Delaware
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75-3111137
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(State
or Other Jurisdiction of Incorporation)
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(I.R.S.
Employer Identification No.)
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345
Chapala Street, Santa Barbara, California
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93101
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(Address
of principal executive offices)
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(Zip
Code)
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Title of each class to
be so registered
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Name
of each exchange on which each
class is to be
registered
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None
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None
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
(Do
not check if a smaller reporting company)
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Smaller
reporting company x
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Page
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Item
1.
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Business
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2
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Item
1A.
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Risk
Factors
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24
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Item
2.
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Financial
Information
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48
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Item
3.
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Properties
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58
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Item
4.
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Security
Ownership of Certain Beneficial Owners and
Management
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59
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Item
5.
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Directors,
Executive Officers and Management
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60
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Item
6.
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Executive
Compensation
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63
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Item
7.
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Certain
Relationships and Related Transactions and Director
Independence
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64
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Item
8.
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Legal
Proceedings
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65
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Item
9.
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Market
Price of and Dividends on the Registrant's Common Equity and Related
Stockholder Matters
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65
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Item
10.
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Recent
Sales of Unregistered Securities
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68
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Item
11.
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Description
of Registrant's Securities to be Registered
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71
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Item
12.
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Indemnification
of Directors and Officers
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71
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Item
13.
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Financial
Statements and Supplementary Data
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72
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Item
14.
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Change
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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72
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Item
15.
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Financial
Statement and Exhibits
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73
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·
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our
ability to control operating costs and fully implement our current
business plan;
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·
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our
ability to obtain future financing or funds when
needed;
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·
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our
ability to successfully obtain a diverse customer base;
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·
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our
ability to protect our intellectual property through patents, trademarks,
copyrights and confidentiality agreements;
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·
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our
ability to respond to new developments in technology and new applications
of existing technology before our competitors;
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·
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the
timing and ability of Wireless Carriers to invest in and roll out their
next generation mobile networks;
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·
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risks
associated with acquisitions, business combinations, strategic
partnerships, divestures, and other significant transactions which may
involve additional uncertainties;
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·
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the
conduct of business operations in foreign jurisdictions and risks related
to changes in foreign legislation, tax laws, government administration,
and restrictions on foreign ownership of international businesses;
and
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·
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financial
risk due to fluctuations in foreign currencies against the U.S.
Dollar.
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Item
1.
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Business
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·
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simplify
the development and distribution of mobile phone and Internet
advertising;
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·
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enhance
the quality and appearance of their
advertisements;
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·
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reduce
the cost of their advertising campaigns;
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·
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improve
the return on their advertising expenditure;
and
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·
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measure
the level of response on each advertising
campaign.
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·
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Our
solutions are software-based and are deployed on standard servers on the
Wireless Carriers network, without the need for significant capital
investment;
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·
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We
have designed and installed proprietary distribution technologies that
provide more efficient use of the Wireless Carrier's network
infrastructure;
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·
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Our
systems are IP based, use SSL encrypted communication protocols and are
Username, Password and PIN login protected, enabling us to securely manage
a campaign from anywhere in the world via the
Internet;
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·
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Our audio
and video compression technology reduces the size of MMS messages by up to
80%, thereby increasing the efficiency and capacity of the Wireless
Carrier's MMSC and allowing us to deliver a file with moving images and
synchronized audio into a mobile
phone;
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·
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Delivery
of mobile messages is in an optimal format for messaging, resulting in
higher quality MMS messages and better campaigns;
and
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·
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By
interfacing with the Multi Media Switch Centre in a Wireless Carrier’s
network infrastructure our MMS messaging platform is also able to
determine the make, model and mobile number of a mobile handset in
real-time, and then configure the message format to meet the
specifications of each handset manufacturer, prior to sending the message
to the mobile phone.
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·
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Opt-in
lists : Brand Owners can target qualified prospective
customers on a large scale, by sending emails to customers who have
opted-in to our proprietary database of names and from a select group of
email list partners who meet our stringent criteria for data integrity, as
well as those who comply with all aspects of U.S. federal email
legislation;
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·
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Co-registration : online customers visiting or registering to use a
publisher's website are also invited to register to receive offers and
advertisements from Brand Owners;
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·
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Display
ads : Brand Owners publish advertisements though our
publisher network focused on generating customer interest for specific
offers; and
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·
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AdMaximizer owned and operated
websites : we manage websites that host Brand Owners'
advertisement offers. AdMaximizer lead generation websites
include survey websites, gift card and prize-related websites, and
vertical industry category websites such as continuing education,
healthcare, auto, and personal financial services
websites.
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·
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sales
conversion rate;
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·
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click-through;
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·
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earnings-per-click;
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·
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impression
count;
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·
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number
of adverts generated;
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·
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total
revenue generated;
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·
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sales
total; and
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·
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sale conversion
rate.
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·
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Wireless
Carrier's voice revenue, calculated in Average Revenue Per User or “ARPU,”
is declining worldwide as a result of intense competition and
commoditization of services.
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·
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Wireless
Carriers are investing in data platforms which can be used to deliver
services that will be charged for on a per use or per application
basis.
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·
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Data
transmission rates over wireless and wired networks are rapidly increasing
which will provide the opportunity to deliver more sophisticated products
and services to mobile handsets and
computers.
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·
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Mobile
phones provide one of the best direct marketing channels available today.
Advertisements delivered via a mobile phone can be personalized, which
traditional media cannot offer. Mobile phones offer the ability to
communicate with consumers anywhere, anytime and at any place. This
creates the ability to deliver on demand services when the mobile consumer
requires them.
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·
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Advertising
on mobile phones and online is less expensive to implement and
can be rolled out much faster than traditional media. Moreover,
Brand Owners are able to measure the response rates and uptake of offers
delivered by mobile phones or accepted
online.
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·
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The
rapid evolution in the uses, functions and performance of technology-based
products has impacted the way in which consumers shop, and, as a result,
traditional marketing channels are becoming less effective. Paper coupons,
an advertising mainstay for years, have seen declines in use and
redemptions since 2006. However, online advertising and shopping has grown
during this same period.
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·
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FlightDeck is our
proprietary bulk MMS messaging server that is installed at the Wireless
Carrier’s network infrastructure. FlightDeck delivers MMS messages in a
fully automated, managed environment. FlightDeck can also prioritize an
MMS campaign that is time sensitive so that the campaign is delivered at
the right time and to the right mobile phone
subscribers. FlightDeck manages both risk and efficiency,
ensuring that each campaign distributed via FlightDeck does not interfere
with another client campaign. The platform supports multiple sending
options, and available capacity is utilized in a way that prevents the
Wireless Carrier’s network from being overloaded and resulting in delivery
failure. We license FlightDeck to Wireless Carriers at fixed rates for
their own use in managing their own MMS messaging
campaigns.
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·
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FlightPlan is our
mobile marketing campaign design and management system. FlightPlan takes
the guesswork out of planning and designing MMS message campaigns,
allowing qualified designers to efficiently construct a quality MMS
message. FlightPlan puts the versatility and functionality of FlightDeck
in the hands of the campaign manager. FlightPlan offers Brand Owners and
advertisers a simple to use graphical user interface that creates MMS
messages. FlightPlan also sets the orientation of the visual images and
integrates the audio files so that they are delivered in the most
efficient manner. FlightPlan sets the business rules and
provides campaign measurement tools for Brand Owner to measure the
response rate to the advertising campaing. Various components of
FlightDeck are operational and the platform is continually being upgraded
to ensure a comprehensive managed service
solution.
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·
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The EPS server
application enables a Wireless Carrier to deliver bulk MMS
messaging outside of their core Multi Media Switch Centre by uniquely
encoding an MMS message. Based on internal testing, we have been able to
deliver MMS messages through the EPS server at rates of 250 messages per
second, compared to previous rates of 50 messages per second. EPS offers
Wireless Carriers access to high volume bulk MMS messaging with minimal
capital investment, versus other multi-million dollar MMSC applications.
The EPS application has been licensed to us by a strategic partner in
Germany and has been enhanced by us to create a mobile newspaper delivery
platform which is capable of simultaneously sending newspaper headlines
and content to hundreds of thousands of subscribers. This application is
already in use and has wide ranging potential in less developed economies
where access to traditional media is
limited.
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·
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We
compete on the basis of the comprehensiveness of our product
offerings. In this regard, we believe that we offer one of the
most compelling end to end solutions available today for both our Wireless
Carriers and Brand Owner clients. Our “one-stop” solution
for online and mobile advertising allows us to monitor and coordinate the
launch of campaigns across these two key digital media, which we
believe is a competitive
advantage.
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·
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We
supply our products and services as a managed
solution. This reduces significant upfront costs for the Wireless Carriers
and also allows us to reprice our products and services to meet new
demand.
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·
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We
also compete on the basis of the quality of services that we
provide. In our mobile phone
platforms, FlightDeck and FlightPlan platforms and the EPS server
enable Brand Owners and Wireless Carriers to produce better quality
mobile content and to efficiently reach substantially all currently
available handsets. Our Internet platforms, and mobile phone
platforms are supported by our call center in order to ensure the
quality of the leads our campaigns generate and to validate information we
receive from consumers.
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·
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Our
FlightDeck and FlightPlan platforms contain porting capability to convert
content to reach more than five thousand different configurations needed
to deliver an MMS message into a handset. Each handset
manufactured by the leading suppliers such as Apple, BlackBerry, Nokia,
Sony Ericsson, Motorola, LG and Samsung, and each operating system such as
Symbian, Android and Windows Mobile, operate on different technical
specifications. We are constantly updating those platforms with
new specifications. We carry out rigorous handset testing in order to
ensure that an MMS message delivered arrives correctly configured to the
mobile handset to which it is delivered. We are currently able to send an
MMS message to both smart phones and any older handset that has a color
screen. We estimate that we are able to reach up to seventy five percent
of the handsets that are currently in use
today.
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·
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Our
products and services have been designed to be user
friendly. Our FlightPlan platform allows
Brand Owners or content developers to assemble MMS messages in
standard file formats and port them for distribution to thousands of
unique handsets. FlightDeck allows us to connect to a Wireless
Carrier’s network via a secure IP connection and manage MMS messaging
campaigns remotely. We also provide unique solutions to minimize network
bandwidth utilization and improve the speed of delivery of messages
through the network. Our mobile phone platforms are tried and tested and
can be sold or licensed to almost any of the more than 800 Wireless
Carriers in the world today. By making use of our products and services, a
Wireless Carrier is able to rapidly begin generating additional revenue.
Because we use Internet Protocol (IP) based connectivity interfaces we are
able to deploy our services and solutions in far shorter time frames than
competitors.
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·
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We
have made a substantial commitment to providing high levels of customer
services and we have been recognized by many of our customers for
providing service excellence. We provide free customer support
to all our customers. Our online marketing staff
maintain contact with our advertisers and publishers to quickly resolves
any client queries. Our mobile business staff has a proactive
approach to dealing with our customers, and they are constantly in contact
during the development phase of a campaign or when the campaign is being
executed. Our senior management is on standby 24 hours to deal with major
client problems.
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Each
of our Brand Owner customers as well as Wireless Carriers look to us a
source of revenue generation. Brand Owners are looking
for us to attract consumers for their products and
services. Wireless Carriers charge for the MMS messages that we
send out to subscribers and in many cases these MMS messages are forwarded
to other subscribers, thereby creating continuing revenue streams for the
Wireless Carrier. By securing Brand Owners as new clients, we
generate incremental revenue for the Wireless Carriers. The
higher the volume of MMS messages we distribute through the Wireless
Carrier’s network , the more profit is
generated for the Wireless Carrier. Our business goals are firmly aligned
with that of our Brand Owner and Wireless Carrier
clients.
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pre-existing
relationships with Brand Owners or Wireless Carriers that afford them
greater access to resources or limit
competition;
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greater
revenues and financial resources;
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stronger
brand and consumer recognition, regionally or
worldwide;
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the
capacity to leverage their marketing expenditures across a broader
portfolio of mobile and non-mobile
channels;
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proprietary
intellectual property which they can develop without having to pay
royalties to third paries for licensed
technology;
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lower
labor and development costs; and
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broader
global distribution and presence.
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Expand the Wireless Carrier customer base
for our mobile platforms: We plan to continue our focus on
expanding our mobile phone technology platforms into new markets,
using our success in South Africa as a reference for expansion into
other territories. We have recently entered into an agreement with
OpenMarket which will enable us to offer our MMS products and
services in the United States. Our current sales efforts
are focused on additional territories in Asia and the Middle
East. We have appointed licensees for our MMS messaging
platform and products in Australia and the United Kingdom. Our
ultimate goal is to be able to afford Brand Owners global distribution for
their online and mobile advertising
campaigns.
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Increase gross margins for our
mobile business through sales in developed
countries. Our South African operations are currently
earning a profit in a relatively soft currency. We believe that
there is an opportunity to generate higher margin revenue in more
developed markets. According to Chetan Sharma Consulting in
U.S. wireless market Q2 2009 update issued in August 2009, the average
revenue per user that the Wireless Carriers received for voice usage in
the United States during the second quarter of 2009 was approximately
$38.00 per subscriber. According to Vodacom, in South Africa the
average revenue per user for voice usage was less than $15.00 per
subscriber during the second quarter of 2009. We believe that entry into
developed markets will provide an opportunity for us to deliver
more mobile advertising campaigns at higher gross
margins.
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Cross sell our mobile
marketing and online platforms:
We commenced our online Internet business in
March, 2009. Our current experience is that our online clients
wish to make use of our mobile marketing products and services in order to
extend their marketing reach. In addition, we can now offer online
advertising solutions to Brand Owners that use our mobile
services. We believe that the ability to offer Brand Owners
services for both online and mobile services will expand the market that
we can reach, and provide “single source” convenience that will assist us
in retaining Brand Owner accounts.
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Develop a comprehensive suite
of mobile and online advertising solutions. We plan to
complete the development work on the vouchers247.com platform for the
United States market and deploy the platform in mid 2010. Over 300 billion
paper coupons per year are issued in the United States alone at an
estimated cost of $7 billion annually for printing and delivery. The
vouchers247.com platform is designed to enable companies currently using
paper-based coupons to move onto a digital platform. Our
CellCard technology is designed to allow point of sale payment processing
through the mobile phone. We intend to continue to develop and
acquire unique technologies and solutions that will enable our Wireless
Carrier and Brand Owner customers opportunities to create, keep and
leverage relationships with customers. We are aware that there are other
organizations that are able to deliver coupons to mobile phones, but we
believe that our comprehensive offering will provide us with a competitive
edge.
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Build and leverage a
comprehensive database of consumer information: Starting with our
existing database, we intend to build an opted-in database of customers
who elect to receive targeted offers from our Brand Owner partners. We
intend to expand and leverage our existing database of consumer
information to improve the relevance, effectiveness and value of the
advertising services we offer to Brand Owners. Because input
costs have largely become commoditized, we believe that Brand Owners will
increasingly view a well-managed customer relationship management and
loyalty program focused on customer retention and driving incremental
revenue as the best way to retain market share and ensure ongoing
profitability.
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Item
1A.
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Risk
Factors
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·
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the
commercial success of our Brand Owner's
brands;
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economic
conditions that adversely affect discretionary consumer
spending;
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changes
in consumer demographics;
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the
availability and popularity of other forms of media and entertainment;
and
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critical
reviews and public tastes and preferences, which may change rapidly and
cannot necessarily be predicted.
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expand
our digital advertising distribution channels, including Wireless Carrier
networks and Internet website and
publications;
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successfully
establish direct and indirect sales channels, and develop effective value
propositions to attract Brand Owners to our advertising
platforms;
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develop
and deliver high-quality content for
advertisements and promotions that achieve significant market
acceptance;
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respond
to market developments, including next-generation software and mobile
phone platforms, emerging technologies and pricing and distribution
models;
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establish
and implement integrated financial and accounting policies, procedures and
controls;
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enhance
our information technology and processing
systems;
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successfully
integrate products or companies that we may
acquire;
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execute
our business and marketing strategies
successfully; and
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attract,
integrate, retain and motivate qualified
personnel.
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our
current reliance on large-volume orders from only a few
customers;
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·
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fluctuations
in the number of new mobile advertisements or levels of advertising
expenditure by major Brand Owners;
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·
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fluctuations
in revenues and expenses related to our addition or loss of Wireless
Carrier contracts or content
licenses;
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our
competitors may take more significant market share for similar products
offered by us to our major clients;
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the
timing of release of new products and services by us and our competitors,
particularly those that may represent a significant portion of revenues in
a period;
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the
popularity of new campaigns and promotions released in prior
periods;
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the
expiration of existing content licenses for particular
promotions;
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changes
in pricing policies by us, our competitors or Wireless Carriers and
other distributors;
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changes
in the mix of products and services we are able to sell which may have
varying gross margins;
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fluctuations
in the overall consumer demand for mobile handsets, mobile campaigns and
related content;
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strategic
actions by us or our competitors, such as acquisitions, divestitures,
spin-offs, joint ventures, strategic investments or changes in business
strategy;
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general
economic conditions in developing countries which are in our target
markets;
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our
success in entering new geographic
markets;
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the
timeliness and accuracy of reporting from Wireless
Carriers;
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the
seasonality of our industry;
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changes
in accounting rules, such as those governing recognition of
revenue;
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the
timing of compensation expenses associated with equity compensation
grants;
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the
timing of charges related to impairments of goodwill and intangible
assets; and
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·
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decisions
by us to incur additional expenses, such as increases in marketing or
research and development.
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·
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diversion
of management time and a shift of focus from operating the businesses to
issues related to integration and
administration;
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·
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declining
employee morale and retention issues resulting from changes in
compensation, management, reporting relationships, future prospects or the
direction of the business;
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·
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the
need to integrate each acquired company's accounting, management,
information, human resource and other administrative systems to permit
effective management, and the lack of control if such integration is
delayed or not implemented;
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·
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the
need to implement controls, procedures and policies appropriate for a
larger public company that the acquired companies lacked prior to
acquisition;
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·
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in
the case of foreign acquisitions, the need to integrate operations across
different cultures and languages and to address the particular economic,
currency, political and regulatory risks associated with specific
countries; and
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·
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liability
for activities of the acquired companies before the acquisition, including
violations of laws, rules and regulations, commercial disputes, tax
liabilities and other known and unknown
liabilities.
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·
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political,
economic and social instability including military and terrorist
attacks;
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·
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compliance
with multiple and conflicting laws and
regulations;
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·
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unexpected
changes in regulatory requirements, tariffs, customs, duties and other
trade barriers;
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·
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potentially
adverse tax consequences resulting from changes in tax
laws;
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challenges
caused by distance, language and cultural
differences;
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·
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difficulties
in staffing and managing international
operations;
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·
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potential
violations of the Foreign Corrupt Practices Act, particularly in certain
emerging countries in East Asia, Eastern Europe and Latin
America;
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·
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longer
payment cycles and greater difficulty collecting accounts
receivable;
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protectionist
laws and business practices that favor local businesses in some
countries;
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price
increases due to fluctuations in currency exchange
rates;
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price
controls;
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the
servicing of regions by many different Wireless
Carriers;
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imposition
of public sector controls;
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restrictions
on the export or import of
technology;
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·
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trade
and tariff restrictions and variations in tariffs, quotas, taxes and other
market barriers; and
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·
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difficulties
in enforcing intellectual property rights in certain
countries.
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significantly
greater revenues and financial
resources;
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·
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stronger
brand and consumer recognition regionally or
worldwide;
|
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·
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the
capacity to leverage their marketing expenditures across a broader
portfolio of mobile and non-mobile
products;
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·
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superior
intellectual property from which they can develop better technical
solutions which might be attractive to Wireless Carriers, Internet
publishers and Brand Owners;
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·
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relationships
with Wireless Carriers or Brand Owners that afford them access to
intellectual property while blocking the access of competitors to that
same intellectual property;
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·
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greater
resources to make acquisitions;
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·
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the
ability or willingness to offer competing products at no charge or reduced
rates to establish market share;
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·
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lower
labor and development
costs; and
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·
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broader
global presence and distribution
channels.
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·
|
price
and volume fluctuations in the overall stock market, including as a result
of trends in the economy as a whole, such as the recent and continuing
unprecedented volatility in the financial
markets;
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·
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changes
in operating performance and stock market valuations of other technology
companies generally, or those in our industry in particular, and actual or
anticipated fluctuations in our operating
results;
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·
|
any
changes in or our failure to meet any financial projections we may provide
to the public;
|
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·
|
failure
of securities analysts to initiate or maintain coverage of us, changes in
financial estimates by any securities analysts who follow our company or
our industry and our failure to meet these estimates or failure of those
analysts to initiate or maintain coverage of our
stock;
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|
·
|
ratings
or other changes by any securities analysts who follow our company or our
industry;
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·
|
announcements
by us or our competitors of significant technical innovations,
acquisitions, strategic partnerships, joint ventures, capital raising
activities or capital commitments;
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·
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the
public's response to our press releases or other public announcements,
including our filings with the SEC;
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|
·
|
lawsuits
threatened or filed against
us; and
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·
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market
conditions or trends in our
industry.
|
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·
|
may
significantly reduce the equity interest of our current
stockholders;
|
|
·
|
will
likely cause a change in control if a substantial number of our shares of
common stock or voting preferred stock are issued, which may affect, among
other things, our ability to use our net operating loss carry forwards, if
any, and could also result in a change in management;
and
|
|
·
|
may
adversely affect prevailing market prices for our common
stock.
|
|
·
|
only
our chairman of the board, our lead independent director, our chief
executive officer, our president or a majority of our board of directors
is authorized to call a special meeting of
stockholders;
|
|
·
|
our
certificate of incorporation authorizes undesignated preferred stock, the
terms of which may be established and shares of which may be issued
without stockholder
approval; and
|
|
·
|
advance
notice procedures apply for stockholders to nominate candidates for
election as directors or to bring matters before a meeting of
stockholders.
|
|
·
|
prohibiting
false or misleading ad header
information;
|
|
·
|
prohibiting
the use of deceptive subject lines;
|
|
·
|
ensuring
that recipients may, for at least 30 days after an ad is sent, opt
out of receiving future commercial messages from the sender, with the
opt-out effective within 10 days of the
request;
|
|
·
|
requiring
that commercial ad be identified as a solicitation or advertisement unless
the recipient affirmatively permitted the
message; and
|
|
·
|
requiring
that the sender include a valid postal address in the ad
message.
|
|
·
|
new
customers signing up for our services must agree that they will send
adverts through our service only to persons who have given their
permission;
|
|
·
|
when
a contact list or database is uploaded, the customer must certify that it
has permission to contact each of the
addressees;
|
|
·
|
when
an individual indicates that they want to be added to a mailing list, they
may receive a confirmation email and may be required to confirm their
intent to be added to the contact list, through a process called double
opt-in;
|
|
·
|
we
electronically inspect all of our customers' contact lists to check for
spam traps, dictionary attack patterns and lists that fail to meet our
permission standards; and
|
|
·
|
we
make use of an outbound call center which facility to call all of our
opted-in clients in order to verbally validate their opt in records and
contact permission.
|
Item
2.
|
Financial
Information
|
|
·
|
simplify
the development and distribution of mobile phone and Internet
advertising;
|
|
·
|
enhance
the quality and appearance of their
advertisements;
|
|
·
|
reduce
the cost of their advertising
campaigns;
|
|
·
|
improve
the return on their advertising expenditure;
and
|
|
·
|
measure
the level of response on each advertising
campaign.
|
|
·
|
Retainers: Some of our
clients, including certain Wireless Carriers, pay us fixed monthly fees
for the right to use defined products and services. For example, we may
enter into contracts to develop, host and maintain Mobi Sites, in exchange
for a monthly retainer. Retainers are generally negotiated on a
term of six months or one year, depending on the nature of the product of
service we provide. Revenues from retainer arrangement are
generally recognized ratably over the term of the
contract.
|
|
·
|
Fixed term contracts:
We enter into certain fixed term or fixed program contracts with clients,
including Brand Owners, under which we provide
a defined service for a fixed fee. For example, our mobile statement
products are used by some of our clients to deliver monthly statements to
mobile phones. We earn a fixed fee for each statement that is sent out.
Revenues from these contracts are recognized as services are
performed.
|
|
·
|
Transaction fees: In
certain instances we earn revenues on a transaction basis. For
example, under the terms of our agreements with Wireless Carriers and
Brand Owners we earn transaction fees when a wireless subscriber downloads
content into a mobile phone via one of our servers. A significant portion of our online Internet business is
transaction based. Often Brand Owners pay us on the basis of
the number of qualified consumer leads we generate from our online
advertising campaigns. Transaction fees are recognized
as revenue in period in which the transaction giving rise to the fee
occurs.
|
|
·
|
Software
Licenses. We earn royalties from the license of our
FlightPlan and FlightDeck software platforms to Wireless Carriers
and to our master licensees. Revenues from software licenses
are recognized in accordance with SEC Staff Accounting Bulletin No. 101,
“Revenue Recognition in Financial Statements” when the software has
been delivered, the customer has accepted the software, the fees have been
invoiced, and collection is
probable.
|
|
·
|
Advisory and service
fees: We earn advisory and service fees when Brand Owners hire us
to assist in the design and execution of either a mobile or an online
advertising campaign. We provide services from the initial
conceptualization, through to the creation of the content for the
marketing campaign. Fees for services are recognized when
the services have been
performed.
|
Three
Months Ended
September
30, 2009
|
Three
Months Ended September 30, 2008
|
Nine
Months Ended September 30, 2009
|
Nine
Months Ended September 30, 2008
|
Year
Ended
December
31, 2008
|
Year
Ended
December
31, 2007
|
|||||||||||||||||||
Revenue
|
$ | 2,807,384 | $ | 925,629 | $ | 8,703,649 | $ | 2,045,454 | $ | 3,394,364 | $ | 1,816,903 | ||||||||||||
Cost
of sales
|
1,215,315 | 140,909 | 3,752,258 | 462,968 | 645,605 | 415,235 | ||||||||||||||||||
Gross
profit
|
1,592,069 | 784,720 | 4,951,391 | 1,582,486 | 2,748,759 | 1,401,668 | ||||||||||||||||||
Operating
expenses:
|
||||||||||||||||||||||||
Sales
and marketing
|
120,242 | 30,699 | 238,085 | 81,963 | 199,662 | 144,303 | ||||||||||||||||||
General
and administrative
|
1,545,231 | 422,586 | 3,622,067 | 989,001 | 1,410,451 | 846,832 | ||||||||||||||||||
Depreciation
and amortization
|
464,530 | 8,794 | 1,106,990 | 26,470 | 33,041 | 15,296 | ||||||||||||||||||
Total
operating expenses
|
2,130,003 | 462,079 | 4,967,142 | 1,097,434 | 1,643,154 | 1,006,431 | ||||||||||||||||||
Operating
income (loss)
|
(537,934 | ) | 322,641 | (15,752 | ) | 485,052 | 1,105,605 | 395,237 | ||||||||||||||||
Other
income (expense), net
|
542,441 | (3,694 | ) | 440,420 | (8,248 | ) | (10,577 | ) | 11,096 | |||||||||||||||
Income
(loss) before income taxes
|
4,507 | 318,947 | 424,668 | 476,804 | 1,095,028 | 406,333 | ||||||||||||||||||
Income
tax expense
|
(13,565 | ) | 89,305 | 128,117 | 133,505 | 313,608 | 113,773 | |||||||||||||||||
Net
income
|
$ | 18,073 | $ | 229,642 | $ | 296,551 | $ | 343,299 | $ | 781,420 | $ | 292,560 |
Item
3.
|
Properties
|
Item
4.
|
Security
Ownership of Certain Beneficial Owners and
Management
|
Name
of Beneficial Owner
|
Number
of Shares Beneficially Owned
|
Percentage
of Class Beneficially Owned
|
|
Officers
and Directors
|
|||
Michael
Levinsohn, Director and Chief Executive Officer (1)
|
22,450,000
|
34.91%
|
|
Jonathon
Fox, Director and Chief Operating Officer
|
--
|
--%
|
|
Thomas
Banks, Chief Financial Officer
|
--
|
--%
|
|
Eddie
Groenewald, President, Multimedia Solutions
|
--
|
--%
|
|
Darren
Heisterkamp, President, Lenco Mobile USA, Inc.
|
--
|
--%
|
|
Michael
Hill, President, AdMax Media Inc.
|
--
|
--%
|
|
Stephen
Boyd, Director
|
1,016,875
|
1.58%
|
|
Ronald
Wagner, Director
|
100,000
|
0.16%
|
|
All
current directors and executive officers as a group (8
persons)
|
23,566,875
|
36.65%
|
|
5%
Stockholders
|
|||
Michael
Levinsohn (1)
|
22,450,000
|
34.91%
|
|
BasTrust
Corporation Limited (2)
|
31,834,262
|
49.51%
|
|
Rendez-Vous
Management Limited (3)
|
20,000,000
|
31.10%
|
|
Naretta,
Inc. (3)
|
5,500,000
|
8.55%
|
|
Tamino
Investments, Inc. (3)
|
3,917,595
|
6.09%
|
(1)
|
Includes
20,000,000 shares held by Rendez-Vous Management
Limited. Rendez-Vous Management Limited is owned by two trusts
each having a 50% ownership. Mr. Levinsohn is one of a class of
beneficiaries of one of the trusts owning a 50% interest in Rendez-Vous
Management Limited. BasTrust Corporation Limited is
the sole trustee of the two trusts and has the power to control
the voting and disposition of the shares held by Rendez-Vous Management
Limited.
|
(2)
|
Includes
(i) 20,000,000 shares held by Rendez-Vous Management Limited., (ii)
5,500,000 shares held by Naretta, Inc., 3,917,595 shares held in the name
of Tamino Investments, Inc., 2,416,667 shares held by Target Equity
Limited. BasTrust Corporation Limited acts as trustee for each
of these entities. Mr. Serge Richard is one of the directors of
BasTrust Corporation, and he and the other directors have the power to
control the voting and disposition of the shares held by these entities,
but the directors disclaim any beneficial interest in the
shares. BasTrust Corporation Limited's address is 24 Route des
Acacias, 1227 Les Acacias, Geneva, Switzerland.
|
(3)
|
BasTrust
Corporation Limited acts as trustee for the trust which owns this
entity. BasTrust Corporation Limited controls Rendez-Vous
Management Limited, Naretta, Inc. and Tamino Investments, Inc. through its
wholly owned subsidiary, BasCorp Services Limited ("BasCorp"), which acts
as sole director for each of Rendez-Vous Management Limited, Naretta, Inc.
and Tamino Investments, Inc. The directors of BasCorp are Serge Richard,
Jean-Gabriel Goyet, Kirsten Hollingdale and Julie
Coward. BasCorp has full voting powers over the shares held by
Rendez-Vous Management Limited, Naretta, Inc. and Tamino Investments, Inc.
through a vote by any two of BasCorp’s directors. The address
for each of Rendez-Vous Management Limited, Naretta, Inc. and Tamino
Investments, Inc. is c/o BasTrust Corporation Limited, 24 Route des
Acacias, 1227 Les Acacias, Geneva,
Switzerland.
|
Name
|
Position
|
Age
|
Held Position
Since
|
Michael
Levinsohn
|
Director
and Chief Executive Officer
|
47
|
February
2008
|
Jonathan
Fox
|
Director
and Chief Operating Officer
|
43
|
June
2008
|
Thomas
Banks
|
Chief
Financial Officer
|
41
|
September
2009
|
Eddie
Groenewald
|
President,
Multimedia Solutions
|
37
|
September
2008
|
Darin
Heisterkamp
|
President,
Lenco Mobile USA Inc.
|
44
|
June
2009
|
Michael
Hill
|
President,
AdMax Media Inc.
|
33
|
March
2009
|
Stephen
Boyd
|
Director
|
43
|
October
2009
|
Ronald
Wagner
|
Director
|
45
|
October
2009
|
Item
6.
|
Executive
Compensation
|
Item
7.
|
Certain
Relationships and Related Transactions and Director
Independence
|
Item
8.
|
Legal
Proceedings
|
Item
9.
|
Market
Price of and Dividends on the Registrant's Common Equity and Related
Stockholder Matters
|
High
|
Low
|
|
Fiscal
2009
|
||
Fourth
Quarter (through November 30, 2009)
|
$3.75
|
$1.55
|
Third
Quarter
|
$3.00
|
$2.01
|
Second
Quarter
|
$5.00
|
$2.40
|
First
Quarter
|
$5.00
|
$2.07
|
Fiscal
2008
|
||
Fourth
Quarter
|
$6.00
|
$3.50
|
Third
Quarter
|
$8.00
|
$4.00
|
Second
Quarter
|
$5.50
|
$0.20
|
First
Quarter
|
$7.00
|
$.50
|
Fiscal
2007
|
||
Fourth
Quarter
|
$36.50
|
$5.25
|
Third
Quarter
|
$50.00
|
$15.00
|
Plan
Category
|
Number of Securities
to
be Issued Upon
Exercise
of
Outstanding Options,
Warrants and Rights
(a)
|
Weighted Average
Exercise
Price of
Outstanding Options,
Warrants and Rights
(b)
|
Number of Securities
Remaining Available
for
Future Issuance
under
Equity
Compensation
Plans
(excluding
securities
referenced
in
column
(a))
(c)
|
|||||||
Equity
compensation plans approved by our stockholders (1)
|
0
|
$
|
$0.00
|
9,000,000
|
||||||
Equity
compensation plans not approved by our stockholders
|
0
|
$
|
$0.00
|
—
|
(1)
|
Equity
compensation plans approved by our stockholders consist of our 2009 Equity
Incentive Plan.
|
Item
10.
|
Recent
Sales of Unregistered Securities
|
Item
11.
|
Description
of Registrant's Securities to be
Registered
|
Item
12.
|
Indemnification
of Directors and Officers
|
|
·
|
any
breach of the director's duty of loyalty to the corporation or its
stockholders;
|
|
·
|
acts
or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law;
|
|
·
|
payments
of unlawful dividends or unlawful stock repurchases or redemptions;
or
|
|
·
|
any
transaction from which the director derived an improper personal
benefit.
|
Item
13.
|
Financial
Statements and Supplementary Data
|
Item
14.
|
Change
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
Item
15.
|
Financial
Statement and Exhibits
|
Lenco Mobile
Inc.
|
|||
Registrant
|
|||
December
16, 2009
|
By:
|
/s/
Michael Levinsohn
|
|
Michael
Levinsohn, President
|
|||
(As
principal executive officer
|
|||
and
on behalf of Registrant)
|
Exhibit
No.
|
Exhibit
|
3.1
|
Amended
and Restated Certificate of Incorporation (3)
|
3.2
|
Amended
and Restated Bylaws (2)
|
4.1
|
Specimen
Common Stock Certificate (2)
|
4.2
|
Form
of Convertible Promissory Note issued by the registrant on February 28,
2009 (2)
|
4.3
|
Form
of Common Stock Purchase Warrant issued by the registrant on February 28,
2009 (2)
|
4.4
|
Promissory
Note issued by the registrant to Agile Opportunity Fund LLC on July 31,
2009 (2)
|
4.5
|
Security
Agreement dated July 31, 2009 between the registrant's subsidiary and
Agile Opportunity Fund, LLC (3)
|
4.6
|
Securities
Purchase and Amendment Agreement dated November 30, 2009 between the
registrant and Agile Opportunity Fund, LLC
(1)
|
4.7
|
Convertible
Promissory Note issued by the registrant Agile Opportunity Fund, LLC on
November 30, 2009 (1)
|
4.8
|
Common
Stock Purchase Warrant issued by the registrant Agile Opportunity Fund,
LLC on November 30, 2009 (1)
|
4.9
|
Common
Stock Purchase Warrant issued by the registrant to Agile Opportunity Fund,
LLC on November 30, 2009 (1)
|
10.1
|
Exchange
Agreement dated February 18, 2008 between the registrant's subsidiary and
Target Equity Limited for the acquisition of Digital Vouchers (Pty) Ltd.
(2)
|
10.2
|
Asset
Purchase Agreement dated June 30, 2008 between the registrant and
eAccounts, Inc. (2)
|
10.3
|
Sale
and Purchase Agreement dated August 11, 2008 between the registrant's
subsidiary and Capital Supreme, (Pty) Ltd.
(2)
|
10.4
|
Asset
Purchase Agreement dated February 28, 2009, by and among the registrant,
the registrant's subsidiary, Superfly Advertising, Inc., a Delaware
corporation, and Superfly Advertising, Inc., an Indiana corporation
(2)
|
10.5
|
Long
Term Partnering Agreement dated October 20, 2009 between the registrant's
subsidiary and Deloitte Consulting ( 3 )
|
10.6
|
Master
License Agreement for the United Kingdom Region dated January 15, 2009
between the registrant's subsidiary and MultiMedia Solutions Europe Ltd.
(2)
|
10.7
|
Master
License Agreement for the Australia Region dated January 15, 2009 between
the registrant's subsidiary and Multimedia Solutions Australia (Pty) Ltd.
(2)
|
10.8
|
Commercial
Service Agreement dated September 17, 2009 between the registrant and
OpenMarket Inc. (2)
|
10.9
|
Restructuring
and Securities Purchase Agreement dated July 31, 2009 by and among the
registrant, Agile Opportunity Fund, LLC, and Superfly Advertising, Inc.
(2)
|
10.10
|
Employment
Agreement dated September 1, 2009 between the registrant and Michael
Levinsohn* (2)
|
10.11
|
Employment
Agreement dated July 16, 2007 between the registrant and Eddie Groenewald*
(3)
|
10.12
|
Employment
Agreement dated July 1, 2009 between the registrant and Darin Heisterkamp*
(2)
|
10.13
|
Form
of Indemnity Agreement for directors and executive officers of the
registrant and its subsidiaries (2)
|
10.14
|
2009
Equity Incentive Plan * ( 3 )
|
10.15
|
Form
of Nonqualified Stock Option * (2)
|
10.16
|
Form
of Incentive Stock Option * (2)
|
10.17
|
Agreement
of Lease dated March 31, 2009, by and between Gutierrez Partners, LLC and
Lenco USA Inc. for the property located at 345 Chapala Street, Santa
Barbara, CA 93101, as amended
(2)
|
10.18
|
Agreement
of Lease dated March 14, 2009, by and between Gutierrez Partners, LLC and
Lenco USA Inc. for the property located at 347 Chapala Street, Santa
Barbara, CA 93101, as amended (2)
|
10.19
|
Agreement
of Lease dated October 9, 2009, by and between Gutierrez Partners, LLC and
Lenco USA Inc. for the property located at 109 West Gutierrez Street,
Santa Barbara, CA 93101, as amended (2)
|
10.20
|
Agreement
of Lease dated October 12, 2009, by and between Gutierrez Partners, LLC
and Lenco USA Inc. for the property located at 111 West Gutierrez Street,
Santa Barbara, CA 93101, as amended (2)
|
10.21
|
Agreement
of Lease dated October 12, 2009 by and between Gutierrez Partners, LLC and
Lenco USA Inc. for the property located at 113 West Gutierrez Street,
Santa Barbara, CA 93101, as amended (2)
|
10.22
|
Agreement
of Lease between the Capital Supreme (Pty), Ltd. and ME Heidi Wood
(2)
|
10.23
|
Client
Services Agreement dated September 2007, 2006 between Consumer Loyalty
Group, Inc. and Datascension, Inc. with respect to call center operations
( 3 )
|
10.24
|
Addendum
to Employment Agreement dated September, 2008 between the registrant and
Eddie Groenewald* (1)
|
10.25
|
Agreement and Plan of
Merger dated July, 2009 between Mobicom USA Corporation and Lenco USA
Corporation (1)
|
11.1
|
Statement
regarding computation of per share earnings (included in financial
statements)
|
14.1
|
Code
of Ethics ( 3 )
|
21.1
|
Subsidiaries
of the Registrant ( 3 )
|
23.1
|
Consent
of Gruber & Company LLC (1)
|
24.1
|
Power
of Attorney (incorporated from signature
page)
|
(1)
|
Filed
herewith.
|
(2)
|
Filed
as an exhibit to the registrant's Form 10 (file no. 000153830) filed on November 9, 2009 and incorporated by
reference herein.
|
(3)
|
Filed
as an exhibit to the registrant’s Form 10/A (file no. 000153830) filed on
November 18, 2009 and incorporated by reference
herein.
|
*
|
Management
contract, or compensatory plan or
arrangement.
|
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated
Balance Sheets as of December 31, 2007 and 2008
|
F-3
|
Consolidated
Statements of Operations for the Years Ended December 31, 2007 and
2008
|
F-4
|
Consolidated
Statements of Stockholders' Equity and Comprehensive Income (Loss) for the
Years Ended December 31, 2007 and 2008
|
F-5
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2007 and
2008
|
F-6
|
Notes
to Consolidated Financial Statements
|
F-7
|
Condensed
Consolidated Balance Sheets as of December 31, 2008 and September 30, 2009
(unaudited)
|
F-24
|
Condensed
Consolidated Statements of Operations for the three and nine month periods
ended September 30, 2008 and September 30, 2009
(unaudited)
|
F-25
|
Condensed
Consolidated Statements of Cash Flows for the three and nine month periods
ended September 30, 2008 and September 30, 2009
(unaudited)
|
F-26
|
Notes
to Condensed Consolidated Financial Statements
(unaudited)
|
F-27
|
December
31,
|
||||||||
2008
|
2007
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
in banks
|
$
|
7,679
|
$
|
256,823
|
||||
Accounts
receivable, net
|
975,725
|
315,530
|
||||||
Other
current assets
|
3,750
|
1,952
|
||||||
Total
current assets
|
987,154
|
574,305
|
||||||
Property
and equipment, net
|
175,489
|
163,750
|
||||||
Amortizable
intangibles
|
1,100,000
|
-
|
||||||
Goodwill
|
591,398
|
801,808
|
||||||
Total
assets
|
$
|
2,854,041
|
$
|
1,539,863
|
||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Bank
overdraft
|
4,387
|
-
|
||||||
Current
maturity of mortgage payable
|
1,600
|
2,000
|
||||||
Accounts
payable and accrued expenses
|
202,868
|
318,302
|
||||||
Notes
payable
|
206,274
|
-
|
||||||
Loans
from related parties
|
-
|
355,992
|
||||||
Accrued
income taxes
|
304,462
|
115,788
|
||||||
Total
current liabilities
|
719,591
|
792,082
|
||||||
Mortgage
payable, net of current maturities
|
85,494
|
118,190
|
||||||
Total
liabilities
|
805,085
|
910,272
|
||||||
Shareholders'
equity:
|
||||||||
Capital
stock, 251,000,000 shares authorized, $.001 par value, 41,511,060
shares issued and outstanding
|
41,511
|
9,891
|
||||||
Additional
paid in capital
|
852,226
|
(9,880
|
)
|
|||||
Other
comprehensive income (loss)
|
(247,728
|
)
|
8,053
|
|||||
Retained
earnings
|
1,402,947
|
621,527
|
||||||
Total
shareholders' equity
|
2,048,956
|
629,591
|
||||||
Total
liabilities and shareholders' equity
|
$
|
2,854,041
|
$
|
1,539,863
|
Year
Ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Revenue
|
$
|
3,394,364
|
$
|
1,816,903
|
||||
Cost
of sales
|
645,605
|
415,235
|
||||||
Gross
profit
|
2,748,759
|
1,401,668
|
||||||
Operating
expenses:
|
||||||||
Sales
and marketing
|
199,662
|
144,303
|
||||||
General
and administrative
|
1,410,451
|
846,832
|
||||||
Depreciation
& amortization
|
33,041
|
15,296
|
||||||
Total
operating expenses
|
1,643,154
|
1,006,431
|
||||||
Income
from Operations
|
1,105,605
|
395,237
|
||||||
Other
income (expense) :
|
||||||||
Other
interest income (expense), net
|
(10,577
|
)
|
11,096
|
|||||
Income
before income taxes
|
1,095,028
|
406,333
|
||||||
Income
tax expense
|
313,608
|
113,773
|
||||||
Net
income
|
$
|
781,420
|
$
|
292,560
|
||||
Net
income per share
|
$
|
0.03
|
$
|
0.01
|
||||
Weighted
average shares outstanding
|
28,791,774
|
40,275,522
|
Year
Ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Net
income
|
$
|
781,420
|
$
|
292,560
|
||||
Foreign
currency translation adjustment
|
(255,781
|
)
|
11,047
|
|||||
Total
comprehensive income
|
$
|
525,639
|
$
|
303,607
|
Other
|
||||||||||||||||||||
Capital
Stock
|
Comprehensive
|
Retained
|
||||||||||||||||||
Shares
|
Total
|
Income
|
Earnings
|
Total
|
||||||||||||||||
Balance,
December 31, 2006
|
899,742
|
$
|
900
|
$
|
(2,994
|
)
|
$
|
328,967
|
$
|
326,873
|
||||||||||
Shares
issued
|
89,317
|
89
|
89
|
|||||||||||||||||
Additional
paid in capital
|
(978
|
)
|
(978
|
)
|
||||||||||||||||
Net
income for the year
|
--
|
--
|
--
|
292,560
|
292,560
|
|||||||||||||||
Foreign
currency gain
|
--
|
--
|
11,047
|
--
|
11,047
|
|||||||||||||||
Balance,
December 31, 2007
|
989,059
|
11
|
8,053
|
621,527
|
629,591
|
|||||||||||||||
Shares
issued
|
40,522,000
|
40,522
|
40,522
|
|||||||||||||||||
Additional
paid in capital
|
853,204
|
853,204
|
||||||||||||||||||
Net
income for the year
|
--
|
--
|
--
|
781,420
|
781,420
|
|||||||||||||||
Foreign
currency loss
|
--
|
--
|
(255,781
|
)
|
--
|
(255,781
|
)
|
|||||||||||||
Balance,
December 31, 2008
|
41,511,059
|
$
|
893,737
|
$
|
(247,728
|
)
|
$
|
1,402,947
|
$
|
2,048,956
|
Year
Ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
income
|
$
|
781,420
|
$
|
292,560
|
||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation
|
33,041
|
15,296
|
||||||
Provision
for doubtful accounts
|
25,000
|
|||||||
Changes
in assets and liabilities:
|
||||||||
Accounts
receivable
|
(865,156
|
)
|
(306,258
|
)
|
||||
Other
current assets
|
(2,548
|
)
|
(1,900
|
)
|
||||
Accounts
payable and accrued expenses
|
(35,943
|
)
|
46,518
|
|||||
Accrued
income taxes
|
246,772
|
90,472
|
||||||
Net
cash provided by operating activities
|
182,586
|
136,688
|
||||||
Cash
flow from investing activities:
|
||||||||
Purchase
of property and equipment
|
(94,672
|
)
|
(157,695
|
)
|
||||
Net
cash used in investing activities
|
(94,672
|
)
|
(157,695
|
)
|
||||
Cash
flow from (used in) financing activities:
|
||||||||
Advances
from (repayment to) related parties
|
(295,792
|
)
|
(287,350
|
)
|
||||
Proceeds
from (repayment of) mortgage payable
|
(1,753
|
)
|
116,972
|
|||||
Net
cash (used in) financing activities
|
(297,545
|
)
|
(170,378
|
)
|
||||
Effect
of foreign exchange rate changes
|
(39,513
|
)
|
6,208
|
|||||
Net
change in cash
|
(249,144
|
)
|
(185,177
|
)
|
||||
Cash,
beginning of year
|
256,823
|
442,000
|
||||||
Cash,
end of year
|
$
|
7,679
|
$
|
256,823
|
||||
Supplemental
disclosure of cash flow information:
|
||||||||
Cash
paid for income taxes
|
$
|
66,836
|
$
|
23,301
|
||||
Cash
paid for interest
|
14,138
|
309
|
Furniture
and fixtures
|
6
years
|
IT
equipment
|
3
years
|
Computer
software
|
2
years
|
·
|
evidence
of an arrangement exists;
|
|
·
|
delivery
has occurred or services have been rendered and the significant risks and
rewards of ownership have been transferred to the
purchaser;
|
|
·
|
transaction
costs can be reliably measured;
|
|
·
|
the
selling price is fixed or determinable; and
|
|
·
|
collectability
is reasonably assured.
|
·
|
Retainers: Certain
clients, including certain Wireless Carriers, pay fixed monthly fees for
the right to use defined products and services. The Company may enter into
contracts to develop, host and maintain Mobi Sites, in exchange for a
monthly retainer. Retainers are generally negotiated on a term
of six months or one year, depending on the nature of the product of
service we provide. Revenues from retainer arrangement are
generally recognized ratably over the term of the
contract.
|
|
·
|
Fixed term contracts:
the Company enters into certain fixed term or fixed program contracts with
clients, including Brand Owners, in terms of which we provide a defined
service for a fixed fee. Mobile statement products are used to deliver
monthly statements to mobile phones. The Company earns a fixed fee for
each statement that is sent out. Revenues from these contracts are
recognized as services are performed.
|
|
·
|
Transaction fees: In
certain instances the Company earn revenues on a transaction
basis. Under the terms of agreements with Wireless Carriers and
Brand Owners transaction fees are earned when a wireless subscriber
downloads content into a mobile phone via one of the Company’s
servers. A significant portion of online Internet business is
transaction based. Often Brand Owners pay on the basis of
qualified leads generated from online advertising
campaigns. Transaction fees are recognized as revenue in period
in which the transaction giving rise to the fee occurs.
|
|
·
|
Licenses. The
Company earns royalties from the license of its software platforms to
Wireless Carriers and to master licensees.
|
|
·
|
Advisory and service
fees: The Company earns advisory and service fees from the design
and execution of either a mobile or an online marketing campaign. These
fees vary from the initial conceptualization, through to the creation of
the content for the marketing campaign. Fees for services
are recognized when the services have been
performed.
|
·
|
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets. The Company's Level 1
assets include cash equivalents whose carrying value represents fair value
because of their short-term maturities of the investments held by these
funds.
|
|
·
|
Level
2 inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial
instrument.
|
|
·
|
Level
3 inputs to the valuation methodology are unobservable and significant to
the fair value measurement.
|
December
31,
|
||||||||
2008
|
2007
|
|||||||
Furniture
and fittings
|
$
|
30,445
|
$
|
27,362
|
||||
Building
|
82,227
|
111,482
|
||||||
IT
equipment
|
93,598
|
45,306
|
||||||
Computer
software
|
16,058
|
3,339
|
||||||
Total
|
222,328
|
187,489
|
||||||
Less:
Accumulated depreciation
|
(46,839)
|
(23,739)
|
||||||
Property
and equipment, net
|
$ |
175,489
|
$ |
163,750
|
Balance at
Dec. 31, 2007
|
Acquisitions
|
Other
|
Balance at
Dec. 31, 2008
|
|
Capital
Supreme (Pty) Ltd (d/b/a Multimedia Solutions)
|
$
801,808
|
$
--
|
$
(210,410)
|
$
591,398
|
December
31,
|
||||||||
2008
|
2007
|
|||||||
Intangibles - Other, net :
|
||||||||
CellCard
purchased technology
|
$
|
750,000
|
$
|
-
|
||||
Digital
Vouchers purchased technology
|
350,000
|
-
|
||||||
Total
amortizable intangibles
|
1,100,000
|
-
|
||||||
Less:
Amortization
|
||||||||
Intangibles - Other, net
|
$
|
1,100,000
|
$
|
-
|
2009
|
$
|
157,143
|
||
2010
|
157,143
|
|||
2011
|
157,143
|
|||
2012
|
157,143
|
|||
2013
|
157,143
|
|||
2014
|
157,143
|
|||
2015
|
157,143
|
|||
Est.
amortization expense
|
$
|
1,100,000
|
December
31,
|
||||||||
2008
|
2007
|
|||||||
Trade
receivables, net
|
$
|
902,712
|
$
|
312,044
|
||||
Other
receivables
|
73,013
|
3,486
|
||||||
Accounts
receivable, net
|
$
|
975,725
|
$
|
315,530
|
December
31,
|
||||||||
2008
|
2007
|
|||||||
Total
mortgage payable
|
$
|
87,094
|
$
|
120,190
|
||||
Less
current maturities
|
1,600
|
2,000
|
||||||
Mortgage
payable net of current maturities
|
$
|
85,494
|
$
|
118,190
|
December
31,
|
||||||||
2008
|
2007
|
|||||||
Accounts
payable, trade
|
$
|
135,098
|
$
|
52,381
|
||||
Accrued
expenses
|
19,938
|
8,859
|
||||||
Prepayments
|
-
|
255,121
|
||||||
Taxes
payable
|
47,832
|
1,941
|
||||||
Accounts
payable and accrued expenses
|
$
|
202,868
|
$
|
318,302
|
Note
payable to a British Virgin Islands company bearing interest
at 5.0% per annum. At the option of the holder, the
note is convertible into shares of the Company’s common stock based upon
the ration of shares to the outstanding principal. On May 15,
2009 this entire note and all unpaid and accrued interest was converted
into 1,200,000 shares of common stock at the holders
election.
|
$
|
206,274
|
||
Total notes
payable at December 31, 2008
|
$
|
206,724
|
Year
Ending December 31, 2009
|
$
|
42,616
|
||
Year
Ending December 31, 2010
|
14,864
|
|||
Minimum
lease payment commitments
|
$
|
57,480
|
·
|
the
initial recognition of goodwill;
|
|
·
|
the
initial recognition (other than in a business combination) of an asset or
liability to the extent that neither accounting nor taxable profit is
affected on acquisition; and
|
|
·
|
investments
in subsidiaries to the extent they will probably not reverse in the
foreseeable future.
|
2008
|
2007
|
|||||||
Current:
|
||||||||
Federal
|
$
|
--
|
$
|
--
|
||||
Foreign
|
313,608
|
113,773
|
||||||
State
|
--
|
--
|
||||||
313,608
|
113,733
|
|||||||
Deferred:
|
||||||||
Federal
|
--
|
--
|
||||||
Foreign
|
--
|
--
|
||||||
State
|
--
|
--
|
||||||
313,608
|
113,733
|
|||||||
Income
tax expense
|
$
|
313,608
|
$
|
113,733
|
2008
|
2007
|
|||||||
U.S.
|
$
|
--
|
$
|
--
|
||||
Foreign
|
1,095,028
|
406,333
|
||||||
Income
before taxes
|
$
|
1,095,028
|
$
|
406,333
|
2008
|
2007
|
|||||||
U.S.
federal statutory rate
|
35.0%
|
35.0%
|
||||||
Foreign
and U.S. tax effects attributable to foreign
operations
|
(7.0
|
)
|
(7.0
|
)
|
||||
Non-deductible
expenses
|
.6
|
--
|
||||||
Effective
income tax rate
|
28.6%
|
28.0%
|
As
of
|
||||||||
September
30, 2009
|
December
31, 2008
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$
|
568,421
|
$
|
7,679
|
||||
Accounts
receivable, net
|
2,731,627
|
975,725
|
||||||
Notes
receivable - current portion
|
32,500
|
-
|
||||||
Other
current assets
|
236,350
|
3,750
|
||||||
Total
current assets
|
3,568,898
|
987,154
|
||||||
Property
and equipment, net
|
1,325,485
|
175,489
|
||||||
Other
noncurrent assets:
|
||||||||
Intangible
assets – goodwill
|
11,259,126
|
591,398
|
||||||
Intangible
assets - other, net
|
7,689,480
|
1,100,000
|
||||||
Notes
receivable - long term
|
32,500
|
-
|
||||||
Other
noncurrent assets
|
15,735
|
-
|
||||||
Total
other noncurrent assets
|
18,996,841
|
1,691,398
|
||||||
Total
assets
|
26,891,223
|
2,854,041
|
||||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Bank
overdraft
|
-
|
4,387
|
||||||
Current
maturity of mortgage payable
|
-
|
1,600
|
||||||
Accounts
payable and accrued expenses
|
1,430,882
|
202,868
|
||||||
Notes
payable
|
2,801,000
|
206,274
|
||||||
Accrued
interest on notes payable
|
145,849
|
-
|
||||||
Loans
from related parties
|
-
|
-
|
||||||
Income
taxes payable
|
107,034
|
304,462
|
||||||
Total
current liabilities
|
4,484,764
|
719,591
|
||||||
Mortgage
payable, net of current maturities
|
108,434
|
85,494
|
||||||
Total
liabilities
|
4,484,764
|
805,085
|
||||||
Shareholders'
equity:
|
||||||||
Capital
stock, 251,000,000 shares authorized, $.001 par value 61,586,180
shares issued and outstanding
|
61,586
|
41,511
|
||||||
Additional
paid in capital
|
17,748,725
|
852,226
|
||||||
Dividends
declared
|
(383,439
|
)
|
-
|
|||||
Other
comprehensive income (loss)
|
171,655
|
(247,728
|
)
|
|||||
Retained
earnings
|
1,699,498
|
1,402,947
|
||||||
Total
shareholders' equity
|
19,298,026
|
2,048,956
|
||||||
Total
liabilities and shareholders' equity
|
$
|
23,891,223
|
$
|
2,854,041
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenue
|
$
|
2,807,384
|
$
|
925,629
|
$
|
8,703,649
|
$
|
2,045,454
|
||||||||
Cost
of sales
|
1,215,315
|
140,909
|
3,752,258
|
462,968
|
||||||||||||
Gross
profit
|
1,592,070
|
784,720
|
4,951,391
|
1,582,486
|
||||||||||||
Operating
expenses:
|
||||||||||||||||
Sales
and marketing
|
120,242
|
30,699
|
238,085
|
81,963
|
||||||||||||
General
and administrative
|
1,545,231
|
422,586
|
3,622,067
|
989,001
|
||||||||||||
Depreciation
and amortization
|
464,530
|
8,794
|
1,106,990
|
26,470
|
||||||||||||
Total
operating expenses
|
2,130,003
|
462,079
|
4,967,142
|
1,097,434
|
||||||||||||
Income
(loss) from operations
|
(537,934
|
)
|
322,641
|
(15,752
|
)
|
485,053
|
||||||||||
Other
income (expense):
|
||||||||||||||||
Interest
income (expense), net
|
(19,537
|
)
|
(3,694
|
)
|
(121,558
|
)
|
(8,248
|
)
|
||||||||
Other
income (expense), net
|
561,979
|
0
|
561,979
|
0
|
||||||||||||
Total
other income (expense)
|
542,441
|
(3,694
|
)
|
440,420
|
(8,248
|
)
|
||||||||||
Income
before income taxes
|
4,507
|
318,947
|
424,669
|
476,805
|
||||||||||||
Income
tax expense
|
(13,565
|
)
|
89,305
|
128,117
|
133,505
|
|||||||||||
Net
income
|
$
|
18,073
|
$
|
229,642
|
$
|
296,551
|
$
|
343,299
|
||||||||
Net
income per share
|
$
|
0.00
|
$
|
0.01
|
$
|
0.01
|
$
|
0.01
|
||||||||
Weighted
average shares outstanding
|
61,463,779
|
40,878,451
|
53,036,518
|
24,536,595
|
Statements
of Comprehensive Income
|
||||||||||||||||
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
income
|
$
|
18,073
|
$
|
229,642
|
$
|
296,551
|
$
|
343,299
|
||||||||
Foreign
currency translation adjustment
|
120,688
|
(87,483
|
)
|
419,383
|
(201,433
|
)
|
||||||||||
Total
comprehensive income
|
$
|
138,761
|
$
|
142,159
|
$
|
715,934
|
$
|
141,866
|
Nine
Months
Ended
September 30,
2009
|
Twelve
Months
Ended
December 31,
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income (loss)
|
$ | 296,551 | $ | 781,420 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Bad
debt expense
|
13,500 | 25,000 | ||||||
Depreciation
& amortization
|
1,106,990 | 33,041 | ||||||
Acquisition
of intangibles and related goodwill changes - non-cash
|
(18,486,269 | ) | - | |||||
Acquisition
of property and equipment - non-cash
|
(1,139,073 | ) | - | |||||
Conversion
of note payable to stock
|
(206,274 | ) | - | |||||
Notes
payable and warrants value assumed related to acquisition
|
2,801,000 | - | ||||||
Additional
paid in capital from non-cash acquisitions and other debt conversions,
stock issuances
|
16,896,499 | - | ||||||
Common
stock issued for non-cash acquisitions and other debt conversions, stock
issuances
|
20,075 | - | ||||||
Effect
of foreign exchange rate changes
|
419,383 | (39,513 | ) | |||||
Changes
in assets and liabilities:
|
||||||||
Accounts
receivable
|
(1,769,402 | ) | (865,156 | ) | ||||
Other
current and non-current assets
|
(248,335 | ) | (2,548 | ) | ||||
Accounts
payable, accrued expenses, and other current liabilities
|
1,369,474 | (35,943 | ) | |||||
Income
taxes payable
|
(197,428 | ) | 246,772 | |||||
Net
cash provided by (used in) operating activities
|
876,692 | 143,073 | ||||||
Cash
flows from investing activities:
|
||||||||
Sale
of assets
|
425,000 | - | ||||||
Expenditures
for development on domains and websites
|
(122,315 | ) | - | |||||
Purchase
of property and equipment
|
(256,536 | ) | (94,672 | ) | ||||
Net
cash used in investing activities
|
46,149 | (94,672 | ) | |||||
Cash
flows from (used in) financing activities:
|
||||||||
Advances
from (repayment to) related parties
|
- | (295,792 | ) | |||||
Dividends
(paid) received
|
(383,439 | ) | - | |||||
Proceeds
from (repayment of) mortgage payable
|
21,340 | (1,753 | ) | |||||
Net
cash provided by (used in) financing activities
|
(362,099 | ) | (297,545 | ) | ||||
Net
change in cash
|
560,742 | (249,144 | ) | |||||
Cash,
beginning of period
|
7,679 | 256,823 | ||||||
Cash,
end of period
|
$ | 568,421 | $ | 7,679 | ||||
Supplemental
disclosure of cash flow information:
|
||||||||
Cash
paid for income taxes
|
363,096 | 66,836 | ||||||
Cash
paid for interest
|
$ | 11,545 | $ | 14,138 |
Furniture
and fixtures
|
5-6
years
|
IT
equipment
|
3
years
|
Computer
software
|
2-5
years
|
Leasehold
improvements
|
Life
of the lease
|
·
|
evidence
of an arrangement exists;
|
|
·
|
delivery
has occurred or services have been rendered and the significant risks and
rewards of ownership have been transferred to the
purchaser;
|
|
·
|
transaction
costs can be reliably measured;
|
|
·
|
the
selling price is fixed or determinable; and
|
|
·
|
collectability
is reasonably assured.
|
·
|
Retainers: Certain
clients, including certain Wireless Carriers, pay fixed monthly fees for
the right to use defined products and services. The Company may enter into
contracts to develop, host and maintain Mobi Sites, in exchange for a
monthly retainer. Retainers are generally negotiated on a term
of six months or one year, depending on the nature of the product of
service we provide. Revenues from retainer arrangement are
generally recognized ratably over the term of the
contract.
|
|
·
|
Fixed term contracts:
the Company enters into certain fixed term or fixed program contracts with
clients, including Brand Owners, in terms of which we provide a defined
service for a fixed fee. Mobile statement products are used to deliver
monthly statements to mobile phones. The Company earns a fixed fee for
each statement that is sent out. Revenues from these contracts are
recognized as services are performed.
|
|
·
|
Transaction fees: In
certain instances the Company earn revenues on a transaction
basis. Under the terms of agreements with Wireless Carriers and
Brand Owners transaction fees are earned when a wireless subscriber
downloads content into a mobile phone via one of the Company’s
servers. A significant portion of online Internet business is
transaction based. Often Brand Owners pay on the basis of
qualified leads generated from online advertising
campaigns. Transaction fees are recognized as revenue in period
in which the transaction giving rise to the fee occurs.
|
|
·
|
Licenses. The
Company earns royalties from the license of its software platforms to
Wireless Carriers and to master licensees.
|
|
·
|
Advisory and service
fees: The Company earns advisory and service fees from the design
and execution of either a mobile or an online marketing campaign. These
fees vary from the initial conceptualization, through to the creation of
the content for the marketing campaign. Fees for services
are recognized when the services have been
performed.
|
|
·
|
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets. The Company's Level 1
assets include cash equivalents whose carrying value represents fair value
because of their short-term maturities of the investments held by these
funds.
|
|
·
|
Level
2 inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial
instrument.
|
|
·
|
Level
3 inputs to the valuation methodology are unobservable and significant to
the fair value measurement.
|
Furniture
and fixtures
|
$
|
780,759
|
||
Leasehold
improvements
|
27,134
|
|||
Building
|
122,976
|
|||
IT
equipment
|
444,049
|
|||
Computer
software purchased
|
178,019
|
|||
Total
|
1,552,937
|
|||
Less:
Accumulated depreciation
|
(227,451
|
)
|
||
Property
and equipment, net
|
$
|
1,325,486
|
September
30,
|
||||
2009
|
||||
Intangibles
assets - other, net:
|
||||
CellCard
purchased technology
|
$
|
750,000
|
||
Digital
Vouchers purchased technology
|
350,000
|
|||
Secondary
domain names
|
665,838
|
|||
AdMax
Marketing Contact Database
|
2,984,526
|
|||
AdMaximizer/Realtime3
|
3,870,068
|
|||
Total
amortizable intangibles
|
8,620,432
|
|||
Less:
Amortization
|
(930,952
|
)
|
||
Intangibles
assets - other, net
|
$
|
7,689,480
|
2009
|
$
|
1,202,551
|
||
2010
|
1,575,484
|
|||
2011
|
1,575,484
|
|||
2012
|
1,575,484
|
|||
2013
|
849,846
|
|||
2014
|
607,966
|
|||
2015
|
583,504
|
|||
2016
|
106,590
|
|||
$
|
8,076,909
|
We
issued seven convertible promissory notes, for an aggregate principal
amount of $2,707,500 on February 28, 2009. The convertible
promissory notes bear interest at a rate of 9.649 to 12% per annum and are
unsecured. The principal and all accrued and unpaid interest
are due and payable on March 1, 2010. The convertible
promissory notes are convertible into shares of our common stock at any
time at the option of the holder at a conversion price of $3.00
per share. The conversion price is subject to adjustments for stock
splits, dividends and recapitalization, but does not have “anti-dilution”
protection and does not adjust based on the issuance of common stock at an
effective price per share below the conversion price. We had a third party independent valuation performed in
connection with the purchase of our AdMax business from Superfly Media,
LLC on February 28, 2009. This valuation determined the fair
value of our stock on February 29, 2009 was $1.74 per share based on the
restricted status of the shares and the limited trading volume of our
stock. We therefore determined that the convertible notes, with
a conversion at $3.00 per share, did not contain a substantive conversion
feature as defined in ASC 470-20-40-9.
|
$
|
2,707,500
|
||
On
July 31, 2009, we agreed to issue 25,000 shares of our common stock, a
promissory note in the amount of $718,500 and warrants to purchase 600,000
shares of our common stock to Agile Opportunity Fund, LLC in consideration
for the transaction with Agile Opportunity Fund, LLC and Superfly
Advertising, Inc. and the cancellation of the $625,000 promissory note and
warrants we issued to Superfly Advertising, Inc. on February 28, 2014. The
promissory note bears interest at a rate of 18%, becomes due on January
16, 2010 and is convertible into shares of our common stock at the
conversion price of $3.00 per share.
|
718,500
|
|||
Cancellation
of Superfly Advertising, Inc. note
|
(625,000
|
)
|
||
Total
Debt as of September 30, 2009
|
$
|
2,801,000
|
Current
portion
|
$
|
32,500
|
||
Long-term
portion
|
32,500
|
|||
Note
receivable balance
|
$
|
65,000
|
Revenue
|
Cost
of sales
|
Gross
profit
|
Operating
expenses
|
Income
(loss) from operations
|
||||||||||||||||
Mobile
marketing
|
$
|
5,711,384
|
$
|
2,354,200
|
$
|
3,357,184
|
$
|
2,035,902
|
$
|
1,321,282
|
||||||||||
Internet
marketing
|
2,992,265
|
1,398,058
|
1,594,207
|
2,211,823
|
(617,616
|
)
|
||||||||||||||
Corporate
costs
|
719,417
|
(719,417
|
)
|
|||||||||||||||||
Total
consolidated
|
$
|
8,703,649
|
$
|
3,752,258
|
$
|
4,951,391
|
$
|
4,967,142
|
$
|
(15,751
|
)
|
Historical
|
Pro
Forma
|
||||||||||||||||||
Lenco
Mobile Inc. December 31, |
(a) Legacy
Media LLC and
Consumer
Loyalty Group LLC
|
Adjustments
|
As
Adjusted
|
||||||||||||||||
Revenues
|
$ | 3,394,364 | $ | 12,877,315 | $ | $ | 16,271,679 | ||||||||||||
Cost
of sales
|
645,605 | 4,609,905 | 5,255,510 | ||||||||||||||||
Gross
profit
|
2,748,759 | 8,267,410 | 0 | 11,016,169 | |||||||||||||||
Operating
expenses:
|
|||||||||||||||||||
Employee
costs and commissions
|
1,050,571 | 2,005,363 | 3,055,934 | ||||||||||||||||
Consulting
and professional services
|
253,594 | 1,102,692 | 1,356,286 | ||||||||||||||||
Communications
|
70,569 | 70,569 | |||||||||||||||||
Advertising
and promotion
|
34,120 | 3,003,628 | 3,037,748 | ||||||||||||||||
Depreciation
and amortization
|
33,041 | 1,655,516 |
(a)
|
1,688,557 | |||||||||||||||
Lease
expense
|
37,509 | 37,509 | |||||||||||||||||
Bad
debts
|
25,000 | 25,000 | |||||||||||||||||
Auto
expense
|
36,342 | 36,342 | |||||||||||||||||
Office
supplies and expense
|
43,496 | 43,496 | |||||||||||||||||
Travel
and entertainment
|
33,631 | 33,631 | |||||||||||||||||
Other
|
25,281 | 1,233,858 | 1,259,139 | ||||||||||||||||
Total
operating expenses
|
1,643,154 | 7,345,541 | 1,655,516 | 10,644,211 | |||||||||||||||
Income
from operations
|
1,105,605 | 921,869 | (1,655,516 | ) | 371,958 | ||||||||||||||
Other
income (expense):
|
|||||||||||||||||||
Interest
income
|
3,561 | 3,561 | |||||||||||||||||
Interest
expense
|
(14,138 | ) | (85,672 | ) | (338,770 | ) |
(b)
|
(438,580 | ) | ||||||||||
Income
before income taxes
|
1,095,028 | 836,197 | (1,994,286 | ) | (63,061 | ) | |||||||||||||
Income
tax expense
|
313,608 | 0 | (396,847 | ) | (83,239 | ) | |||||||||||||
Net
income (loss)
|
$ | 781,420 | $ | 836,197 | $ | (1,597,439 | ) | $ | 20,178 | ||||||||||
Net
income per share
|
$ | 0.03 | $ | 0.00 | |||||||||||||||
Weighted
average shares outstanding
|
28,791,774 |
(a)
|
33,791,774 |
|
(a)
|
Adjustments
reflect the opening balance sheet entries as determined by a third party
valuation on the assets acquired. We issued 5,000,000 shares of
our common stock to Superfly. The assets we acquired from
Superfly included principally our AdMaximizerTM software platform,
advertising contracts with Brand Owners, relationships with a network of
web publishers, 1,235 URLS; several of which have websites and content,
consumer databases including over 120 million unique consumer records, and
the assets for a call center operation in Costa Rica. These
assets are the primary assets that we use in our Internet advertising
platforms. Also, this financial
information includes the pro forma effect of amortization, depreciation
and the tax effect of changes to the pro forma results of
2008.
|
|
(b)
|
Adjustment
reflects additional consideration with our assumption of Superfly’s
indebtedness to eight Superfly lenders and issuance of an aggregate of
$2,801,000 in convertible promissory
notes.
|