UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D. C. 20549
FORM
10-K
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ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
OF 1934
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For the
fiscal year ended December 31, 2009
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TRANSITION REPORT UNDER SECTION
13 OR 15 (d) OF THE EXCHANGE ACT OF
1934
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For the
transition period from _____ to _________
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Commission
file number
333-143845
GETFUGU,
INC.
(Exact
name of registrant as specified in its charter)
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Nevada
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20-8658254
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.)
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8560
West Sunset Blvd
Suite
700
Los
Angeles, CA 90060
(Address
of principal executive offices, including zip code.)
424-354-2464
(Registrant's
telephone number, including area code)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
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Yes No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act:
¨
Yes No
x
Indicate
by check mark whether the registrant (1) has filed all reports required by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 day.
x
Yes
¨
No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulations S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
¨
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 if the Exchange Act.
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Large Accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
x
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(Do not check if a smaller reporting company)
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes
x
No
The
aggregate market value of the registrant's common stock, $0.001 par value, held
by non-affiliates was $209,740,474 based on approximately 191 shares and the
last sale price was $0.023 for the common stock on April 14, 2010. The company
had a total of 482,927,956 shares outstanding as of April 15, 2010.
TABLE OF CONTENTS
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Page
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PART I
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Item
1.
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Business.
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3
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Item
1A.
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Risk
Factors.
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5
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Item
1B.
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Unresolved
Staff Comments.
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10
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Item
2.
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Properties.
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10
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Item
3.
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Legal
Proceedings.
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10
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Item
4.
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Submission
of Matters to a Vote of Security Holders.
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10
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PART
II
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Item
5.
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Market
For Registrant’s Common Stock and Related Stockholder
Matters.
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10
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Item
6.
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Selected
Financial Data
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11
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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12
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Item
7A.
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Quantitative
and Qualitative Disclosures about Market Risk.
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15
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Item
8.
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Consolidated
Financial Statements and Supplementary Data.
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16
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Item
9.
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Changes
In and Disagreements With Accountants on Accounting and
Financial Disclosure
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17
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Item
9A.
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Controls
and Procedures
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17
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Item
9B.
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Other
Information
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17
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PART
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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18
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Item
11.
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Executive
Compensation
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20
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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21
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Item
13.
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Certain
Relationships and Related Transactions and Director
Independence
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21
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Item
14
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Principal
Accountant Fees and Services
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22
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PART
IV
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Item
15.
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Exhibits,
Financial Statement Schedules.
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23
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Signatures
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24
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Index
to Financial Statements
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FORWARD-LOOKING
STATEMENTS
This
annual report on Form 10-K contains forward-looking statements within the
meaning of the federal securities laws. These statements relate to future events
or our future financial performance and involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance or achievements to be materially different from those
expressed or implied by the forward-looking statements. In some cases, you can
identify forward-looking statements by terminology such as “may,” “likely,”
“will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,”
“predict,” “potential,” “continue” or the negative of these terms or other
comparable terminology. These forward-looking statements are subject to a number
of risks that could cause them to differ from our expectations. These include,
but are not limited to, risks relating to:
•
Our financial condition and results of
operations, including expectations and projections relating to our future
performance and ability to achieve profitability;
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Our ability to capitalize on our
business strategy
• Our
ability to take advantage of opportunities for revenue development;
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Increasing competition in the mobile
search engine industry with competitors with significantly more ability to
acquire capital;
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Rapidly evolving and changing
competitive and industry conditions; and
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The impact of general economic
recession and other market and economic challenges on our
business.
You
should not place undue reliance on these forward-looking statements, which are
based on our current views and assumptions. In evaluating these statements, you
should specifically consider various factors, including the foregoing risks and
those outlined under “Risk Factors.” Many of these factors are beyond our
control. Our forward-looking statements represent estimates and assumptions only
as of the date of this annual report on Form 10-K. Except as required by law, we
undertake no obligation to update any forward-looking statement to reflect
events or circumstances occurring after the date of this annual report on Form
10-K.
PART I
ITEM 1.
BUSINESS
GetFugu,
Inc, (“GetFugu,” “Company,” “we,” “us,” or “our”), is developing next generation
mobile search tools. Our technology is designed to play on the strengths of
mobile handheld devices (mobile phones) and assist consumers to retrieve content
more expediently. Consumers can download GetFugu application tools to their
mobile phone device. The GetFugu applications allow consumers to
retrieve content and eliminates the need to type a website address or search
term into a browser.
We
currently have four products.
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1.
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See It
(ARL):
“Vision
recognition” The GetFugu application recognizes logos and products through
any mobile phone camera. Consumers simply point their phone at a logo and
retrieve content from the brand
owner.
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2.
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Say It
(VRL):
“Voice
recognition” The consumer can simply speak into the phone to retrieve
content. In addition to brand names, the consumer can say generic keywords
such as “best pizza” or
“ATM”.
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3.
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Find It (GRL):
“Location recognition”
For local content, GetFugu is
designed to work with the Global Positioning Systems of today’s mobile
phones. The application will return content, based on the proximity to the
user. A keyword of “pizza” will return the closest pizza
parlors. Local businesses can pay for voice-activated key words
to position themselves at the top of the search list within specified
postal codes.
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4.
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Get it
(Hotspotting):
GetFugu provides advertisers with a way to monetize their marketing
efforts through a mobile ecommerce tool called Hot-Spotting, which enables
the consumer to purchase or retrieve information on any item featured in
the video simply by touching it on the screen. This function is currently
limited to touch-screen phones and select Blackberry
models.
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Background
The
Company was incorporated in the State of Nevada on March 14, 2007 under the name
Madero, Inc. On August 29, 2008, the Company entered into a stock
purchase agreement (the “Stock Purchase Agreement”) with Mike Lizarraga ( sole
director, former President, Chief Executive Officer, and Chief Financial Officer
of Madero, Inc.), and Media Power, Inc. (“MPI”). Pursuant to the terms and
conditions of the Stock Purchase Agreement, MPI acquired 48,000,000 shares of
the Company’s common stock (this number, and all other share amounts presented,
is post the 12 for 1 forward stock split which was effectuated on February 11,
2009), or approximately 48.07% of the Company’s then issued and outstanding
shares of common stock from Mr. Lizarraga.
Prior to
the closing of the transactions referenced in the Stock Purchase Agreement, the
Company was a development stage company in an unrelated
industry. Through March 14, 2007, the Company’s activities had been
limited to its formation, business planning and raising capital, and since
August 29, 2008 has been involved in the development of next generation mobile
search tools.
On
January 23, 2009, the Company amended its Articles of Incorporation to increase
the number of authorized common stock, par value $0.001 per share, from
75,000,000 to 500,000,000. On February 11, 2009, there was a forward
split of common stock whereby each issued and outstanding share of common stock
was split into 12 shares of common stock.
Effective
March 25, 2009, the Company’s Articles of Incorporation were amended to change
the name to GetFugu, Inc.
Effective April 9, 2009, we entered
into an Agreement for the Assignment of Patent Rights (the “Assignment
Agreement”) with MARA Group Ltd. Pursuant to the Assignment Agreement
the Company acquired eight patent applications (the “Patent Applications”) from
MARA Group Ltd. in exchange for 25 million shares of Common Stock of the
Company. Prior to the closing of this transaction MARA Group Ltd. was
deemed to be an “affiliate” of ours, as an owner of more than ten (10%) percent
of our outstanding Common Stock.
On
October 19, 2009, the Company’s Board of Directors approved (i) the
reincorporation of the Company from Nevada to Delaware, (ii) increasing the
number of authorized shares of Common Stock from 500,000,000 to 750,000,000,
(iii) issuing up to 200,000,000 shares of “blank check” preferred stock, and
(iv) the creation of the 2009 Incentive Compensation Plan with a maximum of
250,000,000 shares of Common Stock to be issued with no more than 100,000,000
shares permitted to be issued in any fiscal year. As of April 15,
2010, the Company had not formally adopted the Incentive Compensation
Plan. All of the above noted items require shareholder
approval. Accordingly, at this meeting, the Board approved the filing
with the Securities and Exchange Commission (“SEC”) of a written consent
statement. As of April 15, 2010 the Company has not filed its amended
articles of incorporation with the appropriate regulatory bodies.
Introduction
Since April 9, 2009, we have developed
mobile-based technology applications that allow any camera-equipped mobile phone
from any mobile phone carrier to access information from advertisers and/or
marketers by downloading the information (“content”) by simply clicking on the
logo of a company. Clicking on the logo allows the individual to
bypass traditional search engines such as Google, Yahoo or MSN to retrieve the
content they seek.
Market
Analysis
With over 4 billion handheld devices in
the world, mobile phones outnumber PCs nearly 4-to-1. We believe mobile phones
provide an attractive advertising platform. Currently, advertising to mobile
phone customers (“MPC”) has been limited because there is no industry standard
for retrieving the content they seek. When a MPC wishes to
retrieve content they have to use traditional methods via search engines like
Google or Yahoo to receive the information they seek. We seek to
improve the way MPC search for content by using the technology applications we
have developed.
The
Challenges in Mobile Advertising
Today’s mobile devices continue to
improve at an exponential rate. Processing power is increasing, displays are
crisper and peripheral hardware such as cameras, gyroscopes and accelerometers
are being integrated. Because of this, it is possible to develop new
applications that offer rich multimedia experiences for end users. However,
though hardware continues to improve, data entry continues to be an awkward
process. While some phones contain physical keyboards, they are often difficult
to use because of their size and require the user to focus their attention on
the device. Virtual (on screen) keyboards can be awkward as well – as they do
not
provide users with
tactile feedback. Multi-tap interfaces are even more burdensome, requiring the
user to press a key multiple times to select a corresponding
letter.
Current
Mobile Phone Market
It is estimated that currently over 90%
of all cell phones contain a camera. The Company believes that the
mobile phone sector will be the next large-scale arena for advertising
campaigns. In addition, the number of cell phones that contain a Global
Positioning System (“GPS”) is increasing. It is estimated that 60% of new cell
phones contain a GPS unit. Currently, the majority of cellular phones
have a microphone. We believe it is possible to leverage these core
components of the mobile phone to provide new advertising paths for businesses
while reaching a large target audience.
Simplifying
the Mobile Search Process
For technology to be widely accepted it
must be simple, otherwise, both consumers and advertisers can be lost in a sea
of complexity. In our implementation, we present a comprehensive, unified
interface that allows end users to perform queries based on visual, auditory and
location-based information. While running the application, the user can speak a
command, capture an image, or use their location, and receive a wealth of
information about specific products or nearby vendors. The end goal is the same:
to find out more about a product or company. The technology must be
simple for advertisers as well. In our implementation, an advertiser
simply uploads their logo for
ARL, types in a keyword for VRL, and uses standard postal codes for geographic
designation of the territory to be covered. Once they have entered this
information into the system, it becomes active for all end
users.
Competitive
Analysis
With the rapid deployment of
internet-based smart phones, we believe we will have the ability to introduce
our technology applications to the mobile communication world with little to no
impediments. We believe the market “timing” for the launch of our
mobile technology platform is excellent, as it is being introduced at a time
when advertising in the mobile phone marketplace is in its infancy.
Competition
We could face substantial competition
from companies such as Google, Apple, Yahoo and Microsoft if they were to
develop similar technologies and enter the wireless mobile phone
sector. The field of mobile augmented reality is a new one. While
there is not a dominant threat, there are several smaller competitors such as
SnapTell, Total Immersion and even Google (via their Google Goggles mobile
search application).
Revenue
Model
Our
revenue model is monthly subscription based, charging as little as $9.99/mo for
small businesses, and $99/mo for companies with ten or more employees. This fee
is based on a single log or keyword and includes a single ARL/VRL/GRL for an
unlimited amount of traffic. We believe that Fortune 500 companies that use
multiple forms of advertising will purchase multiple logos to track their
ads. Hotspotting involves revenue sharing with the advertiser on a
transaction basis. We believe the market potential for these
applications is global and includes both national and local advertisers in each
area. These advertisers have an estimated 400 million logos
worldwide. Each of these is a potential advertiser.
Employees
As of December 31, 2009, we had 33 full
time employees.
ITEM 1A.
RISK FACTORS
The
following important factors, and the important factors described elsewhere in
this report or in our other filings with the SEC, could affect (and in some
cases have affected) our results and could cause our results to be materially
different from estimates or expectations. Other risks and
uncertainties may also affect our results or operations
adversely. The following and these other risks could materially and
adversely affect our business, operations, results or financial condition. You
should carefully read the following risk factors when you evaluate our business
and the forward-looking statements that we make in this report, in our financial
statements and elsewhere. Any of the following risks could materially adversely
affect our business, our operating results, our financial condition and the
actual outcome of matters as to which we make forward-looking
statements.
Risks
related to our lack of liquidity
We
have no revenues and have incurred and expect to continue to incur substantial
losses. We will not be successful unless we reverse this trend.
We began
our sales efforts in late March 2010 and as of April 15, 2010, have recorded no
revenues. As a result, we have generated significant operating losses
since our formation and expect to incur substantial losses and negative
operating cash flows for the foreseeable future. We anticipate that
our existing cash and cash equivalents will not be sufficient to fund our
business needs. Our ability to continue may prove more expensive than we
currently anticipate and we may incur significant additional costs and
expenses.
We expect
that capital outlays and operating expenditures will continue to increase as we
attempt to expand our infrastructure and development activities and we will
require significant additional capital in order to implement our business plan
and continue our operations.
We expect
to generate revenues from product sales or the license of our technology, but
can provide no assurances as to our success in generating revenue.
If
we fail to raise additional capital or receive substantial cash inflows from
additional investors, our business objectives could be compromised.
We have
limited capital resources and operations to date have been funded with the
proceeds from equity and debt financings. Primarily as a result of our
recurring losses and our lack of liquidity in connection with our fiscal year
ended December 31, 2009, we received a report from our independent auditors that
includes an explanatory paragraph describing the substantial doubt as to our
ability to continue as a going concern.
Even if
we obtain additional short term financing, our business will require substantial
additional investment that we have not yet secured. We cannot be sure how much
we will need to spend in order to develop and market new products, services and
technologies in the future. We expect to continue to spend substantial amounts
on development. Further, we will not have sufficient resources to develop fully
any new products, services or technologies unless we are able to raise
substantial additional financing on acceptable terms or secure funds from new or
existing partners. Our failure to raise capital when needed would adversely
affect our business, financial condition and results of operations, and could
force us to reduce or discontinue our operations at some time in the future,
even if we obtain financing in the near term
If
we borrow money to expand our business, we will face the risks of
leverage.
Our
ability to borrow funds will depend upon a number of factors, including the
condition of the financial markets. The risk of loss in such circumstances
is increased because we would be obligated to meet fixed payment obligations on
specified dates regardless of our revenue. If we do not meet our debt
service payments when due, we may sustain the loss of our equity investment in
any of our assets securing such debt upon the foreclosure on such debt by a
secured lender.
Risks
related to our business
Going
Concern
Primarily
as a result of our recurring losses and our lack of liquidity in connection with
our fiscal year ended December 31, 2009
,
we received a report from
our independent registered public accounting firm that includes an explanatory
paragraph describing the substantial doubt as to our ability to continue as a
going concern.
To
this point, we have been in product development and our success is
uncertain.
We are a
development stage company and are subject to the risks associated with a
development stage company. Subsequent to December 31, 2009, we have determined
that our initial products and services are in a final completion stage. We may
fail to fully develop products or services, to implement our business model and
strategy successfully or to revise our business model and strategy should
industry conditions and competition change. We cannot make any assurances that
any of our product candidates, if successfully developed, would generate
sufficient revenues to enable us to be profitable. Furthermore, we cannot make
any assurances that we will be successful in addressing these risks. If we are
not, our business, results of operations and financial condition will be
materially adversely affected.
We
have a limited operating history and we may not be able to successfully develop
our business.
We have a
limited operating history and our financial health will be subject to all the
risks inherent in the establishment of a new business enterprise. The
likelihood of our success must be considered in the light of the problems,
expenses, difficulties, complications, and delays frequently encountered in
connection with the startup and growth of a new business, and the competitive
environment in which we will operate. Our success is dependent upon the
successful financing and development of our business plan. No assurance of
success is offered. Unanticipated problems, expenses, and delays are
frequently encountered in establishing a new business, and marketing and
developing products. These include, but are not limited to, competition,
the need to develop customers and market expertise, market conditions, sales,
marketing and governmental regulation. The failure to meet any of these
conditions would have a materially adverse effect and may force us to reduce or
curtail operations. No assurance can be given that we can or will ever
operate profitably.
Our
limited operating history makes predicting our future operating results
difficult. As a software development company with a limited history, we face
numerous risks and uncertainties in the competitive markets. In particular, we
have not proven that we can:
o
develop
entertainment software in a manner that enables us to be profitable and meet
strategic partner and customer requirements;
o
develop and
maintain relationships with key customers and strategic partners that will be
necessary to optimize the market value of our products and
services;
o
raise
sufficient capital in the public and/or private markets; or
o
respond
effectively to competitive pressures.
If we are
unable to accomplish these goals, our business is unlikely to succeed. Even if
we are able to license certain of our technology to generate revenue we will
still be operating at a significant loss during the course of our software
development program.
If
we are unable to establish sales and marketing capabilities or enter into
agreements with third parties to sell and market products and services we
develop, we may not be able to generate product revenue.
Subsequent
to December 31, 2009, we have entered into various strategic sales alliances
with third parties to market our products and services we develop. We do not
know if these relationships will result in revenues sufficient to support our
business model.
Our
software products and services are subject to the risk of failure inherent in
products or services based on new and unproven technologies.
Because
our software is and will be based on new technologies, it is subject to risk of
failure. These risks include the possibility that:
o
our new
approaches will not result in any products or services that gain market
acceptance;
o
our software
will unfavorably interact with other types of commonly used software, thus
restricting the circumstances in which it may be used;
o
proprietary
rights of third parties will preclude us from marketing a new product;
or
o
third parties
will market superior or more cost-effective products or
services.
As a
result, our activities, either directly or through corporate partners, may not
result in any commercially viable products or services.
Our
software products and related services may be subject to future product
liability claims. Such product liability claims could result in expensive and
time-consuming litigation and payment of substantial damages.
The
development, testing, marketing, sale and use of software runs a risk that
product liability claims may be asserted against us if it is believed that the
use or testing of our products and services have caused adverse technology
problems to existing systems. We cannot make assurances that claims, suits, or
complaints relating to the use of our technology will not be asserted against us
in the future. If a product liability claim asserted against us was successful,
we may be required to limit commercialization of our technology. Regardless of
merit or outcome, claims against us may result in significant diversion of our
management’s time and attention, expenditure of large amounts of cash on legal
fees, expenses and damages and a decreased demand for our products and services.
We cannot make any assurances that we will be able to acquire or maintain
insurance coverage at a reasonable cost or in sufficient amounts to protect
us.
We
do not hold any patents on our technology and it may be difficult to protect our
technology.
We do not
have any patents issued, but we do have patents pending. We do have
development work or source code which we believe has the potential for patent
protection. We will evaluate our business benefits in pursuing patents in
the future. We seek to protect all of our development work with
confidentiality agreements with our engineers, employees and any outside
contractors. However, third parties may, in an unauthorized manner,
attempt to use, copy or otherwise obtain and market or distribute our
intellectual property or technology or otherwise develop a product with the same
functionality as our software. Policing unauthorized use of our software and
intellectual property rights is difficult, and nearly impossible on a worldwide
basis. Therefore, we cannot be certain that the steps we have taken or will take
in the future will prevent misappropriation of our technology or intellectual
property, particularly in foreign countries where we plan to do business or
where our software will be sold or used, where the laws may not protect
proprietary rights as fully as do the laws of the United States or where the
enforcement of such laws is not common or effective.
A
dispute concerning the infringement or misappropriation of our proprietary
rights or the proprietary rights of others could be time consuming and costly
and an unfavorable outcome could harm our business
There is
significant litigation in the software field regarding patents and other
intellectual property rights. Software companies with greater financial and
other resources than us have gone out of business from the cost of patent
litigation or from losing a patent litigation. We may be exposed to future
litigation by third parties based on claims that our software, technologies or
activities infringe the intellectual property rights of others. Although we try
to avoid infringement, there is the risk that we will use a patented technology
owned or licensed by another person or entity and/or be sued for infringement of
a patent owned by a third party. Under current United States law, patent
applications are confidential for 18 months following their priority filing date
and may remain confidential beyond 18 months if no foreign counterparts are
applied for in jurisdictions that publish patent applications. If our products
are found to infringe any patents, we may have to pay significant damages or be
prevented from making, using, selling, offering for sale or importing such
products or services or from practicing methods that employ such products and
services.
Confidentiality
agreements with employees and others may not adequately prevent disclosure of
our trade secrets and other proprietary information and may not adequately
protect our intellectual property.
Our
success also depends upon the skills, knowledge and experience of our technical
personnel, our consultants and advisors as well as our licensors and
contractors. Because we operate in a highly competitive field, we rely almost
wholly on trade secrets to protect our proprietary technology and processes.
However, trade secrets are difficult to protect. We enter into confidentiality
and intellectual property assignment agreements with our corporate partners,
employees, consultants, outside scientific collaborators, developers and other
advisors. These agreements generally require that the receiving party keep
confidential and not disclose to third parties all confidential information
developed by the receiving party or made known to the receiving party by us
during the course of the receiving party’s relationship with us. These
agreements also generally provide that inventions conceived by the receiving
party in the course of rendering services to us will be our exclusive property.
However, these agreements may be breached and may not effectively assign
intellectual property rights to us. Our trade secrets also could be
independently discovered by competitors, in which case we would not be able to
prevent use of such trade secrets by our competitors. The enforcement of a claim
alleging that a party illegally obtained and used our trade secrets could be
difficult, expensive and time consuming and the outcome unpredictable. In
addition, courts outside the United States may be less willing to protect trade
secrets. The failure to obtain or maintain meaningful trade secret protection
could adversely affect our competitive position.
Raising
equity may result in a risk of potential significant shareholder
dilution.
From our inception we have not yet
received any sales revenue. Accordingly, working capital has been
obtained through debt and equity financing activities. Our share
price has proven to be very volatile and the shares issued carry restrictive
legends. As a result, all equity-based transactions have been at
significant discounts to the quoted share price. The combination of
the share volatility and restricted transferability could result in a
significant number of shares issued to fund our operations. This
potential significant issuance of shares could result in a significant dilution
to the shareholders.
Risks
related to our industry
Our
technology may become obsolete or lose its competitive advantage.
The
software and services business is very competitive, fast moving and intense, and
we expect it to be increasingly so in the future. Other companies have developed
and are developing software technologies and related services that, if not
similar in type to our software and services, are designed to address the same
end user or customer. Therefore, there is no assurance that our products or
services and any other products or services we may offer will be the best, the
first to market, or the most economical to make or use. If competitors’ products
or services are better than ours, for whatever reason, our sales could decrease,
our margins could decrease and our products and services may become
obsolete.
There are
many reasons why a competitor might be more successful than we are or will be,
including:
o
Competitors
may have greater financial resources and can afford more technical and
development setbacks than we can.
o
Competitors
may have been in the software business longer than we have. They may have
greater experience than us in critical areas like testing, sales and marketing.
This experience or their name recognition may give them a competitive advantage
over us.
o
Competitors
may have a better patent position protecting their technology than we either
have or will have. If we cannot prevent others from copying our technology or
developing similar technology, or if we cannot obtain a critical license to
another’s patent that we need to make and use our technology, we would expect
our competitive position to lessen. Because the company that is “first to
market” often has a significant advantage over latecomers, a second place
position could result in less than anticipated sales.
If
potential customers do not accept our products or services, we may never achieve
enough sales to make our business profitable.
The
commercial success of our future products and services will be dependent on
their acceptance by potential customers. Our products and services will be based
on technology that has not been completely proven and is subject to the risks of
failure inherent in products and services based on new technologies. A
significant portion of our resources will be used for research and development
and marketing relating to our proposed products and services. There can be no
assurance that we can or will develop marketable products and services. The
failure of our products and services to achieve market acceptance would have a
material adverse effect on us.
Risks
related to our common stock
Our
stockholders may not be able to resell their shares at or above the purchase
price paid by such stockholders, or at all.
Our
common stock is listed on the Over The Counter Bulletin Board trading system
(“OTCBB”). An investment in our stock may be highly illiquid and subject
to significant market volatility. This volatility may be caused by a variety of
factors including low trading volume and market conditions.
In
addition, the value of our common stock could be affected by:
o
actual or
anticipated variations in our operating results;
o
changes in
the market valuations of other similarly situated companies providing similar
services or serving similar markets;
o
announcements
by us or our competitors of significant acquisitions, strategic partnerships,
joint ventures or capital commitments;
o
adoption of
new accounting standards affecting our industry;
o
additions or
departures of key personnel;
o
introduction
of new products or services by us or our competitors;
o
sales of our
common stock or other securities in the open market;
o
changes in
financial estimates by securities analysts;
o
conditions or
trends in the market in which we operate;
o
changes in
our earnings estimates and recommendations by financial analysts;
o
our failure
to meet financial analysts’ performance expectations; and
o
other events
or factors, many of which are beyond our control.
Stockholders
may experience wide fluctuations in the market price of our securities. These
fluctuations may have an extremely negative effect on the market price of our
securities and may prevent a stockholder from obtaining a market price equal to
the purchase price such stockholder paid when the stockholder attempts to sell
our securities in the open market. In these situations, the stockholder may be
required either to sell our securities at a market price which is lower than the
purchase price the stockholder paid, or to hold our securities for a longer
period of time than planned. An inactive market may also impair our ability to
raise capital by selling shares of capital stock, and may impair our ability to
acquire other companies by using common stock as consideration, or to recruit
and retain managers with equity-based incentive plans
Our
stock price may be highly volatile, because of several factors, including a
limited public float.
The
market price of our stock may be highly volatile because there has been a
relatively thin trading market for our stock, which causes trades of small
blocks of stock to have a significant impact on our stock price. You may not be
able to resell our common stock following periods of volatility because of the
market’s adverse reaction to volatility.
Other
factors that could cause such volatility may include, among other
things:
o
announcements
concerning our strategy;
o
litigation;
and
o
general
market conditions.
The
concentrated ownership of our capital stock may have the effect of delaying or
preventing a change in control of our company.
As of
April 15, 2010, our directors, officers, principal stockholders and their
affiliates beneficially own approximately 23.8% of our outstanding capital
stock. The interests of our directors, officers, principal stockholders and
their affiliates may differ from the interests of other stockholders. Our
directors, officers, principal stockholders and their affiliates will be able to
exercise significant influence over all matters requiring stockholder approval,
including the election of directors and approval of mergers, acquisitions and
other significant corporate transactions. (See “Principal
Stockholders.”)
Our
common stock is “a penny stock” and is subject to special regulations
promulgated by the SEC.
The
Securities and Exchange Commission (“SEC”) has adopted regulations that
generally define “penny stock” to be an equity security that has a market price
of less than $5.00 per share, subject to specific exemptions. The market price
of our common stock is less than $5.00 per share and therefore we are a “penny
stock” according to SEC rules. This designation requires any broker or dealer
selling these securities to disclose certain information concerning the
transaction, obtain a written agreement from the purchaser and determine that
the purchaser is reasonably suitable to purchase the securities. These rules may
restrict the ability of brokers or dealers to sell our common stock and may
affect the ability of investors hereunder to sell their shares.
We
have never paid nor do we expect in the near future to pay
dividends.
We have
never paid cash dividends on our capital stock and do not anticipate paying any
cash dividends for the foreseeable future.
Investors
may lose all of their investment in us.
Investment
in us involves a high degree of risk. Investors may never recoup all or
part of or realize any return on their investment. Accordingly, investors
may lose all of their investment and must be prepared to do so.
We
may experience difficulties in the future in complying with Section 404 of the
Sarbanes-Oxley Act.
As a
public company, we are required to evaluate our internal controls under Section
404 of the Sarbanes-Oxley Act of 2002. In this regard, we have and will continue
to comply with the internal control requirements of Section 404 of the
Sarbanes-Oxley Act. If we fail to maintain the adequacy of our internal
controls, we could be subject to regulatory scrutiny, civil or criminal
penalties and/or stockholder litigation. Any inability to provide reliable
financial reports could harm our business. Furthermore, any failure to
implement required new or improved controls, or difficulties encountered in the
implementation of adequate controls over our financial processes and reporting
in the future, could harm our operating results or cause us to fail to meet our
reporting obligations.
If we
fail to establish or maintain proper and effective internal controls in future
periods, it could adversely affect our operating results, financial condition
and our ability to run our business effectively and could cause investors to
lose confidence in our financial reporting.
ITEM 1B.
UNRESOLVED STAFF
COMMENTS
None
ITEM 2.
PROPERTIES
We currently maintain an office address at 8560 West
Sunset Blvd, Suite 700, Los Angeles, California. We pay approximately
$18,000 per month for rent and other related fees for the use of this
office. We own no physical properties, plants or real
estate.
ITEM 3.
LEGAL PROCEEDINGS
A lawsuit was filed on November 25,
2009 against the Company, numerous former and current Company officers and
directors, and other individuals and entities. Plaintiffs have made no direct
claims against the Company, but have instead named it as a “nominal” defendant,
and have alleged “derivative” causes of action on its
behalf. The Plaintiffs appear at present to only claim damages
of approximately $26,000,000 resulting from loans they made to previous
companies, which Carl Freer, the President of the Company, allegedly personally
guaranteed. The Company’s counsel is preparing a motion to dismiss.
The Company and those officers and directors deny plaintiffs’ allegations, and
plan to vigorously defend the action. Accordingly, the Company has no
liability accrued as it relates to this matter.
By letter dated February 24, 2010,
fourteen former employees of a separate company made a demand for $430,000 in
unpaid wages against that company, and threatened to file suit against the
Company, on the ground that the separate company was merely an instrumentality
of GetFugu, Inc. To the Company’s knowledge, no claim has been filed to date and
the Company believes the demand is not an obligation of the
Company. Accordingly, as of December 31, 2009, the Company has no
liability accrued as it relates to this matter.
On April 1, 2010, Hutton International
Investments, Ltd (“Hutton”) filed a suit claiming that it suffered damages as a
result of the Company's breach of a securities purchase agreement with the
Company. The parties stipulated to settle the claim in exchange for issuance to
Hutton of 40,000,000 shares of the Company’s common stock, subject to adjustment
and the Court’s approval of the settlement under Section 3(a)(10). The court
approved the settlement and dismissed the action on April 6, 2010 at which time
40,000,000 shares of the Company’s common stock were issued to Hutton. The
Company recorded a charge of approximately $1,200,000 for the year ended
December 31, 2009, based on the share price of the Company’s stock on the date
of settlement.
A demand for arbitration filed on April
13, 2010, by six former employees and independent contractors, seeking unpaid
wages and unspecified damages. At December 31, 2009, the Company had
accrued a liability for all such wages.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
Reference
is made to the Information Statement on Schedule 14C filed by the Company with
the SEC on December 3, 2008.
PART
II
ITEM 5.
MARKET FOR COMMON STOCK AND
RELATED STOCKHOLDER MATTERS AND PURCHASES OF EQUITY
SECURITIES
In conjunction with an Amendment
to our Articles of Incorporation, which changed the name of the Company to
GetFugu, Inc., effective March 25, 2009, the Company’s trading symbol on the
Over The Counter Bulletin Board is “GFGU.” From February 22, 2009
through March 25, 2009, the Company’s trading symbol was “MDEO”, and prior to
then the symbol was “MDRQ”.
As
of April 15, 2010, we had 252,927,956 shares of $0.001 par value common stock
issued and outstanding. Of the 252,922,956 shares of
common stock outstanding as of April 15 2010, 16,913,474 shares are
owned by our officers and directors.
The
stock transfer agent for our securities is Empire Stock Transfer,
Inc.
Equity
Compensation Plans
We
do not have a qualified stock option plan. We have issued
non-qualified stock options to various employees, officers, and
directors.
Holders
As
of April 15, 2010, there were 192 holders of record of our common
stock.
Other
Effective March 24, 2010, we entered
into an Agreement and Plan of Merger with each of Mobile Search Technologies,
Inc. and Cellular Software Corporation, pursuant to which we acquired both
companies as our wholly-owned subsidiaries in exchange for 100 million shares of
our common stock each. Mobile Search Technologies was wholly-owned by Oscar
Holdings, LLC, which is beneficially owned by our President, Carl Freer. The
primary assets of each company are intellectual property rights relating to next
generation mobile search technology. Each of the principals also executed our
standard form Confidentially and Intellectual Property/Invention Assignment
Agreement, a copy of which is attached as Exhibit 10.1. Copies of the merger
agreements are attached hereto as Exhibits 10.2 and 10.3.
Dividends
As
of the date of this annual report, we have not paid any cash dividends to
stockholders. The declaration of any future cash dividend will be at the
discretion of our board of directors and will depend upon our earnings, if any,
our capital requirements and financial position, our general economic
conditions, and other pertinent conditions. It is our present intention not to
pay any cash dividends in the foreseeable future, but rather to reinvest
earnings, if any, in our business operations.
ITEM 6.
SELECTED FINANCIAL
DATA
We
are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and
are not required to provide the information under this item.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
This section of
the report includes a number of forward-looking statements that reflect our
current views with respect to future events and financial performance.
Forward-looking statements are often identified by words like: believe, expect,
estimate, anticipate, intend, project and similar expressions, or words which,
by their nature, refer to future events. You should not place undue certainty on
these forward-looking statements, which apply only as of the date of this
report. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or our predictions.
The
following discussion should be read in conjunction with the Financial Statements
and notes thereto included in Item 8 of Part II of this Annual Report on
Form 10-K.
Overview
We are
developing next generation mobile search tools. Our technology is designed to
play on the strengths of mobile handheld devices (mobile phones) and assist
consumers to retrieve content more expediently. Consumers can download GetFugu
application tools to their mobile phone device. The GetFugu
applications allow consumers to retrieve content and eliminates the need to type
a website address or search term into a browser.
We currently have four
products.
1.
See It (ARL):
“Vision
recognition” The GetFugu application recognizes logos and products through any
mobile phone camera. Consumers simply point their phone at a logo and retrieve
content from the brand owner.
2.
Say It (VRL):
“Voice
recognition” The consumer can simply speak into the phone to retrieve content.
In addition to brand names, the consumer can say generic keywords such as “best
pizza” or “ATM”.
3.
Find It (GRL): “Location
recognition”
For local content, GetFugu is designed to work with the GPS
systems of today’s mobile phones. The application will return content, based on
the proximity to the user. A keyword of “pizza” will return the five closest
pizza parlors. Local businesses can pay for voice-activated key words
to position themselves at the top of the search list.
4.
Get it (Hotspotting):
GetFugu
provides advertisers with a way to monetize their marketing efforts through a
mobile ecommerce tool called Hot-Spotting, which enables the consumer to
purchase or retrieve information on any item featured in the video simply by
touching it on the screen. This function is currently limited to touch-screen
phones and selected Blackberry models.
Background
We were
incorporated in the State of Nevada on March 14, 2007 under the name Madero,
Inc. On August 29, 2008, the Company entered into a stock purchase
agreement (the “Stock Purchase Agreement”) with Mike Lizarraga (the then sole
director, and our former President, Chief Executive Officer, and Chief Financial
Officer), and Media Power, Inc. (“MPI”). Pursuant to the terms and conditions of
the Stock Purchase Agreement, MPI acquired 48,000,000 shares of our common stock
(this number and all other share and per share amounts are post the 12 for 1
forward split which was effectuated on February 11, 2009), or approximately
48.07% of our then issued and outstanding shares of common stock, from Mr.
Lizarraga. Pursuant to the terms and conditions set forth in the Stock
Purchase Agreement, Mike Lizarraga tendered his resignation as the sole
director, which resignation was effective October 9, 2008.
Prior to
the closing of the transactions referenced in the Stock Purchase Agreement, the
Company was a development stage company that intended to open and operate
children’s themed restaurants in Mexico. Through that date, the
Company’s activities had been limited to its formation, business plan, and
raising capital. Since that date, the Company has been involved with
developing next generation mobile search tools.
On January 23, 2009, we amended
our Articles of Incorporation to increase the number of authorized common stock,
par value $0.001 per share, from 75,000,000 to 500,000,000. On
February 11, 2009, we conducted a forward split of our Common Stock whereby
every one issued and outstanding share of Common Stock was automatically split
into 12 shares of Common Stock.
Effective
March 25, 2009, we amended our Articles of Incorporation to change our name to
GetFugu, Inc.
Effective April 9, 2009, we entered
into an Agreement for the Assignment of Patent Rights (the “Assignment
Agreement”) with MARA Group Ltd. Pursuant to the Assignment Agreement
the Company acquired eight patent applications (the “Patent Applications”) from
MARA Group Ltd. in exchange for 25 million shares of Common Stock of the
Company. Prior to the closing of this transaction, MARA Group Ltd.
was deemed to be an “affiliate”, as it owned more than ten (10%) percent of our
outstanding Common Stock.
On October 19, 2009, the Company’s
Board of Directors approved (i) the reincorporation of the Company from Nevada
to Delaware, (ii) increasing the number of authorized shares of Common Stock
from 500,000,000 to 750,000,000, (iii) issuing up to 200,000,000 shares of
“blank check” preferred stock, and (iv) the creation of the 2009 Incentive
Compensation Plan with a maximum of 250,000,000 shares of Common Stock to be
issued with no more than 100,000,000 shares permitted to be issued in any fiscal
year. As of April 15, 2010, the Company had not formally adopted the
Incentive Compensation Plan. All of the above noted items require
shareholder approval. Accordingly, at this meeting, the Board
approved the filing with the Securities and Exchange Commission (“SEC”) of a
written consent statement.
.
As of April 15, 2010 the Company has
not filed its amended articles of incorporation with the appropriate regulatory
bodies.
2009 Compared to
2008
Revenues
Revenues
were zero for the years ended December 31, 2009 and 2008,
respectively.
Cost
of Sales
Cost of
sales were zero for the years ended December 31, 2009 and 2008,
respectively.
Operating
Expenses
Operating expenses totaled $53,620,808
and $21,802 for the years ended December 31, 2009 and 2008,
respectively. The operating expenses in 2008 related to legal and
other incorporating expenses. The increase results from the Company
beginning operations on March 14 2009. Prior to March 14, 2009, the
Company was categorized as a “shell” without any
operations. Following are the primary components of operating
expenses:
Compensation and Related
Benefits
—Compensation and related benefits totaled $9,005,021 for the
year ended December 31, 2009 of which $6,361,486 relates to employees and
$2,643,535 relates to the Company’s Board of Directors. Included in the total
expense for the year are $6,194,304 of non-cash expenses consisting of
$2,024,479 associated with employee stock options, $1,816,790 associated with
the issuance of the Company’s common stock to various employees, $273,035
associated with director stock options, and $2,080,000 associated with the
issuance of the Company’s common stock to the Company’s directors.
Legal and Professional
Fees
—Legal and professional fees totaled $1,135,201 for the year ended
December 31, 2009 representing $205,941 of accounting fees associated with the
cost of the Company’s public company filing requirements, and $929,260 of legal
fees associated with capital raising activities, contract development,
litigation and other corporate purposes.
Marketing
-Marketing
expenses totaled $997,402 for the year ended December 31, 2009 primarily
consisting of public relations related activities, development of the corporate
website, media related activities, and development of the marketing campaign for
the Company’s consumer launch.
Occupancy and Related
Costs
—Occupancy and related costs totaled $191,103 for the year ended
December 31, 2009. Rent expense of the Company’s office in San
Francisco totaled $98,988 and the office in Los Angeles totaled
$70,171. The Company closed the San Francisco office in December 2009
as it had moved all operation to Los Angeles.
Research and
Development
— Research and development expense relates to the development
of new products and processes including improvements to existing products. These
costs are expensed as incurred and totaled $4,360,944 for the year ended
December 31, 2009. The Company recorded a charge of $4,000,000 for
the year ended December 31, 2009, related to the agreement entered with IKDATA,
Inc. and its sole stockholder and employed the former sole stockholder as its
Chief Software Architect. Under the terms of the agreement the Company acquired
intellectual property in exchange for 10,000,000 shares of the Company's common
stock. The Company issued 5,000,000 shares at closing and will issue an
additional 5,000,000 shares to the former shareholder in March
2010. The Company evaluated the transaction and determined that the
transaction was an asset acquisition of patent pending algorithms. The Company
was unable to determine alternate future uses of the algorithms.
Travel and
Entertainment
—Travel and entertainment expenses totaled $666,134 for the
year ended December 31, 2009. The majority of such costs were travel,
meals, and lodging related to financing activities and similar costs related to
consultants traveling to work in the Company’s offices.
Consulting and Outside
Services
—Consulting and outside services totaled $36,822,286 for the year
ended December 31, 2009. Due to the liquidity issues related to a new
venture, the Company utilized its common stock as a primary means of
compensating consultants. During 2009, the Company issued warrants to
an investment banker resulting in non-cash expenses of $9,040,31 and the
Company’s common stock to a variety of consultants resulting in non-cash
expenses of $24,919,505. In addition, the Company contracted with
specialized developers and contractors on an as needed basis to assist in the
development of the Company’s mobile search technology.
Office and Other
Expenses
—Office and other expenses totaled $425,505 for the year ended
December 31, 2009. These expenses included postage and delivery
charges, telephone, Internet services, stock transfer agent fees, closing down
and relocation of the San Francisco office to Los Angeles, insurance, and other
miscellaneous office related expenses.
Depreciation
—Depreciation
expense for the year ended December 31, 2009, totaled $17,212. The
Company began depreciating computer and other fixed assets beginning the month
following the quarter in which the assets were acquired. The primary
fixed assets as computers and related equipment which is being depreciated over
3 years on a straight-line basis.
Other
Income (Expense)
Gain on Derivative Financial
Instrument
—The gain on derivative financial instrument totaled
$816,237. Financial instruments which do not have fixed settlement
provisions are deemed to be derivative instruments. The
warrants issued with the Company’ September 18, 2009 common stock financing, do
not have fixed settlement provisions because the exercise price may be lowered
if the Company issues securities at lower prices in the future. The
Company was required to include the reset provisions in order to protect the
warrant holders from the potential dilution associated with future
financings. In accordance with ASC 815-40, the warrants were
recognized as a derivative instrument.
2008 Compared to
2007
Results from
Operations
Revenues
Revenues
were zero for the years ended December 31, 2008 and 2007,
respectively.
Cost
of Sales
Cost of
sales was zero for the years ended December 31, 2008 and 2007,
respectively.
Operating
Expenses
Operating
expenses were $21,802 and $26,448 for the years ended December 31, 2008 and
2007, respectively, representing legal and compliance related
expenditures.
Liquidity and Capital
Resources
Net cash used in operating activities
was $5,212,043 and $19,927 in the years ended December 31, 2009 and 2008,
respectively.
Net cash used in investing activities
was $295,499 and zero in 2009 and 2008, respectively.
Net cash provided by financing
activities was $5,508,042 and $17,025 in 2009 and 2008,
respectively.
We have
an accumulated deficit of $52,852,821 as of December 31, 2009.
The
Company had cash of $500 at December 31, 2009. Subsequent to December
31, 2009, the Company raised $554,500 though convertible debt and the sale of
common shares. The Company’s monthly cash burn approximates $200,000
and the Company is deferring payments to vendors, suppliers, employees, and
contractors.
Going
Concern
We
incurred a net loss of $52,804,571 and $21,802 for the years ended December 31,
2009 and 2008, respectively. At December 31, 2009, our accumulated deficit
amounted to $52,852,821. During the year ended December 31, 2009, net cash used
in operating activities amounted to $5,212,043. At December 31, 2009,
our working capital deficit amounted to $6,883,066. The Company needs to raise
additional capital from external sources in order to sustain its operations
while continuing the longer term efforts contemplated under its business plan.
The Company expects to continue incurring losses for the foreseeable future and
must raise additional capital to pursue its product development initiatives, to
penetrate markets for the sale of its products and to continue as a going
concern. We cannot provide any assurance that we will raise additional capital.
If we are unable to secure additional capital, we may be required to curtail our
research and development initiatives and take additional measures to reduce
costs in order to conserve our cash in amounts sufficient to sustain operations
and meet it obligations. These measures could cause significant delays in our
efforts to commercialize our products, which is critical to the realization of
our business plan and our future operations. These matters raise substantial
doubt about our ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments that may be
necessary should we be unable to continue as a going concern.
Capital
Expenditures
During the year ended December 31, 2009, the
Company purchased property and equipment totaling $295,499 and reported
depreciation expense for 2009 of $17,212.
Contractual
Obligations
As a “smaller reporting company” as
defined by Item 10 of Regulation S-K, the Company is not required to provide
this information.
Off-Balance Sheet
Arrangements
As
of December 31, 2009, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K.
Recent Accounting
Pronouncements
For a discussion of the impact of
recent accounting pronouncements, see Note 3 to the accompanying consolidated
financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not
required.
ITEM
8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA.
GetFugu,
Inc
(A
Development Stage Company)
(Formally
Known as
Madero,
Inc.)
December
31, 2009
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Index
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Reports of Independent Registered Public
Accounting Firms
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F-1
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Consolidated Balance
Sheets
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F-3
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Consolidated
Statements of Operations
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F-4
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Consolidated
Statements of Shareholders’ Equity / (Deficiency)
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F-5
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Consolidated
Statements of Cash Flows
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F-6
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Notes
to the Consolidated Financial Statements
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F-7
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Shareholders of
GetFugu,
Inc. and Subsidiary
(Formerly
Known as Madero, Inc., A Development Stage Company)
We have
audited the accompanying consolidated balance sheet of GetFugu, Inc. and
Subsidiary (formerly known as Madero, Inc.) (a development stage company) as of
December 31, 2009 and the related consolidated statements of operations,
shareholders' deficiency and cash flows for the year then ended, and the
consolidated statements of operations and cashflows for the period from March
15, 2007 (date of inception) to December 31, 2009. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An
audit also includes examining on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of GetFugu, Inc.
and Subsidiary (a development stage company) as of December 31, 2009 and the
results of its operations and cash flows for the year then ended, and the
consolidated statements of operations and cashflows for the period from March
15, 2007 (date of inception) to December 31, 2009 in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, the Company has had recurring losses, and
has a working capital and stockholders' deficiency as of December 31,
2009. These conditions raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
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/s/ Marcum LLP
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Marcum
LLP
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New
York, New York
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April
15, 2010
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Shareholders of
GetFugu, Inc.
[Formerly Known as Madero, Inc., A
Development Stage Company]
We have
audited the accompanying balance sheet of GetFugu, Inc. [Formerly Known as
Madero, Inc., A Development Stage Company] as of December 31, 2008, and the
related statements of operations, changes in shareholders’ equity/[deficiency],
and cash flows for the year then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board [United States]. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we do not express such an opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31, 2008
and the results of its operations and its cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.
MSPC
Certified Public Accountants and
Advisors,
A Professional
Corporation
New York,
New York
April 14,
2009
GetFugu,
Inc. and Subsidiary
(A
Development Stage Company)
(Formally
Known as Madero, Inc.)
Consolidated
Balance Sheets
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
|
|
$
|
500
|
|
|
$
|
-
|
|
|
Advances
to employees
|
|
|
30,000
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
61,769
|
|
|
|
-
|
|
|
Total
current assets
|
|
|
92,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
278,287
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
370,556
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,429,968
|
|
|
$
|
1,625
|
|
|
Accrued
payroll tax liabilities
|
|
|
932,267
|
|
|
|
-
|
|
|
Accrued
expenses
|
|
|
759,590
|
|
|
|
-
|
|
|
Advances
from related parties
|
|
|
865,542
|
|
|
|
-
|
|
|
Accrued
stock compensation
|
|
|
458,333
|
|
|
|
-
|
|
|
Accrued
stock issuance payable
|
|
|
2,000,000
|
|
|
|
-
|
|
|
Derivative
liability
|
|
|
229,635
|
|
|
|
-
|
|
|
Short
term notes payable
|
|
|
300,000
|
|
|
|
-
|
|
|
Total
current liabilities
|
|
|
6,975,335
|
|
|
|
1,625
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
deficiency
|
|
|
|
|
|
|
|
|
|
Common
stock, 500,000,000 shares authorized; $0.001 par value;
|
|
|
|
|
|
|
|
|
|
191,523,525
and 99,840,000 shares issued and outstanding as of December 31, 2009 and
2008, respectively
|
|
|
191,524
|
|
|
|
99,840
|
|
|
Additional
paid-in capital
|
|
|
33,947,518
|
|
|
|
(53,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issuable, net
|
|
|
12,109,000
|
|
|
|
-
|
|
|
Deficit
accumulated during development stage
|
|
|
(52,852,821
|
)
|
|
|
(48,250
|
)
|
|
Total
shareholders’ deficiency
|
|
|
(6,604,779
|
)
|
|
|
(1,625
|
)
|
|
Total
liabilities and shareholders’ deficiency
|
|
$
|
370,556
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
GetFugu,
Inc. and Subsidiary
(A
Development Stage Company)
(Formally
Known as Madero, Inc.)
Consolidated
Statements of Operations
|
|
|
December 31,
2009
|
|
|
December 31,
2008
|
|
|
Inception
(March 14, 2007)
through
December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and related benefits
|
|
|
9,005,021
|
|
|
|
—
|
|
|
|
9,005,021
|
|
|
Legal
and professional fees
|
|
|
1,135,201
|
|
|
|
—
|
|
|
|
1,135,201
|
|
|
Marketing
|
|
|
997,402
|
|
|
|
—
|
|
|
|
997,402
|
|
|
Occupancy
related costs
|
|
|
191,103
|
|
|
|
—
|
|
|
|
191,103
|
|
|
Research
and development
|
|
|
4,360,944
|
|
|
|
—
|
|
|
|
4,360,944
|
|
|
Travel
and entertainment
|
|
|
666,134
|
|
|
|
—
|
|
|
|
666,134
|
|
|
Consulting
and outside services
|
|
|
36,822,286
|
|
|
|
—
|
|
|
|
36,822,286
|
|
|
Office
and other
|
|
|
425,505
|
|
|
|
21,802
|
|
|
|
490,780
|
|
|
Depreciation
|
|
|
17,212
|
|
|
|
—
|
|
|
|
17,212
|
|
|
Total operating expenses
|
|
|
53,620,808
|
|
|
|
21,802
|
|
|
|
53,686,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on derivative financial instrument
|
|
|
816,237
|
|
|
|
—
|
|
|
|
816,237
|
|
|
Forgiveness
of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
17,025
|
|
|
Net
Loss
|
|
$
|
(52,804,571
|
)
|
|
$
|
(21,802
|
)
|
|
$
|
(52,852,821
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and dilutive loss per share
|
|
$
|
(0.37
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted average shares outstanding (1)
|
|
|
143,765,748
|
|
|
|
99,840,000
|
|
|
|
|
|
|
(1)
|
Weighted
average shares outstanding for the year ended December 31, 2009, includes
the underlying shares exercisable with respect to the issuance of a
warrant to acquire 1,500,000 shares of Common Stock at $0.01 per
share. In accordance with Accounting Standard Codification
(“ASC”) 260 “Earnings Per Share”, the Company has given effect to the
issuance of this warrant in computing basic and diluted loss per
share.
|
The
accompanying notes are an integral part of these consolidated financial
statements.
GetFugu,
Inc. and Subsidiary
(A
Development Stage Company)
(Formally
Known as Madero, Inc.)
Consolidated
Statements of Shareholders' Equity (Deficiency)
For
the Period March 14, 2007 (Date of Inception) to December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
During
|
|
|
Shareholders'
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in
Capital
|
|
|
Shares
Issuable
|
|
|
Development
Stage
|
|
|
Equity
(Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
March 14, 2007
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash March 14,
2007 (at $.0001)
|
|
|
48,000,000
|
|
|
$
|
48,000
|
|
|
$
|
(40,000
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,000
|
|
|
Shares issued for cash August 30,
2007 (at $.0001)
|
|
|
51,840,000
|
|
|
|
51,840
|
|
|
|
(30,240
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
21,600
|
|
|
Net loss for the year ended
December 31, 2007
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(26,448
|
)
|
|
|
(26,448
|
)
|
|
Balance as of
December 31, 2007
|
|
|
99,840,000
|
|
|
$
|
99,840
|
|
|
$
|
(70,240
|
)
|
|
|
-
|
|
|
$
|
(26,448
|
)
|
|
$
|
3,152
|
|
|
Conversion of related party debt
August 1, 2008
|
|
|
-
|
|
|
|
-
|
|
|
|
15,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,000
|
|
|
Conversion of related party debt
December 31, 2008
|
|
|
-
|
|
|
|
-
|
|
|
|
2,025
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,025
|
|
|
Net loss for the year ended
December 31, 2008
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(21,802
|
)
|
|
|
(21,802
|
)
|
|
Balance as of
December 31, 2008
|
|
|
99,840,000
|
|
|
$
|
99,840
|
|
|
$
|
(53,215
|
)
|
|
|
-
|
|
|
$
|
(48,250
|
)
|
|
$
|
(1,625
|
)
|
|
Shares issued for cash March 27,
2009 (at $.50)
|
|
|
5,000
|
|
|
|
5
|
|
|
|
2,495
|
|
|
|
-
|
|
|
|
|
|
|
|
2,500
|
|
|
Shares issued for cash March 30,
2009 (at $.50)
|
|
|
100,000
|
|
|
|
100
|
|
|
|
49,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
Shares issued for consulting
services January 6, 2009 (at $.005)
|
|
|
2,000,000
|
|
|
|
2,000
|
|
|
|
8,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
Shares issued for consulting
services January 21, 2009 (at $.005)
|
|
|
250,000
|
|
|
|
250
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,250
|
|
|
Shares issued for consulting
services March 4, 2009 (at $.50)
|
|
|
14,500,000
|
|
|
|
14,500
|
|
|
|
7,235,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,250,000
|
|
|
Shares issued for consulting
services March 18, 2009 (at $.50)
|
|
|
1,250,000
|
|
|
|
1,250
|
|
|
|
623,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
625,000
|
|
|
Shares issued for cash April 3,
2009 (at $.50)
|
|
|
800,000
|
|
|
|
800
|
|
|
|
399,200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
400,000
|
|
|
Shares issued for services April
4, 2009 (at $.50)
|
|
|
10,000,000
|
|
|
|
10,000
|
|
|
|
1,333,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,343,750
|
|
|
Shares issued for patent
applications April 9, 2009 (at $.50) (1)
|
|
|
25,000,000
|
|
|
|
25,000
|
|
|
|
(25,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Shares issued for cash April 13,
2009 (at $.50)
|
|
|
100,000
|
|
|
|
100
|
|
|
|
49,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
Shares issued for consulting
services May 12, 2009 (at $.52)
|
|
|
1,800,000
|
|
|
|
1,800
|
|
|
|
904,200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
906,000
|
|
|
Shares
issued for services May 12, 2009 (at $.52)
|
|
|
6,000,000
|
|
|
|
6,000
|
|
|
|
2,074,000
|
|
|
|
|
|
|
|
|
|
|
|
2,080,000
|
|
|
Options granted for services July
17, 2009 (23,000,000 at $.27)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,024,480
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,024,480
|
|
|
Warrants granted for services
July 22, 2009 (8,000,000 at $.32)
|
|
|
-
|
|
|
|
-
|
|
|
|
8,486,388
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,486,388
|
|
|
Shares issued for consulting
services August 15, 2009 (at $.70)
|
|
|
1,000,000
|
|
|
|
1,000
|
|
|
|
524,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
525,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants granted for consulting
services to private placement agent September 18, 2009 (500,000
at $.33)
|
|
|
|
|
|
|
|
|
|
|
337,485
|
|
|
|
|
|
|
|
|
|
|
|
337,485
|
|
|
Warrants granted for consulting
services to private placement agent September 18, 2009 (583,392 at
$.33)
|
|
|
|
|
|
|
|
|
|
|
216,439
|
|
|
|
|
|
|
|
|
|
|
|
216,439
|
|
|
Shares payable for cash, net
September 18, 2009 (5,250,525vat $.50),
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,540,000
|
|
|
|
-
|
|
|
|
1,540,000
|
|
|
Shares payable for consulting
services November 5, 2009 (16,000,000 at
.32)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,120,000
|
|
|
|
-
|
|
|
|
5,120,000
|
|
|
Shares
payable for investment banking services October 1, 2009 (40,00,000 at
$.62)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,200,000
|
|
|
|
|
|
|
|
1,200,000
|
|
|
Options
granted for consulting services November 2, 2009 (5,400,000 at
$.37)
|
|
|
|
|
|
|
|
|
|
|
608,922
|
|
|
|
|
|
|
|
|
|
|
|
608,922
|
|
|
Options
granted to board of directors for services November 2, 2009 (10,000,000 at
$.37)
|
|
|
|
|
|
|
|
|
|
|
273,035
|
|
|
|
|
|
|
|
|
|
|
|
273,035
|
|
|
Shares
issued for payment of consulting services November 5, 2009 (at
$.32)
|
|
|
16,000,000
|
|
|
|
16,000
|
|
|
|
5,104,000
|
|
|
|
(5,120,000
|
)
|
|
|
|
|
|
|
-
|
|
|
Warrants
and shares payable for cash September 18, 2009 (1,500,000 at
$.01 and 3,000,000 at $.50,
respectively)
|
|
|
|
|
|
|
|
|
|
|
(1,045,872
|
)
|
|
|
1,300,000
|
|
|
|
|
|
|
|
254,128
|
|
|
Shares
issued previously accrued September 18, 2009 (at $.50)
|
|
|
5,250,525
|
|
|
|
5,251
|
|
|
|
1,534,749
|
|
|
|
(1,540,000
|
)
|
|
|
|
|
|
|
-
|
|
|
Shares
issued for asset acquisition November 13, 2009 (at $.40)
|
|
|
5,000,000
|
|
|
|
5,000
|
|
|
|
1,995,000
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000
|
|
|
Shares
issued to employees for services December 11, 2009 (at
$.18)
|
|
|
2,628,000
|
|
|
|
2,628
|
|
|
|
470,412
|
|
|
|
|
|
|
|
|
|
|
|
473,040
|
|
|
Shares
issued with a note payable December 18, 2009 (50,000 at
$.18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,000
|
|
|
|
|
|
|
|
9,000
|
|
|
Shares
payable for cash December 8, 2009 (1,555,556 at $.225)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,000
|
|
|
|
|
|
|
|
350,000
|
|
|
Shares
payable for cash December 29, 2009 (5,333,333 at $.15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
650,000
|
|
|
|
|
|
|
|
650,000
|
|
|
Shares
payable for consulting services November 5, 2009 ( 20,000,000 at
$.12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400,000
|
|
|
|
|
|
|
|
2,400,000
|
|
|
Share
payable for consulting services October 1, 2009 (10,000,000 at
$.62)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,200,000
|
|
|
|
|
|
|
|
6,200,000
|
|
|
Capital
contribution by shareholders for settlement
of share based compensation
obligation
|
|
|
|
|
|
|
|
|
|
|
815,000
|
|
|
|
|
|
|
|
|
|
|
|
815,000
|
|
|
Net
loss for the year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,804,571
|
)
|
|
|
(52,804,571
|
)
|
|
Balance as of
December 31, 2009
|
|
|
191,523,525
|
|
|
$
|
191,524
|
|
|
$
|
33,947,519
|
|
|
$
|
12,109,000
|
|
|
$
|
(52,852,821
|
)
|
|
$
|
(6,604,779
|
)
|
|
(1)
|
In
consideration for the transfer of patents from MARA Group, Ltd., the
Company recorded a deemed dividend of $12,500,000. See Note
3.
|
The
accompanying notes are an integral part of these consolidated financial
statements.
GetFugu,
Inc. and Subsidiary
(A
Development Stage Company)
(Formally
Known as Madero, Inc.)
Consolidated
Statements of Cash Flows
|
|
|
December 31,
2009
|
|
|
December 31,
2008
|
|
|
Inception (March
14, 2007) through
December 31, 2009
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(52,804,571
|
)
|
|
$
|
(21,802
|
)
|
|
$
|
(52,852,821
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
|
|
42,089,789
|
|
|
|
-
|
|
|
|
42,089,789
|
|
|
Accrued
stock based compensation for future issuance of equity instruments for
services
|
|
|
458,333
|
|
|
|
-
|
|
|
|
458,333
|
|
|
Acquisition
of in-process research of development
|
|
|
2,000,000
|
|
|
|
-
|
|
|
|
2,000,000
|
|
|
Gain
on derivative financial instrument
|
|
|
(816,237
|
)
|
|
|
-
|
|
|
|
(816,237
|
)
|
|
Depreciation
|
|
|
17,212
|
|
|
|
-
|
|
|
|
17,212
|
|
|
Changes
in current assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees
advances
|
|
|
(30,000
|
)
|
|
|
-
|
|
|
|
(30,000
|
)
|
|
Prepaid
expenses and other current assets
|
|
|
(61,769
|
)
|
|
|
250
|
|
|
|
(61,769
|
)
|
|
Accounts
payable
|
|
|
1,428,343
|
|
|
|
1,625
|
|
|
|
1,429,968
|
|
|
Accrued
payroll tax liabilities
|
|
|
932,267
|
|
|
|
-
|
|
|
|
932,267
|
|
|
Accrued
expenses
|
|
|
1,574,590
|
|
|
|
-
|
|
|
|
1,574,590
|
|
|
Net
cash used in operating activities
|
|
|
(5,212,043
|
)
|
|
|
(19,927
|
)
|
|
|
(5,258,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(295,499
|
)
|
|
|
-
|
|
|
|
(295,499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from short term notes
|
|
|
400,000
|
|
|
|
-
|
|
|
|
400,000
|
|
|
Repayment
of short term notes
|
|
|
(100,000
|
)
|
|
|
-
|
|
|
|
(100,000
|
)
|
|
Advances
from related parties
|
|
|
1,650,349
|
|
|
|
-
|
|
|
|
1,650,349
|
|
|
Repayment
of advances from related parties
|
|
|
(784,807
|
)
|
|
|
-
|
|
|
|
(784,807
|
)
|
|
Proceeds
received from shares issuable, net
|
|
|
2,300,000
|
|
|
|
-
|
|
|
|
2,300,000
|
|
|
Proceeds
received from sale of common stock, net
|
|
|
2,042,500
|
|
|
|
-
|
|
|
|
2,042,500
|
|
|
Capital
contribution from related parties
|
|
|
-
|
|
|
|
17,025
|
|
|
|
46,625
|
|
|
Net
cash provided by financing activities
|
|
|
5,508,042
|
|
|
|
17,025
|
|
|
|
5,554,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash
|
|
|
500
|
|
|
|
(2,902)
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash -
beginning balance
|
|
|
-
|
|
|
|
2,902
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash -
ending balance
|
|
$
|
500
|
|
|
$
|
-
|
|
|
$
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement
of accrued stock compensation for no consideration
|
|
$
|
815,000
|
|
|
|
|
|
|
$
|
815,000
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
GetFugu,
Inc. and Subsidiary
(A
Development Stage Company)
(FORMALLY
KNOWN AS MADERO, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2009 AND 2008
NOTE
1 – DESCRIPTION OF BUSINESS
GetFugu,
Inc, (“We”, “Our”, “GetFugu,” or “Company”), is developing next generation
mobile search tools. The Company’s technology is designed to play on the
strengths of mobile handheld devices (mobile phones) and assist consumers in
retrieving content more expediently. Consumers will be able to download GetFugu
application tools to their mobile phone device. The GetFugu
applications will allow consumers to retrieve content and eliminate the need to
type website addresses or search terms into the device’s internet
browser.
The Company currently has four products
under development.
|
|
1.
|
See It (ARL):
“Vision
recognition” This GetFugu application recognizes logos and products
through any mobile phone camera. Consumers simply point their phone at a
logo and retrieve content from the brand
owner.
|
|
|
2.
|
Say It (VRL):
“Voice
recognition” The consumer can simply speak into the phone to retrieve
content. In addition to brand names, the consumer can say generic keywords
such as “best pizza” or “ATM”.
|
|
|
3.
|
Find It (GRL):
“Location
recognition” For local content, GetFugu is designed to work with the
Global Positioning Systems (“GPS”) in mobile phones. The application will
return content, based on the proximity to the user. A keyword of “pizza”
will return the closest pizza parlors. Local businesses can pay
for voice-activated key words to position themselves at the top of the
search list within a geographic
area.
|
|
|
4.
|
Get it (Hot-Spotting):
GetFugu provides advertisers with a way to monetize their marketing
efforts through a mobile ecommerce tool called
Hot-Spotting. Hot-Spotting enables the consumer to purchase or
retrieve information on any item featured in a video simply by touching
products as displayed on the
screen.
|
The
Company was incorporated in the State of Nevada on March 14, 2007 under the name
Madero, Inc. On August 29, 2008, the Company entered into a stock
purchase agreement (the “Stock Purchase Agreement”) with Mike Lizarraga (sole
director, former President, Chief Executive Officer, and Chief Financial Officer
of Madero, Inc.), and Media Power, Inc. (“MPI”). Pursuant to the terms and
conditions of the Stock Purchase Agreement, MPI acquired 48,000,000 shares of
the Company’s common stock (this number, and all other share amounts presented,
is post the 12 for 1 forward stock split which was effectuated on February 11,
2009), or approximately 48.07% of the Company’s then issued and outstanding
shares of common stock from Mr. Lizarraga.
Prior to
the closing of the transactions referenced in the Stock Purchase Agreement, the
Company was a development stage company in an unrelated
industry. Through March 14, 2007, the Company’s activities had been
limited to its formation, business planning and raising capital, and since
August 29, 2008 involved in the development of next generation mobile search
tools.
On
January 23, 2009, the Company amended its Articles of Incorporation to increase
the number of authorized common stock, par value $0.001 per share, from
75,000,000 to 500,000,000. On February 11, 2009, there was a forward
split of common stock whereby each issued and outstanding share of common stock
was split into 12 shares of common stock.
Effective
March 25, 2009, our Articles of Incorporation were amended to change the name to
GetFugu, Inc.
Effective April 9, 2009, we entered
into an Agreement for the Assignment of Patent Rights (the “Assignment
Agreement”) with MARA Group Ltd. Pursuant to the Assignment Agreement
the Company acquired eight patent applications (the “Patent Applications”) from
MARA Group Ltd. in exchange for 25 million shares of Common Stock of the
Company. Prior to the closing of this transaction, MARA Group Ltd.
was deemed to be an “affiliate”, as it owned more than ten (10%) percent of our
outstanding Common Stock.
On
October 19, 2009, the Company’s Board of Directors approved (i) the
reincorporation of the Company from Nevada to Delaware, (ii) increasing the
number of authorized shares of Common Stock from 500,000,000 to 750,000,000,
(iii) issuing up to 200,000,000 shares of “blank check” preferred stock, and
(iv) the creation of the 2009 Incentive Compensation Plan with a maximum of
250,000,000 shares of Common Stock to be issued with no more than 100,000,000
shares permitted to be issued in any fiscal year. As of April 15,
2010, the Company had not formally adopted the Incentive Compensation
Plan. All of the above noted items require shareholder
approval. Accordingly, at this meeting, the Board approved the filing
with the Securities and Exchange Commission (“SEC”) of a written consent
statement. As of April 15, 2010 the Company has not filed its amended
articles of incorporation with the appropriate regulatory bodies.
NOTE
2 - BASIS OF PRESENTATION AND GOING CONCERN, LIQUIDITY AND FINANCIAL
CONDITION
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
(“GAAP”) and to the rules and regulations of the SEC. The principal
activities are expected to focus on the commercialization of the technologies of
the Company. The accompanying consolidated financial statements have
been prepared in accordance with Accounting Standards Codification (“ASC”) 915,
“Development Stage Entities.”
The Company's
consolidated statements of operations, stockholders' deficiency and cash flows
for the year ended December 31, 2009 and 2008 represent the financial
information cumulative from inception as required by ASC
915.
Going
Concern, Liquidity and Financial Condition
The
Company incurred a net loss of $52,804,571 and $21,802 for the years ended
December 31, 2009 and 2008, respectively. As of December 31, 2009, the
Company’s accumulated deficit from inception amounted to $52,852,821 and the
Company’s working capital deficit amounted to $6,883,066. During the year
ended December 31, 2009, net cash used in operating activities amounted to
approximately $5,212,043, During the year ended December 31, 2009, cash provided
by financing activities amounted to $5,508,042. As of December 31, 2009, the
Company’s cash position was $500. Subsequent to December 31, 2009, the Company
raised additional operating capital of approximately $554,500, by entering into
equity and debt financing arrangements.
The
Company needs to raise additional capital from external sources in order to
sustain its operations while continuing the longer term efforts contemplated
under its business plan. The Company expects to continue incurring losses for
the foreseeable future and must raise additional capital to pursue its product
development initiatives, to penetrate markets for the sale of its products and
to continue as a going concern. The Company cannot provide any assurance that it
will raise additional capital. If the Company is unable to secure additional
capital, it may be required to curtail its research and development initiatives,
modify its existing business plan and take additional measures to reduce costs
in order to conserve its cash in amounts sufficient to sustain operations and
meet its obligations. These measures could cause significant delays in the
Company’s efforts to commercialize its products, which is critical to the
realization of its business plan and the future operations of the Company. These
matters raise substantial doubt about the Company’s ability to continue as a
going concern.
The accompanying consolidated financial statements do not include any
adjustments that may be necessary should the Company be unable to continue as a
going concern.
NOTE
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period.
Management
bases its estimates on historical experience and on various assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. The most
significant estimates, among other things, are used in accounting for allowances
for deferred income taxes, expected realizable values for long-lived assets
(primarily property and equipment and intangibles), contingencies, as well as
the recording, presentation and valuation of its common stock, related warrants,
option issuances and derivative liabilities. Estimates and
assumptions are periodically reviewed and the effects of any material revisions
are reflected in the consolidated financial statements in the period that they
are determined to be necessary. Actual results could differ from
those estimates and assumptions.
Principle
of Consolidation
The
consolidated financial statements of GetFugu, Inc. include accounts of the
company and its wholly-owned subsidiary, GetFugu Research,
Inc. Intercompany transactions and balances are eliminated in
consolidation.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments with an original maturity of
three months or less when purchased to be cash equivalents. As of
December 31, 2009 and 2008 the Company did not have any cash
equivalents.
Advances
to Employees
From time
to time and in the normal course of business, the Company may advance funds or
pay expenses on behalf of its employees. The Company generally establishes an
allowance for uncollectible amounts to reflect the amount of loss that can be
reasonably estimated by management and is included as part of operating expenses
in the accompanying consolidated statements of operations. The determination of
the amount of uncollectible accounts is based on the amount of credit extended
and the length of time each receivable has been outstanding, as it relates to
each individual registered representative or employee. As of December 31, 2009,
the Company had outstanding $30,000 of advances to an employee. Subsequent to
December 31, 2009 the Company collected the entire balance
outstanding.
Property
and Equipment
Property
and equipment consists primarily of equipment, furniture and fixtures and is
stated at cost. Depreciation and amortization are provided using the
straight-line method over the estimated useful lives (generally three to seven
years) of the related assets. Leasehold improvements, once placed in
service, are amortized over the shorter of the useful life or the remainder of
the lease term. Expenditures for maintenance and repairs, which do
not extend the economic useful life of the related assets, are charged to
operations as incurred. Gains or losses on disposal of property and
equipment are reflected in the consolidated statement of operations in the
period of disposal.
Impairment
of Long-Lived Assets
The
Company reviews long-lived assets, including intangible assets other than
goodwill, for impairment whenever events or changes in circumstances indicate
that the carrying value of the asset may not be recoverable. In connection with
this review, the Company also reevaluates the periods of depreciation and
amortization for these assets. The Company assesses recoverability by
determining whether the net book value of the related asset will be recovered
through the projected undiscounted future cash flows of the asset. If the
Company determines that the carrying value of the asset may not be recoverable,
it measures any impairment based on the projected future discounted cash flows
as compared to the asset’s carrying value. Through December 31, 2009, the
Company has not recorded any impairment charges on its long-lived
assets.
Stock-Based
Compensation
Stock-Based
Compensation
The
Company reports stock-based compensation under ASC 718 “Compensation – Stock
Compensation”. ASC 718 requires all share-based payments to
employees, including grants of employee stock options, warrants, non-employee
Directors and consultants to be recognized in the consolidated financial
statements based on their fair values over the requisite service
periods
The
Company accounts for stock option and warant grants issued to non-employees for
goods and services using the guidance of ASC 718 and ASC 505 “Accounting for
Equity Instruments that are Issued to Other Than Employees for Acquiring, or
inConjunction with Selling Goods or Services”, whereby fair value of such option
and warrant grants is determined using the Black Scholes option pricing model at
the earlier of the date at which the non-employee’s performance is completed or
a performance commitment is reached.
The
Black-Scholes option valuation model is used to estimate the fair value of the
warrants or options granted. The model includes subjective input
assumptions that can materially affect the fair value estimates. The
model was developed for use in estimating the fair value of traded options or
warrants. The expected volatility is estimated based on the most
recent historical period of time equal to the weighted average life of the
warrants or options granted.
The
Company’s determination of fair value of share-based payment awards to employees
and directors on the date of grant uses the Black Scholes model, which is
effected by the Comnpany’s stock price as well as assumptions regarding a number
of highly comples and subjective variables. These variables include but
are not limited tothe risk free interest rate, the expected term,
expected volatility, and actual projected employee stock option exercise
behaviors. The risk free interest rate is based on U.S. Treasury
zero-coupon yield curve over the expected term of the option. The
expected term assumption represents the average period the stock options are
expected to remain outstanding and is based on the expected term calculated
using the approach prescribed by SEC Staff Accounting Bulleting (“SAB”) 110 for
“plain vanilla options. Since the Company has limited historical
volatility information, it bases its expected volatility on the historical
volatility of similar entities whose share prices are publicly
available. In making its determination as to similarity, the Company
considered the industry, stage of life cycle, size, and financial leverage of
such other entities. The Company’s model includes a zero dividend
yield assumption, as the Company has not historically paid nor does it
anticipate paying dividends on its common stock. The periodic expense is then
determined based on the valuation of the options, and at that time an estimated
forfeiture rate is used to reduce the expense recorded. The Company’s
estimate of pre-vesting forfeitures is primarily based on the Company’s
historical experience and is adjusted to reflect actual forfeitures as the
options vest.
The
following assumptions were used to estimate the fair value of options granted
for the year ended December 31, 2009, using the Black-Scholes option-valuation
model:
|
Risk
free interest rate
|
|
1.3
to 3.2
|
%
|
|
Expected
term (years)
|
|
5
to 10
|
|
|
Expected
volatility (based on peer companies)
|
|
|
171
|
%
|
|
Expected
dividend yield
|
|
|
-
|
%
|
The
effect of recording stock-based compensation expense for the year ended December
31, 2009, in accordance with the applicable provisions of ASC 718 is as
follows:
|
|
|
|
|
|
Compensation
and related benefits
|
|
$
|
6,194,405
|
|
|
Consulting
and outside services
|
|
|
34,353,717
|
|
|
Research
and development
|
|
|
4,000,000
|
|
|
Total
stock based compensation
|
|
$
|
44,548,122
|
|
Loss
Per Common Share
The
Company computes earnings per share in accordance with ASC 260, “Earnings Per
Share.” ASC 260 requires dual presentation of basic and diluted earnings per
share. Basic loss per common share is computed by dividing net loss
by the weighted average number of common shares outstanding (including vested
restricted stock awards) during the period. Diluted loss per common
share is computed by dividing net loss by the weighted average number of common
shares outstanding, plus the issuance of common shares, if dilutive, resulting
from the exercise of outstanding stock options and stock awards. These
potentially dilutive securities were not included in the calculation of loss per
common share for the years ended December 31, 2009 and 2008, respectively,
because, due to the loss incurred during such periods, their inclusion would
have been anti-dilutive. Accordingly, basic and diluted losses per common share
are the same for all periods presented.
In
accordance with ASC 260 the Company has given effect to the issuance of
1,500,000 warrants issued in conjunction with the Company’s September 2009
financing and exercisable at $0.01 per share in computing basic net loss per
share classified as a derivative liability.
Total
shares issuable upon the exercise of warrants and options for the years ended
December 31, 2009 and 2008, were comprised as follows:
|
|
|
As of December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Warrants
|
|
|
10,583,392
|
|
|
|
-
|
|
|
Options
|
|
|
42,400,000
|
|
|
|
-
|
|
|
Unvested
restricted stock grants
|
|
|
10,312,500
|
|
|
|
|
|
|
Total
common stock equivalents
|
|
|
63,295,892
|
|
|
|
-
|
|
Income
Taxes
Income
taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in operations in the period that includes the
enactment date. A valuation allowance is provided when it is more
likely than not that some portion or all of a deferred tax asset will not be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income and the reversal of
deferred tax liabilities during the period in which related temporary
differences become deductible. The benefit of tax positions taken or expected to
be taken in the Company’s income tax returns are recognized in the consolidated
financial statements if such positions are more likely than not of being
sustained.
Derivative
Financial Instruments
The
Company does not use derivative instruments to hedge exposures to cash flow,
market or foreign currency risks. The Company evaluates all of its
financial instruments to determine if such instruments are derivatives or
contain features that qualify as embedded derivatives. For derivative
financial instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported in the consolidated
statements of operations. For stock-based derivative financial
instruments, the Company uses the Black-Scholes option valuation model to value
the derivative instruments at inception and on subsequent valuation
dates. The classification of derivative instruments, including
whether such instruments should be recorded as liabilities or as equity, is
evaluated at the end of each reporting period. Derivative instrument
liabilities are classified in the consolidated balance sheet as current or
non-current based on whether or not net-cash settlement of the derivative
instrument could be required within 12 months of the balance sheet
date.
Research
and Development
Research
and development expense relates to the development of new products and processes
including improvements to existing products. These costs are expensed as
incurred.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to a concentration of credit
risk consist of cash. The Company maintains its cash with high credit
quality financial institutions; at times, such balances with any one financial
institution may exceed FDIC insured limits. We had no cash subject to
such risk at December 31, 2009 and 2008.
Subsequent
Events
Management
has evaluated subsequent events or transactions occurring through, the date the
financial statements were issued, to determine if such events or transactions
require adjustment or disclosure in the financial statements.
Recent
Accounting Pronouncements
The FASB
has issued Accounting Standards Update (ASU) 2009-16,
Transfers and Servicing (Topic 860)
- Accounting for Transfers of Financial Assets.
ASU 2009-16 will require
more information about transfers of financial assets, including securitization
transactions, eliminates the concept of a qualifying special-purpose entity and
changes the requirements for derecognizing financial assets. ASU 2009-16 is
effective at the start of a reporting entity’s first fiscal year beginning after
November 15, 2009. The adoption of this standard is not expected to have a
material impact on the Company’s consolidated financial position and results of
operations.
The FASB
has issued Accounting Standards Update (ASU) No. 2010-06,
Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements.
This ASU requires some new disclosures and clarifies some
existing disclosure requirements about fair value measurement as set forth in
Codification Subtopic 820-10. ASU 2010-06 amends Codification Subtopic 820-10
and now requires a reporting entity to use judgment in determining the
appropriate classes of assets and liabilities and to provide disclosures about
the valuation techniques and inputs used to measure fair value for both
recurring and nonrecurring fair value measurements.
ASU 2010-06 is effective
for interim and annual reporting periods beginning after December 15, 2009, As
this standard relates specifically to disclosures, the adoption will not have an
impact on the Company’s consolidated
financial position and
results of operations.
In
May 2009, the FASB issued new accounting guidance, under ASC Topic 855 on
“Subsequent Events”, which sets forth: 1) the period after the balance sheet
date during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements; 2) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements; and 3) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. This guidance
was effective for interim and annual periods ending after June 15, 2009.
The adoption of this guidance did not have a material effect on the Company’s
consolidated financial statements.
In June
2008, the FASB issued new accounting guidance, under ASC Topic 260 on “Earnings
per Share”, related to the determination of whether instruments granted in
share-based payment transactions are participating securities. This guidance
clarifies that all outstanding unvested share-based payment awards that contain
rights to nonforfeitable dividends participate in undistributed earnings with
common shareholders. Awards of this nature are considered participating
securities and the two-class method of computing basic and diluted earnings per
share must be applied. This guidance is effective for financial statements
issued for fiscal years beginning on or after December 15, 2008, and
interim periods within those fiscal years. The adoption of this guidance did not
have a material effect on the Company’s consolidated financial
statements.
In June
2008, the FASB issued new accounting guidance, under ASC Topic 815 on
Derivatives and Hedging, as to how an entity should determine whether an
instrument, or an embedded feature, is indexed to an entity's own stock and
whether or not such instruments would be accounted for as equity or a derivative
liability. The adoption of this guidance can affect the accounting for warrants
and many convertible instruments with provisions that protect holders from a
decline in the stock price (or “down-round” provisions). For example, warrants
with such provisions will no longer be recorded in equity. Down-round provisions
reduce the exercise price of a warrant or convertible instrument if a company
either issues equity shares for a price that is lower than the exercise price of
those instruments or issues new warrants or convertible instruments that have a
lower exercise price. This guidance is effective for financial statements issued
for fiscal years beginning after December 15, 2008 and is applicable to
outstanding instruments as of the beginning of the fiscal year it is initially
applied. Early application is not permitted. The cumulative effect, if any, of
the change in accounting principle shall be recognized as an adjustment to the
opening balance of retained earnings. See Note 6 for the impact of
the adoption of this guidance on the Company’s consolidated financial
statements.
In
March 2008, the FASB issued new accounting guidance under standard ASC Topic
815, on Derivatives and Hedging which requires enhanced disclosures about how
and why an entity uses derivative instruments, how derivative instruments and
related hedged items are accounted under Topic 815 and its related
interpretations, and how derivative instruments and related hedged items affect
an entity’s financial position, results of operations and cash flows. This
standard is effective for fiscal years and interim periods beginning after
November 15, 2008. . The adoption of this pronouncement did not have an impact
on the Company’s consolidated financial position and results of
operations.
The FASB
has issued Accounting Standard Update (ASU) 2009-17,
Consolidations (Topic 810) -
Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities.
ASU 2009-17 changes how a reporting entity
determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. This
determination is based on, among other things, the other entity’s purpose and
design and the Company’s ability to direct the activities of the other entity
that most significantly impact the other entity’s economic performance.
ASU 2009-17 is effective at the start of the Company’s first fiscal year
beginning after November 15, 2009. The adoption of this standard is
not expected to have a material impact on the Company’s consolidated financial
position and results of operations
NOTE
4. PROPERTY AND EQUIMENT
Property
and equipment consisted of the following as of December 31, 2009:
|
|
|
2009
|
|
|
Office
and computer equipment
|
|
$
|
258,612
|
|
|
Furniture
and fixtures
|
|
|
33,909
|
|
|
Software
|
|
|
2,978
|
|
|
|
|
|
295,499
|
|
|
Less:
accumulated depreciation
|
|
|
(17,212
|
)
|
|
|
|
$
|
278,287
|
|
Depreciation
expense amounted to $17,212 and $0 for the years ended December 31, 2009 and
2008, respectively.
NOTE
5– EQUITY TRANSACTIONS
Private
Placements
On March
27, 2009, the Company entered into an unregistered securities purchase agreement
pursuant to which the Company sold 5,000 shares of common stock resulting in net
proceeds of $2,500.
On March
30, 2009, the Company entered into an unregistered securities purchase agreement
pursuant to which the Company sold 100,000 shares of common stock resulting in
net proceeds of $50,000.
On April
3, 2009, the Company entered into an unregistered securities purchase agreement
pursuant to which the Company sold 800,000 shares of common stock resulting in
net proceeds of $400,000.
On April
13, 2009, the Company entered into an unregistered securities purchase agreement
pursuant to which the Company sold 100,000 shares of common stock resulting in
net proceeds of $50,000.
In
September, 2009, the Company negotiated a securities purchase agreement whereby
investors agreed to invest $4,000,000 and $1,000,000,
respectively. The Company received $1,540,000, net of closing costs
of $210,000, in anticipation of closing. The originally
proposed agreement was never executed. Accordingly, the Company
recorded the cash receipt as shares issuable. Subsequently, on November 6, 2009,
the Company finalized the security purchase agreement with the investor for the
purchase of 5,250,525 shares of the Company's Common Stock in exchange for
the $1,540,000 previously received. Under the terms of the
Banking Agreement described below, the Company’s investment banker earned a fee
for this transaction in the form of a warrant to purchase 583,392 shares of
common stock at an exercise price of $0.33 per share. The warrant has a life of
5 years and was valued using Black-Scholes option valuation model for $216,439.
The warrants were recorded as stock compensation as of December 31,
2009.
On
September 18, 2009, the Company entered into an unregistered securities purchase
agreement pursuant to which the Company agreed to sell up to an aggregate of
10,000,000 shares of common stock and issue warrants to purchase up to 5,000,000
shares of common stock for an aggregate purchase price of $5,000,000. The
Company issued 3,000,000 shares of common stock together with a warrant to
purchase 1,500,000 shares of common stock for the aggregate purchase price of
$1,300,000 which is net of $200,000 of closing related costs under this
securities purchase agreement. At September 18, 2009 the amount of
$1,300,000 was received and as of December 31, 2009 the net amount is included
in the balance sheet as shares issuable. In addition on September 18, 2009, the
warrant was also recorded at a fair value of $1,045,872 as a derivative
liability (see Note 6). Under the Banking Agreement described below, the
Company’s investment banker earned a fee for this transaction in the form of a
warrant to purchase 500,000 shares of common stock at $.33 per share. The
warrant has a life of 5 years and was valued using Black-Scholes option
valuation model for $337,485. The warrant was recorded as stock
compensation as of December 31, 2009. Subsequent to December 31, 2009, the
3,000,000 applicable shares were issued. There are no
assurances that the remainder of the proceeds called for under this securities
purchase agreement will be received.
On
December 8, 2009, the Company entered into three separate stock purchase
agreements the sum of which totaled $350,000. At December 31, 2009,
the 1,555,556 shares were unissued and $350,000 was reported as shares
issuable.
On
December 29, 2009, the Company entered into an unregistered securities purchase
agreement pursuant to which the Company sold 5,333,333 shares of its common
stock resulting in net proceeds of $650,000. At December 31, 2009,
the shares were unissued and $650,000 was reported as shares
issuable.
Shares for
Services
During
the year ended December 31, 2009, the Company issued 20,800,000 shares of
common stock for various consulting services. Compensation
expense is recorded as the instruments vest and the Company recorded consulting
and outside service expenses totaling $9,317,250 associated with these issuances
of common stock based on the fair value determined at the time of the
individual issuances. Under the terms of one consulting agreement the Company is
obligated to issue an additional 3,000,000 common shares. The fair value of the
common shares approximated $1,500,000 and vest over terms ranging from three to
seven years. The Company incurred a stock based compensation charge of $458,333
which is for the vested portion of the award. As of December 31, 2009, the
Company has not issued the 3,000,000 shares and accordingly are included as part
of accrued stock compensation. The unvested portion of the award
amounted to $1,040,667 and will recorded in the future periods.
On April
4, 2009, the Company issued 10,000,000 shares to its former Chief Executive
Officer for services. The fair value of the award of $5,000,000 was determined
on the date the agreement was entered into and approximates the fair value of
the common stock. For the year ended December 31, 2009, the Company incurred a
stock based compensation charge of $1,343,750 which is for the vested portion of
the award. Subsequent to December 31, 2009, the former CEO resigned his position
with the Company. Under the terms of the employment agreement the shares became
fully vested and as such the Company recorded a charge to operation for the
remaining unvested portion of $3,656,250 for the year ending December 31,
2010.
On May
12, 2009, the Company issued 6,000,000 shares to its Chairman of the Board and
current Chief Financial Officer for services. The fair value of the award of
$3,120,000 and was determined on the date the agreement was entered into and
approximates the fair value of the common stock. For the year ended
December 31, 2009, the Company incurred a stock based compensation charge of
$2,080,000 which is for the vested portion of the award. The unvested
compensation charge that will vest over sixteen month is
$1,040,000.
On August
31, 2009, the Company entered into an agreement with a consultant for services.
Under the terms of the agreement the Company was obligated to issue 250,000
shares of common stock. Accordingly the Company accrued $175,000 as part of
accrued stock compensation. On behalf of the Company a shareholder transferred
their shares of the Company’s Common Stock to the consultant as payment for
services rendered. Subsequently the Company was relieved of the
liability by the shareholder for the shares payable to the consultant. The
Company recorded the transaction as a settlement of $175,000 to equity for no
consideration.
On
October 1, 2009, the Company entered into an agreement with a consultant for
services. Under the terms of the agreement the Company is obligated to issue
10,000,000 shares of common stock. Accordingly the Company recorded $6,200,000
as part of shares issuable.
On
November 2, 2009, the Company settled a claim with a consultant and in exchange
agreed to issue 16,000,000 shares of its common stock. The Company accrued as
part of shares issuable $5,120,000. Subsequently the Company issued the
16,000,000 shares for the full settlement of this obligation.
On
November 5, 2009, the Company settled a claim with a consultant and agreed to
issue 4,000,000 shares of its common stock. On February
2, 2010, a separate claim was settled whereby the Company agreed to issue an
additional 16,000,000 shares to the consultant since the original 4,000,000
shares had not been delivered and the quoted market value of the Company’s
common stock had declined subsequent to the November 5, 2009 settlement date.
The entire 20,000,000 shares were accrued as of December 31,
2009. The accompanying consolidated financial statements include
$2,400,000 in shares issuable and consulting and outside service expense which
reflects the entire obligation associated with this claim.
On
December 11, 2009, the Company issued 2,628,000 shares to its employees for
services provided. The shares vested immediately on the date of issuance and the
Company incurred a stock based compensation charge of $473,040.
Other
On
October 1, 2009, the Company entered into an agreement with an investment banker
for services. Under the terms of the agreement the Company was
obligated to pay the banker $500,000 as an initial commitment
fee. The Company did not pay the commitment fee and on April 6,
2010, the Company settled a claim with the banker and in exchange agreed to
issue 40,000,000 shares of its common stock. The Company accrued as part of
shares issuable $1,200,000 which represents the fair value of the award at the
settlement date.
On
November 13, 2009 the Company created a new wholly-owned subsidiary, GetFugu
Research, Inc. and entered in to a merger agreement with IKDATA, Inc. (“IKDATA”)
and its sole stockholder and employed the former sole stockholder as its Chief
Software Architect. Under the terms of the agreement the Company acquired IKDATA
and its intellectual property in exchange for 10,000,000 shares of the Company's
common stock. The Company issued 5,000,000 shares at closing and will issue an
additional 5,000,000 shares to the former shareholder in March
2010. The former sole stockholder also entered into an employment
agreement and a six-month non-competition agreement. The Company
evaluated the transaction and determined that the transaction was an asset
acquisition of in-process research and development comprising of patent pending
algorithms. The Company was unable to determine alternate future uses of the
algorithms and determined that the employment agreement and non-compete
agreement had no intrinsic value. Accordingly, the Company recorded a
charge of $4,000,000 for the year ended December 31, 2009, for in-process
research and development. At December 31, 2009, accrued stock
issuance payable includes $2,000,000 representing the fair value associated with
the 5,000,000 unissued shares. Subsequent to December 31, 2009 the Chief
Software Architect resigned from the Company.
Stock Options
On July
17, 2009, the Company granted 27,000,000 options to an employee four employees
to purchase shares of common stock at exercise prices from $0.15 to $0.30 per
share. The options vest over a period from 3 to 5 years and have a life of 6 to
10 years. The fair value of the awards is $6,925,188 and was calculated using
the black scholes option model. For the year ended December 31, 2009,
the Company recorded a charge to operations for the vested portion of these
awards of $2,024,480. During the year ended December 31, 2009, one of the
employees was terminated for cause by the Company. As a result 4,000,000 options
granted to this employee were forfeited by the employee. As December 31, 2009
$4,276,102 remains unvested and will be charged to operations in future
periods.
On
November 2, 2009, the Company granted 10,000,000 options to five
independent members of the Company’s Board of Directors to purchase shares of
common stock at an exercise price of $0.37 and 333,333 options vest in six
months from the date of the grant and the remainder vest over a period of 3
years. The options have a life of 10 years. The Company recorded a charge
to operations for $273,035 for the year ended December 31, 2009 based on the
fair value determined at the time of the individual grant using the Black
Scholes Option Valuation Model. As of December 31, 2009, $3,301,245 remains
unvested and will be charged to operations in future periods.
On
November 13, 2009, the Company granted 5,400,000 options to a consultant to
purchase shares of common stock at an exercise price of $0.40 and 2,000,000
options vest in two months from the date of the grant and the remainder vest
over a period of approximately 2 years. The options have a life of 5
years. The Company recorded a charge to operations for $608,922 for the year
ended December 31, 2009 based on the fair value determined at the time of the
individual grant using the Black Scholes Option Valuation Model. As of December
31, 2009 $1,289,763 remains unvested and will be charged to operations in future
periods.
A summary
of the option activity for the year ended December 31, 2009 is as
follows:
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted Average
Remaining
Contractual Life
(In Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Options
outstanding at January 1, 2009
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
Granted
|
|
|
42,400,000
|
|
|
|
0.26
|
|
|
|
8.5
|
|
|
|
|
|
|
Forfeited
|
|
|
(4,000,000
|
)
|
|
|
(0.30
|
)
|
|
|
-
|
|
|
|
|
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Options
outstanding at December 31, 2009
|
|
|
38,400,000
|
|
|
$
|
0.25
|
|
|
|
7.33
|
|
|
$
|
200,000
|
|
|
Options
exercisable at December 31, 2009
|
|
|
9,221,000
|
|
|
$
|
0.25
|
|
|
|
5.95
|
|
|
$
|
56,000
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
Exercise Price
|
|
Number of
Outstanding
Options
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise Price
|
|
|
Number of
Exercisable
Options
|
|
|
Weighted Average
Exercise Price
|
|
|
$
0.15-
$0.40
|
|
|
38,400,000
|
|
7.33 years
|
|
$
|
0.25
|
|
|
|
9,221,000
|
|
|
$
|
0.23
|
|
The
tables above incorporate 5,400,000 of non-employee options with an exercise
price of $0.40 and a remaining life of approximately 2 years.
Warrants
On July
22, 2009, the Company entered in to an exclusive investment banking agreement
(the “Banking Agreement”) which included the issuance of 2,000,000 shares of
common stock and 28,000,000 warrants. The Banking Agreement also
provided for a cash fee as well as the issuance of warrants based on amounts
actually raised for the Company. The Company recorded a charge to
operations for the shares of $640,000 and warrants of $8,486,388. On
November 13, 2009, the Banking Agreement was modified to be
non-exclusive. As part of the amendment, the original warrant to
purchase 28,000,000 shares of the Company’s common stock was reduced to purchase
8,000,000 shares of the Company’s common stock. As of September 30, 2009, the
Company accrued $640,000 for the 2,000,000 as part of accrued stock
compensation. On behalf of the Company a shareholder transferred their shares of
the Company’s common stock to the consultant as payment for services rendered.
Subsequently the Company was relieved of the liability associated to the shares
payable to the consultant. The Company recorded the transaction as a settlement
of $640,000 to equity for no consideration.
The
following is additional information with respect to the Company's warrants as of
December 31, 2009:
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual Life
(In Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Warrants
outstanding at January 1, 2009
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
Granted
|
|
|
30,583,392
|
|
|
|
0.28
|
|
|
|
5.0
|
|
|
|
|
|
Cancelled
|
|
|
(20,000,000
|
)
|
|
|
(028
|
)
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Warrants
outstanding at December 31, 2009
|
|
|
10,583,392
|
|
|
$
|
0.28
|
|
|
|
4.6
|
|
|
$
|
225,000
|
|
|
Warrants
exercisable at December 31, 2009
|
|
|
10,583,392
|
|
|
$
|
0.28
|
|
|
|
4.6
|
|
|
$
|
225,000
|
|
|
|
|
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
|
Exercise Price
|
|
Number of
Outstanding
Warrants
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise Price
|
|
|
Number of
Exercisable
Warrants
|
|
|
Weighted Average
Exercise Price
|
|
|
$
0.01-
$0.33
|
|
|
10,583,392
|
|
5 years
|
|
$
|
0.28
|
|
|
|
10,583,392
|
|
|
$
|
0.28
|
|
Nonvested
Shares of Common Stock
A summary
of the status of the Company’s nonvested shares of common stock as of December
31, 2009, and changes during the year then ended is presented
below:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
Nonvested Shares
|
|
Shares
|
|
Fair Value
|
|
|
Nonvested
at January 1, 2009
|
|
|
|
-
|
|
|
|
-
|
|
|
Granted
|
|
|
|
17,000,000
|
|
|
$
|
0.52
|
|
|
Vested
|
|
|
|
(6,687,500
|
)
|
|
|
(0.51
|
)
|
|
Expired
|
|
|
|
-
|
|
|
|
-
|
|
|
Nonvested
at December 31, 2009
|
|
|
|
10,312,500
|
|
|
$
|
0.52
|
|
NOTE
6- DERIVATIVE LIABILITY
In June
2008, the FASB issued new accounting guidance, which requires entities to
evaluate whether an equity-linked financial instrument (or embedded feature) is
indexed to its own stock by assessing the instrument’s contingent exercise
provisions and settlement provisions. Instruments not indexed to
their own stock fail to meet the scope exception of ASC 815 “Derivative and
Hedging” and should be classified as a liability and
marked-to-market. The statement is effective for fiscal years
beginning after December 15, 2008 and is to be applied to outstanding
instruments upon adoption with the cumulative effect of the change in accounting
principle recognized as an adjustment to the opening balance of retained
earnings. The Company did not have any equity-linked financial instruments in
2008 or prior.
ASC
815-40 mandates a two-step process for evaluating whether an equity-linked
financial instrument or embedded feature is indexed to the entity’s own
stock. The Company entered into an unregistered securities purchase
agreement with attached warrants, which contain a strike price adjustment
feature. The anti-dilution provisions in the warrants trigger
liability treatment. During the third and fourth quarters of 2009,
the liability was adjusted for the change in fair value of the
warrants. In accordance with ASC 815-40, a derivative liability of
$229,635 related to the warrants is included in our consolidated balance sheet
as of December 31, 2009. During 2009, we recorded an a decrease in
that expense of $816,237 related to the change in fair value of the warrants as
of December 31, 2009.
The
derivative liability was valued using the Black-Scholes option valuation model
and the following assumptions on the following dates:
|
|
|
September 18,
2009
|
|
|
December 31,
2009
|
|
|
Risk-free
interest rate
|
|
|
2.49
|
%
|
|
|
2.49
|
%
|
|
Expected
volatility
|
|
|
171
|
%
|
|
|
171
|
%
|
|
Expected
life (in years)
|
|
|
5.0
|
|
|
|
4.7
|
|
|
Expected
dividend yield
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of warrants
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value
|
|
$
|
1,045,872
|
|
|
$
|
229,635
|
|
The
risk-free interest rate was based on rates established by the Federal
Reserve. The Company’s expected volatility was based on the
historical volatility of similar entities whose share prices are publicly
available. The expected life of the warrants was determined by the
expiration date of the warrants. The expected dividend yield was
based upon the fact that the Company has not historically paid dividends, and
does not expect to pay dividends in the future.
NOTE
7 — FAIR VALUE
ASC 820
“Fair Value Measurements and Disclosures” defines fair value, establishes a
framework for measuring fair value and requires enhanced disclosures about fair
value measurements. As defined in ASC 820, fair value is the price
that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The
Standard clarifies that the exchange price is the price in an orderly
transaction between market participants to sell an asset or transfer a liability
at the measurement date and emphasizes that fair value is a market-based
measurement and not an entity-specific measurement.
ASC 820
establishes the following hierarchy used in fair value measurements and expands
the required disclosures of assets and liabilities measured at fair
value:
|
|
·
|
Level
1 – Inputs use quoted prices in active markets for identical assets or
liabilities that the Company has the ability to
access.
|
|
|
·
|
Level
2 – Inputs use other inputs that are observable, either directly or
indirectly. These inputs include quoted prices for similar assets and
liabilities in active markets as well as other inputs such as interest
rates and yield curves that are observable at commonly quoted
intervals.
|
|
|
·
|
Level
3 – Inputs are unobservable inputs, including inputs that are available in
situations where there is little, if any, market activity for the related
asset or liability.
|
In
instances where inputs used to measure fair value fall into different levels in
the above fair value hierarchy, fair value measurements in their entirety are
categorized based on the lowest level input that is significant to the
valuation. The Company’s assessment of the significance of particular inputs to
these fair measurements requires judgment and considers factors specific to each
asset or liability.
Liabilities
measured at fair value on a recurring basis at December 31, 2009 are as
follows:
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009
|
|
|
|
|
Total carrying
value at
December 31,
2009
|
|
|
Quoted prices
in active
markets
(Level 1)
|
|
|
Significant
other
observable
inputs
(Level 2)
|
|
|
Significant
unobservable
inputs (Level 3)
|
|
|
Derivative
liability
|
|
$
|
229,635
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
229,635
|
|
Financial
assets are considered Level 3 when their fair values are determined using
pricing models, discounted cash flow methodologies or similar techniques and at
least one significant model assumption or input is unobservable. The Company’s
Level 3 liabilities consist of derivative liabilities associated with the
1,500,000 of warrants granted that contains a reset price provision. In addition
the Company entered into an asset purchase agreement for in process research and
development that carried a fair value of $4,000,000 on the measurement
date.
The
following table provides a summary of the changes in fair value, including net
transfers in and/or out, of all financial assets measured at fair value on a
recurring basis using significant unobservable inputs during the year ended
December 31, 2009.
|
|
|
Derivative
liability
|
|
|
Balance
at January 1, 2009
|
|
$
|
-
|
|
|
Fair
value at issuance
|
|
|
1,045,872
|
|
|
Reductions
|
|
|
(816,237
|
)
|
|
Transfer
in and /or out of Level 3
|
|
|
-
|
|
|
Balance
at December 31, 2009
|
|
$
|
229,635
|
|
The
carrying amounts of cash, accounts payable, and accrued liabilities approximate
their fair value due to their short maturities. There were no changes
in the valuation techniques during the year ended December 31,
2009.
NOTE
8—NOTES PAYABLE
On August
18, 2009, the Company entered into an unsecured note payable in the amount of
$100,000, the note matures on November 18, 2009 and accrues interest at a rate
of 12% per annum. The note was repaid in full on September 9, 2009.
On
November 6, 2009, the Company entered into an unsecured note payable which
matures on December 6, 2009, in the amount of $250,000. The note
accrues interest at 10% per annum.
On
December 21, 2009, the Company entered into an unsecured note payable which
matured on January 20, 2010, in the amount of $50,000. As an
inducement to the loan, the Company agreed to issue the lender 50,000 shares of
the Company’s common stock valued at $9,000. The Company incurred a charge which
has been included as part of interest expense on the consolidated statement of
operations. At December 31, 2009, the shares were not yet issued and
consequently $9,000 was reported as shares issuable.
At
December 31, 2009, the $250,000 note was in default and as of April 15, 2010,
both notes are in default of the applicable repayment provisions.
NOTE
9 – RELATED PARTY TRANSACTIONS
On August
29, 2008, the $15,000 loan from the Company’s then sole director was forgiven
without interest or penalty. This forgiven loan was reclassified to additional
paid-in capital.
During
the year ended December 31, 2008, an officer and shareholder of the Company paid
$2,025 of expenses on behalf of the Company. On December 31, 2008, this amount
was forgiven and recorded as additional paid-in capital.
Effective
April 9, 2009, the Company entered into an agreement for the assignment of
patent rights with MARA Group Ltd (“MARA”). Pursuant to the agreement
the Company acquired eight patent applications from MARA in exchange for 25
million shares of common stock of the Company. Prior to the closing of this
transaction MARA was deemed to be an “affiliate”, as Carl Freer
(“Freer”), co-founder of the Company and the then sole owner of MARA owned,
directly and indirectly, approximately 21% of the Company’s outstanding common
stock. Subsequent to this transaction, Freer beneficially owned
approximately 37.5% of the Company’s outstanding common stock. Since MARA is
under common control with the Company (due to the common ownership by Freer),
the Company recorded the acquisition of the patent rights at MARA’s carrying
value of $0, and the difference between the fair market value of the common
stock issued to MARA and the carrying value of the patent applications received
was recorded as a deemed dividend of $ 12,500,000 to MARA. Through
his role as co-founder and one of the single largest Company shareholders, Freer
is considered to have management control in accordance with ASC 850, “Related
Party Disclosures.”
On August
19, 2009 the Company and Freer executed a twelve month agreement which limits
Freer’s rights to vote shares of the Company’s Common Stock that he owns during
this twelve month period to a level of 17% of the total votes cast on any matter
brought to Company shareholders for a vote. On October 16, 2009,
Freer created a limited liability company controlled by three individuals
including Freer’s daughter. All shares of Company Common Stock owned
by Freer were transferred to this limited liability
company. Concurrent with the creation of this limited liability
company, the agreement which limited Freer's right to vote shares was
terminated.
On August
24, 2009, the Company entered into an unsecured revolving promissory note with a
lender whose owners include a founder and shareholder of the
Company. Under the terms of this revolving promissory note the
maximum available borrowings shall not exceed $5 million. Interest will be
accrued at an annual rate of 10% and will be payable on demand by the
lender. As of December 31, 2009, the Company had received borrowings
under the unsecured promissory note totaling $1,243,657, and repaid
$634,807. As of April 15, 2010, the amount due under this facility
totaled $665,042.
On
December 18, 2009, the Company entered into a revolving promissory note with
a founder and shareholder of the Company. During the year ended
December 31, 2009, the Company had received cash borrowings of $170,000 and
repaid $50,000. The borrowings have a stated interest rate of 10% and
is payable on demand. As of April 15, 2010 the amount due under this facility
totaled $120,000.
On July
17 2009, the Company agreed to issue Freer 10,000,000 shares of Series A
preferred stock with each such share having twenty votes on all matters brought
to a shareholder vote. The issuance of Series A preferred stock to Freer is
subject to Board and shareholder approval and the authorization of a sufficient
number of shares of Series A preferred. As of December 31, 2009, no Series A
preferred stock has been approved by either the Board or the shareholders and
accordingly, none have been authorized or issued. On April 15, 2010, the
Company’s Board of Directors and Freer agreed to rescind the commitment by the
Company to issue the preferred stock as defined in the employment agreement
dated July 17, 2009.
During
December 2009, the Company received borrowings a from a company owned by 2
individuals one being an officer and Director and the other a founder and
shareholder of the Company, of the Company. During the year ended December 31,
2009, the Company received advances of $236,692 and repaid
$100,000. As of April 15, 2010, the total amount owed to this related
party was $111,400.
NOTE
10 – INCOME TAXES
The
Company evaluates uncertain tax positions under ASC 740 “Income
Taxes”. ASC 740 prescribes a recognition threshold and a measurement
attribute for the financial statement recognition and measurement of tax
positions taken or expected to be taken in a tax return. For those
benefits to be recognized, a tax position must be more-likely-than-not to be
sustained upon examination by taxing authorities. Differences between
tax positions taken or expected to be taken in a tax return and the benefit
recognized and measured pursuant to the interpretation are referred to as
“uncertain tax positions.” A liability is recognized (or amount of
net operating loss carry forward or amount of tax refundable is reduced) for an
unrecognized tax benefit because it represents an enterprise’s potential future
obligation to the taxing authority for a tax position that was not recognized as
a result of applying the provisions of ASC 740.
In
accordance with ASC 740, interest costs related to unrecognized tax benefits are
required to be calculated (if applicable) and would be classified as “Interest
expense, net” in the consolidated statements of operations. Penalties
would be recognized as a component of “general and administrative
expenses.”
The
Company’s uncertain tax positions are related to tax years that remain subject
to examination by relevant tax authorities. The Company files income
tax returns in the United States (federal) and primarily in
California. The Company is not subject to federal and state income
tax examinations by tax authorities for years prior to 2007. As of
December 31, 2009, no liability for unrecognized tax benefits was required to be
recorded.
The
Company has significant net operating loss and business credit carryovers which
are subject to a valuation allowance due to the uncertain nature of the
realization of the losses. Section 382 of the Internal Revenue Code imposes
certain limitations on the utilization of net operating loss carryovers and
other tax attributes after a change in control. Since its formation,
the Company has raised capital through the issuance of capital stock which,
combined with purchasing shareholders' subsequent disposition of these
shares..
The Company has net
operating loss carryforwards (“NOLs”) of approximately $8,740,000 and $21,802 as
of December 31, 2009 and 2008, respectively that will be available to offset
future taxable income.
Based on projections for future
taxable income over the periods that the deferred tax assets are deductible, the
Company believes it is more likely than not that the Company will not realize
the benefits of these deductible differences in the near future and therefore a
full valuation allowance increased approximately $ 3,489,000 and $7,413, for the
years ended December 31, 2009 and 2008, respectively related to increased net
operating losses.
The total
net deferred tax asset as of December 31, 2009 and 2008 consists of the
following:
|
|
|
2009
|
|
|
2008
|
|
|
Net
operating loss carryforwards
|
|
$
|
3,611,000
|
|
|
$
|
7,413
|
|
|
Less:
valuation allowance
|
|
|
(3,611,000
|
)
|
|
|
(7,413
|
)
|
|
Total
net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
The
difference between the federal statutory and effective income tax rates for the
years ended December 31, 2009 and 2008 is as follows:
|
|
|
2009
|
|
|
2008
|
|
|
Federal
statutory tax rate
|
|
|
(34.0)
|
%
|
|
|
(34.0)
|
%
|
|
State
and local income taxes, net of federal benefit
|
|
|
(6.0)
|
%
|
|
|
(6.0)
|
%
|
|
Other
permanent items
|
|
|
(0.4)
|
%
|
|
|
—
|
%
|
|
Stock-based
compensation
|
|
|
33.8
|
%
|
|
|
—
|
%
|
|
Less:
valuation allowance
|
|
|
6.6
|
%
|
|
|
40.0
|
%
|
|
Provision
for income taxes
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
NOTE
11 - COMMITMENTS AND CONTINGENCIES
Operating
Leases
In
August, 2009, the Company began leasing 7,343square feet of office space at its
headquarters in West Hollywood, CA under a sub-lease that expires in June 2010.
The monthly rent under the lease is $13,951.
Total
rent expense for the year ended December 31, 2009 and 2008 was $169,160 and
$0.
Other
At
December 31, 2009, the Company has an obligation totaling $932,266
related
to unpaid payroll tax, including an estimate of penalties and
interest. The Company has filed the required payroll tax returns
required.
The
Company has not filed either federal or state income tax returns for the years
ended 2009, 2008, and 2007. There are no penalties or interest due or
recorded as a liability, as in all periods the Company reported
losses.
Litigation
A lawsuit
was filed on November 25, 2009 against the Company, numerous former and current
Company officers and directors, and other individuals and entities. Plaintiffs
have made no direct claims against the Company, but have instead named it as a
“nominal” defendant, and have alleged “derivative” causes of action on its
behalf. The Plaintiffs appear at present to only claim damages
of approximately $26,000,000 resulting from loans they made to previous
companies, which Carl Freer, the President of the Company, allegedly personally
guaranteed. The Company’s counsel is preparing a motion to dismiss.
The Company and those officers and directors deny plaintiffs’ allegations, and
plan to vigorously defend the action. Accordingly, the Company has no
liability accrued as it relates to this matter.
By letter
dated February 24, 2010, fourteen former employees of a separate company made a
demand for $430,000 in unpaid wages against that company, and threatened to file
suit against the Company, on the ground that the separate company was merely an
instrumentality of GetFugu, Inc. To the Company’s knowledge, no claim has been
filed to date, and the Company believes the demand is not an obligation of the
Company. Accordingly, as of December 31, 2009, the Company has no
liability accrued as it relates to this matter.
Although
the Company believes it will be successful in defending these matters there can
be no assurances that these legal matters will not result in any negative
outcomes.
On April
1, 2010, Hutton International Investments, Ltd (“Hutton”) filed a claim that it
suffered damages as a result of the Company's breach of a securities purchase
agreement with the Company. The parties stipulated to settle the claim in
exchange for issuance to Hutton of 40,000,000 shares of the Company’s common
stock, subject to adjustment and the Court’s approval of the settlement under
Section 3(a)(10). The court approved the settlement and dismissed the action on
April 6, 2010 at which time 40,000,000 shares of the Company’s common stock were
issued to Hutton. The Company recorded a charge of approximately $1,200,000 for
the year ended December 31, 2009, based on the share price of the Company’s
common stock on the date of settlement.
A demand
for arbitration filed on April 13, 2010, by six former employees and independent
contractors, seeking unpaid wages and unspecified damages. At
December 31, 2009, the Company had accrued a liability for all such wages in the
amount of $_____.
NOTE
12 – SUBSEQUENT EVENTS
On
January 14, 2010, the Company entered into a joint venture agreement for the
purpose of establishing an operating entity in Japan. The Company
issued 3,000,000 shares of its common stock and will retain a 75% interest in
the joint venture.
On
January 15, 2010, the Company, through a wholly-owned subsidiary, entered into
an agreement and plan of merger with Health Matrix, Inc. Under the
terms of the agreement and plan of merger, 7,580,000 shares of the Company’s
common stock were issued in exchange for all of the ownership interest in Health
Matrix.
On
February 5, 2010, the Company entered into a short-term secured promissory note.
Under the terms of this secured promissory note, the Company
received $150,000. Interest accrues at an annual rate of 10%
and the note is payable on demand. Security for this note includes a
first priority interest in all of the Company’s assets owned on the date of the
loan as well as all assets acquired while the loan is
outstanding.
On
February 9, 2010, the Company executed a consulting agreement with a public and
investor relations firm to which 10,000,000 shares of the Company’s common stock
were issued.
On
February 15, 2010, the Company entered into consulting agreements with two
individuals including monthly fees totaling $25,000 and the issuance of
non-qualified stock options totaling 20,000,000. On the date of the grant 25% of
the options vest immediately and the remaining will vest over a term of 5 years.
The options granted are exercisable at $0.13 per share and have a contractual
life of 5 years
On March
2, 2010, the Company received an advance totaling $83,000 from a former officer
of the Company. Interest accrues at an annual rate of 10% and the note is
payable on demand
On March
12, 2010, the Company entered into a short-term 8% convertible promissory note.
Under the terms of this promissory note, the Company received
$71,500. At any time prior to the maturity date, the note can be
converted at the option of the lender into the Company’s common stock based on a
40% discount to the weighted average price of the Company’s Common Stock for the
three lowest closing share prices during the ten trading days prior to the
conversion date.
On March
23, 2010, the Company entered into a short-term convertible promissory note.
Under the terms of this promissory note, the Company received
$150,000. The note matures on June 23, 2010. At any time prior to the
maturity date, the note can be converted at the option of the lender into the
Company’s common stock at a price of $0.02 per share. If the lender demands
repayment on the maturity date the conversion feature is terminated and the
Company is obligated to pay the lender $200,000. The lender was also
granted a warrant to acquire 3,000,000 shares of the Company’s common stock at
$0.10 per share for three years.
On March
24, 2010, we entered into an agreement and plan of merger with each of Mobile
Search Technologies, Inc. and Cellular Software Corporation, pursuant to which
we acquired both companies as our wholly-owned subsidiaries in exchange for
100,000,000 shares of our Common Stock each. Mobile Search Technologies, Inc.
was wholly-owned by Oscar Holdings, LLC, which is beneficially owned by our
President, Carl Freer. The primary assets of each company are intellectual
property rights relating to next generation mobile search technology. Each of
the principals also executed our standard form compatibility and intellectual
property assigned agreement.
On April
2, 2010, the Company entered into a short-term convertible promissory note.
Under the terms of this promissory note, the Company received
$100,000. The note matures on July 2, 2010. At any time prior to the
maturity date, the note can be converted at the option of the lender into the
Company’s common stock at a price of $0.02 per share. If the lender
demands repayment on the maturity date the conversion feature is terminated and
the Company is obligated to pay the lender $133,333. The lender was
also granted a warrant to acquire 3,000,000 shares of the Company’s common stock
at $0.10 per share and the warrant for three years.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE .
None
ITEM
9A.(T) CONTROLS AND PROCEDURES
(a)
Evaluation of Disclosure Controls and Procedures
Our chief
executive officer and Principal Financial and Accounting Officer has reviewed
and evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of
1934), as of December 31, 2009. Based on such review and evaluation,
our chief executive officer and chief financial officer have concluded that, as
of December 31, 2009, our disclosure controls and procedures were not
effective to ensure that information required to be disclosed by us in the
reports that we file or submit to the Securities and Exchange Commission
pursuant to the reporting obligations of the Exchange Act, including this Annual
Report on Form 10-K, is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the SEC. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by an issuer in the
reports that it files or submits under the Exchange Act is accumulated and
communicated to the issuer’s management, including its principal executive and
principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosures.
A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are
met. The design of any system of controls also is based in part on
certain assumptions regarding the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions. Given these and other inherent
limitations of control systems, there is only reasonable assurance that our
controls will succeed in achieving their stated goals under all potential future
conditions.
(b)
Management’s Annual Report on Internal Control over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) and Rule 15d-15(f)
of the Exchange Act. Internal control over financial reporting is a
process designed by, or under the supervision of, the company’s principal
executive and principal financial officers, and effected by the board of
directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting
principles generally accepted in the United States (“US GAAP”), including those
policies and procedures that:
|
•
|
pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions of the company,
|
|
•
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with US GAAP, and that
receipts and expenditures are being made only in accordance with
authorizations of management and directors of the company,
and
|
|
•
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company’s assets that
could have a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with policies and procedures may deteriorate.
Under the
supervision and with the participation of our management, we have assessed the
effectiveness of our internal control over financial reporting as of December
31, 2009. In making this assessment, our management used the criteria
described in
Internal Control
– Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Due to the inherent issue
of segregation of duties in a small company, we have relied heavily on entity or
management review controls to lessen the issue of segregation of
duties. Based on this assessment and those criteria, our management
concluded that the Company did not maintain effective internal control over
financial reporting as of December 31, 2009.
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 the company’s annual or interim financial
statements will not be prevented or detected on a timely basis. Our
management identified the following material weaknesses as of December 31,
2009:
Due to the small size of
the operations, we have limited personnel and therefore segregation of duties is
limited. As our operations expand, additional personnel will be
employed and respective controls and procedures will be enhanced
accordingly.
We have not formally
documented our entity level controls for policies and procedures in
place.
We lack proper
documentation of the performance of key controls and appropriate document
retention procedures.
Our current staffing levels were not sufficient to
support the complexity of our financial reporting requirements, we lacked the
expertise we needed to apply complex accounting principles relating to our
equity transactions and lacked the structure we need to ensure the timely and
accurate filing of employee income tax withholding and our corporate tax
returns. Our record retention policies need to be enhanced as supporting records
were not always easily accessible. We have limited staff and therefore lack
proper segregation of duties in part due to the small size of the Company and
the constraints of funds to hire additional staff to provide assistance with the
preparation of the year end financial statements management has hired outside
consultants with the necessary expertise to ensure the accuracy of the year end
financial records as they are being reported.
(c)
Changes in Internal Control over Financial Reporting
There was
no change in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Rule 13a-15 or
15d-15 under the Securities Exchange Act of 1934 that occurred during our most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting. This Form 10-K
does not include an attestation report of the Company’s registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Securities Exchange
Commission that permit the Company to provide only management’s report in this
Form 10-K.
ITEM
9B. OTHER INFORMATION
None.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Our directors
will serve until successor(s) are elected and qualified. Our chief executive
officer is elected by the board of directors to a term of one (1) year and
serves until his successor is duly elected and qualified, or until he is removed
from office. In November 2009, the board of directors established , Audit,
Compensation, Nominating and Governance, Strategic Planning, and Special
Committees.
Background
of officers and directors
The
name, address, age and position of our present officers and directors are set
forth below:
|
Name
|
|
Title
|
|
Age
|
|
Michael
J. Solomon
|
|
Chairman
of the Board since July 2009 and CEO since April 2, 2010
|
|
71
|
|
Carl
Freer
|
|
President
and Director since November 2009
|
|
39
|
|
Leathem
Stearn
|
|
Director
since January 2009
|
|
61
|
|
Chuck
Timpe
|
|
Director
and Audit Committee Chairman since November 2009
|
|
63
|
|
Alan
J. Bailey
|
|
Director
since November 2009
|
|
62
|
|
Michael
O’Connor
|
|
Director
since July 2009
|
|
43
|
Biographical
Information
Michael
Jay Solomon
CEO
and Chairman of the Board of Directors
Michael Jay Solomon, 71, was appointed
to our board of directors on May 18, 2009, and has served as chairman since
July. Mr. Solomon served as President of Warner Bros. International
Television (NYSE: TWX) from 1989 to 1994. Since that time, he has
helmed television communications company Solomon Entertainment Enterprises,
distributing independent content to the international market. Mr.
Solomon co-founded television syndication company Telepictures Corporation
(Nasdaq) in 1978, and served as president of Lorimar Telepictures Corp. until
1989. He also served eight years with United Artists and fourteen
years with MCA/Universal. Mr. Solomon was a founder of the American
Film Market Association and The Sam Spiegel Film & Television School, and
has served on the Board of Overseers of New York University’s Stern School of
Business for twenty year
Carl
Freer
President
and Director
Carl Freer, 39, was appointed as our
president and as a member of our board of directors effective November 2,
2009. Mr. Freer has more than 15 years experience as a marketing and
technology entrepreneur, successfully raising over $350 million in investment
capital, and amassing $2.5 billion in market capitalization for his
companies. Prior to co-founding GetFugu in April 2009, he served as
SVP Business Development of Media Power Inc. in 2008. Mr. Freer
founded mobile gaming platform Gizmondo in 2002, and was chairman of the board
of directors at its parent company, Tiger Telematics Inc. until October
2005. He has been recognized as a pioneer in mobile technology and
innovative approaches to advertising.
Leathem
Stearn
Director
Mr. Leathem Stearn, 61, has been the
Managing Partner of Stearn Enterprises LLC since 1995. During his
career Mr. Stearn has developed business plans, strategic models and operational
plans covering all aspects of product development, production, administration,
organization and finance. Among the companies Mr. Stearn founded were
Stearn Sailing Systems ("SSS") and Scunci International Ltd. At SSS,
he invented the first roller-furling jib and 2-groove head stays. He also
developed the first hydraulic system for offshore racing boats and first
offshore bending mast system for racing boats. Sold the company with
70% of world racing market for racing masts and rigging. At Scunci
Int Ltd., he incepted, designed and launched, to date, the most successful
fashion accessory ever sold, the Scunci hairpiece. Stearn
Enterprises, his current company, provides consulting services to startup
companies. Mr Stearn has been awarded three patents in a variety of
industries. Mr Stearn holds masters degrees in Naval Architecture,
Marine Engineering and Aeronautical Engineering. His sailboat racing
career includes a number of world championships, inclusive of being a member of
the US Olympic sailing tea and skippering an America’s Cup
contender.
Chuck
Timpe
Director
,
Audit Committee
Chairman
Chuck
Timpe, 63, joined our board effective November 2, 2009. Mr. Timpe is
a senior financial executive with extensive experience in public company
finance, compliance and technical accounting issues. He has served as
a director and chairman of the audit committee since 1998 for IPC The
Hospitalist Company, Inc. (NasdaqGM: IPCM), and as a director of Internet social
network CrowdGather, Inc. (CRWG.OB) since May 2009. From 2003 to
November 2008, Mr. Timpe served as the chief financial officer of Hythiam,
Inc. (NasdaqGM: HYTM). He was chief financial officer from its inception in 1998
to 2003 of Protocare, Inc. Mr. Timpe was a principal in two
consulting firms he co-founded, chief financial officer of National Pain
Institute, treasurer and corporate controller for American Medical
International, Inc., now Tenet Healthcare Corp. (NYSE: THC). He
specialized in public company audits at Arthur Andersen,
LLP. Mr. Timpe received a B.S. from University of Missouri,
School of Business and Public Administration, and is a certified public
accountant (inactive).
Alan
J. Bailey
Director
Alan J. Bailey, 62, joined our board
effective November 2, 2009. Mr. Bailey is a veteran of the
entertainment industry with 35 years of senior level corporate finance, audit
and compliance experience. He served as Senior Vice President and
Treasurer at Paramount Pictures from 1975 through March 2009. Mr.
Bailey is an operating partner in Transworld Capital Group which specializes in
structuring complex financial transactions. Mr. Bailey is also Vice
President of the Shanghai Film Art Academy , a motion picture and television
college based in Shanghai with more than 3,000 active film
students. In April 2009, he formed new media company Dynamic Media
International Inc. where he serves as chief operating officer and chief
financial officer. Mr. Bailey previously served as Vice President in
charge of offshore financial operations at Gulf + Western Industries, and served
in public accounting with an affiliate of Ernst & Young and with Grant
Thornton as a senior audit supervisor. He is a Fellow of the English
Institute of Chartered Accountants.
Michael
J. O’Connor
Director
Michael J. O’Connor, 43, joined our
board effective July 26, 2009. Mr. O'Connor has served as
Vice-Chairman of telecommunications provider Globalive Communications
Corporation since August 2008. He has twenty years experience in finance,
mergers and acquisitions in telecommunications, as well as designing and
implementing sophisticated financial planning tools in support of major capital
raises. Mr. O’Connor served as one of six founding members
of the Executive Committee of Orascom Telecom from November 1999 to
July 2008, whose parent company Weather Investments boasts more than 110 million
subscribers. He founded the Center for Economic and Financial
Analysis at Science Applications International Corporation, one of the largest
consultancy companies in the country. He began his career at the
Economic Council of Canada/School of Policy Studies Queens
University. He holds a Masters Degree in Economics from Carleton
University.
Audit
Committee and Charter
Our
Audit Committee consists of Chuck Timpe (Chair), Alan Bailey and Michael
O’Connor. Our board of directors has determined that all three are
independent directors under the independence standards of the American Stock
Exchange, as well as audit committee financial experts as defined in Item
407(d)(5) of Regulation S-B.
The
Committee shall consist of no fewer than three members, as determined annually
by the board of directors. The members of the Committee shall meet
the independence and expertise requirements of the American Stock Exchange,
Nasdaq National Market, or any other exchange on which the Company’s securities
are traded, Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) and the rules and regulations of the Securities and
Exchange Commission (the “SEC”). Committee members shall not serve
simultaneously on the audit committees of more than two other public companies
without the approval of the full board of directors.
The basic
responsibility of the members of the Committee is to exercise their business
judgment to act in what they reasonably believe to be in the best interests of
the Company and its shareholders. In discharging that obligation,
members should be entitled to rely on the honesty and integrity of the Company’s
senior executives and its outside auditors, attorneys and advisors, to the
fullest extent permitted by applicable law.
The
Committee shall be directly responsible for the appointment (subject, if
applicable, to shareholder ratification), compensation and oversight of the work
of the Auditors, including without limitation retention, terms of engagement,
evaluation and termination of the Auditors. The Committee shall also
be responsible for the resolution of any disagreements between management and
the Auditors, including without limitation disputes regarding accounting,
internal control and auditing matters. The Auditors shall report
directly to the Committee.
Compensation
Committee
Our
Compensation Committee consists of Leathem Stearn. Our board of
directors has determined that Mr. Stearn is an independent director under
independence standards of the American Stock Exchange.
Nominating
and Governance Committee
Our
Nominating and Governance Committee consists of Alan Bailey. As noted
above, our board of directors has determined that Mr. Bailey is an independent
director under independence standards of the American Stock
Exchange.
Strategic
Planning Committee
Our
Strategic Planning Committee consists of Michael O’Connor (Chair) and Leathem
Stearn. As noted above, our board has determined that both are
independent directors under independence standards of the American Stock
Exchange.
Special
Committee
Our
Special Committee consists of Leathem Stearn (Chair) and Michael
Solomon. Our board of directors has determined
that Mr. Stearn is an independent director under the independence
standards of the American Stock Exchange. Mr. Solomon also serves as
chairman of our board of
directors.
Code
of Ethics
The
purpose of the Company’s Code of Ethics (the “Code”) is to codify the standards
that the Company believes are reasonably designed to deter wrong-doing and to
promote adherence to the following principles:
|
|
•
|
Honest
and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional
relationships;
|
|
|
•
|
Full,
fair, accurate, timely and understandable disclosure in reports and
documents that the Company files with, or submits to, the United States
Securities and Exchange
Commission;
|
|
|
•
|
Compliance
with applicable governmental laws, rules, regulations and
agreements;
|
|
|
•
|
The
prompt internal reporting of violations of this Code;
and
|
|
|
•
|
Accountability
for adherence to this Code.
|
Section
16(a) of the Securities Exchange Act of 1934
Based solely upon a review of Forms 3
and 4 and amendments thereto furnished to us pursuant to Rule 16a-3(e) under the
Securities Exchange Act of 1934 during our most recent fiscal year and Forms 5
and amendments thereto furnished to us with respect to our most recent fiscal
year, all officers, directors and owners of 10% or more of our outstanding
shares have filed all Forms 3, 4 and 5 required by Section 16(a) of the
Securities Exchange Act of 1934, as amended.
Conflicts
of Interest
There
are no conflicts of interest. Further, we have not established any policies to
deal with possible future conflicts of interest.
ITEM 11. EXECUTIVE
COMPENSATION
The
following table sets forth information with respect to compensation paid by us
to our officers and directors during the three most recent fiscal years. This
information includes the dollar value of base salaries, bonus awards and number
of stock options granted, and certain other compensation, if any.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NonEquity
|
|
|
Nonqualified
Deferred
|
|
|
All
|
|
|
|
|
|
Name
|
|
Principal Position
|
|
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
Incentive Plan
Compensation
|
|
|
Compensation
Earnings
|
|
|
Other
Compensation
|
|
|
Total
|
|
|
Bernard
Stolar
|
|
Former
CEO and
CFO
|
|
2009
|
|
$
|
157,647
|
|
|
$
|
0
|
|
|
|
10,000,000
|
|
|
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
|
|
|
Carl
Freer
|
|
President
and Director
|
|
2009
|
|
|
75,500
|
|
|
|
0
|
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
Michael
J. Solomon
|
|
Chairman
of the Board and CEO
|
|
2009
|
|
|
0
|
|
|
|
0
|
|
|
|
3,000,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
42,500
|
|
|
|
42,500
|
|
|
Leatham
Stearn
|
|
Director
|
|
2009
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,000,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Chuck
Timpe
|
|
Director
|
|
2009
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,000,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
Don
Kurz
|
|
Former
Director
|
|
2009
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,000,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
Allan
Bailey
|
|
Director
|
|
2009
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,000,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
Mike
O,Connor
|
|
Director
|
|
2009
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,000,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
|
Former
President
|
|
2008
|
|
|
3,500
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
0
|
|
|
|
3,500
|
|
|
Mike
Lizarranga
|
|
CEO,
CFO, Secy
|
|
2007
|
|
|
3,500
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,500
|
|
|
|
|
CEO,
CFO
|
|
2007
|
|
|
3,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,000
|
|
|
Richard
Jenkins (4)
|
|
Former
President,
|
|
2008
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
CEO,
CFO , Secty.
|
|
2007
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
Jason
Irwin (5)
|
|
Former
President,
|
|
2008
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
CEO,
CFO, Secty.
|
|
2007
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
(1)
|
Mr.
Stolar became the CEO and CFO on April 4, 2009. He resigned on
April 2, 2010.
|
|
(2)
|
Mr.
Freer became the President and a Director on November 2,
2009. In addition to the salary amount noted above, Mr. Freer
received $37,824 as consulting fees prior to the point he became an
employee.
|
|
(3)
|
Mr.
Solomon became a Director on May 18, 2009, Chairman on July 26, 2009, and
CEO on April 2, 2010.
|
|
(4)
|
Mr.
Stearn became a Director in May,
2009.
|
|
(5)
|
Mr.
O”Connor became a Director of July 22,
2009.
|
|
(6)
|
Mr.
Timpe; Mr. Kurz: and Mr. Bailey became Directors on November 2,
2009. Mr. Kruz resigned on April 2,
2010.
|
|
(7)
|
Mr. Lizarraga resigned as
President, CEO and CFO of the Company on August 29,
2008.
|
|
(8)
|
Mr.
Jenkins served as President, CEO, CFO and Secretary of the Company from
August 29, 2008 through January 30,
2009.
|
|
(9)
|
Dr.
Irwin became President, CEO, CFO and Secretary of the Company on January
30, 2009. Effective as of April 2, 2009 Jason Irwin resigned as
a member of the Board of Directors and as President, Chief Executive
Officer, Chief Financial Officer and
Secretary.
|
There are no other stock option plans, retirement,
pension, or profit sharing plans for the benefit of our officers and directors
other than as described herein.
Long-Term
Incentive Plan Awards
We not
have any long-term incentive plans that provide compensation intended to serve
as incentive for performance.
Employment
Agreements
On April
4, 2009, we entered into an executive employment agreement with Bernard Stolar
to serve as President and Chief Executive Officer. The employment
contract is at will. Under the agreement, Mr. Stolar is to be paid an
annual rate of $250,000 for the first year, $325,000 for the second year, and a
5% increase every year there after. Additionally, Mr. Stolar is
entitled to an annual bonus equal to 2% of our net profits before income taxes.
Under this agreement, Mr. Stolar was granted 10 million shares of our Common
Stock (subject to a repurchase option by the Company). Mr. Stolar
resigned on April 2, 2010. There was no severance provisions
associated with his resignation.
On
April 5, 2009, we entered into a Consulting, Confidentiality and Proprietary
Rights Agreement (the “CCP Agreement”) with Venor, Inc. (an entity wholly owned
by Mr. Stoppenhagen, our then Interim Chief Financial Officer and
Secretary). Effective April 8, 2009, Mr. Stoppenhagen performed
duties normally assigned to a chief financial officer of a reporting
entity. Mr. Stoppenhagen resigned on May 4,
2009.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table sets forth, as of April 15, 2010, the date of this annual
report, the total number of shares owned beneficially by our directors, officers
and key employees, individually and as a group, and the present owners of 5% or
more of our total outstanding shares. The stockholders listed below have direct
ownership of their shares and possesses sole voting and dispositive power with
respect to the shares.
|
Name and Address of Beneficial Owner
(1)
|
|
Amount and Nature of
Beneficial Ownership
|
|
|
Percentage of
Common Stock
(2)
|
|
|
|
|
|
|
|
|
|
|
Carl
Freer
|
|
|
106,165,474
|
(3)
|
|
|
22.0
|
%
|
|
Leathem
Stearn
|
|
|
5,750,000
|
(4)
|
|
|
1.2
|
%
|
|
Michael
J. Solomon
|
|
|
3,000,000
|
(5)
|
|
|
0.6
|
%
|
|
Steve
Carroll
|
|
|
100,000,000
|
|
|
|
20.7
|
%
|
|
All
officers and Directors as a group (_6_persons)
|
|
|
114,915,474
|
|
|
|
23.8
|
%
|
|
|
(1)
|
Unless otherwise indicated in the
footnotes to the table, each shareholder shown on the table has sole
voting and investment power with respect to the shares beneficially owned
by him or it. Percentages of less than one percent have been
omitted from the table.
|
|
|
(2)
|
Calculated on the basis of
482,927,956 shares of Common Stock
outstanding.
|
|
|
(3)
|
Mr.
Freer’s created a Limited Liability Corporation (“Freer LLC”) which
holds 106,165,474 shares of Company common stock, representing
approximately 22% of the shares outstanding at April 15,
2010. Management of Freer LLC is with three individuals one of
which is Mr. Freer’s daughter.
|
|
|
(4)
|
Mr. Stearn was the Chairman of
the Board of Directors of the Company from January 2009 until July 26,
2009. Since then, Mr. Stearn has been a
director. In addition to the shares noted in the table
above, Mr. Stearn was granted 2,000,000 non-qualified stock options which
vest ratably over 3 years.
|
|
|
(5)
|
Mr.
Solomon has been the Chairman of the Board since July 26, 2009 and became
CEO on April 2, 2010. In addition to the shares noted in the
table above, as of April 15, 2010, Mr. Solomon was granted 13,000,000
non-qualified stock options all of which have
vested.
|
ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
None
ITEM 14. PRINCIPAL
ACCOUNTING FEES AND SERVICES
On March
5, 2009, the Company dismissed Moore & Associates, Chartered (“Moore &
Associates”) as its principal independent accountant. Moore &
Associates report on the Company’s financial statements for the year ended
December 31, 2007 did not contain an adverse opinion or disclaimer of opinion.
The Board of Directors approved the decision to dismiss Moore & Associates
as the Company’s principal independent accountant. During the Company’s recent
fiscal year and through the date of Moore & Associates dismissal, there were
no disagreements with Moore & Associates on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to the satisfaction of Moore & Associates,
would have caused it to make reference to the subject matter of the
disagreement(s) in connection with its report.
On March
6, 2009, the Company retained MSPC Certified Public Accountants and Advisors, a
Professional Corporation (“MSPC”) to serve as the Company’s principal
independent accountant.
On August 14, 2009, the Board of
Directors voted to dismiss MSPC, which had previously served as the Company’s
independent accountants, and engaged Marcum LLP (“Marcum”) as the Company’s new
independent accountants. The Board of Directors recommended that the Company
change audit firms and made the decision to engage Marcum. The
reports of MSPC on the financial statements of the Company for the past fiscal
year ended 2008 contained no adverse opinion or disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principle.
(1)
Audit Fees
The
aggregate fees billed for each of the last three fiscal years for professional
services rendered by the independent registered public accountants for the
annual audit of our financial statements and review of our financial statements
included in our Form 10-Q or services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
for those fiscal years was:
|
2009
|
|
$
|
205,941
|
|
|
2008
|
|
$
|
7,500
|
|
|
2007
|
|
$
|
7,100
|
|
(2)
Audit-Related Fees
The
aggregate fees billed in each of the last three fiscal years for assurance and
related services by the independent registered public accountants that are
reasonably related to the performance of the audit or review of our financial
statements and are not reported in the preceding paragraph:
|
2009
|
|
$
|
-
|
|
|
2008
|
|
$
|
-
|
|
|
2007
|
|
$
|
-
|
|
(3)
Tax Fees
The
aggregate fees billed in each of the last three fiscal years for professional
services rendered by the independent registered public accountants for tax
compliance, tax advice, and tax planning was:
|
2009
|
|
$
|
-
|
|
|
2008
|
|
$
|
-
|
|
|
2007
|
|
$
|
-
|
|
(4)
All Other Fees
The
aggregate fees billed in each of the last three fiscal yeas for the products and
services provided by the independent registered public accountants, other than
the services reported in paragraphs (1), (2), and (3) was:
(5) Our
Board of Director’s pre-approval policies and procedures described in paragraph
(c)(7)(i) of Rule 2-01 of Regulation S-X were that the Board of Directors
pre-approve all accounting related activities prior to the performance of any
services by any accountant or auditor.
(6) The
percentage of hours expended on the independent registered public accountants’
engagement to audit our financial statements for the most recent fiscal year
that were attributed to work performed by persons other than the independent
registered public accountants’ full time, permanent employees was
0%.
PART
IV
ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
.
(a) The
following documents are filed as a part of this Report:
1.
Financial
Statements.
The following financial statements of GetFugu,
Inc. are included in Item 8:
Reports
of Independent Registered Public Accounting Firms.
Consolidated
Balance Sheets as of December 31, 2009 and 2008.
Consolidated
Statements of Operations for the year ended December 31, 2009, 2008 and
Inception from March 14, 2009 to December 31, 2009.
Consolidated
Statements of Stockholders’ Equity / (Deficiency) for the years ended December
31, 2009, 2008, and Inception from March 14, 2009 to December 31,
2009.
Consolidated
Statements of Cash Flows for the years ended December 31, 2009 and
2008.
Notes to
Consolidated Financial Statements.
2. Financial
Statement Schedule(s):
All
schedules are omitted for the reason that the information is included in the
financial statements or the notes thereto or that they are not required or are
not applicable.
3. Exhibits
|
Exhibit
|
|
Document
Description
|
|
3.1
|
|
Articles
of Incorporation (1)
|
|
3.2
|
|
Bylaws
(1)
|
|
3.3
|
|
Certificate
of Amendment to Articles of Incorporation filed 1/23/2009.
(2)
|
|
3.4
|
|
Certificate
of Amendment to Articles of Incorporation filed March 5, 2009.
(3)
|
|
3.5
|
|
Certificate
of Amendment to Articles of Incorporation filed March 5,
2009.(3)
|
|
10.1
|
|
Executive
Employment Agreement between GetFugu, Inc. and Bernard Stolar dated April
4, 2009. (4)
|
|
10.2
|
|
Consulting,
Confidentiality and Proprietary Rights Agreement between GetFugu, Inc. and
Venor, Inc.
dated
April 4, 2009. (4)
|
|
31.1
|
|
Certification
of Principal Executive Officer and Principal Financial Officer
pursuant
to
15d-15(e), promulgated under the Securities and Exchange Act of 1934,
as amended.
|
|
32.1
|
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906
of
the Sarbanes-Oxley Act of 2002 (Chief Executive Office and Chief
Financial Officer).
|
|
|
(1)
|
Included
in our SB-2 filing under Commission File Number
333-143845.
|
|
|
(2)
|
Included
as Appendix A in the definitive Information Statement filed on
12/3/2008.
|
|
|
(3)
|
Included
as an Exhibit in the Form 8-K filed on 3/25/2009
|
|
|
(4)
|
Included
as an Exhibit in the Form 8-K filed on
4/13/2009.
|
SIGNATURES
Pursuant
to 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 of this Form 10-K and has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on this 15
th
day of
April, 2010
|
GetFugu, Inc.
|
|
|
|
|
|
|
|
Date:
April 15, 2010
|
By:
|
/s/ MICHAEL J.
SOLOMON
|
|
|
|
Name:
MICHAEL J. SOLOMON
|
|
|
|
Title:Chief
Executive Officer
|
|
|
|
(Principal
Executive Officer, Principal Financial and
Accounting
Officer)
|
POWER OF ATTORNEY
The
undersigned directors and officer of Getfugu, Inc. do hereby constitute and
appoint Michael J. Solomon with full power of substitution and resubstitution,
as their true and lawful attorneys and agents, to do any and all acts and things
in our name and behalf in our capacities as directors and officer and to execute
any and all instruments for us and in our names in the capacities indicated
below, which said attorney and agent, may deem necessary or advisable to enable
said corporation to comply with the Securities Exchange Act of 1934, as amended
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with this Annual Report on Form 10-K, including
specifically but without limitation, power and authority to sign for us or any
of us in our names in the capacities indicated below, any and all amendments
(including post-effective amendments) hereto, and we do hereby ratify and
confirm all that said attorneys and agents, or either of them, shall do or cause
to be done by virtue hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|
SIGNATURE
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
|
|
/s/ MICHAEL J. SOLOMON
|
|
Chief
Executive Officer and Principal
|
|
April
15, 2010
|
|
Michael
J. Solomon
|
|
Financial
and Accounting Officer (Principal Executive
Officer)
|
|
|
|
|
|
|
|
|
|
/s/ CARL FREER
|
|
President
and Director
|
|
April
15, 2010
|
|
Carl
Freer
|
|
|
|
|
|
|
|
|
|
|
|
/s/ LEATHAM STEARN
|
|
Director
|
|
April
15, 2010
|
|
Leatham
Stearn
|
|
|
|
|
|
|
|
|
|
|
|
/s/ CHUCK TIMPE
|
|
Director
|
|
April
15, 2010
|
|
Chuck
Timpe
|
|
|
|
|
|
|
|
|
|
|
|
/s/ ALLEN BAILEY
|
|
Director
|
|
April
15, 2010
|
|
Allan
Bailey
|
|
|
|
|
|
|
|
|
|
|
|
/s/ MICHAEL O’CONNOR
|
|
Director
|
|
April
15, 2010
|
|
Michael
O’Connor
|
|
|
|
|
GetFugu (CE) (USOTC:GFGU)
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부터 11월(11) 2024 으로 12월(12) 2024
GetFugu (CE) (USOTC:GFGU)
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부터 12월(12) 2023 으로 12월(12) 2024
