. Kelly CFO, Secretary & Treasurer $96,000 (4)
Larry Ingwersen Chairman of the Board $120,000 (5)
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(1) Pursuant to an Employment Agreement effective August 25, 2014, Mr. Bignall
receives a base salary of $200,000 per year. In addition to the base salary, Mr.
Bignall is eligible to receive performance bonuses as to be determined by our
Company's Board of Directors. The agreement does not have a term and provides
for employment on an at will bases.
The agreement provides for termination with cause, which is determined at the
Board of Directors sole discretion. Cause is considered to be conduct injurious
to our Company, fraud, misappropriation or embezzlement, conviction of a felony
crime or crime of moral turpitude or material breach of the agreement or
corporate policies.
If the agreement is terminated without cause after 90 days employment by us, Mr.
Bignall would be eligible to receive severance pay that in a gross amount equal
to 6 months of the annualized base salary, subject to the execution of a
separation agreement.
(2) Pursuant to an employment agreement effective September 14, 2012, Mr.
Sorenson receives a base salary of $150,000 per year. In addition to the base
salary, Mr. Sorenson is eligible to receive performance bonuses as to be
determined by our Company's Board of Directors. Mr. Sorenson receives an auto
allowance of $500 and received a $30,000 signing bonus in September 2012. The
agreement had a two-year term and expired on September 14, 2014. We renewed the
agreement through September 14, 2016.
Upon an affirmative vote of not less than two-thirds of the Board of Directors,
the employment may be terminated without further liability on the part of our
Company. Cause is considered to be an act or acts of serious dishonesty fraud,
or material and deliberate injury related to our business, including personal
enrichment at our expense. If there is a termination for cause the benefits of
any bonus for the period preceding termination would be forfeit.
In addition the agreement provides for Mr. Sorenson to be able to terminate the
agreement for Good Reason. Good Reason is considered to be (i) an adverse change
in his status or position as CTO, (ii) a reduction in base salary, or (iii)
action by us that adversely affected his participation in the benefits.
(3) Pursuant to an employment agreement effective September 14, 2012, Mr.
Polakowski receives a base salary of $150,000 per year. In addition to the base
salary, Mr. Polakowski is eligible to receive performance bonuses as to be
determined by our Board of Directors. Mr. Polakowski receives an auto allowance
of $500 and received a $30,000 signing bonus in September 2012. The agreement
had a two-year term and expired on September 14, 2014. We renewed the agreement
through September 14, 2016.
Upon an affirmative vote of not less than two-thirds of the Board of Directors,
the employment may be terminated without further liability on the part of our
Company. Cause is considered to be an act or acts of serious dishonesty fraud,
or material and deliberate injury related to our business, including personal
enrichment at our expense. If there is a termination for cause the benefits of
any bonus for the period preceding termination would be forfeit.
In addition the agreement provides for Mr. Polakowski to be able to terminate
the agreement for Good Reason. Good Reason is considered to be (i) an adverse
change in his status or position as CEO, (ii) a reduction in base salary, or
(iii) action by us that adversely affected his participation in the benefits.
(4) Pursuant to an Independent Contractor Agreement effective May 22, 2014, Mr.
Kelly provides services as a Chief Financial Officer to our Company. The
agreement provides for him to devote up to 80% of his time to us and receive a
base annual salary of $96,000. In addition he is to receive an option or warrant
under the 2012 Plan exercisable for 120,000 shares vesting at a rate of 3,333
shares per month whereby during the first six months, the shares eligible to
vest in that period will not vest until the end of the first six months.
Mr. Kelly is eligible to receive performance bonuses as to be determined by our
Board of Directors.
Under the Independent Contractor Agreement, we and Mr. Kelly have the right to
terminate the agreement, with or without cause with 90 days written notice.
(5) Pursuant to a Corporate Development Services Agreement effective February
15, 2013, with 5X Partners, LLC of which Mr. Ingwersen is a member. The
agreement provides for 5X Partners to be paid a base rate of $27,500 per month.
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Mr. Ingwersen per the agreement has a time commitment of 80% and a monthly
compensation rate of $10,000.
The agreement can be terminated by either party, after giving 90 days notice.
M. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AS OF OCTOBER
28, 2014
--------------------------------------------------------------------------------
The following table sets forth information with respect to the beneficial
ownership of our outstanding common stock by:
o each person who is known by us to be the beneficial owner of five
percent (5%) or more of our common stock;
o Our Chief Executive Officer and financial officer, its other executive
officers, and each director as identified in the "Management --
Executive Compensation" section; and
o all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock and options, warrants
and convertible securities that are currently exercisable or convertible within
60 days of the date of this document into shares of our common stock are deemed
to be outstanding and to be beneficially owned by the person holding the
options, warrants or convertible securities for the purpose of computing the
percentage ownership of the person, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
The information below is based on the number of shares of our common stock that
we believe was beneficially owned by each person or entity as of October 28,
2014.
PERCENT OF PERCENT OF
AMOUNT AND NATURE CLASS CLASS
OF BENEFICIAL PRE-OFFERING POST-OFFERING
NAME AND ADDRESS OF BENEFICIAL OWNER * OWNER (1) (2) (3)
--------------------------------------------------------------- ------------------- --------------- ---------------
Alan F. Bignall, Chief Executive Officer and Director 0 0% 0%
William E. Sorenson, Chief Technology Officer and Director(4) 890,000 14.30% 14.30%
James J. Polakowski, President, COO and Director 1,768,000 28.42% 28.42%
Thomas E. Kelly, Chief Financial Officer, Secretary and 0 0% 0%
Treasurer
Larry D. Ingwersen, Chairman of the Board (5) 484,356 7.78% 7.78%
Marc S. Usem, Director 84,356 1.36% 1.36%
Dieter Pape, Director 0 0% 0%
Julia Sorenson (6) 1,000,000 16.0% 16.0%
Roderick Johnson (5) 421,089 6.76% 6.76%
--------------------------------------------------------------- ------------------- --------------- ---------------
All Directors and Executive Officers as a group 3,226,712 51.85% 51.85%
(7 persons) ------------------- --------------- ---------------
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*The Address for the above individuals and entities is c/o 1515 Central Avenue,
NE, Suite 100, Minneapolis, MN 55413.
(1) Note: All officers and directors have been awarded stock options that
are not expected to be exercised within 60 days of the Date of
Issuance for this Offering.
(2) Based upon 6,222,001 shares issued and outstanding.
(3) Based upon 6,222,001 shares of issued and outstanding common stock
post-offering.
(4) Effective August 25, 2014, Mr. Sorenson resigned as our Company's CEO
while retaining his CTO role and Mr. Alan F. Bignall was appointed
CEO.
(5) Mr. Ingwersen and Mr. Johnson are partners of 5X Partners, which has
entered into a Corporate Development Agreement with our Company.
(6) Ms. Sorenson is Mr. Sorenson's ex-wife.
Rule 13d-3 under the Securities Exchange Act of 1934 governs the determination
of beneficial ownership of securities. That rule provides that a beneficial
owner of a security includes any person who directly or indirectly has or shares
voting power and/or investment power with respect to such security. Rule 13d-3
also provides that a beneficial owner of a security includes any person who has
the right to acquire beneficial ownership of such security within sixty days,
including through the exercise of any option, warrant or conversion of a
security. Any securities not outstanding which are subject to such options,
warrants or conversion privileges are deemed to be outstanding for the purpose
of computing the percentage of outstanding securities of the class owned by such
person. Those securities are not deemed to be outstanding for the purpose of
computing the percentage of the class owned by any other person.
N. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, PROMOTERS AND CONTROL PERSONS
-----------------------------------------------------------------------------
Other than the transactions discussed below, we have not entered into any
transaction nor is there any proposed transactions in which any of the founders,
directors, executive officers, shareholders or any members of the immediate
family of any of the foregoing had or is to have a direct or indirect material
interest.
ISSUANCE OF EQUITY
During the year ended December 31, 2013, officers and directors of our Company
have been issued options and/or warrants in connection with their services to
our Company as set forth in the table below:
NAME TYPE OF EQUITY NUMBER OF SHARES VALUE
--------------------- -------------- ---------------- -------------
William Sorenson Option 276,264 $299,443
James Polakowski Option 276,264 $299,443
Larry D. Ingwersen Option 127,512 $138,210
Dieter Pape Option 38,268 $41,479
Marc S. Usem Option 38,268 $41,479
Our Former CFO Thomas Mahoney, in 2013, was issued an option exercisable for
127,512 shares of common stock valued at $138,210. He resigned as the Chief
Financial Officer on June 1, 2014.
ISSUANCE OF DEBT
On March 19, 2014, we entered into an unsecured corporate promissory note with
our director Larry Ingwersen for $65,000 owed to him by us at December 31, 2013.
The note has an interest rate of 3.5781% and a due date of January 19, 2016.
On March 19, 2014, we entered into an unsecured corporate promissory with
Polakowski & Sons, a firm owned by our officer and director James Polakowski,
for $43,500 owed to Mr. Polakowski by us at December 31, 2013. The note has an
interest rate of 3.5781% and a due date of January 19, 2016.
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On March 19, 2014, we entered into an unsecured corporate promissory with WE
Sorenson & Associates, a firm owned by our officer and director William
Sorenson, for $29,500 owed to Mr. Sorenson by us at December 31, 2013. The note
has an interest rate of 3.5781% and a due date of January 19, 2016.
On March 19, 2014, we entered into an unsecured corporate promissory with
Hilldale Ventures, Inc., a firm owned by our former Chief Financial Officer
Thomas Mahoney, for $37,500 owed to Mr. Mahoney by us at December 31, 2013. The
note has an interest rate of 3.5781% and a due date of January 19, 2016.
CONTRACT AND PROMISSORY NOTE WITH 5X PARTNERS, LLC
Pursuant to a Corporate Development Services Agreement effective February 15,
2013 with 5X Partners, LLC. The agreement provides for 5X Partners to provide
sales and marketing assistance, research and development planning, raising
investor financing, registration of investor stock, and the initiation of public
trading. The agreement provides for 5X Partners to be paid a base rate of
$27,500 per month. The agreement can be terminated by either party, after giving
90 days notice.
A member of 5X Partners, Larry Ingwersen, serves on our board of directors and
he is an officer of our Company. 5X Partners is currently paid $27,500 per month
for its services. Mr. Ingwersen, per the agreement, has a time commitment of 80%
and a monthly compensation rate of $10,000. Mr. Roderick Johnson, a greater than
5% shareholder of our Company, is also a partner of 5X Partners and per the
Corporate Development Services Agreement receives a compensation of $10,000 for
80% of his time.
For the six months ended June 30, 2014, 5X Partners billed $155,000. For the
years ended December 31, 2103 and 2012, 5X Partners billed $330,000 and $162,000
for its services, respectively.
At December 31, 2013, we exchanged a $265,000 unsecured promissory note for the
funds owed. The note has an effective interest rate of 3.5781% and a due date of
January 19, 2016.
BANK NOTE GUARANTEE
We have a secured promissory note with a bank. On January 1, 2011, the note had
a principal balance of $195,714 with a fixed interest rate of 8.00%. The note
was increased by $7,500 on September 8, 2011 and by $10,000 on March 23, 2012.
The note was amended on April 30, 2012 to change the fixed interest rate to
7.00%. The weighted-average interest rate was 7.00% and 7.35% in 2013 and 2012,
respectively. Monthly payments of principal and interest total $3,938 and the
maturity date is May 5, 2017. The promissory note is collateralized by
substantially all of our assets and is guaranteed by directors Mr. Polakowski
and Mr. Sorenson. There are no bank covenants.
DIRECTOR INDEPENDENCE
Our board of directors undertook its annual review of the independence of the
directors and considered whether any director had a material relationship with
us or our management that could compromise his ability to exercise independent
judgment in carrying out his responsibilities. As a result of this review, the
board of directors affirmatively determined that none of our directors are
"independent" as such term is used under the rules and regulations of the
Securities and Exchange Commission.
ITEM 11A. MATERIAL CHANGES
--------------------------
None.
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ITEM 12. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
----------------------------------------------------------
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act of 1933 with respect to the securities offered by this
prospectus. This prospectus does not contain all of the information included in
the registration statement. For further information pertaining to us and our
common stock, you should refer to the registration statement and the exhibits
filed with the registration statement. Whenever we make reference in this
prospectus to any of our contracts, agreements or other documents, the
references are not necessarily complete, and you should refer to the exhibits
attached to the registration statement for copies of the actual contract,
agreement or other document.
We are subject to the informational requirements of the Securities Exchange Act
of 1934 and file reports and other information with the SEC. You can read our
SEC filings, including the registration statement, over the internet at the
SEC's website at http://www.sec.gov. You may also read and copy any document we
file with the SEC at its Public Reference Room at 100 F Street N.E., Washington,
D.C. 20549. Additionally, you can obtain copies of the documents at prescribed
rates by writing to the Public Reference Section of the SEC at 100 F Street
N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of its Public Reference Room.
EXPERTS
The financial statements as of December 31, 2013 and 2012 and for the years then
ended have been so included in reliance on the report of Baker Tilly Virchow
Krause LLP, independent registered public accounting firm, given on the
authority of that firm as experts in accounting and auditing.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" into this prospectus information
we have filed with it. The information incorporated by reference is an important
part of this prospectus and is considered to be part of this prospectus. We
incorporate by reference the documents listed as exhibits to the document in
Item 16.
ITEM 12A. DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
--------------------------------------------------------------------------------
The Delaware General Corporation Law requires us to indemnify officers and
directors for any expenses incurred by any officer or director in connection
with any actions or proceedings, whether civil, criminal, administrative, or
investigative, brought against such officer or director because of his or her
status as an officer or director, to the extent that the director or officer has
been successful on the merits or otherwise in defense of the action or
proceeding. The Delaware General Corporation Law permits a corporation to
indemnify an officer or director, even in the absence of an agreement to do so,
for expenses incurred in connection with any action or proceeding if such
officer or director acted in good faith and in a manner in which he or she
reasonably believed to be in or not opposed to the best interests of us and such
indemnification is authorized by the stockholders, by a quorum of disinterested
directors, by independent legal counsel in a written opinion authorized by a
majority vote of a quorum of directors consisting of disinterested directors, or
by independent legal counsel in a written opinion if a quorum of disinterested
directors cannot be obtained.
The Delaware General Corporation Law prohibits indemnification of a director or
officer if a final adjudication establishes that the officer's or director's
acts or omissions involved intentional misconduct, fraud, or a knowing violation
of the law and were material to the cause of action. Despite the foregoing
limitations on indemnification, the Delaware General Corporation Law may permit
an officer or director to apply to the court for approval of indemnification
even if the officer or director is adjudged to have committed intentional
misconduct, fraud, or a knowing violation of the law.
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The Delaware General Corporation Law also provides that indemnification of
directors is not permitted for the unlawful payment of distributions, except for
those directors registering their dissent to the payment of the distribution.
According to our bylaws, we are authorized to indemnify our directors to the
fullest extent authorized under Delaware Law subject to certain specified
limitations.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and persons controlling
us pursuant to the foregoing provisions or otherwise, we are 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.
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[OUTSIDE BACK COVER PAGE OF PROSPECTUS]
DEALER PROSPECTUS DELIVERY REQUIREMENTS
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
----------------------------------------------------
We have expended, or will expend fees in relation to this registration statement
as detailed below:
================================================================= =============
EXPENDITURE ITEM AMOUNT
---------------------------------------------------------------- -------------
Attorney Fees $15,000
----------------------------------------------------------------- -------------
Audit Fees * $85,000
----------------------------------------------------------------- -------------
Transfer Agent Fees $2,000
----------------------------------------------------------------- -------------
SEC Registration and Blue Sky Registration fees (estimated) $3,000
----------------------------------------------------------------- -------------
Printing Costs and Miscellaneous Expenses (estimated) $5,000
----------------------------------------------------------------- -------------
TOTAL $110,000
================================================================= =============
* Accounting Fees Include Services Provided in Connection With the December 31,
2013 and 2012 Audits, June 30, 2014 and 2013 Quarterly Reviews, and the
Preparation of the Form S-1.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
--------------------------------------------------
Our officers and directors are indemnified as provided by the Delaware General
Corporation Laws and the bylaws.
Under the Delaware General Corporation Laws, director immunity from liability to
a company or its shareholders for monetary liabilities applies automatically
unless it is specifically limited by a company's Articles of Incorporation. Our
Articles of Incorporation do not specifically limit the directors' immunity.
Excepted from that immunity are: (a) a willful failure to deal fairly with us or
our shareholders in connection with a matter in which the director has a
material conflict of interest; (b) a violation of criminal law, unless the
director had reasonable cause to believe that his or her conduct was lawful or
no reasonable cause to believe that his or her conduct was unlawful; (c) a
transaction from which the director derived an improper personal profit; and (d)
willful misconduct.
Our bylaws provide that it will indemnify the directors to the fullest extent
not prohibited by Delaware law; provided, however, that we may modify the extent
of such indemnification by individual contracts with the directors and officers;
and, provided, further, that we shall not be required to indemnify any director
or officer in connection with any proceeding, or part thereof, initiated by such
person unless such indemnification: (a) is expressly required to be made by law,
(b) the proceeding was authorized by the board of directors, (c) is provided by
us, in sole discretion, pursuant to the powers vested under Delaware law or (d)
is required to be made pursuant to the bylaws.
Our bylaws provide that it will advance to any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director or officer of us, or is or was
serving at the request of us as a director or executive officer of another
company, partnership, joint venture, trust or other enterprise, prior to the
final disposition of the proceeding, promptly following request therefore, all
expenses incurred by any director or officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under the bylaws or otherwise.
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Our bylaws provide that no advance shall be made by us to an officer except by
reason of the fact that such officer is or was our director in which event this
paragraph shall not apply, in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made: (a) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (b) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of us.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
------------------------------------------------
During the period of January 1, 2012 through June 30, 2014, we have made
unregistered sales or issuances of securities as set forth below.
--------------------------------- ------------------ ----------------- ------------------------- ------------------------
DATE OF TITLE OF NO. OF CLASS OF
ISSUANCE SECURITIES SHARES CONSIDERATION PURCHASER
--------------------------------- ------------------ ----------------- ------------------------- ------------------------
March 2012 Common Stock 1,000,000 Formation Founders
--------------------------------- ------------------ ----------------- ------------------------- ------------------------
September 2012 Common Stock 4,000,000 FSC Asset Acquisition FSC Owners
--------------------------------- ------------------ ----------------- ------------------------- ------------------------
Officers, Directors,
February 2013 Options 1,287,313 Compensation Contractors and
Employees
--------------------------------- ------------------ ----------------- ------------------------- ------------------------
Conversion of
March 2013 Common Stock 788,724 Convertible Promissory Business Associates
Notes
--------------------------------- ------------------ ----------------- ------------------------- ------------------------
May 2013 - December 2013 Common Stock 246,800 $662,000 Business Associates
--------------------------------- ------------------ ----------------- ------------------------- ------------------------
Common Stock 16,477 Warrant Exercise Business Associate
--------------------------------- ------------------ ----------------- ------------------------- ------------------------
January 2014 - June 2014 Common Stock 152,000 $380,000 Business Associates
--------------------------------- ------------------ ----------------- ------------------------- ------------------------
EXEMPTION FROM REGISTRATION CLAIMED
All of the above sales by our Company of its unregistered securities were made
by our Company in reliance upon Rule 506 of Regulation D and Section 4(2)(and
now 4(a)5) of the Securities Act of 1933, as amended (the "1933 Act"). All of
the individuals and/or entities that purchased the unregistered securities were
primarily existing shareholders, known to our Company and its management,
through pre-existing business relationships, as long standing business
associates and employees. All purchasers were provided access to all material
information, which they requested, and all information necessary to verify such
information and were afforded access to management of our Company in connection
with their purchases. All purchasers of the unregistered securities acquired
such securities for investment and not with a view toward distribution,
acknowledging such intent to our Company. All certificates or agreements
representing such securities that were issued contained restrictive legends,
prohibiting further transfer of the certificates or agreements representing such
securities, without such securities either being first registered or otherwise
exempt from registration in any further resale or disposition.
-84-
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
---------------------------------------------------
------- --------------------------------------------------------- --------------
Number Description
======= ========================================================= ==============
3(i).1 Certificate of Incorporation of IV Desk Holdings, Inc. Filed Herewith
3(i).2 Certificate of Correction - IVDesk Holdings, Inc. Filed Herewith
3(i).3 Articles of Incorporation of IV Desk Minnesota, Inc. Filed Herewith
3(i).4 Amendment to Articles of Incorporation - IVDesk Filed Herewith
Minnesota, Inc.
3(i).5 Amendment to Articles of Incorporation - IVDesk Filed Herewith
Minnesota, Inc.
3(ii).1 Bylaws of IVDesk Holdings, Inc. Filed Herewith
3(ii).2 Bylaws of IVDesk Minnesota, Inc. Filed Herewith
4.1 2012 IVDesk Holdings, Inc.'s Stock Incentive Plan Filed Herewith
5.1 Opinion re: Legality Filed Herewith
10.1 Asset Purchase Agreement Filed Herewith
10.2 Corporate Development Services Agreement - IVDesk Filed Herewith
Minnesota, Inc. and 5X Partners, LLC
10.3 Employment Agreement, IVDesk Holdings, Inc. and Alan F. Filed Herewith
Bignall
10.4 Executive/Officer Employment Agreement, IVDesk Filed Herewith
Minnesota, Inc. and William Sorenson
10.5 Independent Contractor Agreement, IVDesk Minnesota, Filed Herewith
Inc. and T>Edward, Inc. (Thomas E. Kelly)
10.6 Executive/Officer Employment Agreement - IVDesk Filed Herewith
Minnesota, Inc. and James Polakowski
10.7 Unsecured Promissory Note, March 19, 2014 - 5X Partners Filed Herewith
LLC
10.8 Unsecured Promissory Note, March 19, 2014 - Hilldale Filed Herewith
Ventures, Inc.
10.9 Unsecured Promissory Note, March 19, 2014 - Larry Filed Herewith
Ingwersen
10.10 Unsecured Promissory Note, March 19, 2014 - WE Sorenson Filed Herewith
& Assoc.
10.11 Unsecured Promissory Note, March 19, 2014 - Polakowski Filed Herewith
& Sons
21.1 List of Subsidiaries Filed Herewith
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23.1 Consent of Attorney Filed Herewith
23.2 Consent of Independent Registered Public Accounting Firm Filed Herewith
--------------------------------------------------------- --------------
-86-
ITEM 17. UNDERTAKINGS
---------------------
We hereby undertake the following:
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after the
effective date of this registration statement, or most recent
post-effective amendment, which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement
or any material change to such information in the registration
statement.
That, for the purpose of determining any liability under the Securities Act,
each post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
To remove from registration by means of a post-effective amendment any of the
securities being registered hereby which remain unsold at the termination of the
Offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to the directors, officers and controlling persons pursuant to the
provisions above, or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities, other
than the payment by us of expenses incurred or paid by one of the directors,
officers, or controlling persons in the successful defense of any action, suit
or proceeding, is asserted by one of the directors, officers, or controlling
persons in connection with the securities being registered, we will unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification is against public policy as expressed in the Securities Act, and
we will be governed by the final adjudication of such issue.
For determining liability under the Securities Act, to treat 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 under Rule 424(b) (1) or (4) or 497(h) under the Securities Act as
part of this Registration Statement as of the time the Commission declared it
effective.
-87-
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and authorized this Registration
Statement to be signed on our behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis, State of Minnesota, on November 3, 2014.
IVDESK HOLDINGS, INC.
/s/ Alan F. Bignall November 3, 2014
-------------------------------------------------------------
Alan F. Bignall
(Chief Executive Officer and Principal Executive Officer)
/s/ Thomas E. Kelly November 3, 2014
-------------------------------------------------------------
Thomas E. Kelly
(Chief Financial Officer/Principal Accounting Officer)
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
/s/ Alan F. Bignall November 3, 2014
----------------------------------------------------
Alan F. Bignall, Director
/s/ William E. Sorenson November 3, 2014
----------------------------------------------------
William E. Sorenson, Director
/s/ James J. Polakowski November 3, 2014
----------------------------------------------------
James J. Polakowski, Director
/s/ Larry D. Ingwersen November 3, 2014
----------------------------------------------------
Larry D. Ingwersen, Chairman of the Board
/s/ Dieter L. Paper November 3, 2014
----------------------------------------------------
Dieter L. Pape, Director
/s/ Marc S. Usem November 3, 2014
----------------------------------------------------
Marc S. Usem, Director
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