UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 20092010
Commission File Number 000-10822
Intelligent Communication Enterprise Corporation |
(Exact name of registrant as specified in its charter) |
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Pennsylvania | 25-1229323 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
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13 Spottiswoode Park Road | |
Singapore | 088640 |
(Address of principal executive offices) | (Zip Code) |
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+65 6324 0225 |
(Registrant’s telephone number, including area code) |
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Securities registered pursuant to Section 12(b) of the Exchange Act: |
Title of each class | Name of each exchange on which registered |
n/a | n/a |
Securities registered pursuant to Section 12(g) of the Exchange Act: |
Common Stock, Par Value $0.0001 |
(Title of Class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined byin Rule 405 of the Securities Act. 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 Exchange Act. Yes ¨ No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed 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 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes x¨ No ¨
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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. ¨x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer ¨ |
Non-accelerated filer o | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨
State the aggregate market value of the voting and nonvoting common equity held by nonaffiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. As of June 30, 2009,2010, the aggregate market value of the voting and nonvoting common equity held by nonaffiliates of the issuer was $370,317.$15,739,567.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. As of April 9, 2010,13, 2011, registrant had 93,725,841643,215,972 shares of issued and outstanding common stock, par value $0.0001.
DOCUMENTS INCORPORATED BY REFERENCE: None.
TABLE OF CONTENTS
Item | Description | Page |
| | |
| Special Note Regarding Forward-Looking Statements | 1 |
| | |
| Part I | |
Item 1 | Business | 2 |
Item 1A | Risk Factors | 67 |
Item 1B | Unresolved Staff Comments | 1011 |
Item 2 | Properties | 1011 |
Item 3 | Legal Proceedings | 11 |
Item 4 | Reserved | 11 |
| | |
| Part II | |
Item 5 | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 1112 |
Item 6 | Selected Financial Data | 12 |
Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 |
Item 7A | Quantitative and Qualitative Disclosures about Market Risk | 1416 |
Item 8 | Financial Statements and Supplementary Data | 1416 |
Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 1416 |
Item 9A(T)9A | Controls and Procedures | 1516 |
Item 9B | Other Information | 1718 |
| | |
| Part III | |
Item 10 | Directors, Executive Officers and Corporate Governance | 1719 |
Item 11 | Executive Compensation | 1921 |
Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 2123 |
Item 13 | Certain Relationships and Related Transactions, and Director Independence | 2224 |
Item 14 | Principal Accounting Fees and Services | 2325 |
| | |
| Part IV | |
Item 15 | Exhibits, Financial Statement Schedules | 2426 |
| Signatures | 2829 |
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
CertainThis report contains statements in this Annual Report on Form 10-K are forward-looking statements withinabout the meaning of Section 27A of the Securities Act of 1933,future, sometimes referred to as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).“forward-looking” statements. Forward-looking statements are typically identified by use of the words “believe,” “may,” “could,” “should,” “expect,” “anticipate,” “estimate,” “project,” “propose,” “plan,” “intend,” and similar words and expressions. Statements that describe our future strategic plans, goals, or objectives are also forward-looking statements. Such
Readers of this report are cautioned that any forward-looking statements, including those regarding our management’s current beliefs, expectations, anticipations, estimations, projections, proposals, plans, or intentions, are not guarantees of future performance or results of events and involve knownrisks and unknown risks, uncertainties,uncertainties. The forward-looking information is based on present circumstances and other factorson our predictions respecting events that have not occurred, that may cause our actualnot occur, or that may occur with different consequences from those now assumed or anticipated. Actual events or results performance, or achievements to bemay differ materially different from any future results, performance, or achievements expressed or implied by suchthose discussed in the forward-looking statements.statements as a result of various factors. The forward-looking statements included in this report are made only as of the date of this report. We are not obligated to update such forward-looking statements to reflect subsequent events or circumstances.
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PART I
ITEM 1. BUSINESS
Background
Intelligent Communication Enterprise Corporation was incorporated in Pennsylvania in 1972 as Coratomic, Inc. In 2006, we merged with Mobiclear Ltd. and changed our name to Mobiclear Inc. On December 14, 2009, we changed our name to Intelligent Communication Enterprise Corporation.
On November 7, 2007, MobiClear Inc. (MobiClear – Philippines) was incorporated in the Philippines. Initially, we held a one-third equity interest and the remaining two-thirds equity interest was held by Bastion Payment Systems Corporation. Bastion Payment Systems Corporation anwas our affiliate by virtue of ours.the fact that one of our directors, Simoun Ung, was also a director of Bastion. On September 18, 2008, we acquired the remaining two-thirds of Mobiclear – Philippines from Bastion in exchange for 6,25043,750 shares of our common stock in a transaction valued at $37,500. We presently develop and host our Personal Identity Verification, or PIV, products and solutions through MobiClear – Philippines.
On July 24, 2008, we incorporated Mobiclear Inc. – British Virgin Islands as a wholly owned subsidiary, through which we contract with our international suppliers and clients.
On November 12, 2009, we acquired all of the issued and outstanding shares of Radius-ED Limited (“Radius”) from Whitefields Capital Limited, our then-majority stockholder, in exchange for 54,255,318379,787,226 shares of our common stock valued at $8,500,000 and a convertible promissory note for $1,500,000. We presently operate our proprietary messaging platforms and global infrastructure and provide messaging solutions and mobile-marketing programs through Radius. The convertible promissory note, together with accrued interest, was converted into 22,024,429 shares of our common stock on August 24, 2010.
On January 20, 2010, we acquired all of the issued and outstanding shares of Solesys S.A. from the sole shareholder of Solesys S.A., Whitefields Capital Limited, in exchange for 28,944,723202,613,061 shares of our common stock valued at $9,600,000. At the time of this acquisition, Whitefields Capital Limited was no longer our majority stockholder. Subsequently, we determined that we did not receive all deliverables and 52,920,000 shares were returned to us. In effect, the value of the purchase was reduced to 149,693,061 shares of our common stock with a fair value of $7,092,600 as of the date of the purchase.
On June 11, 2010, we completed an internal restructuring by transferring the desired assets of Radius to Intelligent Communication Enterprise Corporation and then selling the Radius-ED Limited corporate vehicle, together with assets and liabilities not conducive with our business, to an unrelated third party for a promissory note, due June 11, 2011, in the amount of $500,000.
On September 6, 2010, we incorporated ICE Messaging Pte. Limited in Singapore as a wholly owned subsidiary, through which we will carry on our non-Malaysian mobile-messaging operations.
On December 9, 2010, we completed a further internal restructuring by transferring the desired assets of Solesys S.A. to Intelligent Communication Enterprise Corporation and then sold the Solesys S.A. corporate vehicle, together with assets and liabilities not conducive with our business, to the former shareholders for the sum of $1.
We effected a 1-for-250 share reverse stock split on July 21, 2008, and the outstanding shares were reduced to 6,757,803.
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We effected a 1-for-600 share reverse stock split on October 20, 2009, and the outstanding shares were reduced to 521,519.
We effected a 3-for-1 share forward stock split on February 5, 2010, and the outstanding shares were increased to 92,375,841.
We effected a 7-for-1 share forward stock split on December 30, 2010, and the outstanding shares were increased to 640,023,118
References to “we” or “us” in this report include our subsidiaries.
Nature of Business
We operatehave two operational businesses and one business that is under development. iCEmms (mobile messaging) and iCEsync (synchronized mobile communities), which we call Modizo, are the two operational units, and iCEmat (mobile authentication), previously known as aPIV (personal identity verification), is the business that is undergoing further development.
Our global mobile-messaging companysolutions business operates under the names ICE Mobile and ICE Messaging using proprietary platforms operatedplatforms. These businesses serve large corporate customers, and marketing agencies, messaging solutions providers and aggregators by Radius.connecting their businesses to their mobile customer bases via our messaging platform. The products and services that we offer to our customers range from customer end applications to gateway services between our customers and mobile operators.
We offer “targeted” mobile-messaging services – textalso operate a global celebrity video blogging platform under the brand name Modizo that is built on our iCEsync platform. Modizo is the first video blogging service of its kind in Asia with over 250 celebrities using this platform to video blog on a regular basis. The celebrities produce their own video blogs using proprietary mobile applications provided by us. Video blogs are made available to the fans of the celebrities in the form of mini video clips that we call Modizodes. Fans pay a premium to receive and multimedia messages that provide our customers withwatch the abilityModizodes.
The PIV platform has undergone several changes and is being further developed under the name iCEmat by us. The system has been tested and proven in controlled environments and is being modified to make contact withit suitable for commercial applications. Once finalized, iCEmat will be a higher proportionmobile authentication platform that enables two-factor authentication for credit card, banking, and other secure transactions without the need for special and separate devices for password generation.
Three Divisions in One Integrated Business
We completed our internal restructuring during the year 2010, as a result of customers whowhich three business divisions were created. iCEmms, iCEsync, and iCEmat are likelydivisions within our company that focus on the messaging, Modizo, and mobile authentication businesses, respectively. Our subsidiaries, Radius-ED Ltd and Solesys S.A., were disposed of during the year; however, we continue to respondoffer messaging and mobile solutions through our iCEmms and iCEsync divisions.
iCEsync - Modizo
Modizo is a celebrity video blogging platform where celebrities produce their own unique, regular, and candid video blogs and post them on the Modizo platform for their fans to view. Celebrities make the received messages.video blogs using Modizo proprietary applications and fans access Modizo from their desktop computers or their mobile devices ranging from mobile phones to iPads.
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We will be providing ourModizo products and services fall under two generic categories – the primary video content products and the ancillary celebrity related products, making Modizo a market place for celebrity-related unique products just for the fans. The customers withof Modizo are the abilityfans of the celebrity. Users do not come to conduct transactions with their customers, using our PIV platformModizo to provide transactional security. We will also be providing location-based mobile communication services usingbecome a fan, they are usually already an ardent fan of the technologycelebrity they are looking for at Modizo. When they arrive at Modizo, they enter a portal for unique video content and other celebrity products that is being tested by Solesys at the time of this report.are not generally available elsewhere.
Our Three Componentscurrent focus is on developing the Modizo platform to its full potential. The system has undergone two significant technical upgrades since its inception and will go through one further round of enhancements prior to the release of the full commercial version. Modizo, once fully developed, will be a fully interactive network connecting celebrities and fans over the Internet and via mobile devices. The full commercial launch of Modizo is expected in May 2011.
MobiclearThe revenue model for the Modizo business is expected to include subscription revenue, one-off purchases of celebrity video blogs by the fans, and advertising revenue. Our agreements with the celebrities who have signed up with us for the Modizo platform entitle them to a share of the revenue generated from the sale of the video blogs created by them.
iCEmms
Our MobicleariCEmms division has developed electronicprovides mobile-messaging solutions using our own proprietary PIV solutions for usemessaging platforms with credit/debitconnectivity with global networks. Our operations are based in Singapore and Kuala Lumpur, Malaysia.
The messaging platform allows our customers to send short-message service (“SMS”) messages to selected mobile phones using the cellular phone networks.
iCEmms customers fall under two categories:
| (1) | messaging aggregator customers that collect multimedia messages from their corporate and wholesale customers and send them to us for processing and onward termination on the mobile networks worldwide to which we are connected; and |
| (2) | enterprise customers that are companies and individuals with the need to keep in contact with their customers, members, or other such groups via SMS. |
iCEmms products include the following:
· | customer participation such as contests, voting, surveys, content downloads (e.g., ringtone, wallpaper, etc.) (premium SMS); |
· | accessing the wireless web on the mobile (WAP); |
· | multimedia messaging service (MMS); |
· | strategic planning of enterprise customers’ mobile-marketing requirements; |
· | project coordination and implementation; and |
We work with cellular operators and mobile-messaging partners to fulfill our SMS and multimedia messaging delivery requirements.
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iCEmat
iCEmat (Intelligent Communications Enterprise Mobile Authentication Technology) uses any mobile phone (or traditional phone) as the second authentication factor. Users do not need to carry an additional device, and there are no expensive tokens to manage. During online purchase with a credit card, and internet log-in transactions. Our multiple-gateway solution offers proactive security in all forms of electronic business environments, including Internet shopping, business-to-business procurement transactions, and retail shopping with credit/debit cards.iCEmat makes a call to the cardholder’s phone, so that the cardholder can confirm the authentication by entering a personal identification number, or PIN.
We believe that our solutions represent a major inhibitor of electronic transaction fraud, specifically in the areas of:
· | credit card not present (i.e., as in the case of e-shopping); and |
In addition,We are continuing to refine our identification service ensures safe and secure trade overauthentication product to fully comply with the Internet, which in turn promotes both e-trade and invoice payment online.
This past year we have integrated the PIV system onto a platform that allows usvarious online security standards prior to operate the system using Voice over Internet Protocol (VoIP) - this permits our system to operate internationally using the lower cost Internet rather than traditional higher cost telephone circuitry.
Radius
Our Radius division provides mobile-marketing programs and solutions using our own proprietary messaging platforms with connectivity with global networks. Our operations are based in Kuala Lumpur, Malaysia, with a support group based in the Philippines.
The Radius platform allows our customers to send short message service (“SMS”) messages to selected mobile phones using the cellular phone networks.
Radius customers fall under two categories:
| (1) | messaging aggregator customers, who collect multimedia messages from their corporate and wholesale customers and send them to Radius for processing and onward termination on the mobile networks worldwide that Radius is connected to; and |
| (2) | enterprise customers, who are companies and individuals with the need to keep in contact with their customers, members, or other such groups via SMS. |
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Radius’s products to its messaging aggregator customers and enterprise customers include the following:
· | customer participation such as contests, voting, surveys, content downloads (e.g., ringtone, wallpaper, and so on) (premium SMS) |
· | accessing the wireless web on the mobile (WAP) |
· | Multimedia Messaging Service (MMS) |
· | strategic planning of enterprise customers’ mobile-marketing requirements |
· | project coordination and implementation |
Radius works with cellular operators and mobile-messaging partners to fulfill its SMS and Multimedia Messaging delivery requirements.
Solesys
Our Solesys division, based in Switzerland, also provides mobile-marketing programs and solutions.
Solesys has concentrated more on intellectual property development and has developed a “next-generation” platform that allows “location-based” messaging and is not dependent on cellular phone networksbeing released for delivery. This product, which we call “iCEsync,” will permit our customers to focus their marketing on specific customers (providing our customers a higher return for their marketing). The platform will also enable mobile phone users who download the iCEsync software to communicate with other iCEsync users outside of the traditional cellular phone network and create individual or community social networks. We currently anticipate that we will begin selling iCEsync before the end of the second quarter of this year.commercial use.
The Integrated Business
We have studiedare managed from our head office in Singapore and the mobile-marketing market and have identified location-based capabilities and security features as two main segments that could enhanceoperational offices in Malaysia. With the value proposition to mobile-marketing customers. Industry bodies, such assale of the Mobile Marketing Association, have highlighted location, relevancy, and immediacy asRadius subsidiary, the main focus of mobile-marketing businessesoffices in 2010.the Philippines were closed.
Our SolesysAlthough there are clear benefits to each business division from the other divisions in the company, they are operated with a significant degree of independence. The Modizo business is headed by its own General Manager, who is supported by a small group of internal operational staff and Mobiclear divisions will add these features to Radius’s mobile-marketing business. Solesys’s location-based features will provide enhanced targeting capabilityexternal software development contractors. The iCEmms business provides an SMS-based communications link to the mobile-marketing customers. With added location-targeting capabilities, the mobile-marketing products are expected to become more appealing to corporate customersfans of Modizo and to users receiving the messages.is a distribution channel for premium video content.
Mobiclear usesThe messaging business has continued to evolve from the mobile platformbulk SMS, which contributed the majority of revenues in previous years, to authenticate transactions. With Radiuspremium SMS and Solesys enhancing the mobile platform operated by Radius,enterprise messaging solutions, and we expectbelieve this transformation will continue. The operational team has been organized to be able to provide added functionality to Mobiclear, including SMS-based authentication, and thereby extend Mobiclear’s appeal to customers other than credit card issuing companies.accommodate this evolution in business.
We intendbelieve that the current structure adequately leverages capabilities of each of our three divisions for the benefit of the others, while providing sufficient independence for each of these divisions to integrate all three companies with the central theme of a single mobile platformcontinue to support messaging, location-based services, and transaction security and offer it to the mobile-enabled customer base.develop in its own right.
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Intellectual Property
We were granted the trademark rights for the name “mobiclear” in the United States in 2007, in Hong Kong and the European community in 2008, and in the Philippines in 2009.
Due to financial constraints, our previously filed patent applications for the PIV products have lapsed. We are continuing to develop and improve the PIV products and systems and it is our intent to reapply for the new processes in the future.
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Our Radius groupiCEmms division has developed its own proprietary technology both to receive data from customers and distribute it to the designated markets using the most effective routing. We also have developed our own proprietary billings and costing module, which enables us to track and bill all components of our customers’ marketing campaigns. We have not patented any of this technology.
Our SolesysiCEsync division has developed a next-generation, location-based marketing platform that will communicate with end-users by wi-fi,Wi-Fi, Bluetooth, and traditional cellular networks. In addition to this, there is the Modizo platform, which is largely an internally developed mobile video capture, collection, rating, and distribution platform that we have not patented. This platform continues to be developed for access via desktop computers and mobile devices with internally developed intellectual property.
Our technology management strategy includes a combination of patent application, trademark, copyright, and reliance on trade secrets.
Competition
The market for information technology services and products is intensely competitive and highly fragmented, with minimal barriers to entry. We expect competition to continue to increase in the future, and there can be no assurance that we will be able to compete effectively with current or future competitors or that the competitive pressures we face will not have a material adverse effect on our business, financial condition, and operating results.
Potential competitors may have substantially greater research and product development capabilities and financial, technical, marketing, and human resources than we have. As a result, these competitors may:
· | succeed in developing products that are equal to or superior to our products or that achieve greater market acceptance than our products; |
· | devote greater resources to developing, marketing, or selling their products; |
· | respond more quickly to new or emerging technologies or technical advances and changes in customer requirements, which could render our technologies or products obsolete; |
· | introduce products that make the continued development of our current and future products uneconomical; |
· | obtain patents that block or otherwise inhibit our ability to develop and commercialize our products; |
· | withstand price competition more successfully than we can; |
· | establish cooperative relationships among themselves or with third parties that enhance their ability to address the needs of our prospective customers; and |
· | take advantage of acquisition or other opportunities more readily than we can. |
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In our industry, we believe competition is based principally on providing resourceful creative solutions at competitive prices with quick, responsive service. We cannot assure that our efforts to compete will be successful.
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Many of the larger technology businesses in the mobile equipment sector as well as the mobile services sector of the market are actively pursuing social networking and location-based services similar to that offered by iCEsync. Competing product offerings are expected from social media platform operators, mobile equipment manufacturers, and mobile Internet service providers—many of them large and long established.well-established. While iCEsync will have its own differentiating features, the established global brands in the mobile industry may succeed in developing products that are equal to or superior to our products simply by virtue of their establishedrecognized global presence and hence achieve greater market acceptance than our products.
Research and Development and Software Products
iCEsync will build on the Modizo platform to rollout video distribution, social networking, and location-based services globally. The Radius businessdevelopment work for Modizo and the rest of the iCEsync platform will be integrated with bothuse a combination of internal developers and external contractors. We will, however, maintain a development team internally to manage the Mobiclearcore systems and Solesys platforms and will be able to offer to clients the ability to deliver marketing campaigns to Radius’s large database of international mobile phones.applications.
After the launchingIn order for iCEmms to evolve into a fully rounded mobile-messaging solutions business, it will require ongoing research and development of messaging-based customer applications. Our internal development team comprises more than 15% of our iCEsync application, Solesys will becomeworkforce, and this is expected to remain the sole developersame for the duration of products and systems for both mobile-marketing and transaction-security products. Solesys’s development team will be complemented by the developers available at Radius to form one integrated development team focused on enhancing the system efficiencies and rolling out new products to keep pace with market developments.this fiscal year.
Employees
Through the year ended December 31, 2009,2010, we had 3633 full-time and two part-time employees.
ITEM 1A. RISK FACTORS
Risk Factors Related to Our Finances
Our independent registered public accountants have issued an audit opinion that includes a going concern uncertainty.
At December 31, 2009,2010, and for the fiscal year then ended, as in previous years, we had a net loss and negative working capital, which raises substantial doubt about our ability to continue as a going concern and caused our independent registered public accountantsauditors to include an explanatory paragraph in their report on our financial statements with respect to that uncertainty. For the fiscal year ended December 31, 2009,2010, we had revenues of $9.7approximately $8.9 million. We are currently insolvent, and we are in arrears on our current accounts. Our ability to continue operations will depend on positive cash flow from future operationsthe continued successful implementation of management’s initiatives to: (i) minimize cost of sales; (ii) improve margins of the main revenue-generating operation, the mobile-messaging business; (iii) improve message-routing arrangements to increase margins; (iv) restructure administration to reduce costs; and on(v) operate our ability to raise additional funds through equity or debt financing.Modizo site. If we are unable to raise or obtain needed funding, we may be forced to discontinue operations.
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Our current liabilities continue to increase,are significant, and if those to whom we owe accounts and notes payable were to demand payment, we would be unable to pay.
At December 31, 2009,2010, we had total current liabilities of approximately $6.2$3.5 million, including accounts payable at approximately $2.3$1.5 million and accrued expenses of approximately $1.2 million, and convertible notes payable of approximately $1.8 million (not including debt discounts).$756,000. As of the same date, we had non-restricted cash of only $620,000.$187,000. If those to whom these payments are due were to demand immediate payment, as they are entitled to do, we would not be unableable to make the required payments and would be subject to liability if our creditors chose to enforce their rights, which could result in our bankruptcy and liquidation, at worst. Under such a scenario, our assets would be distributed to our creditors leaving nothing to be distributed to our stockholders.
We currently have no significant operating capital and will need to raise additional capital to implement our business plan.
We presently have no significant operating capital. We believe that we will need to raise approximately $2.0 million to be able to meet our preliminary targets by the end of fiscal year 2010.2011. We have no commitments for that funding, and we cannot provide any assurance that we will raise any meaningful amount of capital. We will need to seek additional financing from the sale of equity or from commercial lenders or other sources, for which we have no commitments or arrangements, or we will be required to delay the implementation of our business plan.
Our management has identified significant internal control deficiencies, which management and our independent registered public accountants believe constitute material weaknesses.
In connection with the preparation of our financial statements for the year ended December 31, 2009,2010, certain significant internal control deficiencies became evident to management that, in the aggregate, represent material weaknesses, including:
· | lack of independent directors on our audit committee; |
· | insufficient segregation of duties in our finance and accounting function due to limited personnel; |
· | insufficient corporate governance policies; and |
· | accounting for technical matters. |
As part of the communications by our independent registered public accountants with our audit committee with respect to audit procedures for the year ended December 31, 2009,2010, our independent registered public accountants informed the audit committee that these deficiencies constituted material weaknesses, as defined by Auditing Standard No. 5, “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements and Related Independence Rule and Conforming Amendments,” established by the Public Company Accounting Oversight Board. We cannot be certain that we will have the necessary financing to address these deficiencies or that we will be able to attract qualified individuals to serve on our board. Our failure to successfully remediate these issues could lead to heightened risk for financial reporting mistakes and irregularities and a further loss of public confidence in our internal controls that could harm the market price of our common stock.
7During the 2011 fiscal year, management will undertake appropriate and reasonable steps to make the necessary improvements to implement changes to remediate the deficiencies, including attracting independent directors and reorganizing our corporate governance policies and processes.
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Risk Factors Related to Our Operations
We operate in an intensely competitive market and our efforts to compete may not be successful.
The PIV credit/debit card security marketModizo, our latest brand, is highly competitive with several companies employingclassified under the broader category of social network based applications. There are other larger, more established social networks that may choose to enter the celebrity video blogging market. This is a variety of different solutions to minimize the risk of card fraud. Competing security solutionsthreat that affects any new web-based platform or application as they can be divided into two groups:
· | direct competitors providing wireless identity verification solutions; and |
· | indirect competitors providing authorization or identity verification solutions for credit card use. |
copied. We believe that the only way to protect Modizo from anyone establishing a competing business is by securing the content. Modizo has over 250 celebrities in its video blogging platform and is continuing to add more every month.
The mobile-marketingMarketing a mobile business is also highly competitive with several companies providing similar solutions to those currently deployed by our RadiusICE Messaging division. Many competitors are larger and have substantial budgets for marketing and promoting their businesses.
In additionbusinesses and competition has caused us to increase our business focus on the large companies specializing in security solutionsAsian markets where we have been able to maintain better margins. ICE Messaging remains vigilant to this threat and mobile-marketing services, there are also other new entrants into the markets with different technology solutionswill make certain key strategic decisions to address credit card securityprotect and mobile marketing. If our efforts to compete are unsuccessful, our financial condition and results of operations could be materially adversely affected.grow its business during 2011.
We have sales activity and operations outside of the United States that subject us to the risks associated with conducting business in foreign economic and regulatory environments.
Our financial condition could be adversely affected by unfavorable economic conditions in foreign countries where we have operations and by changes in the foreign currency exchange rates affecting those countries. We are actively pursuing potential customers in Europe and the Asia Pacific region and any political instability or instability in worldwide economic environments could adversely impact our ability to generate revenue.
We may not succeed if we are unable to attract employees and retain the services of our key personnel.
Our performance is substantially dependent on retaining current management and key personnel and on recruiting and hiring additional management and key personnel. In particular, as we continue adapting our new technology to commercial applications and continue to be active as a public company, we will rely on the expertise of our executive officers, or ifofficers. If we are unable to hire suitable sales, marketing, and operational personnel, we may not be able to successfully develop, improve, market, and sell products based on this newour technology. We have not obtained key-man life insurance on our officers or directors. Competition for individuals with the qualifications that we require is intense, and we may not be able to attract, assimilate, or retain these highly qualified people. The failure to attract, integrate, motivate, and retain these employees could harm our business.
If we are unable to protect our intellectual property, we may lose a valuable asset or incur costly litigation to protect our rights.
Our success will depend, in part, upon our intellectual property rights. Litigation to enforce intellectual property rights or to protect trade secrets could result in substantial costs and may not be successful. Any inability to protect intellectual property rights could seriously harm our business, operating results, and financial condition. In addition, the laws of certain foreign countries may not protect intellectual property rights to the same extent as do the laws of the United States. Our means of protecting our intellectual property rights in the United States or abroad may not be adequate to fully protect those intellectual property rights.
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Claims that we infringe upon the intellectual property rights of others could be costly to defend or settle.
Litigation regarding intellectual property rights is common. We expect that software and security technologies and services may be increasingly subject to third-party infringement claims as the number of competitors in our industry segment grows and the functionality of products and services in different industry segments overlaps. We may, from time to time, encounter disputes over rights and obligations concerning intellectual property. Although we believe that our intellectual property rights will be sufficient to allow us to market products and services without incurring third-party liability, third parties may bring claims of infringement against us. Any litigation to defend against claims of infringement or invalidity, whether or not meritorious, could result in substantial costs and diversion of resources. Furthermore, a party making a claim could secure a judgment that would require us to pay substantial damages. A judgment could also include an injunction or other court order that could prevent us from selling products or services. Our business, operating results, and financial condition could be harmed if any of these events occurred.
If we become subject to service-related liability claims, they could be time-consuming and costly to defend.9
Because our customers will use our products and services to reduce their exposure to fraud and resulting financial losses, any errors, defects, or other performance problems could result in financial or other damages to our customers. They could seek damages for losses from us, which, if successful, could have a material adverse effect on our business, operating results, or financial condition. Although we intend for our agreements with customers to contain provisions designed to limit exposure to service-related liability claims, existing or future laws or unfavorable judicial decisions could negate these limitations of liability provisions. A service-related liability claim brought against us, even if unsuccessful, could be time-consuming, costly to defend, and harm our reputation.
We work with confidential customer data and, as such, our business could be damaged and we could potentially be exposed to liability in the event that we experienced a breach in our security.
We handle confidential and sensitive customer data. We cannot guarantee that the measures we take will be sufficient to protect that data and any breach in security would expose us to liability.
It may be difficult for our stockholders to enforce any civil liabilities against us or our officers or directors because many of our officers and substantially all of our operations are currently outside the United States.
Many of our assets are located outside the United States, a majority of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons’ assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against us or our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state.
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Risk Factors Related to Our Stock
Our common stock may be affected by limited trading volume and may fluctuate significantly, which may affect our shareholders’stockholders’ ability to sell shares of our common stock.
There can be no assurance that a more active trading market for our common stock will develop. An absence of an active trading market could adversely affect our shareholders’stockholders’ ability to sell our common stock in short time periods or possibly at all. Our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations, which could adversely affect the market price of our common stock without regard to our operating performance. These fluctuations may also cause short sellers to enter the market from time to time in the belief that we will have poor results in the future. We cannot predict the actions of market participants and, therefore, can offer no assurances that the market for our stock will be stable or appreciate over time. These factors may negatively impact shareholders’our stockholders’ ability to sell shares of our common stock.
Our common stock may be affected by issuances of common stock in connection with any financing.
We need to raise capital in order to continue our operations. We may seek required funds through the sale of equity or other securities. Our ability to complete an offering on acceptable terms will depend on many factors, including the condition of the securities markets generally and for companies such as our company at the time of such offering; the business, financial condition, and prospects at the time of the proposed offering; our ability to identify and reach a satisfactory arrangement with prospective underwriters; and various other factors, many of which are outside our control. There can be no assurance that we will be able to complete an offering on terms favorable to us or at all. The issuance of additional equity securities may dilute the interest of our existing shareholdersstockholders or may subordinate their rights to the superior rights of new investors.
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Our common stock is deemed to be “penny stock,” which may make it more difficult for investors to sell their shares due to suitability requirements.
Our common stock is deemed to be “penny stock” as that term is defined in Rule 3a51-1 promulgated under the Exchange Act. Accordingly, there are certain suitability requirements that may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
We do not currently own any real property. We have ourOur office is located at 13 Spottiswoode Park Road, Singapore 088640, the office of our affiliate, Whitefields Capital Limited, for which we are charged $3,000 per month.
10 We currently do not have a lease agreement for this property.
Our subsidiary, Radius, leases two joinedWe lease office spacesspace located at Suite 3B-20-3, Level 20, Block 3B, Plaza Sentral, Jalan Stetson Sentral 5, 50470 Kuala Lumpur, Malaysia, at a combined monthly cost of $7,112$5,037 under two separate leasesa lease that expireexpires in January and October 2011 and Unit 1603 Prestige Tower, F. Ortigas Jr. Road, Ortigas Center, Pasig City, Metro Manila, Philippines 1605, at a monthly cost of $1,110 under lease until May 2010.2011.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings and no material legal proceedings have been threatened by us or, to the best of our knowledge, against us.
ITEM 4. RESERVED
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is quoted on the OTC Bulletin Board under the symbol ICMC.
The following table sets forth the high and low closing sales prices for our common stock for each quarterly period in 20082009 and 2009,2010, as well as 20102011 to date. These prices were reported by Nasdaq on its website, www.nasdaq.com:
| Low | | High | Low | | High |
Fiscal year ending December 31, 2010: | | | | |
Quarter ending June 30, 2010 (through April 9) | $0.25 | | $0.51 | |
Quarter ended March 31, 2010 | 0.01 | | 1.20 | |
| | | | |
Fiscal year ending December 31, 2011: | | | | |
Quarter ending June 30 (through April 13) | | $0.035 | | $0.06 |
Quarter ended March 31 | | 0.031 | | 0.11 |
| | | | |
Fiscal year ended December 31, 2010: | | | | |
Quarter ended December 31 | | 0.01 | | 0.54 |
Quarter ended September 30 | | 0.20 | | 0.54 |
Quarter ended June 30 | | 0.15 | | 0.60 |
Quarter ended March 31 | | 0.15 | | 1.40 |
| | | | | | |
Fiscal year ended December 31, 2009: | | | | | | |
Quarter ended December 31 | 0.05 | | 0.97 | 0.778 | | 2.00 |
Quarter ended September 30 | 0.30 | | 2.00 | 0.778 | | 5.99 |
Quarter ended June 30 | 0.60 | | 0.90 | 1.497 | | 2.695 |
Quarter ended March 31 | 0.80 | | 2.80 | 2.995 | | 10.778 |
| | | | |
Fiscal year ended December 31, 2008: | | | | |
Quarter ended December 31 | 1.60 | | 10.00 | |
Quarter ended September 30 | 6.00 | | 26.00 | |
Quarter ended June 30 | 26.00 | | 100.00 | |
Quarter ended March 31 | 80.00 | | 600.00 | |
As of April 9, 2010,13, 2011, we had approximately 6,826 shareholders6,822 stockholders of record.
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Dividend Policy
The payment of cash dividends by us is within the discretion of our board of directors and depends in part upon our earnings levels, capital requirements, financial condition, any restrictive loan covenants, and other factors our board considers relevant. Since our inception, we have not declared or paid any dividends on our common stock and we do not anticipate paying such dividends in the foreseeable future. We intend to retain earnings, if any, to finance our operations and expansion.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our financial statements and notes thereto included elsewhere in this report.
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Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Our significant accounting policies are described in notes accompanying the consolidated financial statements. The preparation of the consolidated financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. Estimates are based on information available as of the date of the financial statements, and accordingly, actual results in future periods could differ from these estimates. Significant judgments and estimates used in the preparation of the consolidated financial statements apply critical accounting policies described in the notes to our consolidated financial statements.
We consider our recognition of revenues, costs of revenues, accounting for the consolidation of operations, conversion of debt to equity, valuation of assets and liabilities in business combination transactions, and the accounting for stock-based compensation and equity, and the accounting for acquisitions to be most critical in understanding the judgments that are involved in the preparation of our consolidated financial statements.
Plan of Operation
Our continued operationongoing business continues to be dependent on funds from operations providing the majority of funds,funds; however, we will also be required to raise sufficient funds through the sources available to us, primarily issuance of stock through private placement, or facilities in place with affiliated companies to fully cover our expected cash flow needs.
We continue to sign contracts with customers and expand our business; and we generated $9,659,000$8,935,000 in total revenue during 2009.2010. However, management estimates that we will still need to raise approximately $2.0 million throughout 20102011 to pay our creditors and to enable us to develop and properly launch our new products. We anticipate that approximately $1.0 million of this will be used to pay off existing accounts payable, accrued expenses, notes payable and shareholderstockholder advances.
In addition, management plans to make the Company profitable and increase liquidity by: (i) minimizing cost of sales; (ii) improving margins of the main revenue-generating operation, the mobile-messaging business; (iii) replacing loss-creating carrier partners with new, more profitable carrier partners with improved message-routing arrangements to increase margins; and (iv) restructuring administration to reduce costs.
Acquisition; Internal Restructuring
During 2010, we acquired all of the shares of Solesys, S.A. through the issuance of 202,613,061 post-split shares of common stock, with a fair value of $9.6 million. The primary assets of Solesys were intangible assets represented by two completed software products, which broadened our technology solutions, which had a fair value of $7 million at the date of acquisition, and a number of incomplete products, valued at $2.6 million at the acquisition. There was an agreement whereby the vendors of Solesys would assist in completing their development. Subsequent to the acquisition and following the post-acquisition measurement period as provided by the accounting standards relative to acquisition accounting, we, together with the former shareholders of Solesys, determined that further development of the incomplete software products would not be completed and agreement was reached whereby the former shareholders would return 52,920,000 post-split-shares of the purchase price. The fair value of the shares returned to us was $3,089,520 as of the effective date of the return, which amount has been recorded as a gain consistent with accounting standards relative to acquisition accounting.
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In December 2010, we completed an internal restructuring by transferring the two acquired software products from Solesys to the parent company, and the Solesys corporate vehicle, including all its remaining assets and liabilities, was sold back to the original shareholders for a nominal amount of $1. The sale of Solesys resulted in an immaterial gain.
During the year ended December 31, 2010, we undertook an internal restructuring of our iCEmms operations and restructuring of certain tangible and intangible assets. This restructuring was undertaken to reduce operational and reseller costs. Following this internal restructuring, effective June 11, 2010, we sold 100% of the shares of Radius-ED Limited and Radius-ED Inc. to a third party in exchange for a note receivable of $500,000. Assets remaining in the entities sold consisted of a processing license and a portion of our customer list and supplier relationships. Liabilities remaining in the entities sold consisted of accounts payable and accrued expenses of $1,097,149. This sale did not result in a material gain or loss.
Results of Operations
With the acquisition of Radius and its subsidiary companies in 2009, weOur operating entities are no longer considered a development-stage enterprise effective as of January 1, 2009. The Radius group is operationally self-sufficient; however, we will require funds to increase and diversify itsour business. We will continue to rely on funds raised through the sale of our common stock or other third-party facilities available to us. As of December 31, 2009,2010, we were in immediate need of equity or debt financing in order to continueexpand operations and execute our business plans. There can be no assurance that we will raise the required funds.
We had a net loss for the year ended December 31, 2009,2010, of approximately $3.7$6.8 million, as compared to a net loss for the year ended December 31, 2008,2009, of approximately $2.8$3.7 million. The increased loss for the year ended December 31, 2009,2010, is primarily attributable to the consolidation of the results of Radius with thoseincreased marketing of our Mobiclear division.businesses, amortization and impairment of intangible assets, and development of our iCEsync business, including the launching of Modizo.com.
During the year ended December 31, 2009,2010, we incurred general and administrative costs of approximately $5.3$8.3 million, as compared to approximately $2.4$5.3 million for 2008.2009. The increase relates primarily to the consolidationadditional expenditures to market our businesses, increased amortization, as well as developing of the newly acquired Radius division.iCEsync.
Segmented Information
Since the acquisitionWe operate on a global platform and as such have structured our operations in three lines of Radius, and the inclusion of operating results effective from January 1, 2009, we have been operating in two segments,business, each encompassing global business: (1) corporate and PIViCEmms (mobile-messaging services); (2) iCEsync (multimedia solutions to mobile communities); and mobile messaging. Results of operations(3) iCEmat (mobile-authentication technologies). Our summary financial information by segment arefor the years ended December 31, 2010 and 2009, as taken from the internal management reports, is as follows:
| | Year Ended December 31, 2009 | | | Year Ended December 31, 2008 |
Revenue | | | | | |
Corporate and PIV | $ | -- | | $ | 2,500 |
Mobile messaging | | 9,659,154 | | | -- |
| $ | 9,659,154 | | $ | 2,500 |
Loss | | | | | |
Corporate and PIV | $ | (1,488,443) | | $ | (2,835,748) |
Mobile messaging | | (2,217,682) | | | -- |
| $ | (3,706,125) | | $ | (2,835,748) |
| Year Ended December 31, 2010 | | Year Ended December 31, 2009 |
Revenue | | | | | |
iCEmat | $ | - | | $ | - |
iCEmms | | 8,855,053 | | | 9,659,154 |
iCEsync | | 80,267 | | | - |
| $ | 8,935,320 | | $ | 9,659,154 |
Loss | | | | | |
iCEmat | $ | (20,215) | | $ | (1,488,443) |
iCEmms | | (3,527,342) | | | (2,217,682) |
iCEsync | | (3,234,565) | | | - |
| $ | (6,782,122) | | $ | (3,706,125) |
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| Year Ended December 31, 2010 | | Year Ended December 31, 2009 |
Assets | | | | | |
iCEmat | $ | 502,500 | | $ | 5,478 |
iCEmms | | 2,523,384 | | | 5,584,141 |
iCEsync | | 3,499,999 | | | - |
| $ | 6,525,883 | | $ | 5,589,619 |
iCEmms revenue consists of revenues from providing messaging aggregator and enterprise customers mobile-messaging solutions using our proprietary messaging platforms.
Revenues are attributed to geographical region based on location of customer.
| Year Ended December 31 | | Long-lived Assets |
| 2010 | | 2009 | | 2010 | | 2009 |
Revenues | | | | | | | | | | | |
Asia | $ | 6,152,354 | | $ | 3,998,890 | | $ | 4,336,854 | | $ | 2,821,993 |
Europe | | 2,782,966 | | | 5,660,264 | | | - | | | - |
All other regions | | - | | | - | | | - | | | - |
| $ | 8,935,320 | | $ | 9,659,154 | | $ | 4,336,854 | | $ | 2,821,993 |
During 2010, we concentrated more on the Asian markets where we could maintain better profit margins on our services.
Liquidity and Capital Resources
During the fiscal year ended December 31, 2010, we used cash of approximately $1,021,000 for operating activities, while investing activities provided approximately $121,000 and financing activities approximately $558,000 in cash. During the fiscal year ended December 31, 2009, we used cash of approximately $790,000 for operating activities and generated approximately $478,000 from investing activities, while financing activities provided approximately $940,000 in cash. During the fiscal year ended December 31, 2008, we used cash of approximately $1.0 million for operating activities and $227 for investing activities, while financing activities provided net cash of approximately $1.1 million.$940,000.
Although we are generating significant revenues, we still have substantial ongoing losses and we do not have enough cash to satisfy our cash requirements. In their report on our audited consolidated financial statements for the fiscal year ended December 31, 2009,2010, as in previous years, our independent registered accountants stated that conditions exist that raise substantial doubt as to our ability to continue as a going concern.
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Our working capital deficit at December 31, 2009,2010, was approximately $3.5$1.3 million, as compared to a deficit of approximately $1.4$3.5 million at December 31, 2008.2009. At December 31, 2009,2010, we had an accumulated deficit of approximately $22.7 million and stockholders’ equity of approximately $3.0 million, as compared to an accumulated deficit of approximately $16.0 million and total stockholders’ deficiency of approximately $660,000 as compared to an accumulated deficit of approximately $12.2 million and total stockholders’ deficiency of approximately $1.4 million at December 31, 2008.2009.
Based on our current level of expenditures, we estimate that cash of approximately $500,000 per quarter will be required to fund operations through December 31, 2010.2011. Actual expenditures will depend both on the level of expenditures and the availability of funds.
15
We intend to rely on the sales of our products and services, as well as on the sale of securities and loans from stockholders and others, to meet our cash requirements. We may seek to sell common or preferred stock in private placements. We have no commitments from anyone to purchase our common or preferred stock or to loan funds. There is no assurance that we will be able to raise additional funds or to do so at a cost that will be economically viable.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements.arrangements except for the use of operating leases for office space.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements, including the independent registered public accounting firm’s report on our consolidated financial statements, are included beginning at page F-1 immediately following the signature page of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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ITEM 9A(T).9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Annual Report, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our current chief executive officer and chief financial officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of December 31, 2009,2010, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of December 31, 2009,2010, our disclosure controls and procedures were not effective.
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Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Our internal control over financial reporting is a process designed under the supervision of our Certifying Officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Management, under the supervision and with the participation of our Certifying Officers, evaluated the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control--Integrated Framework.
Based on our evaluation and the material weaknesses described below, management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2009.2010. This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report on Form 10-K.
Material Weaknesses Identified
In connection with the preparation of our financial statements for the year ended December 31, 2009,2010, certain significant deficiencies in internal control became evident to management that, in the aggregate, represent material weaknesses, including:
(i) Lack of anysufficient independent directors for our board andto form an audit committee. We currently have notwo independent directordirectors on our board, which is comprised of two directors.four directors, but require a third independent director with the required financial expertise in order to from an audit committee. Although there is no requirement that we have any independent directors,an audit committee, we intend to have a majority of independent directors as soon as we are reasonably able to do so.
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(ii) Insufficient segregation of duties in our finance and accounting functions due to limited personnel. During the year ended December 31, 2009, we had one person on staff who performed nearly all aspects of our financial reporting process, including access to the underlying accounting records and systems, the ability to post and record journal entries, and responsibility for the preparation of the financial statements. This creates certain incompatible duties and a lack of review over the financial reporting process that would likely result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the Securities and Exchange Commission. These control deficiencies could result in a material misstatement to our interim or annual consolidated financial statements that would not be prevented or detected.
(iii)(ii) Insufficient corporate governance policies. Although we have a code of ethics that provides broad guidelines for corporate governance, our corporate governance activities and processes are not always formally documented. Specifically, decisions made by the board to be carried out by management should be documented and communicated on a timely basis to reduce the likelihood of any misunderstandings regarding key decisions affecting our operations and management.
(iv)(iii) Accounting for Technical Matters. Our current accounting personnel perform adequately in the basic accounting and recordkeeping function. However, our operations and business practices include complex technical accounting issues that are outside the routine basic functions. The complex areas in 2009 included2010 included: (a) the acquisition of businesses from a common controllingrelated entity with the common controllingrelated entity paying for its original purchase by the allocation of our shares whichand the subsequent adjustment to the purchase included other provisions adding accounting complexities.price due to the nondelivery of certain components followed by the transfer of the intellectual property within our corporate group and the disposal of the corporate vehicle; and (b) an internal reorganization of another subsidiary to move essential business assets and liabilities within our corporate group and the disposal of the corporate vehicle. These technical accounting issues are complex and require significant expertise to ensure that the accounting and reporting are accurate and in accordance with generally accepted accounting principles. This is especially important for periodic interim reporting that is not subject to audit.
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As part of the communications by our independent registered public accountants, Peterson Sullivan, LLP (“Peterson Sullivan”), with our audit committee with respect to Peterson Sullivan’s audit procedures for fiscal 2009,2010, Peterson Sullivan informed the audit committee that these deficiencies constituted material weaknesses, as defined by Auditing Standard No. 5, “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements and Related Independence Rule and Conforming Amendments,” established by the Public Company Accounting Oversight Board.
Plan for Remediation of Material Weaknesses
We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies. We intend to consider the results of our remediation efforts and related testing as part of our year-end 20102011 assessment of the effectiveness of our internal control over financial reporting.
We have implemented certain remediation measures and are in the process of designing and implementing additional remediation measures for the material weaknesses described in this Annual Report on Form 10-K. Such remediation activities include the following:recruiting one or more independent board members to join our board of directors in due course. Such recruitment will include at least one person who qualifies as an audit committee financial expert to join as an independent board member and as an audit committee member.
· | We plan to recruit one or more independent board members to join our board of directors in due course. Such recruitment will include at least one person that qualifies as an audit committee financial expert to join as an independent board member and as an audit committee member. |
· | We plan to recruit additional employees within the accounting functions when resources permit. |
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In addition to the foregoing remediation efforts, we will continue to update the documentation of our internal control processes, including formal risk assessment of our financial reporting processes.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2009,2010, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
During 2010, all of our financial reporting and accounting activities were combined with the finance and accounting department of the Radius-ED group of companies acquired in November 2009. With additional accounting staff and a restructuring of incompatible duties and the implementation of certain mitigating controls, we believe we now have better segregation of duties in our finance and accounting functions.
ITEM 9B. OTHER INFORMATION
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Name | | Age | | Title | | Tenure |
| | | | | | |
Luther L. Jao | | 44 | | President, Director,
Chief Executive Officer
| | 09/14/09 to date |
Bala Balamurali | | 4445 | | President, Director, Chief Executive Officer | | 11/17/09 to date |
Kenneth G.C. TelfordViji Rajasundram | | 6051 | | Director | | 1/17/11 to date |
Nelson Wu | | 36 | | Director | | 4/24/10 to date |
Michael Hosking | | 52 | | Director | | 5/12/10 to date |
Sarocha Hatthasakul | | 29 | | Chief Financial Officer, Secretary | | 03/18/085/25/10 to date |
Luther L. Jao
On September 14, 2009, Luther L. Jao agreed to be a member of our board of directors and our President and Chief Executive Officer. Mr. Jao served since 2007 as the managing director of Whistler Technology Services, which provides local support for the trading system of the Philippine Dealing and Exchange Corporation and operates a data center providing proxy services for a U.S. client. He also has served since 2007 as the President of Credit24 Finance Company Inc., a consumer micro-credit provider, and as a non-executive director for Cranium e-solutions Inc., which provides services such as transcription and data conversion in the medical, legal, entertainment, and financial industries. From 1999 through 2007, Mr. Jao served as a managing director of Computershare Technology Services Philippines Inc., which provided front-end trading systems to equity brokers in the Philippine Stock Exchange. Mr. Jao has a Bachelor of Commerce and Business Administration from the University of British Columbia in Vancouver. The board believes Mr. Jao should serve as a director because he is knowledgeable in the development, implementation, and sales of technology, including experience in operating his own technology companies.
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Bala Balamurali
On November 17, 2009, Bala Balamurali was appointed as a member to our board of directors. During 2010, he served as the General Manager of our ICEmms division and on December 31, 2010, he was appointed our Chief Executive Officer. Mr. Balamurali has beenwas also a director of Whitefields Capital Limited sincefrom July 2009.2009 through April 2010. He served as the acting Chief Executive Officer and business development adviser of Radius–ED Limited from October 2008 to June 2009. From February 2007 to October 2008, he served as the Managing Director of SmartConnect Global Pte Ltd., a subsidiary of Smart Communications Inc., a Philippines corporation. At SmartConnect, he established Smart’s presence in Singapore and facilitated Smart’s entrance into the GSM communications and satellite broadband markets. From August 2001 to January 2007, he was the Chief Marketing Officer and Senior Vice President of ACeS International Limited, where he was responsible for market entry into complex markets such as China and facilitated the strategic partnership between ACeS and Inmarsat. He holds a Master of Business Administration from Henley Business School and is also a chartered management accountant (ACMA). The board believes Mr. Balamurali should serve as a director because he is knowledgeable in the telco/short-messaging business and previously provided consultant services to our Radius division.
Kenneth TelfordSarocha Hatthasakul
On March 18, 2008, Kenneth G.C. Telford wasMay 25, 2010, our board of directors appointed Sarocha Hatthasakul as our Chief Financial Officer. Ms. Hatthasakul worked at Aberdeen Asset Management based in Singapore from January 2008 to February 2010, where her scope of responsibilities included Counterparty Risk Management and Credit Risk Management. Prior to this, from December 2004 through July 2006, Ms. Hatthasakul served as an Investment Banker for SICCO Advisory Ltd. in Bangkok, where she secured and successful completed IPO, PO, M&A and valuation deals. At this time, she was also a co-founder of Datadream Company Limited, a mobile phone multimedia developing company. Ms. Hatthasakul graduated in 2004 from Asian University of Science and Technology, Thailand, with a Bachelor of Business Administration, major in Finance and Banking. She received her M.Sc. (Econ) in Computational Finance in 2008 from Hanken Svenska Handelshögskolan (HANKEN), Finland.
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Nelson Wu
On April 21, 2010, our board of directors appointed Nelson Wu as a director. Mr. TelfordWu is bothcurrently General Manager – Business Development at Singapore based, Hin Leong Trading Pte Ltd, a Chartered Accountant (Canada)major oil trading company. Prior to joining Hin Leong, Mr. Wu was with Singapore based CapitaLand Group of Companies since early 2004, first in business development at Raffles Holdings and Certified Public Accountant (USA).later with the corporate planning portfolio at CapitaLand headquarters. During his time at CapitaLand, he was responsible for business planning, performance management, and competitive intelligence, together with providing assistance to the President and Chief Executive Officer on strategic matters. He was also responsible for incubating new business areas for strategic growth. Prior to joining CapitaLand, Mr. TelfordWu worked with the Government of Singapore, first with the Ministry of Law and then, its subsidiary, Statutory Board, Singapore Land Authority. Mr. Wu graduated from the University of Reading and holds an MSc in Real Estate Finance & Economics. He also holds a degree in Construction Management from Heriot-Watt University in Edinburgh. Mr. Wu is a foundermember of several civic and social organisations in Singapore. He was endorsed by the Ministry of Community, Youth & Sports and has been the President for Singapore Baseball & Softball Association since April 2008. His experiences in business planning and strategic planning will be of substantial value to us.
Michael Hosking
On May 12, 2010, our board of directors appointed Michael Hosking as a directordirector. Mr. Hosking is co-founder and Managing Director of Energy Source Technologies, Inc.Midas Promotions Pte Ltd, a leading promoter of international artists in countries from the Middle East to Asia Pacific. Mr. Hosking has been instrumental in hosting the A-Z of artists, from Avril Lavigne to Westlife, and a roll of unsurpassed performers, including Michael Jackson, Beyoncé, and Black Eyed Peas. One of Mr. Hosking’s recent successes is the launch of the music festival Singfest in 2007, which has since May 2007.become a well-known brand and a popular music event in Southeast Asia. Mr. Telford served as Chief Financial Officer, Secretary, and director of Essential Innovations Technology Corp., a publicly traded company, from January 2003 to September 2007, and as the Chief Financial Officer and Secretary for Brek Energy Corporation, a publicly traded company, from July 2000 to October 2003. Mr. Telford was Chief Financial Officer of Skymark Investments Ltd. and PayGen International from February 2004 until April 2006. Mr. Telford was also previously a partner in STS Partners LLP Chartered Accountants in Canada from 1994-2001, Telford Sadovnick, PLLC, Certified Public AccountantsHosking has been involved in the United States from 1998-2004,music industry for many years and with this experience has been invited to attend many music conferences around the world, both as a guest and in many instances a key speaker. He has been on many panels and is highly regarded. The board believes Mr. Hosking’s experiences in the international accounting firm Deloitte & Toucheentertainment business will be of significant value to us, particularly to Modizo. Mr. Hosking currently resides in Phuket, Thailand, with his wife and three children.
Viji Rajasundram
On January 17, 2011, our board of directors appointed Viji Rajasundram as well as having served asa director. Mr. Rajasundram has over 20 years of experience in the technology field and has worked in Malaysia, the Philippines, Singapore, and the United States. He was previously employed by Scicom (MSC) Berhad, holding the following positions during that employment: Chief Operating Officer, Technology Solutions from September 2009 through November 2010; Chief Technology Officer / Chief Information Officer from December 2008 through September 2009; Senior Vice President, Technology Division from September 2005 through December 2008; and Chief Financial OfficerVice-President, Technology Division from May 2005 through September 2005. Before Scicom, Mr. Rajasundram was employed as a principal consultant by Serendip Management Services, Kuala Lumpur, Malaysia, from April 2001 through May 2005. Mr. Rajasundram has a degree in computer science from Deakin University in Australia and a Masters in Business Administration (magna cum laude) from Boston University. The board believes that Mr. Rajasundram’s experienced and knowledgeable of an automotive rental company called Tropical Rentthe information technology industry will makes him a Car Systems, Inc. Mr. Telford has advised numerous companies, operating in both North America and Asia Pacific, on a broad range of financial and business matters.valuable resource to us.
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Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act and the rules thereunder require our officers and directors, and persons that own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and to furnish us with copies. Based solely on our review of the copies of the Section 16(a) forms received by us, or written representations from certain reporting persons, we believe that, during the last fiscal year, none of our officers, directors, and greater than 10% beneficial owners complied with applicable Section 16(a) filing requirements.
Audit Committee Information
Our board of directors does not have a separate Audit Committee. The entire board acts as the Audit Committee. We do not have a financial expert, as that term is defined in Item 407(d)(5) of Regulation S-K, on our board. We plan to seek qualified outside directors such that a majority of the board will be outside directors once we have raised funds to execute our business plan. Once in place, the Audit Committee and a Compensation Committee will each be chaired by an independent director.
18
Code of Ethics
Our board of directors has adopted a Policy Statement on Business Ethics and Conflicts of Interest applicable to all employees, which was filed as an exhibit to our Form 10-KSB on May 23, 2005.
Nominating Committee
Our board of directors does not have a separate Nominating Committee. The entire board acts as the Nominating Committee.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth, for each of our last three completed fiscal years, the dollar value of all cash and noncash compensation earned by any person who was our principal executive officer during the preceding fiscal year and each of our other highest compensated executive officers earning more than $100,000 during the last fiscal year (together, the “Named Executive Officers”):
Name and Principal Position | Year Ended Dec. 31 | Salary ($) | Bonus ($) | Stock Award(s) ($) | Option Awards ($) | Non- Equity Incentive Plan Compen- sation | Change in Pension Value and Non- Qualified Deferred Compen- sation Earnings ($) | All Other Compen- sation ($) | Total ($) |
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) |
| | | | | | | | | |
Luther L. Jao, CEO(1) | 2009 | 17,500 | -- | -- | 31,765 | -- | -- | -- | 49,265 |
| | | | | | | | | |
Kenneth G.C. Telford, | 2009 | 106,000 | -- | -- | 31,765 | -- | -- | -- | 137,765 |
CFO(2) | 2008 | 93,500 | 40,000 | 3,547 | 14,180 | -- | -- | -- | 151,227 |
| 2007 | -- | -- | -- | -- | -- | -- | -- | -- |
| | | | | | | | | |
Stephen Cutler, CEO(3) | 2009 | 80,000 | -- | -- | -- | -- | -- | -- | 80,000 |
| 2008 | 80,000 | 35,000 | 1,248 | 1,248 | -- | -- | -- | 117,496 |
| 2007 | -- | -- | -- | -- | -- | -- | -- | -- |
______________
(1) Mr. Jao was appointed out chief executive officer effective September 14, 2009.
(2) Mr. Telford was appointed our chief financial officer March 18, 2008.
(3) Mr. Cutler was appointed our chief executive officer effective April 30, 2008, and resigned effective September 14, 2009.Name and Principal Position | Year Ended Dec. 31 | Salary ($) | Bonus ($) | Stock Award(s) ($) | Option Awards ($) | Non- Equity Incentive Plan Compen- sation | Change in Pension Value and Non- Qualified Deferred Compen- sation Earnings ($) | All Other Compen- sation ($) | Total ($) |
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) |
| | | | | | | | | |
Bala Balamurali, CEO(1) | 2010 | 307,230 | -- | -- | -- | -- | -- | -- | 307,230 |
| 2009 | -- | -- | -- | -- | -- | -- | -- | -- |
| 2008 | -- | -- | -- | -- | -- | -- | -- | -- |
| | | | | | | | | |
Sarocha Hatthasakul, | 2010 | 51,031 | -- | -- | -- | -- | -- | -- | 51,031 |
CFO(2) | 2009 | -- | -- | -- | -- | -- | -- | -- | -- |
| 2008 | -- | -- | -- | -- | -- | -- | -- | -- |
| | | | | | | | | |
Luther L. Jao, CEO(3) | 2010 | 105,000 | -- | -- | 10,221 | -- | -- | -- | 115,221 |
| 2009 | 17,500 | -- | -- | 31,765 | -- | -- | -- | 49,265 |
19
21
Name and Principal Position | Year Ended Dec. 31 | Salary ($) | Bonus ($) | Stock Award(s) ($) | Option Awards ($) | Non- Equity Incentive Plan Compen- sation | Change in Pension Value and Non- Qualified Deferred Compen- sation Earnings ($) | All Other Compen- sation ($) | Total ($) |
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) |
| | | | | | | | | |
Kenneth G.C. Telford, | 2010 | 50,000 | -- | -- | -- | -- | -- | -- | 50,000 |
CFO(4) | 2009 | 106,000 | -- | -- | 31,765 | -- | -- | -- | 137,765 |
| 2008 | 93,500 | 40,000 | 3,547 | 14,180 | -- | -- | -- | 151,227 |
| | | | | | | | | |
Stephen Cutler, CEO(5) | 2010 | -- | -- | -- | -- | -- | -- | -- | -- |
| 2009 | 80,000 | -- | -- | -- | -- | -- | -- | 80,000 |
| 2008 | 80,000 | 35,000 | 1,248 | 1,248 | -- | -- | -- | 117,496 |
(1) | Mr. Balamurali was appointed our chief executive officer effective December 31, 2010. Prior to this date, Mr. Balamurali served as the General Manager of our iCEmms division during the 2010 fiscal year. $173,681 of this amount was paid in 2010, while the remainder was accrued. |
(2) | Ms. Hatthasakul was appointed our chief financial officer effective May 25, 2010. |
(3) | Mr. Jao was appointed our chief executive officer effective September 14, 2009, and resigned effective December 31, 2010. |
(4) | Mr. Telford was appointed our chief financial officer March 18, 2008, and resigned effective May 25, 2010. |
(5) | Mr. Cutler was appointed our chief executive officer effective April 30, 2008, and resigned effective September 14, 2009. |
Outstanding Equity Awards at 20092010 Year-End
The following table reflects outstanding stock option awards classified as exercisable and unexercisable as of December 31, 2009,2010, for each of the Named Executive Officers. The table also reflects unvested and unearned stock awards:
| Option Awards | Stock Awards | Option Awards | Stock Awards |
Name | Number of Securities Underlying Unexer- cised Options (#) Exer- cisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options(#) | Option Exercise Price($) | Option Expiration Date | Number of Shares or Units of Stock Held That Have Not Vested(#) | Market Value of Shares or Units of Stock That Have Not Vested($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested($) | Number of Securities Underlying Unexer- cised Options (#) Exer- cisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options(#) | Option Exercise Price($) | Option Expiration Date | Number of Shares or Units of Stock Held That Have Not Vested(#) | Market Value of Shares or Units of Stock That Have Not Vested($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested($) |
| | | | | | | | | | | | | | |
Luther L. Jao | 112,500 | 112,500 | -- | 0.293 | 11/12/14 | -- | -- | -- | 1,575,000 | 1,575,000 | -- | 0.042 | 11/12/14 | -- | -- | -- |
| | | | | | | |
Kenneth G.C. Telford | 112,500 | 112,500 | -- | 0.293 | 11/12/14 | -- | -- | -- | |
| | -- | | -- | -- | -- | |
Director Compensation
The following table sets forth the compensation awarded to each of our directors in 2009:2010:
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compen- sation ($) | Total ($) |
Luther Jao, Chairman | -- | -- | -- | -- | -- | -- | -- |
Bala Balamurali | -- | -- | -- | -- | -- | -- | -- |
Nelson Wu | Lim Wong75,000 (1)
| -- | -- | -- | -- | -- | -- | --75,000 |
Michael Hosking | Simoun Ung(2)75,000 (1)
| -- | -- | -- | -- | -- | -- | -- |
Derek Hjelm(3)
| -- | -- | -- | -- | -- | -- | --75,000 |
____________
(1) Mr. Wong resigned as a director on September 3, 2009.
(2) Mr. Ung resigned as a director on October 27, 2009.
(3) Mr. Hjelm resigned as a director on November 17, 2009.(1) | To be paid by the issuance of shares of common stock in 2011. |
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information, as of April 9, 2010,1, 2011, with respect to the beneficial ownership of our outstanding common stock by: (i) any holder of more than 5%; (ii) each of the Named Executive Officers, directors, and director nominees; and (iii) our directors, director nominees, and Named Executive Officers as a group, based on 93,725,841643,215,972 shares of common stock outstanding. Except as otherwise indicated, each of the stockholders listed below has sole voting and investment power over the shares beneficially owned:
Name of Person or Group | Nature of Ownership | Amount | Percent |
| | | |
Principal Stockholders: | | | |
Dutt Devika Maria | Common Stock | 37,944,723 | 40.5% |
711/32 Green Hill, Povorim | | | |
Goa 403501 | | | |
India | | | |
| | | |
Goh Wan Nee | Common Stock | 8,842,500 | 9.4% |
100-2, Seri Duta 1, Jalan Gallagher, | | | |
Taman Duta, 50450 Kuala Limpur | | | |
Malaysia | | | |
| | | |
Infinity Wealth Management | Common Stock | 8,700,000 | 9.3% |
3905 Two Exchange Square | | | |
Suite 8156, Connaught Place | | | |
Central, Hong Kong | | | |
| | | |
Crayton Finance Limited | Common Stock | 7,514,046 | 8.0% |
3rd Floor, Omar Hodge Building | | | |
Wickhams Cay I, P.O. Box 362, Road Town | | | |
Tortola, British Virgin Islands | | | |
| | | |
Putian International Pte. Ltd. | Common Stock | 6,000,000 | 6.4% |
391B Orchard Road | | | |
#23-01 Ngee Ann City Tower 8 | | | |
238874 Singapore | | | |
| | | |
Named Executive Officers and Directors: | | | |
Luther L. Jao | Common Stock | -- | * |
13 Spottiswoode Park Road | Options | 225,000 | * |
Singapore 088640 | Total | 225,000 | * |
| | | |
Bala Balamurali | Common Stock | 1,741,272 | 1.9% |
13 Spottiswoode Park Road | | | |
Singapore 088640 | | | |
| | | |
Kenneth Telford | Common Stock | 1,707 | * |
13 Spottiswoode Park Road | Options | 225,000 | * |
Singapore 088640 | Total | 226,707 | * |
| | | |
All Executive Officers and Directors as a Group (3 persons): | Common Stock | 1,742,979 | 1.9% |
| Options | 450,000 | * |
| Total | 2,192,979 | 2.3% |
_______________
Name of Person or Group | Nature of Ownership | Amount | Percent |
| | | |
Principal Stockholders: | | | |
Knightsbridge Estates | Common Stock | 111,806,534 | 17.4% |
26 Oakley HS 103 Sloane | | | |
London, UK | | | |
| | | |
Goh Wan Nee | Common Stock | 61,897,500 | 9.6% |
100-2 Seri Duta 1 | | | |
Jalan Gallagher Tmn Duta | | | |
Kuala Lumpur Malaysia | | | |
| | | |
Devika Maria Dutt | Common Stock | 48,806,527 | 7.6% |
711/32 Green Hill | | | |
Povori Gova | | | |
India | | | |
| | | |
Infinity Wealth Management | Common Stock | 44,100,000 | 6.9% |
3905 2 Exchange Square | | | |
Central, Hong Kong | | | |
| | | |
Purpose Win Entertainment | Common Stock | 42,098,322 | 6.5% |
Room 3713 99 Queens Road | | | |
Central Hong Kong | | | |
| | | |
Putian International Pte. Ltd. | Common Stock | 42,000,000 | 6.5% |
Ngee Ann City Tower B | | | |
391 B Orchard Road | | | |
#23 - 01 | | | |
Singapore 238874 | | | |
| | | |
Named Executive Officers and Directors: | | | |
Bala Balamurali | Common Stock | 10,741,272 | 1.7% |
13 Spottiswoode Park Road Singapore 088640 | | | |
| | | |
Sarocha Hatthasakul | Common Stock | - | * |
13 Spottiswoode Park Road Singapore 088640 | | | |
| | | |
Nelson Wu | Common Stock | 1,071,427 | * |
13 Spottiswoode Park Road Singapore 088640 | | | |
| | | |
Michael Hosking | Common Stock | 1,071,427 | * |
13 Spottiswoode Park Road Singapore 088640 | | | |
2123
Name of Person or Group | Nature of Ownership | Amount | Percent |
| | | |
Viji Rajasundram | Common Stock | - | * |
13 Spottiswoode Park Road Singapore 088640 | | | |
| | | |
All Executive Officers and Directors as a Group (5 persons): | Common Stock | 12,884,126 | 2.0% |
| Total | 12,884,126 | 2.0% |
____________
Equity Compensation Plan
We have authorized securities for issuance under equity compensation plans that have not been approved by the stockholders, but none under equity compensation plans that were approved by the stockholders. The following table shows the aggregate amount of securities authorized for issuance under all equity compensation plans as of December 31, 2009:2010:
| | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
| | | | | | | | | | | | |
Equity compensation plans approved by security holders | | -- | | -- | | -- | | -- | | -- | | -- |
Equity compensation plans not approved by security holders | | 682,062 | | $0.293 | | -- | | 2,768,934 | | $0.042 | | -- |
Total | | 682,062 | | $0.293 | | -- | | 2,768,934 | | $0.042 | | -- |
Of these options, 326,2502,488,535 are vested, have exercise prices of $0.293,$0.042, and expire in 2014, and 3122,184 are vested, have an exercise price of $0.056,$0.008, and expire in 2012.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
In AugustDuring the year ended December 31, 2009, certain former directors, officers,we incurred consulting fees of $203,665 with an officer and director.
During the years ended December 31, 2010 and 2009, an affiliated companies assigned a total of $829,187 to a company controlled by a former director of the Company. These amounts were then consolidated into a single demand convertible noteadvanced net funds and services in the amount of $829,187 (“$780,368 and $412,736, respectively, of which $472,806 is included in amounts due to stockholder. During the consolidated convertible note”). This note was unsecured and non-interest-bearing, except when in default when the interest rate becomes 18% per annum. The note was convertible into sharesyear ended December 31, 2010, a previous balance owing of our common stock. This note$125,282 was converted into 2,997,060 fully paida promissory note payable and $445,423 was settled through conversion to 6,248,417 shares of our common stock on October 30, 2009.stock.
During the year ended December 31, 2008, we incurred consulting fees and expenses to a company controlled by a sister of a former officer and director of the Company in the amount of $88,249. During 2008, $55,315 was converted into 243 shares of our common stock. The balance outstanding as at December 31, 2009, is $21,302 and is recorded in accounts payable.
Effective January 1, 2008 a former director, Mr. Wong, amended his consulting agreement with us and converted $189,403 of the amounts owing into 3,788 fully paid and nonassessable shares of our common stock and $173,800 into a convertible loan. During the years ended December 31, 2009 and 2008, we incurred consulting fees and related expenses to a company controlled by a former director in the amount of $50,400 and $115,564, respectively. The balance owing of $34,114 was assigned in August 2009 and formed part of the consolidated convertible note payable.$50,400.
During the yearsyear ended December 31, 2009, and 2008, we acquired services from Bastion Payment Systems Corporation and CNP Worldwide, Inc.,two affiliated companies controlled by a former director and former officer of the Company, Messrs. Ung and Pasion, in the amount of $63,035 and $78,817, respectively. In August 2009 the balance owing of $125,088 was assigned and formed part of the consolidated convertible note payable.$63,035.
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During the year ended December 31, 2009, we acquired services from a former officer of the Company in the amount of $7,599. In August 2009 the balance owing of $7,579 was assigned and formed part of the consolidated convertible note.
22
During the year ended December 31, 2009, we acquired services from a company controlled by a former officer of the Company in the amount of $618. In August 2009 the balance owing of $3,249 was assigned and formed part of the consolidated convertible note.
During the year ended December 31, 2009, a former director Mr. Ung, advanced $26,260. During August 2009 the advance was assigned and formed part of the consolidated convertible note.
During the years ended December 31, 2009, prior to its acquisition, Radius incurred consulting fees of $200,857 with a director of the Company, Bala Balamurali.
During the year ended December 31, 2009, an affiliated company advanced funds and services in the amount of $412,736. Of this amount, $287,454 was converted into convertible promissory notes. The balance owing of $125,282 is included in amounts due to stockholder.
Independent Directors
Under the definition of independent directors found in Nasdaq Rule 5606(a)(2), which we have chosen to apply, we currently have notwo independent directors, and nonetwo of the directors who served during 2009 was2010 were independent.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth fees billed or accrued by our independent registered public accountants during the fiscal years ended December 31, 20092010 and 2008:2009:
| December 31, 2009 | | December 31, 2008 | December 31, 2010 | | December 31, 2009 |
| | | | | | | |
Audit Fees | $57,534 | | $60,000 | $ | 108,548 | | $ | 57,534 |
| | | | | | | | |
Audit Related Fees | -- | | -- | | -- | | | -- |
| | | | | | | | |
Tax Fees | -- | | -- | | -- | | | -- |
| | | | | | | | |
All Other Fees | -- | | -- | | -- | | | -- |
Total Fees | $57,534 | | $60,000 | $ | 108,548 | | $ | 57,534 |
Audit fees consist of fees billed for professional services rendered for the audit of our consolidated financial statements and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by an independent registered accountant in connection with statutory and regulatory filings or engagements. The 2008 audit fees were paid in 2009.
Audit-related fees consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements, which are not reported under “Audit Fees.”
Tax fees consist of fees billed for professional services for tax compliance, tax advice, and tax planning.
All other fees consist of fees for products and services other than the services reported above. There were no management consulting services provided in fiscal 2009.
232010.
Preapproval Policies and Procedures
Before the independent registered public accountants are engaged to render audit services or nonaudit activities, the engagement is approved by our board of directors acting as the audit committee.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibit Number | | Title of Document | | Location |
| | | | |
Item 2 | | Plan of Acquisition, Reorganization Arrangement, Liquidation, or Succession | | |
| | | | |
2.01 | | Stock Purchase Agreement between Mobiclear Inc. and Whitefields Capital Limited entered November 12, 2009 | | Incorporated by reference from the Current Report on Form 8-K filed November 17, 2009 |
| | | | |
2.02 | | Stock Purchase Agreement between Intelligent Communication Enterprise Corporation and Whitefields Capital Limited entered January 20, 2010 | | Incorporated by reference from the Current Report on Form 8-K filed January 22, 2010 |
| | | | |
2.03 | | Sale and Purchase Agreement between Intelligent Communication Enterprise Corporation and Power Centre Holdings Limited dated June 11, 2010 | | Incorporated by reference from the Current Report on Form 8-K filed June 17, 2010 |
| | | | |
Item 3 | | Articles of Incorporation and Bylaws | | |
| | | | |
3.14 | | Amended and Restated Articles of Incorporation of BICO, Inc. as filed with the Secretary of State of the Commonwealth of Pennsylvania | | Incorporated by reference from the Current Report on Form 8-K filed November 12, 2004 |
| | | | |
3.15 | | Certificate of Designation of Series M Preferred Stock as filed with the Secretary of State of the Commonwealth of Pennsylvania | | Incorporated by reference from the Current Report on Form 8-K filed November 12, 2004 |
| | | | |
3.17 | | Joint Second Amended Plan of Reorganization dated August 3, 2004 | | Incorporated by reference from the Current Report on Form 8-K filed November 12, 2004 |
| | | | |
3.18 | | Order Approving Joint Second Amended Plan of Reorganization dated October 14, 2004 | | Incorporated by reference from the Current Report on Form 8-K filed November 12, 2004 |
| | | | |
3.19 | | Amended and Restated Certificate of Designation for Series M Preferred | | Incorporated by reference from the Current Report on Form 8-K filed March 30, 2005 |
| | | | |
3.20 | | By-Laws of MobiClear Inc. as amended on October 13, 2006 | | Incorporated by reference from the Annual Report on Form 10-KSB for the year ended December 31, 2006, filed April 2, 2007 |
2426
Exhibit Number | | Title of Document | | Location |
| | | | |
3.21 | | Amendment to Articles of Incorporation as filed with the Secretary of State of the Commonwealth of Pennsylvania | | Incorporated by reference from the Current Report on Form 8-K filed December 4, 2006 |
| | | | |
3.22 | | Amendment to Articles of Incorporation as filed with Pennsylvania Department of State Corporate Bureau | | Incorporated by reference from the Current Report on Form 8-K filed July 2, 2008 |
| | | | |
3.23 | | Amendment to Articles of Incorporation as filed September 22, 2009, with the Pennsylvania Department of State Corporate Bureau | | Incorporated by reference from the Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2009, filed October 29, 2009 |
| | | | |
3.24 | | Amendment to Articles of Incorporation as filed November 30, 2009, with the Pennsylvania Department of State Corporate Bureau | | Incorporated by reference from the Current Report on Form 8-K filed December 30, 2009 |
| | | | |
Item 4 | | Instruments Defining the Rights of Security Holders, Including Debentures | | |
| | | | |
4.01 | | Specimen stock certificate | | Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, filed August 14, 2008 |
| | | | |
Item 10 | | Material Contracts | | |
| | | | |
10.5 | | Employment Agreement with Lim Wong dated January 1, 2007 | | Incorporated by reference from the Annual Report on Form 10-KSB for the year ended December 31, 2006, filed April 2, 2007 |
| | | | |
10.7 | | Employment Agreement with Kenneth Telford dated March 16, 2008 | | Incorporated by reference from the Current Report on Form 8-K on March 24, 2008 |
| | | | |
10.8 | | Letter Agreement between the Company and Simoun Ung dated December 1, 2007 | | Incorporated by reference from the Annual Report on Form 10-KSB for the year ended December 31, 2007, filed April 15, 2008 |
| | | | |
10.9 | | Amendment to Letter Agreement between the Company and Simoun Ung dated April 12, 2008 | | Incorporated by reference from the Annual Report on Form 10-KSB for the year ended December 31, 2007, filed April 15, 2008 |
| | | | |
10.11 | | Employment Agreement between Mobiclear Inc. and Stephen P. Cutler, effective as of April 30, 2008 | | Incorporated by reference from the Current Report on Form 8-K filed May 13, 2008 |
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Exhibit
Number
| | Title of Document
| | Location
|
10.12 | | Employment Agreement between Mobiclear Inc. and Edward C. Pooley, effective as of April 30, 2008 | | Incorporated by reference from the Current Report on Form 8-K filed May 13, 2008 |
| | | | |
10.13 | | Asset Purchase and Sale Agreement made June 26, 2008, between Bastion Payment Systems Corporation and Mobiclear Inc. | | Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, filed August 14, 2008 |
| | | | |
10.14 | | Outsourcing Agreement between Bastion Payment Systems Corporation and Mobiclear Inc. dated August 8, 2008 | | Incorporated by reference from the Current Report on Form 8-K filed October 14, 2008 |
| | | | |
10.15 | | Stock Purchase Agreement between Bastion Payment Systems Corporation and Mobiclear Inc. dated September 18, 2008 | | Incorporated by reference from the Current Report on Form 8-K filed October 14, 2008 |
| | | | |
10.16 | | Employment Agreement between Mobiclear Inc. and Paul Pasion executed September 28, 2008, and effective as of September 1, 2008 | | Incorporated by reference from the Current Report on Form 8-K filed October 14, 2008 |
| | | | |
10.17 | | Convertible Promissory Note Due August 31, 2009, to Charter Finance Group, Ltd., in the amount of $50,000 | | Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, filed November 14, 2008 |
| | | | |
10.18 | | Convertible Promissory Note Due September 30, 2009, to Raleston Consultants, Inc., in the amount of $173,800 | | Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, filed August 14, 2008 |
| | | | |
10.19 | | Convertible Promissory Note Due September 30, 2009, to DBP Holdings, Ltd., in the amount of $77,702 | | Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, filed August 14, 2008 |
| | | | |
10.20 | | Form of Warrant to Purchase 500,000 Shares of Common Stock, par value $0.0001 (Charter Finance Group, Ltd., Raleston Consultants, Inc., and DBP Holdings, Limited, warrant holders) with schedule | | Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, filed August 14, 2008 |
| | | | |
10.21 | | Memorandum of Agreement for Strategic Investment in Mobiclear, effective as of February 16, 2009 | | Incorporated by reference from the Current Report on Form 8-K filed February 23, 2009 |
| | | | |
10.22 | | Convertible Promissory Note dated September 1, 2009 | | Incorporated by reference from the Current Report on Form 8-K filed September 8, 2009 |
26
Exhibit
Number
| | Title of Document
| | Location
|
10.23 | | Employment Agreement between Mobiclear Inc. and Luther Jao dated September 14, 2009 | | Incorporated by reference from the Current Report on Form 8-K filed September 18, 2009 |
| | | | |
10.24 | | Convertible Promissory Note dated November 12, 2009 | | Incorporated by reference from the Current Report on Form 8-K filed November 17, 2009 |
27
Exhibit Number | | Title of Document | | Location |
| | | | |
10.25 | | Employment Agreement between Intelligent Communication Enterprise Corporation and Sarocha Hatthasakul dated May 25, 2010 | | Incorporated by reference from the Current Report on Form 8-K filed June 1, 2010 |
| | | | |
10.26 | | Employment Agreement between Intelligent Communication Enterprise Corporation and Bala Balamurali dated January 1, 2011 | | Incorporated by reference from the Current Report on Form 8-K filed January 4, 2011 |
| | | | |
10.27 | | Tenancy Agreement made between Teoh Boon Seng & Goh Soo Hor (f) and Radius-ED Sdn Bhd | | This filing |
| | | | |
Item 14. | | Code of Ethics | | |
| | | | |
14.01 | | Policy Statement on Business Ethics and Conflicts of Interest | | Incorporated by reference from the Annual Report on Form 10-KSB for the year ended December 31, 2004, filed May 23, 2005 |
| | | | |
Item 21. | | Subsidiaries of the Registrant | | |
| | | | |
21.01 | | Schedule of Subsidiaries | | This filing |
| | | | |
Item 31. | | Rule 13a-14(a)/15d-14(a) Certifications | | |
| | | | |
31.01 | | Certification of Principal Executive Officer Pursuant to Rule 13a-14 | | This filing |
| | | | |
31.02 | | Certification of Principal Financial Officer Pursuant to Rule 13a-14 | | This filing |
| | | | |
Item 32. | | Section 1350 Certifications | | |
| | | | |
32.01 | | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | This filing |
| | | | |
32.02 | | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | This filing |
___________________________
* | The number preceding the decimal indicates the applicable SEC reference number in Item 601, and the number following the decimal indicating the sequence of the particular document. Omitted numbers in the sequence refer to documents previously filed with the SEC as exhibits to previous filings, but no longer required. |
2728
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| INTELLIGENT COMMUNICATION ENTERPRISE CORPORATION |
| | |
| | |
Date: April 15, 20102011 | By: | /s/ Luther L. JaoBala Balamurali |
| | Luther L. JaoBala Balamurali |
| | President and Principal Executive Officer |
| | |
| | |
Date: April 15, 20102011 | By: | /s/ Kenneth G.C. TelfordSarocha Hatthasakul |
| | Kenneth G.C. TelfordSarocha Hatthasakul |
| | Principal Financial and Accounting Officer |
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Dated: April 15, 20102011
| | /s/ Luther L. JaoBala Balamurali |
| | Luther L. Jao |
| | Bala Balamurali President, Chief Executive Officer, and Director |
|
/s/ Nelson Wu |
Nelson Wu, Director |
|
/s/ Michael Hosking |
Michael Hosking, Director |
|
| | /s/ Bala BalamuraliViji Rajasundram |
| | Bala BalamuraliViji Rajasundram, Director |
28
29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Intelligent Communication Enterprise Corporation
We have audited the accompanying consolidated balance sheets of Intelligent Communication Enterprise Corporation as of December 31, 20092010 and 2008,2009, and the related consolidated statements of operations, stockholders' deficiencyequity (deficiency) and comprehensive loss, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it 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 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Intelligent Communication Enterprise Corporation as of December 31, 20092010 and 2008,2009, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has not generated revenues or positive cash flows from operationsincurred losses, and has negative working capital and an accumulated deficit at December 31, 2009.2010. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding those matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/S/ PETERSON SULLIVAN LLP
Seattle, Washington
April 15, 20102011
F-1
INTELLIGENT COMMUNICATION ENTERPRISE CORPORATION | INTELLIGENT COMMUNICATION ENTERPRISE CORPORATION | | | INTELLIGENT COMMUNICATION ENTERPRISE CORPORATION | |
(formerly Mobiclear Inc.) | | | | | |
| | | | | | |
Consolidated Balance Sheets | Consolidated Balance Sheets | | | | | Consolidated Balance Sheets | | | | |
December 31, 2009 and 2008 | | | | | |
December 31, 2010 and 2009 | | December 31, 2010 and 2009 | | | | |
| | | | | | | | | | |
| | | 2009 | | 2008 | | 2010 | | 2009 |
Assets | | | | | | | | | | |
| | | | | | | | | | |
Current assets: | Current assets: | | | | | Current assets: | | | | |
| Cash | $ | 620,412 | $ | 14,138 | Cash | $ | 186,966 | | $ | 620,412 |
| Restricted cash | | 152,392 | | - | Restricted cash | | - | | 152,392 |
| Accounts receivable, net | | 1,782,553 | | 3,474 | Accounts receivable, net | | 1,412,733 | | 1,782,553 |
| Prepaid expenses and deposits | | 198,161 | | 3,110 | Prepaid expenses and deposits | | 78,559 | | 198,161 |
| Income taxes receivable | | 14,108 | | - | Note receivable | | 500,000 | | - |
| Total current assets | | 2,767,626 | | 20,722 | Income taxes receivable | | 10,771 | | 14,108 |
| | | | | | Total current assets | | 2,189,029 | | 2,767,626 |
Property and equipment, net | Property and equipment, net | | 784,702 | | 8,521 | Property and equipment, net | | 369,975 | | 784,702 |
Intangible assets, net | Intangible assets, net | | 2,037,291 | | - | Intangible assets, net | | 3,966,879 | | 2,037,291 |
| | | | | | | | | | |
Total assets | Total assets | $ | 5,589,619 | $ | 29,243 | Total assets | $ | 6,525,883 | | $ | 5,589,619 |
| | | | | | | | | | |
Liabilities and Stockholders' Deficiency | Liabilities and Stockholders' Deficiency | | | | | Liabilities and Stockholders' Deficiency | | | | |
| | | | | | | | | | |
Current liabilities: | Current liabilities: | | | | | Current liabilities: | | | | |
| Accounts payable | $ | 2,296,860 | $ | 382,572 | Accounts payable | $ | 1,522,384 | | $ | 2,296,860 |
| Accrued expenses | | 1,166,916 | | 28,708 | Accrued expenses | | 755,403 | | 1,166,916 |
| Accrued compensation | | 6,996 | | 440,150 | Accrued compensation | | 492,734 | | 6,996 |
| Customer deposits and deferred revenue | | 459,386 | | - | Customer deposits and deferred revenue | | 247,216 | | 459,386 |
| Amounts due to stockholder | | 515,061 | | - | Amounts due to stockholder | | 472,806 | | 515,061 |
| Promissory note | | 17,352 | | - | Promissory note | | 17,352 | | 17,352 |
| Convertible notes payable, net of discounts | | 1,787,454 | | 265,108 | Convertible notes payable, net of discounts | | - | | 1,787,454 |
| Equity line of credit, net of debt discount | | - | | 310,294 | Total current liabilities | | 3,507,895 | | 6,250,025 |
| Total current liabilities | | 6,250,025 | | 1,426,832 | | | | | |
| | | | | | |
Stockholders' Deficiency | | | | | |
Stockholders' Equity (Deficiency) | | Stockholders' Equity (Deficiency) | | | | |
Preferred stock: | Preferred stock: | | | | | Preferred stock: | | | | |
| $0.0001 par value, authorized 150,000,000 | | | | | $0.0001 par value, authorized 150,000,000 | | | | |
| issued and outstanding nil shares (2008 - nil) | | - | | - | issued and outstanding nil shares (2009 - nil) | | - | | - |
Common stock: | Common stock: | | | | | Common stock: | | | | |
| $0.0001 par value, authorized 250,000,000,000 shares | | | | | $0.0001 par value, authorized 250,000,000,000 shares | | | | |
| issued and outstanding 62,381,118 shares (2008 - 338,139) | | 6,239 | | 33 | issued and outstanding 640,023,118 shares (2009 - 436,667,826) | | 64,000 | | 43,665 |
Additional paid in capital | | 15,353,102 | | 10,826,627 | |
Deficit | | (15,955,706) | | (12,249,581) | |
Accumulated other comprehensive gain (loss) | | (64,041) | | 25,332 | |
Additional paid-in capital | | Additional paid-in capital | | 25,532,084 | | 15,315,676 |
Accumulated deficit | | Accumulated deficit | | (22,737,828) | | (15,955,706) |
Accumulated other comprehensive income (loss) | | Accumulated other comprehensive income (loss) | | 159,732 | | (64,041) |
| Total stockholders' deficiency | | (660,406) | | (1,397,589) | Total stockholders' equity (deficiency) | | 3,017,988 | | (660,406) |
Total liabilities and stockholders' deficiency | $ | 5,589,619 | $ | 29,243 | |
Total liabilities and stockholders' equity (deficiency) | | Total liabilities and stockholders' equity (deficiency) | $ | 6,525,883 | | $ | 5,589,619 |
| | | | | | | | | | |
See accompanying notes to consolidated financial statements. | See accompanying notes to consolidated financial statements. | | | | | See accompanying notes to consolidated financial statements. | | | |
F-2
INTELLIGENT COMMUNICATION ENTERPRISE CORPORATION | (formerly Mobiclear Inc.) | | | | | |
| | | | | | |
Consolidated Statements of Operations | Consolidated Statements of Operations | | | | | Consolidated Statements of Operations | | | | |
For the years ended December 31, 2009 and 2008 | | | | | |
For the years ended December 31, 2010 and 2009 | | For the years ended December 31, 2010 and 2009 | | | |
| | | | | | | | | | |
| | | 2009 | | 2008 | | | 2010 | | 2009 |
| | | | | | | | | | |
Revenue | Revenue | $ | 9,659,154 | $ | 2,500 | Revenue | $ | 8,935,320 | | $ | 9,659,154 |
| | | | | | |
Cost of revenue | Cost of revenue | | 7,776,285 | | - | Cost of revenue | | 7,231,471 | | 7,776,285 |
Gross margin | Gross margin | | 1,882,869 | | 2,500 | Gross margin | | 1,703,849 | | 1,882,869 |
| | | | | | | | | | |
Expenses: | Expenses: | | | | | Expenses: | | | | |
| General and administrative | | 5,295,488 | | 2,445,491 | General and administrative | | 8,294,581 | | 5,333,195 |
| Research and development | | 37,707 | | 131,121 | Impairment loss | | 3,175,856 | | - |
| | | 5,333,195 | | 2,576,612 | Total operating expenses | | 11,470,437 | | 5,333,195 |
Loss from operations | | Loss from operations | | (9,766,588) | | (3,450,326) |
| | | | | | |
Other income and expense: | Other income and expense: | | | | | Other income and expense: | | | | |
| Interest expense | | (65,905) | | (297,604) | Interest expense | | (10,185) | | (65,905) |
| Interest expense - related parties | | (199,345) | | (55,302) | Interest expense - related parties | | (95,810) | | (199,345) |
| Gain on settlement of debt | | - | | 104,885 | Interest income | | 941 | | 9,451 |
| Interest income | | 9,451 | | 160 | Gain from retraction of shares for acquisition | | 3,089,520 | | - |
| | | (255,799) | | (247,861) | Total other income (expense) | | 2,984,466 | | (255,799) |
Loss from operations | | (3,706,125) | | (2,821,973) | |
| | | | | | | | | | |
Equity in loss of affiliate | | - | | (13,775) | |
| | | | | | | | | | |
Net loss for the period | $ | (3,706,125) | $ | (2,835,748) | |
Net loss | | Net loss | $ | (6,782,122) | | $ | (3,706,125) |
| | | | | | | | | | |
| | | | | | | | | | |
Loss per share - basic and diluted | Loss per share - basic and diluted | $ | (0.63) | $ | (44.65) | Loss per share - basic and diluted | $ | (0.01) | | $ | (0.09) |
| | | | | | | | | | |
| | | | | | | | | | |
Weighted average number of shares outstanding | Weighted average number of shares outstanding | | 5,866,815 | | 63,507 | Weighted average number of shares outstanding | | 605,850,878 | | 41,067,705 |
| | | | | | | | | | |
| | | | | | | | | | |
See accompanying notes to consolidated financial statements. | See accompanying notes to consolidated financial statements. | | | See accompanying notes to consolidated financial statements. | | | |
| | | | | | |
F-3
INTELLIGENT COMMUNICATION ENTERPRISE CORPORATION | INTELLIGENT COMMUNICATION ENTERPRISE CORPORATION | | | | | | | | | INTELLIGENT COMMUNICATION ENTERPRISE CORPORATION | | | | | | | | |
(formerly Mobiclear Inc.) | | | | | | | | | | | | |
| | | | | | | | | | | | |
Consolidated Statement of Stockholders' Deficiency and Comprehensive Loss | | | | | | | | | | |
For the years ended December 31, 2009 and 2008 | | | | | | | | | | | | |
Consolidated Statement of Stockholders' Equity and Comprehensive Loss | | Consolidated Statement of Stockholders' Equity and Comprehensive Loss | | | | | | | | | | |
For the years ended December 31, 2010 and 2009 | | | | | | | | | | | | |
| | | | | | | | | | | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Equity (Deficiency) |
| Common Stock Number of Shares | | Amount | | Additional Paid-in Capital | | Deficit | | Accumulated Other Comprehensive Gain (Loss) | | Total Stockholders' Deficiency | Number of Shares | | Amount | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance December 31, 2007 | 11,076 | $ | 1 | $ | 7,464,077 | $ | (9,413,833) | $ | (47,784) | $ | (1,997,539) | |
Balance December 31, 2008 | | 2,366,973 | $ | 237 | $ | 10,826,423 | $ | (12,249,581) | $ | 25,332 | $ | (1,397,589) |
Net loss | | - | | - | | - | | (3,706,125) | | - | | (3,706,125) |
Foreign currency translations | | - | | - | | - | | - | | (89,373) | | (89,373) |
Comprehensive loss | | | | | | | | | | | | (3,795,498) |
Adjust for shares issued on 2008 reverse split | | 1,344 | | - | | - | | - | | - | | - |
Adjust for shares issued on 2009 reverse split | | 144,235 | | 14 | | (14) | | - | | - | | - |
Conversion of equity lines of credit | | 7,332,213 | | 733 | | 416,916 | | - | | - | | 417,649 |
Common stock issued for services | | 3,486,000 | | 349 | | 212,651 | | - | | - | | 213,000 |
Common stock issued for settlement of debt | | 21,875,420 | | 2,188 | | 939,696 | | - | | - | | 941,884 |
Common stock issued for conversion of convertible notes payable | | 21,655,032 | | 2,163 | | 406,181 | | - | | - | | 408,344 |
Common stock issued for acquisition of subsidiary | | 379,787,226 | | 37,979 | | 2,370,855 | | - | | - | | 2,408,834 |
Common stock issued for exercise of options | | 19,383 | | 2 | | 30 | | - | | - | | 32 |
Options issued to related party for services | | - | | - | | 92,213 | | - | | - | | 92,213 |
Beneficial conversion feature of convertible notes payable | | - | | - | | 50,725 | | - | | - | | 50,725 |
Balance December 31, 2009 | | 436,667,826 | | 43,665 | | 15,315,676 | | (15,955,706) | | (64,041) | | (660,406) |
| | | | | | | | | | | | | | | | | | | | | | |
Net loss | - | | - | | - | | (2,835,748) | | - | | (2,835,748) | - | | - | | - | | (6,782,122) | | - | | (6,782,122) |
Foreign currency translations | - | | - | | - | | - | | 73,116 | | 73,116 | - | | - | | - | | - | | 223,773 | | 223,773 |
Comprehensive loss | | | | | | | | | | | (2,762,632) | | | | | | | | | | | (6,558,349) |
| | | | | | | | | | | | |
Conversion of equity line of credit received in 2007 | 5,367 | | - | | 601,474 | | - | | - | | 601,474 | |
| | | | | | | | | | | | |
Conversion of equity lines of credit received during 2008 | 274,157 | | 28 | | 811,124 | | - | | - | | 811,152 | |
| | | | | | | | | | | | |
Common stock issued for settlement of debt | 6,351 | | 1 | | 657,457 | | - | | - | | 657,458 | |
| | | | | | | | | | | | |
Common stock issued for services | 2,796 | | - | | 77,418 | | - | | - | | 77,418 | |
| | | | | | | | | | | | |
Common stock issued to related parties for services | 521 | | - | | 5,419 | | - | | - | | 5,419 | |
| | | | | | | | | | | | |
Common stock issued to related parties | | | | | | | | | | | | |
for settlement of debt | 4,031 | | - | | 244,718 | | - | | - | | 244,718 | |
| | | | | | | | | | | | |
Common stock issued to related party | | | | | | | | | | | | |
for settlement of accrued compensation | 90 | | - | | 63,287 | | - | | - | | 63,287 | |
| | | | | | | | | | | | |
Common stock issued to related party | | | | | | | | | | | | |
for acquisition of software products | 25,000 | | 3 | | 624,997 | | - | | - | | 625,000 | |
| | | | | | | | | | | | |
Common stock issued to related party for shares | | | | | | | | | | | | |
of subsidiary | 6,250 | | - | | 37,500 | | - | | - | | 37,500 | |
| | | | | | | | | | | | |
Common stock issued on exercise of warrants | 2,500 | | - | | 4,325 | | - | | - | | 4,325 | |
| | | | | | | | | | | | |
Options issued to related party for services | - | | - | | 49,304 | | - | | - | | 49,304 | |
| | | | | | | | | | | | |
Warrants issued to related parties for change of | | | | | | | | | | | | |
debt to convertible notes payable | - | | - | | 42,201 | | - | | - | | 42,201 | |
| | | | | | | | | | | | |
Beneficial conversion feature of convertible notes payable | - | | - | | 143,326 | | - | | - | | 143,326 | |
| | | | | | | | | | | | |
Balance December 31, 2008 | 338,139 | $ | 33 | $ | 10,826,627 | $ | (12,249,581) | $ | 25,332 | $ | (1,397,589) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Net loss | - | | - | | - | | (3,706,125) | | - | | (3,706,125) | |
Foreign currency translations | - | | - | | - | | - | | (89,373) | | (89,373) | |
Comprehensive loss | | | | | | | | | | | (3,795,498) | |
| | | | | | | | | | | | |
Adjust for shares issued on 2008 reverse split | 192 | | - | | - | | - | | - | | - | |
Adjust for shares issued on 2009 reverse split | 20,605 | | 2 | | (2) | | - | | - | | - | |
| | | | | | | | | | | | |
Conversion of equity lines of credit | 1,047,459 | | 105 | | 417,544 | | - | | - | | 417,649 | |
| | | | | | | | | | | | |
Common stock issued for services | 498,000 | | 50 | | 212,950 | | - | | - | | 213,000 | |
| | | | | | | | | | | | |
Common stock issued for settlement of debt | 3,125,060 | | 313 | | 941,571 | | - | | - | | 941,884 | |
| | | | | | | | | | | | |
Common stock issued for conversion of convertible | | | | | | | | | | | | |
notes payable | 3,093,576 | | 309 | | 408,035 | | - | | - | | 408,344 | |
| | | | | | | | | | | | |
Common stock issued for services provided | | 18,270,000 | | 1,827 | | 1,241,073 | | - | | - | | 1,242,900 |
Common stock issued for acquisition of subsidiary | 54,255,318 | | 5,426 | | 2,403,408 | | - | | - | | 2,408,834 | 202,613,061 | | 20,261 | | 9,579,739 | | - | | - | | 9,600,000 |
| | | | | | | | | | | | |
Common stock issued for exercise of options | 2,769 | | 1 | | 31 | | - | | - | | 32 | |
| | | | | | | | | | | | |
Options issued to related party for services | - | | - | | 92,213 | | - | | - | | 92,213 | |
| | | | | | | | | | | | |
Beneficial conversion feature of convertible notes payable | - | | - | | 50,725 | | - | | - | | 50,725 | |
| | | | | | | | | | | | |
Balance December 31, 2009 | 62,381,118 | $ | 6,239 | $ | 15,353,102 | $ | (15,955,706) | $ | (64,041) | $ | (660,406) | |
Common stock issued for acquistion, retracted | | (52,920,000) | | (5,292) | | (3,084,228) | | - | | - | | (3,089,520) |
Common stock issued for conversion of convertible notes payable | | 29,143,814 | | 2,914 | | 1,998,497 | | - | | - | | 2,001,411 |
Common stock issued for settlement of amounts due to stockholder | | 6,248,417 | | 625 | | 444,798 | | - | | - | | 445,423 |
Options issued to related parties for services | | - | | - | | 14,420 | | - | | - | | 14,420 |
Beneficial conversion feature of convertible note payable | | - | | - | | 22,109 | | - | | - | | 22,109 |
Balance December 31, 2010 | | 640,023,118 | $ | 64,000 | $ | 25,532,084 | $ | (22,737,828) | $ | 159,732 | $ | 3,017,988 |
| | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements. | See accompanying notes to consolidated financial statements. | | | | | | | | | | | | | | | | | | | | | |
F-4
INTELLIGENT COMMUNICATION ENTERPRISE CORPORATION | INTELLIGENT COMMUNICATION ENTERPRISE CORPORATION | | | INTELLIGENT COMMUNICATION ENTERPRISE CORPORATION |
(formerly Mobiclear Inc.) | | | | | |
Consolidated Statements of Cash Flows | | Consolidated Statements of Cash Flows | | | | |
For the years ended December 31, 2010 and 2009 | | For the years ended December 31, 2010 and 2009 | | | | |
| | | | | | | | | | | | |
Consolidated Statements of Cash Flows | | | | | |
For the years ended December 31, 2009 and 2008 | | | | | |
| | | | 2009 | | 2008 | | | 2010 | | 2009 |
Cash provided by (used in): | Cash provided by (used in): | | | | | Cash provided by (used in): | | | | |
| | | | | | | | | | | | |
Operating activities: | Operating activities: | | | | | Operating activities: | | | | |
| Net loss for the period | $ | (3,706,125) | $ | (2,835,748) | |
| Adjustment to reconcile net loss for the period to | | | | | Net loss for the year | $ | (6,782,122) | | $ | (3,706,125) |
| net cash used in operating activities: | | | | | Adjustment to reconcile net loss for the year to | | | | |
| | Depreciation of property and equipment | | 543,950 | | 3,819 | net cash used in operating activities: | | | | |
| | Amortization of intangible assets | | 986,902 | | - | | Depreciation of property and equipment | | 500,100 | | 543,950 |
| | Equity line of credit discount | | 24,706 | | 289,586 | | Amortization of intangible assets | | 3,081,710 | | 986,902 |
| | Gain on settlement of debt | | - | | (104,885) | | Impairment loss | | 3,175,856 | | - |
| | Impairment loss on trademark | | - | | 20,066 | | Gain from retraction of shares | | (3,089,520) | | - |
| | Commissions paid on equity line of credit | | 60,000 | | 67,000 | | Equity line of credit discount | | - | | 24,706 |
| | Issue of shares for software products | | - | | 625,000 | | Commissions paid on equity line of credit | | - | | 60,000 |
| | Equity in loss of affiliate | | - | | 13,775 | | Common stock issued for services | | 1,242,900 | | 213,000 |
| | Common Stock issued for services | | 213,000 | | 77,418 | | Options issued to related parties for services | | 14,420 | | 92,213 |
| | Common Stock issued to related parties for services | | - | | 5,419 | | Amortization of debt discounts and beneficial conversion | | | | |
| | Options issued to related parties for services | | 92,213 | | 49,304 | | features of convertible loans | | 22,109 | | 185,794 |
| | Amortization of debt discounts and beneficial conversion | | | | | | Changes in assets and liabilities, net | | | | |
| | of convertible loans | | 185,794 | | 50,458 | | of effects of acquisition and disposition of subsidiaries: | | | | |
| | Changes in assets and liabilities | | | | | | Accounts receivable | | 284,845 | | (587,410) |
| | Accounts receivable | | (587,410) | | 32,610 | | Prepaid expenses and deposits | | 126,712 | | 46,306 |
| | Prepaid expenses and deposits | | 46,306 | | 4,521 | | Income taxes receivable | | 3,337 | | - |
| | Accounts payable | | 780,149 | | 259,947 | | Accounts payable | | 413,399 | | 780,149 |
| | Accrued expenses | | 106,185 | | (11,603) | | Accrued expenses | | (387,970) | | 106,185 |
| | Customer deposits and revenue in advance | | 305,164 | | - | | Customer deposits and revenue in advance | | (212,170) | | 305,164 |
| | Accrued compensation | | 159,636 | | 442,926 | | Accrued compensation | | 585,334 | | 159,636 |
| Net cash used in operating activities | | (789,530) | | (1,010,387) | Net cash used in operating activities | | (1,021,060) | | (789,530) |
| | | | | | | | | | | | |
Investing activities: | Investing activities: | | | | | Investing activities: | | | | |
| Purchase of property and equipment | | (47,105) | | (254) | Purchase of property and equipment | | (29,427) | | (47,105) |
| Cash component upon acquisition | | 677,250 | | 27 | Cash component upon acquisition / disposition | | (2,306) | | 677,250 |
| Increase in restricted cash | | (152,392) | | - | Decrease (increase) in restricted cash | | 152,392 | | (152,392) |
| Net cash provided by (used in) investing activities | | 477,753 | | (227) | Net cash provided by investing activities | | 120,659 | | 477,753 |
| | | | | | | | | | | | |
Financing activities: | Financing activities: | | | | | Financing activities: | | | | |
| Proceeds from exercise of options | | 32 | | - | Proceeds from exercise of options | | - | | 32 |
| Proceeds from equity lines of credit, net of commissions | | 80,000 | | 933,000 | Proceeds from equity lines of credit, net of commissions | | - | | 80,000 |
| Repayment of equity line of credit | | (40,000) | | - | Repayment of equity line of credit | | - | | (40,000) |
| Advance from subsidiary pre-acquisition | | - | | 76,068 | Proceeds from advance from director | | - | | 26,260 |
| Proceeds of convertible notes | | - | | 50,000 | Proceeds from advance from directors of subsidiary | | | | |
| Proceeds from advance from director | | 26,260 | | - | | prior to acquistion | | - | | 460,532 |
| Proceeds from advance from directors of subsidiary | | | | | Repayment of advances to employees | | 29,938 | | - |
| | prior to acquistion | | 460,532 | | - | Proceeds from advance from affiliated company | | 528,450 | | 412,736 |
| Proceeds from advance from affiliated company | | 412,736 | | - | Net cash provided by financing activities | | 558,388 | | 939,560 |
| Net cash provided by financing activities | | 939,560 | | 1,059,068 | | | | | | |
| | | | | | | |
Increase in cash during the period | | 627,783 | | 48,454 | |
Increase in cash during the year | | Increase in cash during the year | | (342,013) | | 627,783 |
Foreign exchange effect on cash | Foreign exchange effect on cash | | (21,509) | | (60,419) | Foreign exchange effect on cash | | (91,433) | | (21,509) |
| | | | | | | | | | | | |
Cash at beginning of the period | | 14,138 | | 26,103 | |
Cash at beginning of the year | | Cash at beginning of the year | | 620,412 | | 14,138 |
| | | | | | | | | | | | |
Cash at end of the period | $ | 620,412 | $ | 14,138 | |
Cash at end of the year | | Cash at end of the year | $ | 186,966 | | $ | 620,412 |
| | | | | | | | | | | | |
See accompanying notes to consolidated financial statements. | See accompanying notes to consolidated financial statements. | | | See accompanying notes to consolidated financial statements. | | | | |
F-5
INTELLIGENT COMMUNICATION ENTERPRISE CORPORATION | INTELLIGENT COMMUNICATION ENTERPRISE CORPORATION | | | | | | INTELLIGENT COMMUNICATION ENTERPRISE CORPORATION | | |
(formerly Mobiclear Inc.) | | | | | | |
| | | | | | | | |
Consolidated Statements of Cash Flows (continued) | Consolidated Statements of Cash Flows (continued) | | | | | | Consolidated Statements of Cash Flows (continued) | | | | |
For the years ended December 31, 2009 and 2008 | | | | | | |
For the years ended December 31, 2010 and 2009 | | For the years ended December 31, 2010 and 2009 | | | | |
| | | | | | | | | | | | | |
Supplementary Information: | Supplementary Information: | | | | | | Supplementary Information: | | | | |
| | | | | | | | | | 2010 | | 2009 |
| | | | 2009 | | | 2008 | | | | | | |
| | | | | | | | Interest paid | $ | - | | $ | 98 |
| Interest paid | $ | 98 | | $ | - | Income taxes paid | | - | | - |
| Income taxes paid | | - | | | - | | | | | | |
| | | | | | | | Non-cash transactions: | | | | |
| Non-cash transactions: | | | | | | | Convertible note payable issued for settlement | | | | |
| | Convertible notes payable issued for settlement | | | | | | | of accounts payable, accrued expenses, advances to related parties | | - | | 829,187 |
| | of accounts payable | | - | | | 354,502 | | Promissory note payable issued for settlement of equity line of credit | | - | | 17,352 |
| | Convertible note payable issued for settlement | | | | | | | Beneficial conversion feature issued with | | | | |
| | of accounts payable, accrued expenses, advances to related parties | | 829,187 | | | - | | convertible notes payable | | - | | 50,725 |
| | Promissory note payable issued for settlement of equity line of credit | | 17,352 | | | - | | Common stock issued for settlement of | | | | |
| | Warrants issued with convertible notes payable | | - | | | 42,201 | | accounts payable and accrued expenses | | - | | 112,697 |
| | Beneficial conversion feature issued with | | | | | | | Common stock converted for settlement of | | | | |
| | convertible notes payable | | 50,725 | | | 143,326 | | equity lines of credit | | - | | 417,649 |
| | Common stock issued for settlement of | | | | | | | Common stock issued for acquisition of subsidiary | | 9,600,000 | | 2,408,834 |
| | accounts payable and accrued expenses | | 112,697 | | | 657,458 | | Sale of shares of Radius-ED Ltd. for note receivable | | 500,000 | | - |
| | Common stock issued to related parties for | | | | | | | Common stock issued for conversion of convertible notes payable | | 2,001,411 | | - |
| | settlement of debt | | - | | | 244,718 | | Common stock issued for settlement of amounts due to stockholder | | 445,423 | | - |
| | Common stock converted for settlement of | | | | | | | | | | | |
| | equity lines of credit | | 417,649 | | | 1,412,626 | |
| | Common stock issued to related party | | | | | | |
| | for settlement of accrued compensation | | - | | | 63,287 | |
| | Common stock issued for acquisition of subsidiary | | 2,408,834 | | | 37,500 | |
| | Common stock issued for exercise of warrant | | | | | | |
| | paid by reduction of convertible note | | - | | | 4,325 | |
| | | | | | | | |
| | Acquisition of Mobiclear, Inc. (Philippines) | | | | | | |
| | Fair value of assets acquired | | - | | | 103,986 | |
| | Liabilities assumed | | - | | | (62,801) | |
| | | | | | | 41,185 | |
| | | | | | | | |
See accompanying notes to consolidated financial statements. | See accompanying notes to consolidated financial statements. | | | | | | See accompanying notes to consolidated financial statements. | | | | |
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of Business and Summary of Significant Accounting Policies
Organization
Intelligent Communication Enterprise Corporation (formerly Mobiclear Inc.) (the “Company” or “Intelligent”) is in the integrated mobile communications business. The Company operates in twothree business segments – electronic Personal Identification Verification (“PIV”)iCEmms (mobile-messaging services), iCEsync (multimedia solutions in connection with credit/debit cardto mobile communities), and internet transactions through Mobiclear and international mobile messaging through its Radius segment.iCEmat (mobile-authentication technologies).
On November 12, 2009, Intelligent acquired all of the stock of Radius-ED Limited (“Radius”) through the issuance of 54,255,318379,787,226 shares of common stock of Intelligent (representing 89% of post-issuance voting stock) and issuance of a convertible promissory note in the amount of $1,500,000. Prior to the acquisition of Radius, Whitefields Capital Limited held a majority of Intelligent’s and Radius’s voting stock. Specifically, Whitefields Capital Limited owned 62% of the voting stock of Intelligent and 100% of the voting stock of Radius. In addition, certain members of Whitefields Capital Limited’s management and board of directors served on the board of Intelligent. Based on these facts, Intelligent and Radius were deemed under the common control of Whitefields Capital Limited. As the entities were deemed under common control, the acquisition has been recorded using the pooling-of-interest method effective as of January 1, 2009. As such, the financial information for the 2009 fiscal year reflects the financial statements of the combined companies in accordance with Financial Accounting Standards Board (“FASB”) standards on business combinations for entities under common control. The entities were not under common control during 2008, so those consolidated financial statements represent those
On January 20, 2010, Intelligent acquired all of the separate company,stock of Solesys S.A. through the issuance of 149,693,061 shares of common stock of Intelligent. Intelligent has accounted for this transaction using the acquisition method required by FASB Topic 805, Business Combinations.
Going Concern
The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred losses and has negative working capital as of December 31, 2009.2010. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. It is the Company’s intention to raise additional equity to finance the further development of markets for its products until positive cash flows can be generated from its operations. However, there can be no assurance that such additional funds will be available to the Company when required or if available, on terms acceptable to the Company. Such limitations could have a material adverse effect on the Company’s business, financial condition, or operations, and these consolidated financial statements do not include any adjustment that could result. Failure to obtain sufficient additional funding would necessitate the Company to reduce or limit its operating activities or even discontinue operations.
Principles of Consolidation
The 20082009 consolidated financial statements include the accounts of Intelligent Communication Enterprise Corporation and its wholly owned subsidiariessubsidiaries: Mobiclear Ltd., Mobiclear, Inc. (Philippines), and Mobiclear Inc. (British Virgin Islands)., Radius-ED Limited, ICE Mobile Sdn Bhd., and Radius-ED Inc. For 2009,2010, the consolidated financial statements include all of the aforementioned companies and Solesys S.A. and ICE Messaging Pte. Ltd. Operations of Radius-ED Limited, Radius-Ed Sdn Bhd.Radius-ED Inc., Mobiclear, Inc. (Philippines), and Radius-ED Inc.Solesys S.A. have been included up to the time of divestiture. All significant inter-company balances and transactions have been eliminated.
Development-Stage Enterprise
Management has determined that the Company emerged from the development stage effective as of January 1, 2009, upon the acquisition of Radius. The Company’s consolidated financial statements are no longer presented as a development-stage enterprise.
Cash
Cash consists of checking accounts held at financial institutions in the Philippines, Malaysia Singapore, and the United States.Singapore. At times cash balances may exceed insured limits. The Company has not experienced any losses related to these balances, and management believes the credit risk to be minimal.
Restricted Cash
Restricted cash consists of a deposit with a financial institution in Singapore and has been lodged as security for a letter of credit issued in favor of a supplier.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable result primarily from provision of mobile messagingproviding mobile-messaging services to customers and are recorded at their principal amounts. Receivables are considered past duepast-due after 30 days. When necessary, the Company provides an allowance for doubtful accounts that is based on a review of outstanding receivables, historical collection information, and current economic conditions. There is an allowance for doubtful accounts of $62,136 at December 31, 2010, and $137,300 at December 31, 2009. Receivables are generally unsecured. Account balances are charged off against the allowance when the Company determines it is probable the receivable will not be recovered. The Company does not have off-balance sheet credit exposure related to its customers. At December 31, 2010, three customers accounted for 42% of the net accounts receivable balance, and as at December 31, 2009, one customer accounted for 35% of the net accounts receivable balance.receivable.
Fair Value Measurements
Fair value is defined as the exchange price that will be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageons market for such assets of liability in an orderly transaction between market participants on the measurement date.principal. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. To measure fair value, the Company uses the following fair value hierarchy based on three levels of inputs, of which the first two are considered to be observable and the third unobservable:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs are supported by little or no market activity and are significant to the fair value of the assets or liabilities.
Property and Equipment
Property and equipment is primarily comprised of furniture, computer equipment and software, vehicles, and leasehold improvements that are recorded at cost and depreciated or amortized using the straight-line method over their estimated useful lives as follows: furniture, seven years; computer equipment, five years; computer equipment and software, three years; leasehold improvements, over the lesser of the estimated remaining useful life of the asset or the remaining term of the lease.
DepreciationAmortization of property and equipmentleasehold improvements is based on the estimated useful lives of the assets and is computed using the straight-line method over three years.included with depreciation. Repairs and maintenance costs are charged to expense as incurred. Expenditures that substantially increase the useful lives of existing assets are capitalized.
F-8
Intangible Assets
Intangible assets includesinclude software development costs, customer lists, and supplier contracts and are amortized on a straight-line basis over the estimated useful lives of two to three years. As of and for the year ended December 31, 2009,2010, amortization expense was $3,081,710 and accumulated amortization was $986,902.$4,098,298. The Company periodically evaluates whether changes have occurred that would require revision of the remaining estimated useful life. The Company performs periodic reviews of its capitalized intangible assets to determine if the assets have continuing value to the Company.
The Company expenses all costs related to the development of internal-use software as incurred, other than those incurred during the application development stage, after achievement of technological feasibility. Costs incurred in the application development stage are capitalized and amortized over the estimated useful life of the software. Internally developed software costs are amortized on a straight-line basis over the estimated useful life of the software. The Company performs periodic reviews of its capitalized software development costs to determine if the assets have continuing value to the Company. Costs for assets that are determined to be of no continuing value are written off. During the yearyears ended December 31, 2010 and 2009, the Company capitalized developedthere have been no software development costs of $31,579.capitalized.
Impairment of Other Long-Lived Assets
The Company evaluates the recoverability of its property and equipment and other long-lived assets whenever events or changes in circumstances indicate impairment may have occurred. An impairment loss is recognized when the net book value of such assets exceeds the estimated future undiscounted cash flows attributed to the assets or the business to which the assets relate. Impairment losses, if any, are measured as the amount by which the carrying value exceeds the fair value of the assets. For the yearsyear ended December 31, 20092010, the Company has charged operations with an impairment loss of $3,175,856, of which $668,456 was associated with management’s assessment of the impairment of customer and 2008,reseller relationships and supplier contracts and $2,507,400 was associated with intangible assets acquired in 2010 (see note 3). During the year ended December 31, 2009, no potential impairment losses related to the Company’s long-lived assets were identified.
Revenue Recognition
The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue, which includes charges on a transactional basis and support fees, realized or realizable and earned when the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, price is fixed and determinable, and collectability is reasonably assured. The Company establishes persuasive evidence of a sales arrangement for each type of revenue transaction based on a signed contract with the aggregator or end user. RadiusICE Mobile provides operators with the “SMS Gateway,” which is the infrastructure acting as the intermediary between the mobile operators’ short messageshort-message service, or SMS, centers and the content providers’ mobile content applications. Customers are the mobile operators’ fixed and mobile subscribers who utilize the content, which is the data ranging from entertainment to information to whichthat customers can access and receive by SMS. Revenue is recognized based on the number of mobile terminating (“MT”) or transmitted messages from the SMS center and/or SMS Gateway to the cellular handset.
Advertising Expenses
It is the Company’s policy to expense advertising costs as incurred. No advertising costs were incurred during 20092010 and 2008.2009.
F-9
Research and Development Expenses
Research and development expenses include all direct costs, primarily salaries for Company personnel and outside consultants, related to the development of new products, significant enhancements to existing products, and the portion of costs of development of internal use software required to be expensed. Research and development costs are charged to operations as incurred with the exception of those software development costs that may qualify for capitalization.
Income Taxes
Deferred income tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities, operating loss, and tax credit carryforwards, and are measured using the enacted income tax rates and laws that will be in effect when the differences are expected to be recovered or settled. Realization of certain deferred income tax assets is dependent upon generating sufficient taxable income in the appropriate jurisdiction. The Company records a valuation allowance to reduce deferred income tax assets to amounts that are more likely than not to be realized. The initial recording and any subsequent changes to valuation allowances are based on a number of factors (positive and negative evidence). The Company considers its actual historical results to have a stronger weight than other more subjective indicators when considering whether to establish or reduce a valuation allowance.
The Company continually evaluates its uncertain income tax positions and may record a liability for any unrecognized tax benefits resulting from uncertain income tax positions taken or expected to be taken in an income tax return. Estimated interest and penalties are recorded as a component of interest expense and other expense, respectively.
Because tax laws are complex and subject to different interpretations, significant judgment is required. As a result, the Company makes certain estimates and assumptions in: (1) calculating its income tax expense, deferred tax assets, and deferred tax liabilities; (2) determining any valuation allowance recorded against deferred tax assets; and (3) evaluating the amount of unrecognized tax benefits, as well as the interest and penalties related to such uncertain tax positions. The Company’s estimates and assumptions may differ significantly from tax benefits ultimately realized.
Net Loss per Share
Basic net loss per share is calculated by dividing the net loss attributable to common shareholders by the weighted average number of common shares outstanding in the period. Diluted loss per share takes into consideration common shares outstanding (computed under basic loss per share) and potentially dilutive securities. For the years ended December 31, 20092010 and 2008,2009, outstanding stock options and warrants are antidilutive because of net losses, and as such, their effect has not been included in the calculation of diluted net loss per share. Common shares issuable are considered outstanding as of the original approval date for purposes of earnings per share computations.
Accumulated Other Comprehensive Income (Loss)
Other comprehensive income (loss), as defined, includes net income, foreign currency translation adjustment, and all changes in equity (net assets) during a period from non-owner sources. To date, the Company has not had any significant transactions that are required to be reported in other comprehensive income (loss), except for foreign currency translation adjustments.
F-10
Foreign Operations and Currency Translation
The functional currency of the Company’s foreign subsidiaries is the local currency. Assets and liabilities of foreign subsidiaries, other than those denominated in U.S. dollars, are translated into U.S. dollars at the rate of exchange at the balance sheet date. Revenues and expenses are translated at the average rate of exchange throughout the year. Gains or losses from these translations are reported as a separate component of other comprehensive income (loss) until all or a part of the investment in the subsidiaries is sold or liquidated. The translation adjustments do not recognize the effect of income tax because the Company expects to reinvest the amounts indefinitely in operations.
Transaction gains and losses that arise from exchange-rate fluctuations on transactions denominated in a currency other than the local functional currency are included in general and administrative expenses.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“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 fiscal year. The Company makes estimates for, among other items, useful lives for depreciation and amortization, determination of future cash flows associated with impairment testing for long-lived assets, determination of the fair value of stock options and warrants, valuation allowance for deferred tax assets, allowances for doubtful accounts, and potential income tax assessments and other contingencies. The Company bases its estimates on historical experience, current conditions, and other assumptions that it believes to be reasonable under the circumstances. Actual results could differ from those estimates and assumptions.
Financial Instruments
The Company has the following financial instruments: cash, accounts receivable, notes receivable, accounts payable, accrued expenses, and wages, and convertible promissory notes.notes payable. The carrying valuevalues of these financial instruments approximatesapproximate their fair value due to their liquidity or their short-term nature.
Share-Based Compensation
The Company accounts for stock-based awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of stock options is determined using the Black-Scholes valuation model, which is consistent with the Company’s valuation techniques previously utilized for options in footnote disclosures.
Reclassifications
Certain amounts from the December 31, 2008,2009, consolidated financial statements have been reclassified to conform with the current year’s presentation.
F-11
Note 2. Recent Accounting Pronouncements
In June 2009, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162. This statement modifies the GAAP hierarchy by establishing only two levels of GAAP, authoritative and non-authoritative accounting literature. Effective July 2009, the FASB Accounting Standards Codification (“ASC”), also known collectively as the “Codification,” is considered the single source of authoritative U.S. accounting and reporting standards, except for additional authoritative rules and interpretive releases issued by the Securities and Exchange Commission. Non-authoritative guidance and literature would include, among other things, FASB Concepts Statements, American Institute of Certified Public Accountants Issue Papers and Technical Practice Aids, and accounting textbooks. The Codification was developed to organize GAAP pronouncements by topic so that users can more easily access authoritative accounting guidance. It is organized by topic, subtopic, section, and paragraph, each of which is identified by a numerical designation. ThisThe adoption has not had a material effect on the Company’s consolidated financial statements.
In August 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, Fair Value Measurements and Disclosures (Topic 820) Measuring Liabilities at Fair Value (“Update 2009-05”). Update 2009-05 clarifies that in circumstances in which a quoted price in an active market for an identical liability is not available, a reporting entity is required to measure fair value of such liability using one or more of the techniques prescribed by the update. On November 1, 2009, the Company adopted Update 2009-05. There was no significant impact on the Company’s consolidated financial statements.
In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This guidance amends the disclosure requirements related to recurring and nonrecurring fair value measurements and requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance became effective for fiscal years ending after December 15, 2010. The adoption has not had a material effect on the Company’s consolidated financial statements.
In July 2010, the FASB issued guidance to enhancement disclosures about the credit quality of a creditor’s financing receivables and the adequacy of its allowance for credit losses. The amended guidance is effective for period-end balances beginning with the first interim or annual reporting period ending on or after December 15, 2010. The amended guidance is effective for activity during a reporting period beginning with the first interim or annual reporting period beginning on or after December 15, 2010. The adoption has not had a material effect on the Company’s consolidated financial statements.
F-12
Note 3. Business Combinations
Acquisition of Radius-ED and SubsidiariesSolesys S.A.
On November 12, 2009, IntelligentJanuary 20, 2010, the Company acquired all of the stock of Radius-ED LimitedSolesys S.A. (“Radius”Solesys”) throughin a purchase agreement that required the issuance of 54,255,31828,944,723 shares of common stock (202,613,061 post-split shares) of Intelligentthe Company with a fair value of $9.6 million. The primary assets of Solesys were intangible assets represented by two completed software products that broadened the Company’s technology solutions, which had a fair value of $7 million at the date of acquisition, and a convertible promissory notenumber of incomplete products, valued at $2.6 million at the acquisition. With respect to the incomplete products, there was agreement that the vendors of Solesys would assist in the amount of $1,500,000. Priorcompleting their development. Subsequent to the acquisition and following the post-acquisition measurement period as provided by the accounting standards relative to acquisition accounting, the Company and the former shareholders of Radius, in 2009 Whitefields Capital Limited acquired a majority of Intelligent’s and Radius’s voting stock. Specifically, Whitefields Capital Limited owned 62%Solesys determined that further development of the voting stock of Intelligentincomplete software products would not be completed and 100%agreement was reached whereby the former shareholders would return to the Company 7,560,000 shares (52,920,000 post-split-shares) of the voting stockpurchase price. The fair value of Radius. In addition, certain membersthe shares returned to the Company was $3,089,520 as of Whitefields Capital Limited’s management and board served on the boardeffective date of Intelligent. Based on these facts, Intelligent and Radius were deemed under the common control of Whitefields Capital Limited. As the entities were deemed under common control, the acquisitionreturn, which amount has been recorded effective as a gain consistent with accounting standards relative to acquisition accounting. Further, the Company considered the incomplete software products impaired and recognized an impairment loss of January 1, 2009, using$2,507,400, representing the pooling-of-interest methodcarrying amount of the intangible asset at that date.
In December 2010, the two acquired software products were transferred from Solesys to the parent company, and the Solesys corporate vehicle, including all its remaining assets and liabilities, was sold back to the original shareholders for a nominal amount of $1. The sale of Solesys resulted in an immaterial gain.
The financial information for the 2009 fiscal year ended December 31, 2010, reflects the financial statementsresults of the combined companiesentities, effective from January 20, 2010, through the sale in accordance with FASB standards on business combinations for entities under common control. Radius was acquired to position the Company for delivery of services.
The entities were not under common control during 2008, so those consolidated financial statements represent those of the separate company Intelligent.
In 2009, Whitefields Capital Limited acquired Radius in a business combination accounted for using the acquisition method required by Topic 805, Business Combinations. Whitefields Capital Limited’s cost basis in Radius had been used to determine the accounting cost for the combination of Radius and Intelligent as described above.December 2010.
A summary of the assets and liabilities acquired, by Whitefields Capital Limitedbased on management’s assessment of their respective fair value as of the date of acquisition, is as follows:
Assets | | |
Cash | $ | 618,371 |
Accounts receivable | | 957,720 |
Income taxes receivable | | 15,762 |
Prepaid expenses | | 221,706 |
Due from related parties | | 1,722 |
Property and equipment | | 929,742 |
Intangible assets | | 3,050,671 |
Total assets | | 5,795,695 |
| | |
Liabilities | | |
Accounts payable and accrued expenses | | 2,228,722 |
Customer deposits and advance revenue | | 165,619 |
Due to related party | | 246,298 |
Total liabilities | | 2,640,640 |
Net assets acquired | $ | 3,155,056 |
| | |
Assets | | |
Cash | $ | 28,617 |
Accounts receivable | | 83,158 |
Due from related parties | | 411,954 |
Property and equipment | | 39,017 |
Intangible assets | | 9,623,318 |
Total assets | | 10,186,064 |
| | |
Liabilities | | |
Accounts payable and accrued expenses | | 586,064 |
| | |
Net assets acquired | $ | 9,600,000 |
The following is a summary of the combined operations for the year ended December 31, 2009:
| | Intelligent Communication Enterprise Actual 1/1/2009 to 12/31/2009 | | | Radius-ED Actual 1/1/2009 to 12/31/2009 | | | Combined |
Revenue | $ | - | | $ | 9,659,154 | | $ | 9,659,154 |
Cost of revenue | | - | | | 7,776,285 | | | 7,776,285 |
| | - | | | 1,882,869 | | | 1,882,869 |
Expenses | | | | | | | | |
General and administrative | | 1,185,492 | | | 4,109,996 | | | 5,295,488 |
Research and development | | 37,707 | | | - | | | 37,707 |
| | 1,223,199 | | | 4,109,996 | | | 5,333,195 |
| | | | | | | | |
Other income and expense | | | | | | | | |
Interest expense | | (65,905) | | | - | | | (65,905) |
Interest expense – related parties | | (199,345) | | | - | | | (199,345) |
Interest income | | 6 | | | 9,445 | | | 9,451 |
| | (265,244) | | | 9,445 | | | (255,799) |
| | | | | | | | |
Net income (loss) for the period | $ | (1,488,443) | | $ | (2,217,682) | | $ | (3,706,125) |
Unaudited pro forma results of the Company for the year ended December 31, 2008,2009, as if the acquisition occurred on January 1, 2008,2009, after giving effect to certain acquisition accounting adjustments, are stated below. These pro forma results are not necessarily indicative of what the Company’s operating results would have been had the acquisition actually taken place at the beginning of the period:
| Intelligent Communication Enterprise Actual 1/1/2008 to 12/31/2008 | | Radius-ED Actual 1/1/2008 to 12/31/2008 | | Pro Forma | Intelligent Communication Enterprise Actual 1/1/2009 to 12/31/2009 | | Solesys 1/1/2009 to 12/31/2009 | | Pro Forma |
Revenue | $ 2,500 | | $ 7,449,695 | | $ 7,452,195 | $ 9,659,154 | | $ 311,352 | | $ 9,970,506 |
Net income (loss) for the period | $(2,835,748) | | $ (962,116) | | $(3,797,864) | (3,706,125) | | (3,197,387) | | (6,903,512) |
Loss per share – basic and diluted | $ (44.65) | | - | | $ (59.80) | $(0.09) | | | | $(0.04) |
Note 4. Note Receivable
During the year ended December 31, 2010, the Company undertook an internal restructuring of its operations and certain tangible and intangible assets. Following this internal restructuring, effective June 11, 2010, the Company sold 100% of the shares of Radius-ED Limited and Radius-ED Inc. to a third party in exchange for a note receivable of $500,000. Assets remaining in the entities sold consisted of a processing license and a portion of the Company’s customer list and supplier relationships. Liabilities remaining in the entities sold consisted of accounts payable and accrued expenses of $1,097,149. This sale did not result in a material gain or loss.
The consolidated statement of operations for the year ended December 31, 2010, includes the results of Radius-ED Ltd. and Radius-ED Inc. through the date of the sale.
Note 4.5. Property and Equipment, net
Property and equipment consistsconsist of the following:
| | | 2009 | | | 2008 | 2010 | | 2009 |
Furniture, computer equipment and software | | $ | 2,509,238 | | $ | 13,163 | $ | 2,791,700 | | $ | 2,509,238 |
Leasehold Improvements | | | 48,736 | | - | |
Leasehold improvements | | | 48,630 | | | 48,736 |
Vehicle | | | 54,094 | | | - | | - | | | 54,094 |
| | | 2,612,068 | | | 13,163 | | 2,840,330 | | | 2,612,068 |
Less accumulated depreciation | | | (1,827,366) | | | (4,642) | | (2,470,355) | | | (1,827,366) |
| | | | | | | | | |
Property and equipment, net | | $ | 784,702 | | $ | 8,521 | $ | 369,975 | | $ | 784,702 |
Depreciation expense for 2010 and 2009 was $500,100 and 2008 was $543,950, and $3,819, respectivelyrespectively.
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Note 5. Intangibles6. Intangible Assets
Intangible assets consistsconsist primarily of software development costs, customer and reseller relationships, and supplier contracts, which are amortized over the estimated useful life, generally on a straight-line basis with the exception of customer relationships, which are generally amortized over the greater of straight-line or the related asset’s pattern of economic benefit.benefit:
| | | 2009 | | | 2008 |
Customer relationships | | $ | 1,271,113 | | $ | - |
Supplier contracts | | | 1,779,558 | | | - |
| | | 3,050,671 | | | - |
Less accumulated depreciation | | | (1,013,380) | | | - |
| | | | | | |
| | $ | 2,037,291 | | $ | - |
| December 31, 2010 | | December 31, 2009 |
Customer and reseller relationships | $ | 655,955 | | $ | 1,271,113 |
Supplier contracts | | 1,062,852 | | | 1,779,558 |
Intellectual property | | 6,346,370 | | | -- |
| | 8,065,177 | | | 3,050,671 |
Less accumulated amortization | | (4,098,298) | | | (1,013,380) |
| | | | | |
Intangible assets, net | $ | 3,966,879 | | $ | 2,037,291 |
Note 6. Equity Lines of CreditAmortization expense for the years ended December 31, 2010 and 2009, was $3,081,710 and $986,902, respectively.
In February 2008, the Company entered into a second private placement equity line for $300,000. This equity line was converted to unrestricted common stockAn impairment loss of the Company, with the timing at the discretion of the investor, at a discount of 25% to the average of the closing prices for the three trading days prior to conversion. The beneficial conversion feature expense on this equity line of credit amounted to $100,000 and$3,175,856 has been charged to operations as interest expense. Duringrecorded for the year ended December 31, 2008, the Company renegotiated the terms2010, of which $668,456 was associated with management’s assessment of the loanimpairment of customer and reducedreseller relationships and supplier contracts and $2,507,400 was associated with intangible assets acquired in 2010.
The net book value of intangible assets will be fully amortized during the outstanding amount by $104,885 with the resultant gain being recorded in operations. As part of the commission, the Company is also obligated to issue warrants exercisable for five years from the date of issue for a number of shares of common stock equal to 10% of the number of shares of common stock issued pursuant to this investment. As ofyear ending December 31, 2009, the Company is obligated to issue warrants to purchase 2,640 shares of common stock. As of December 31, 2009, $237,763 has been converted into 26,400 shares of common stock and $40,000 was repaid.2011.
Note 7. Promissory Note
The Company issued a non-interest-bearing promissory note, due June 15, 2009, forin the balanceamount of $17,352. The promissory note remains unpaid as of December 31, 2009.2010.
In December 2008, the Company entered into a private placement equity line totaling $200,000. In March 2009, the Company entered into a private placement equity line totaling $130,000 and in June 2009 an additional $10,000 was received. These equity lines have been converted to unrestricted common stock of the Company at the average of the lowest three closing prices for the prior 10 trading days, less a discount of 15%. The beneficial conversion feature on the $200,000 equity line was $35,294 and has been charged in full to interest for the year ended December 31, 2008. The beneficial conversion feature on the $130,000 equity line was $22,941 and has been charged in full to interest for the year ended December 31, 2009. There was no beneficial conversion on the $10,000 equity line received in June 2009.
During the year ended December 31, 2009, the total equity lines of $340,000 have all been converted into 1,032,459 shares of common stock.
Note 7.8. Convertible Notes Payable
During the year ended December 31, 2008, the Company entered into agreements2010, $1,912,736 of convertible promissory notes and issued four convertible notes payable, all with the following attributes:
· | term of 12 months from date of issue; |
· | interest of 10% per annum payable quarterly in arrears; |
· | convertible to common shares of the Company: |
° | at 80% of the average market closing price for the Company’s stock for the 10 days prior to conversion if the conversion is initiated by the holder of the note; and
|
° | at 75% of the average market closing price for the Company’s stock for the 10 days prior to conversion if the conversion is initiated by the Company; and
|
· | warrants to purchase 2,500 shares of common stock of the Company, exercisable for a period of five years after issuance, at the lesser of the average market closing price for the 10 days prior to issuance of the warrant and the holder-initiated conversion rate or Company-initiated conversion rate as defined in the convertible note at which shares of the Company’s common stock were most recently issued. |
The Company recorded a discount against each$88,675 of the convertible loans based on the relative fair value of the warrants to purchase shares of common stock. Total relative value of warrants issued was $42,201, of which $12,507 was expensed during the year ended December 31, 2008, and $29,694 has been expensed during the year ended December 31, 2009, and is included in these consolidated financial statements.
The relative value of the beneficial conversion feature of the convertible notes payable was $143,326, of which $37,951 was expensed during the year ended December 31, 2008, and $105,375 has been expensed during the year ended December 31, 2009, and is included in these consolidated financial statements.
During the year ended December 31, 2009, all four convertible notes payable, together withrelated accrued interest of $8,167,payable were converted into 3,093,57629,178,814 fully paid and nonassessable shares of common stock of the Company.
During the year ended December 31, 2009, the Company entered into agreements whereby $287,454 of amounts owing to an affiliated company controlled by a director of the Company were converted into three convertible promissory notes with interest of 6% per annum payable quarterly in arrears. Each of the promissory notes is due 12 months after the advance of funds with a conversion price equal to 85% of the average closing market price of the Company’s stock for the 10 trading days immediately preceding the conversion date. The relative value of the beneficial conversion feature of these convertible notes payable was $50,725 and has been expensed during the year ended December 31, 2009. The amounts and due dates of the individual convertible promissory notes are:
· | $63,925 due September 30, 2010 |
· | $121,343 due October 31, 2010 |
· | $102,186 due November 30, 2010 |
The Company issued a convertible promissory note in the amount of $1,500,000 as part of the consideration for the acquisition of the common shares of Radius. Interest of 6% per annum is payable quarterly in arrears and the note is convertible into common shares of the Company with a conversion price equal to the average closing market price of the Company’s stock for the 10 trading days immediately preceding the conversion date. The convertible promissory note is payable as follows:
· | February 10, 2010 - $250,000 |
· | May 15, 2010 - $250,000 |
· | September 15, 2010 - $500,000 |
· | December 10, 2010 - $500,000 |
Note 8.9. Related-Party Transactions
In August 2009, certain former directors, officers, and affiliated companies assigned a total of $829,187 to a company controlled by a former director of the Company. These amounts were then consolidated into a single demand convertible note in the amount of $829,187 (“the consolidated convertible note”). This note was unsecured, non-interest-bearing, except when in default when the interest rate becomes 18% per annum. The note was convertible into common shares of the Company. This note was converted into 2,997,060 fully paid shares of the capital stock of the Company on October 30, 2009.
During the year ended December 31, 2008,2009, the Company incurred consulting fees and expenses to a company controlled by a sister of a former$203,665 with an officer and director of the Company in the amount of $88,249. The balance outstanding as at December 31, 2009, is $21,302 and is recorded in accounts payable.Company.
During the years ended December 31, 2010 and 2009, an affiliated company advanced net funds and 2008,services in the amount of $780,368 and $412,736, respectively, of which $472,806 is included in amounts due to stockholder. During the year ended December 31, 2010, a previous balance owing of $125,282 was converted into a promissory note payable and $445,423 was settled through conversion to 6,248,417 shares of common stock.
During the year ended December 31, 2009, the Company incurred consulting fees and related expenses to a company controlled by a former director in the amount of $50,400 and $115,564, respectively. In August 2009, the balance owing of $34,114 was assigned and formed part of the consolidated convertible note payable.$50,400.
F-15
During the yearsyear ended December 31, 2009, and 2008, the Company acquired services from two affiliated companies controlled by a former director and former officer of the Company in the amount of $63,035 and $78,817, respectively. In August 2009, the balance owing of $125,088 was assigned and formed part of the consolidated convertible note payable.$63,035.
During the year ended December 31, 2009, the Company acquired services from a former officer of the Company in the amount of $7,599. In August 2009, the balance owing of $7,579 was assigned and formed part of the consolidated convertible note payable.
During the year ended December 31, 2009, the Company acquired services from a company controlled by a former officer of the Company in the amount of $618. In August 2009, the balance owing of $3,249 was assigned and formed part of the consolidated convertible note payable.
During the year ended December 31, 2009, a former director of the Company advanced $26,260. During August 2009, the advance was assigned and formed part of the consolidated convertible note payable.
During the year ended December 31, 2009, Radius incurred consulting fees of $200,857 with a director of the Company.
During the years ended December 31, 2009, an affiliated company advanced funds and services in the amount of $412,736. Of this amount, $287,454 was converted into convertible promissory notes. The balance owing of $125,282 is included in amounts due to stockholder.
Note 9.10. Share Capital
Preferred Stock
The Company’s authorized capital includes 150 million150,000,000 shares of preferred stock of $0.0001 par value. The designation of rights including voting powers, preferences, and restrictions shall be determined by the Board of Directors before the issuance of any shares.
No shares of preferred stock are issued and outstanding as of December 31, 20092010 and 2008.2009.
Common Stock
The Company is authorized to issue 250 billion shares of common stock, par value of $0.0001.
On December 15, 2010, the Board of Directors approved the forward-split of the issued and outstanding common stock on the basis of seven new shares for each share, effective upon the approval of the regulatory authorities. The Company’s common stock was forward-split effective as of December 30, 2010.
On January 14, 2010, the Board of Directors approved the forward-split of the issued and outstanding common stock on the basis of three new shares for each share, effective upon the approval of the regulatory authorities. The Company’s common stock was forward-split effective as of February 5, 2010.
On September 18, 2009, the Board of Directors approved the consolidation of the issued and outstanding common stock on the basis of one new share for each 600 shares, effective upon approval of the regulatory authorities. The Company’s common stock was consolidated effective as of October 20, 2009.
On June 19, 2008, the Board of Directors approved the consolidation of the issued and outstanding common stock on the basis of one new share for each 250 shares, effective upon approval of the regulatory authorities. The Company’s common stock was consolidated effective July 21, 2008.
The application of these stock consolidations and forward-splitforward-splits has been shown retroactively in these consolidated financial statements.
During the year ended December 31, 2010, the Company:
· | issued 16,800,000 shares of common stock for services received with a fair value of $1,140,000; |
· | issued 202,613,061 shares of common stock for the acquisition of all the outstanding shares of Solesys with a fair value of $9,600,000; |
F-16
· | retracted 52,920,000 shares of common stock, with a fair value of $3,089,520, related to the acquisition of Solesys (see note 3); |
· | issued 1,470,000 shares of common stock for services received with a fair value of $102,900; |
· | issued 29,143,814 shares of common stock for convertible promissory notes in the amount of $1,912,736 and accrued interest in the amount of $88,675; and |
· | issued 6,248,417 shares of common stock in settlement of $445,423 due to a stockholder. |
During the year ended December 31, 2009, the Company:
· | issued 608,1034,256,721 shares of common stock for conversion of $277,649 owed on an equity line of credit advances received during 2008; |
· | issued 439,3563,075,492 shares of common stock for conversion of $140,000 owed on equity lines of credit advances received in 2009; |
· | issued 498,0003,486,000 shares of common stock for services with a fair value of $213,000; |
· | issued 128,000896,000 shares of common stock for settlement of debt with a total fair value of $112,697; |
· | issued 2,76919,383 shares of common stock for the exercise of options with an aggregate conversion amount of $32; |
· | issued 2,997,06020,979,420 shares of common stock on the conversion of thea consolidated convertible note with a fair value of $829,187; |
· | issued 3,093,57621,655,032 shares of common stock on the conversion of convertible notes payable with a fair value of $408,344; and |
· | issued 54,255,318379,787,226 shares of common stock for the acquisition of all the outstanding shares of Radius with a fair value of $10 million. |
During the year ended December 31, 2008, the Company:
· | issued 5,367 shares of common stock for conversion of $601,474 owed on an equity line of credit advances received during 2007; |
· | issued 274,157 shares of common stock for conversion of $811,152 owed on equity lines of credit advances received in 2008; |
· | issued 6,351 shares of common stock for settlement of debt with a total fair value of $657,458; |
· | issued 4,031 shares of common stock for settlement of $244,718 of debt with related parties with a total fair value of $244,718; |
· | issued 90 shares of common stock in settlement of accrued compensation of a director with a fair value of $63,287; |
· | issued 2,796 shares of common stock in payment for services with a total fair value of $77,418; |
· | issued 521 shares of common stock to certain management for services with a total fair value of $5,419; |
· | issued 25,000 shares of common stock for the purchase of certain software products with a total fair value of $625,000; |
· | issued 36,250 shares of common stock for the acquisition of shares of a subsidiary company with a total fair value of $37,500; and |
· | issued 2,500 shares of common stock for the exercise of warrants with an aggregate exercise price of $4,325. |
Stock Purchase Warrants
At December 31, 2009,2010, the Company had reserved 7,78454,488 shares of the Company’s common stock for the following outstanding warrants:
Number of Warrants | Exercise Price | Expiry |
| | |
44 | $ 500.00 | 2011 |
40 | 575.00 | 2011 |
200 | 4,000.00 | 2012 |
2,500 | 0.22 | 2013 |
2,500 | 0.125 | 2013 |
2,500 | 0.125 | 2013 |
Number of Warrants | Exercise Price | Expiry |
| | |
308 | $ 71.43 | 2011 |
280 | 82.14 | 2011 |
1,400 | 571.43 | 2012 |
17,500 | 0.031 | 2013 |
35,000 | 0.018 | 2013 |
Pursuant to the second equity line of credit,a prior year debt arrangement, the Company is obligated to issue warrants, as commission fees, entitling the holder to purchase 2,64018,480 shares of common stock. There were no warrants issued or exercised during the year ended December 31, 2009.2010.
F-17
Note 10.11. Stock-Based Compensation
Although the Company does not have a formal stock option plan, it issues stock options to directors, employees, advisors, and consultants. Stock options generally have a three- to five-year contractual term, vest over a two- to three-year period, and forfeit 90 days after termination of employment.
A summary of the Company’s stock options as of December 31, 2009,2010, is as follows:
| | Number of | | Weighted Average | Number of | | Weighted Average |
| | Options | | Exercise Price | Options | | Exercise Price |
Outstanding at December 31, 2007 | | 675 | | $ 0.031 | |
Options issued: | | | | | |
to a director on May 3, 2008, fair value of $33,047 | | 804 | | 0.001 | |
to an employee on August 15, 2008, fair value of $14,180 | | 1,365 | | 0.020 | |
to employees on August 15, 2008, fair value of $1,872 | | 180 | | 0.001 | |
to an employee on December 8, 2008, fair value of $205 | | 120 | | 10.000 | |
Outstanding at December 31, 2008 | | 3,144 | | | 22,008 | | |
to an employee on May 1, 2009, fair value $96 | | 120 | | 0.002 | 840 | | $0.0003 |
options forfeited | | (180) | | 6.66 | (1,260) | | 0.095 |
options exercised | | (2,772) | | 0.001 | (19,404) | | 0.0001 |
to employees on November 12, 2009, fair value of $92,117 | | 681,750 | | 0.293 | 4,772,250 | | 0.042 |
| | | | | | | |
Outstanding at December 31, 2009 | | 682,062 | | $ 0.293 | 4,774,434 | | $0.042 |
Options forfeited | | (2,005,500) | | 0.042 |
Outstanding at December 31, 2010 | | 2,768,934 | | $0.042 |
The following table summarizes stock options outstanding at December 31, 2009:2010:
| | Number | | Average | | Number | | Intrinsic |
| | Outstanding | | Remaining | | Exercisable | | Value |
| | at | | Contractual | | at | | at |
| | December 31, | | Life | | December 31, | | December 31, |
Exercise Price | | 2009 | | (Years) | | 2009 | | 2009 |
$0.056 | | 312 | | 2.83 | | 312 | | $ 128 |
0.293 | | 681,750 | | 4.83 | | 326,250 | | 118,420 |
| | Number | | Average | | Number | | Intrinsic |
| | Outstanding | | Remaining | | Exercisable | | Value |
| | at | | Contractual | | at | | at |
| | December 31, | | Life | | December 31, | | December 31, |
Exercise Price | | 2010 | | (Years) | | 2010 | | 2010 |
$0.008 | | 2,184 | | 1.58 | | 2,184 | | $ 147 |
0.042 | | 2,766,750 | | 3.83 | | 2,488,535 | | 167,087 |
During the year ended December 31, 2009, 2,7722010, no options were exercised and 1802,005,500 options were forfeited.
At December 31, 2009, 354,812 options were not exercisable.
At December 31, 2009, 682,0622010, 2,768,934 shares of common stock were reserved.
The fair value of each option granted is estimated at the date of grant using the Black-Scholes option-pricing model. The assumptions used in calculating the fair value of the options granted in 2009 were: risk-free interest rate of 5.0%, a 2.5 year expected life, a dividend yield of 0.0%, and a stock price volatility factor of 226% to 260%.
Compensation expense included in the statement of operations related to the fair value of options issued during the years ended December 31, 2010 and 2009, is $14,420 and 2008, is $92,213, and $49,304, respectively.
Note 11.12. Income Taxes
No provision for income taxes has been made for the period since the Company incurred net losses.
F-18
Deferred Tax Assets
As of December 31, 2009,2010, the Company had federal net operating losses of approximately $5,594,000$6,130,000 available for future deduction from taxable income derived in the United States, which begin to expire in the year 2022. In addition, the Company’s United Kingdom subsidiary has non-capital losses of approximately U.S. $5,992,000$5,841,000 available for future deductions from taxable income derived in the United Kingdom, which do not expire, and the PhilippineMalaysian subsidiary has non-capital operating losses of approximately U.S. $181,000, which may be carried forward for up to 20 years.$200,000. The potential benefit of net operating loss carryforwards has not been recognized in the consolidated financial statements since the Company cannot determine that it is more likely than not that such benefit will be utilized in future years. Utilization of the Company’s net operating loss carryforwards may be limited in any one year if an ownership change, as defined in Section 382 of the Internal Revenue Code, has occurred. The tax years 20052006 through 20082010 remain open to examination by federal authorities and other jurisdictions in which the Company operates. The components of the net deferred tax asset and the amount of the valuation allowance are as follows:
| | 2009 | | | 2008 | 2010 | | 2009 |
Deferred tax assets | | | | | | | | |
Net operating loss carryforwards – United States | $ | 1,902,000 | | $ | 1,392,000 | $ | 2,084,000 | | $ | 1,902,000 |
Net operating loss carryforwards – Foreign | | 1,731,000 | | | 1,744,000 | | 1,675,000 | | | 1,731,000 |
Valuation allowance | | (3,633,000) | | | (3,136,000) | | (3,759,000) | | | (3,633,000) |
Net deferred tax assets | $ | -- | | $ | -- | $ | -- | | $ | -- |
The increase in the valuation allowance was $126,000 for 2010 and $497,000 for 2009 and $28,000 for 2008.2009.
The difference between the U.S. statutory federal tax rate of 34% in 20092010 and 20082009 and the provision for income tax of zero recorded by the Company are primarily attributable to the change in the Company’s valuation allowance against its deferred tax assets and to a lesser extent to the tax rate differential on losses in foreign countries.
Note 12.13. Commitments and Contingencies
Pursuant to a financing agreement entered into in February 2008, the Company is obligated to issue warrants, exercisable for five years from date of issue, for a number of shares of common stock equal to 10% of the number of shares issued under the equity line.financing. As at December 31, 2009,2010, the Company is obligated to issue warrants to purchase 2,64018,480 shares of common stock.
Pursuant to an agreement entered into in August 2008, the Company is obligated to issue shares of common stock equivalent to 1% of the issued and outstanding shares of the Company at each of March 1, 2009, June 1, 2009, and September 1, 2009.
Lease Commitments
The Company incurred total rent expense of $138,395$161,337 and $62,011,$138,395, for the years ended December 31, 20092010 and 2008,2009, respectively. Future lease commitments are as follows:for 2011 total $60,893.
2010 $96,510F-19
Note 13.14. Segment Information
The Company views itsWe operate on a global platform and as such have structured our operations in twothree lines of business, –each encompassing global business: (1) corporate and PIV;iCEmms (mobile-messaging services); (2) iCEsync (multimedia solutions to mobile communities); and (2) mobile messaging. The following(3) iCEmat (mobile-authentication technologies). Our summary financial information by segment for the years ended December 31, 20092010 and 2008,2009, as taken from the internal management reports, is as follows:
| | Year Ended | | | Year Ended |
| | December 31, 2009 | | | December 31, 2008 |
Revenue | | | | | |
Corporate and PIV | $ | - | | $ | 2,500 |
Mobile messaging | | 9,659,154 | | | - |
| $ | 9,659,154 | | $ | 2,500 |
Loss | | | | | |
Corporate and PIV | $ | (1,488,443) | | $ | (2,835,748) |
Mobile messaging | | (2,217,682) | | | - |
| $ | (3,706,125) | | $ | (2,835,748) |
Assets | | | | | |
Corporate and PIV | $ | 5,478 | | $ | 29,243 |
Mobile messaging | | 5,584,141 | | | - |
| $ | 5,589,619 | | $ | 29,243 |
| Year Ended December 31, 2010 | | Year Ended December 31, 2009 |
Revenue | | | | | |
iCEmat | $ | - | | $ | - |
iCEmms | | 8,855,053 | | | 9,659,154 |
iCEsync | | 80,267 | | | |
| $ | 8,935,320 | | $ | 9,659,154 |
Loss | | | | | |
iCEmat | $ | (20,215) | | $ | (1,488,443) |
iCEmms | | (3,527,342) | | | (2,217,682) |
iCEsync | | (3,234,565) | | | - |
| $ | (6,782,122) | | $ | (3,706,125) |
Assets | | | | | - |
iCEmat | $ | 502,500 | | $ | 5,478 |
iCEmms | | 2,523,384 | | | 5,584,141 |
iCEsync | | 3,499,999 | | | - |
| $ | 6,525,883 | | $ | 5,589,619 |
Revenues are attributed to geographical region based on location of customer.
| Year Ended December 31 | | Long-lived Assets |
| | 2010 | | 2009 | | | 2010 | | 2009 |
Revenues | | | | | | | | | |
Asia | $ | $6,152,354 | $ | $3,998,890 | | $ | $4,336,854 | $ | $2,821,993 |
Europe | | 2,782,966 | | 5,660,264 | | | - | | - |
All other regions | | - | | - | | | - | | - |
| $ | $8,935,320 | $ | $9,659,154 | | $ | $4,336,854 | $ | $2,821,993 |
Note 14.15. Subsequent Events
Subsequent to December 31, 2009,2010, the Company issued 3,192,854 shares of common stock in satisfaction of $225,000 of accrued compensation.
· | issued 28,944,723 shares of common stock for the acquisition of all the issued and outstanding stock, with a fair value of $9,600,000, of Solesys S.A.; |
· | issued 2,400,000 shares of common stock for services received of a fair value of $1,140,000; and |
· | converted $125,282 of advances from shareholder into a convertible promissory note with interest of 6% payable quarterly in arrears. The promissory note is due December 31, 2010, and may be converted into common shares of the Company with a conversion price equal to 85% of the average closing market price of the Company’s stock for the 10 trading days immediately preceding the conversion date. |
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