SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2007
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
Commission file number: 000-202559
SEAMLESS WI-FI, INC.
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(Name of Small Business Issuer as specific in its Charter)
NEVADA 33-0845463
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
800 N. RAINBOW BLVD., STE. 200, LAS VEGAS, NV 89109
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (775) 588-2387
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
Indicate by check mark whether the issuer (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 periods 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained herein, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. Yes X No __
For the year ended June 30, 2007, our revenue was $42,717.
As of October 4, 2007, the number of shares of common stock outstanding was
6,841,422,154. The aggregate market value of our common stock held by
non-affiliates of the registrant as of October 4, 2007 was approximately
$2,023,110 (based upon 6,743,701,705 shares at $.0003 per share).
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated herein by reference: (i) Quarterly
Report on Form 10-QSB for the quarterly period ended March 31, 1999, filed on
May 19, 1999; (ii) Quarterly Report on Form 10-QSB for the quarterly period
ended September 30, 1999, filed on December 1, 1999; (iii) Quarterly Report on
Form 10-QSB for the quarterly period ended March 31, 2000, filed on May 22,
2000; (iv) Current Report on Form 8-K, filed on October 4, 2004; (v) Current
Report on Form 8-K, filed on October 7, 2004; (vi) Annual Report on Form 10-KSB
for the fiscal year June 30, 2004, filed on November 12, 2004; (vii) Current
Report on Form 8-K, filed on January 19, 2005 and (viii) Quarterly Report on
Form 10-QSB for the quarterly period ended December 31, 2006, filed on February
20, 2007.
TABLE OF CONTENTS
PAGE
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ITEM 1 DESCRIPTION OF BUSINESS..................................................................................1
ITEM 2 DESCRIPTION OF PROPERTY..................................................................................9
ITEM 3 LEGAL PROCEEDINGS........................................................................................10
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................................10
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTTERS................................................10
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................11
ITEM 7 FINANCIAL STATEMENTS.....................................................................................17
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.....................17
ITEM 8A CONTROLS AND PROCEDURES..................................................................................17
ITEM 8B OTHER INFORMATION........................................................................................17
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT.............................................................................................17
ITEM 10 EXECUTIVE COMPENSATION....................................................................................19
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS............21
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.................................11
ITEM 13 EXHIBITS..................................................................................................22
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES...................................................................22
SIGNATURES .......................................................................................................24
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
DEVELOPMENT OF BUSINESS
Seamless Wi-Fi, Inc. has three operating subsidiaries: (1) Seamless Skyy-Fi,
Inc. which, beginning in June 2004, provides wireless Internet access (commonly
known as "Wi-Fi"); (2) Seamless Peer 2 Peer, Inc. which, beginning in January
2005, develops and provides a patent pending software program called Phenom(R)
that encrypts Internet communications and provides flexible telecom data and
voice transport solutions, including its Freek2Freek social network; and (3)
Seamless Internet, Inc., established in November 2005, which offers high
security hosting services for customers of Seamless Peer 2 Peer, Inc. and
Seamless Skyy-Fi, Inc. and which is also manufacturing and marketing an ultra
mobile personal computer named the S-XGen.
BUSINESS
SEAMLESS SKYY-FI, INC.
Seamless Skyy-Fi, Inc. provides wireless Internet access at business locations.
This service is referred to as "wireless fidelity" or "Wi-Fi" and the locations
where this service is available are known as "Wi-Fi hot spots."
Seamless Skyy-Fi is also the developer of the patent pending software program
that provides Wi-Fi users with Seamless-Secure Internet Browsing (S-SIB(TM))
that encrypts the user's Wi-Fi signal. Seamless Skyy-Fi released its proprietary
S-SIB(TM) technology on August 15, 2007.
COMPETITION
The market for Internet services is highly competitive. There are no substantial
barriers for entry into the Wi-Fi market, based upon the advances of Internet
technology. Management expects competition to continue to grow and intensify.
This is especially true in the acquisition and installation of Wi-Fi hot spots.
We believe creating Wi-Fi hot spots is one of the fastest growing segments of
the Internet and both the private and public sector are becoming involved in the
market.
Our competition includes, but is not limited to, the following companies:
o Advanced Internet Access, LLC
o FatPort
o Netnearu Corp.
o Wayport, Inc
o Wi-Fi Guys, LLC
o Netopia, Inc.
o Icoa, Inc.
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Several companies, such as Starbucks and T-Mobile, have jointly entered into the
competition with their own Wi-Fi locations. Other companies, such as ICOA, are
attempting to acquire existing independent Wi-Fi companies. Other attempts are
being made to develop roaming agreements between the Wi-Fi locations and
companies to allow more access to existing Wi-Fi customers. Cellular telephone
companies are trying to organize a network of Wi-Fi locations under their
umbrellas. Other cellular telephone companies, such as Sprint, are also offering
mobile Internet access through connection to their cellular networks. The
hospitality industry is going to a free Wi-Fi model and fast food chains are
offering service for a fee for Wi-Fi access at their locations.
Another factor that impacts the Wi-Fi sector is that there are venues, such as
cities and colleges, that are offering free Wi-Fi. Management feels that free
Wi-Fi will not work because there are fixed costs for bandwidth that have to be
paid by someone. Other costs which are also not free nor can they be waived, are
costs of the broadcast radios, routers and antennas. Free Internet has been
tried in the past, for example Net Zero had to move away from that model due to
the fact that revenue from advertisers did not offset the hard cost of accessing
the Internet.
Competitors that have access to financial markets and cutting edge technological
resources will remain viable for growth and expansion. These and other types of
competitors for Internet access are expected to continue making substantial
expenditures to promote, expand and improve their on-line properties.
With the continued growth of the technology sector and the increased competition
for the Wi-Fi Internet access business, there has been a corresponding increase
in the number of business failures, which has negatively impacted availability
of funds for these developing businesses. These occurrences have also impacted
the availability of funds for us. We have obtained funding for acquisition and
deployment of its Wi-Fi hot spot locations.
Several of the principal competitive factors which would determine success in
our targeted markets are:
o location;
o high speed bandwidth availability;
o customer base;
o fee arrangement, i.e., location owner pays vs. end user pays;
o potential number of simultaneous users; and
o implementation costs.
To acquire locations, we plan on using a small in-house sales staff and several
independent salespersons. This allows us to adjust sales activities as required.
The in-house sales staff also allows us to maintain continuity with the sales
training and presentations of the independent sales personnel.
MARKETING PLAN
We plan to concentrate our marketing campaign within a given region first to
businesses within the chosen area that meet the criteria determined by our
management. The types of businesses
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that meet the criteria include coffee shops, carwashes, and hotels. Once a Wi-Fi
hot spot location is established, we plan to advertise in order to inform the
consumer of the availability of Wi-Fi service at that location.
Once it establishes name recognition within the marketed region, we plan to
refocus our marketing campaign to another region and/or business type.
Our marketing campaign will use on-line services, web site placement and
advertising networks, as well as traditional off-line media such as radio and
direct mail print to convey to the business owner/operator and the consumer the
services we offer. We also plan to use direct telemarketing and facsimile
services to inform the business owner/operator and consumer of our services.
Accordingly, we will incur increased costs associated with advertising our
services to business operators and consumers.
SEAMLESS PEER 2 PEER, INC.
Seamless Peer 2 Peer, Inc. hired a development team to create its proprietary,
patent pending Phenom(R) Encryption Software. Phenom(R) software allows secure
communications over Wi-Fi, local area network ("LAN"), and wide area networks
("WAN") with its Virtual Internet Extranet Network technology. Phenom(R)
software provides secure peer mail, chat, file transfer, and remote PC access in
a two-megabyte download. Phenom(R) software's application protocol interface
("API") also supports voice over Internet protocol ("VoIP"), video voice
conferencing, and white boarding. We anticipate that Phenom(R) will be available
in 2008.
Seamless Peer 2 Peer, Inc. also hired a development team to create its first
encrypted secure peer to peer social network, Freek2Freek (WWW.FREEK2FREEK.COM).
Freek2Freek will be a secure social web network developed by using the Phenom
secure backbone for Freek2Freek. Freek2Freek is being built to be safe and
secure for users, which will have a significant advantage over non-secure social
networks that potentially risk users' identities and personal information.
Seamless Peer 2 Peer expects to launch Freek2Freek in 2008.
Upon launch, Freek2Freek will offer high levels of security and user
verification because its patented backbone is based upon Seamless Peer 2 Peer's
Phenom Secure Private Network layer technology, which allows transmission of
data to peers over conventional IP networks in such a way that information can
be shared among peers even if one or more are behind proxies, firewalls, or
network address translations (also known as "NATs" Network Masquerading, Native
Address Translation and IP Masquerading). Freek2Freek will be an online
community where everyone who interacts will be authenticated and all
communications will be encrypted.
Seamless Peer 2 Peer is concentrating on establishing a client base for its
software products.
The Peer 2 Peer potential client base includes the following entities and end
users:
o Government agencies: Providing government agencies secure
direct permission based access to other government agencies in
a server-less "dark-net" environment. Government agencies can
share information in a highly secure, highly encrypted "FIPS
142" compliant secure networking and collaborative dark-net,
allowing direct
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communication and information sharing in a Peer-2-Peersetting.
Communications between field operatives and home-based peers
can be accommodated from personal computer to hand held
device.
o Corporations: Providing corporations with an enhanced
government standard encrypted communication and collaboration
resource tool. Acting as a VPN client with communication
(Voice over Internet protocol, video conferencing, chat and
peer mail), as well as a suite of collaborative tools (white
boarding, application sharing, and cooperative web surfing,
and file sharing), companies can enhance work flow and
productivity of their remote and mobile workforce in a secured
and controlled work environment.
o Technology and network consultants: Providing their customer
base with cost effective, secure and feature rich networking
solutions. The Phenom client and server provide end-to-end
communication and collaboration tools for consultants looking
for cost effective solutions for their customer base.
o ISP, WISP, Wi-Fi providers: Can license, white label and
resell the technology by offering secure network keys to their
small business client base as well as create individual
networks for their enterprise business clientele.
Additionally, ISP, WISP and Wi-Fi providers can add a secure
web surfing feature to their end user customer base as a value
added service. Additionally, by providing Voice over IP and
video conferencing the ISP's will see additional value added
services that they can offer their customer base to enhance
their bottom lines.
o File sharing companies: Can license the technology and white label it
as their own to provide the most seamless and easily integrated file
sharing mechanism available in the Peer-2-Peer space today.
COMPETITION
The market for Internet based software services is highly competitive. There are
substantial barriers for entry into the software internet service market.
Our competition for Seamless Peer 2 Peer's products includes, but is not limited
to, the following companies.
o Grouper Networks, Inc.
o Citrix Systems, Inc.
o Peerme, Inc.
o 3AM Labs, Inc.
o Amteus Ltd.
o Eclectic Endeavours, Inc.
o Seclarity, Inc.
o Securit-e-doc, Inc.
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MARKETING PLAN
Seamless Peer 2 Peer's marketing plan incorporates four basic distribution
channels:
1. Direct sales that target vertical market networks for example:
healthcare providers, government agencies, defense
contractors, military, non-profits, etc. The direct sales
staff will focus on the domestic market.
2. OEM distribution sales to private networks as well as general
users. Furthermore, they will be able to bundle the
SeamlessP2P client software for handheld devices, PDA's,
desktop computers and laptops.
3. Affiliates, resellers and partners sales by offering the
Seamless product through Internet Service Providers (e.g.,
cable, DSL, etc.), networking and IT solution providers,
Internet business portals and wireless internet service
providers.
4. Internet/online users are able to download the program for
their daily Internet usage.
PROPRIETARY SOFTWARE
Seamless Peer 2 Peer is the developer of the proprietary (patent pending)
Phenom(R) Encryption Software. Phenom(R) Software allows secure communications
over Wi-Fi, local area network (LAN), and wide area networks (WAN) with its
Virtual Internet Extranet Network technology. Phenom(R) software provides secure
peer mail, chat, file transfer, and remote PC access in a two-megabyte download.
Phenom(R) software's application protocol interface (API) also supports voice
over internet protocol (VoIP), video voice conferencing, and white boarding.
SOCIAL NETWORKING
The Phenom(R) software client is an integral part of Seamless Peer-2-Peer's
social networking environment. Freek-2-Freek will be a secure place for teens
and the 18 to 34 demographic to share and communicate freely with their friends
and family. By providing permission based communications and closed friend
networks, users can be sure that their online social interactions are secure.
Users will have the freedom to control their web page and presence as well as
whom they do and do not want to interact with. Additional communications and
interactions will be enhanced utilizing the Phenom(R) client to incorporate
voice and video to its more traditional communication applications of chat and
e-mail. Additional functions and features will allow users to share content with
their peers utilizing the file sharing mechanism, as well as creating new and
original content for their personal web pages using the application sharing
tool, as well as the white boarding function.
Enhanced content, enhanced communication and enhanced security are the
differentiating factors between Freek-2-Freek and its current online
competitors. Freek-2-Freek intends to provide free to the user advertising
revenue driven content on the network to be shared freely between friends and
peers and secured with the Seamless Wi-Fi Digital Rights Management solution
better known as DRM. Using our DRM solution on the Freek-2-Freek network, we
will be able to monitor the flow of DRM encrypted content throughout the network
thus tracking file downloads and advertisement plays per file. DRM encrypted
files can be any downloadable file to a PC or
hand held device, these files include music files, video files, or document
files, files size is not an issue as full length feature films can be encrypted
as well. The DRM encrypted files will not be available for permanent download
but tethered to the content server and deleted after a certain amount of plays.
Number of plays will be determined by advertising dollars and costs incurred to
distribute content. Permanent downloads will be available when an end user
decides to purchase the movie, song or album that he or she wishes to own.
Fees are paid to Seamless from the subscriber and/or the network operator:
1. Subscribers will either pay a monthly fee if they are a
Seamless member and/or a per use fee if they are occasional
users.
2. Operators of a Wide Area Network (WAN) and/or a Local Area
Network (LAN) who want Seamless service then pay per month or
per year based upon the number of users that are part of the
network.
SEAMLESS INTERNET, INC.
Seamless Internet, Inc. offers hosting services for Seamless Peer 2 Peer and
Skyy-Fi clients and is not available for general public hosting services.
Seamless Internet, Inc. has contracted the manufacturing of the S-XGen (Seamless
neXt Generation) Pocket Personal Computer. The S-XGen has been fitted with a
20GB hard drive, 256Kb RAM and its dimensions are 6.5" X 3.8" X 1.125". It
includes a TFT Transflective Touch Screen viewable in sunlight, 802.11b/g and
Bluetooth connectivity, SD MMC and Compact Flash sockets, 2-USB 2.0 ports, and a
near full sized QWERTY folding keyboard, stereo speakers and inputs/outputs,
docking socket and tri-band cell phone communications.
Seamless Internet was originally created to provide in-house server solutions
for parent company Seamless Wi-Fi. The expansion of services was driven by
Seamless Wi-Fi's product and services growth.
Seamless Internet's Services were first expanded with Seamless Wi-Fi's
acquisition of the Peer 2 Peer Software and the creation of our Peer 2 Peer
subsidiary. Many of the clients acquiring the Phenom(R) software program did not
have the capability of properly securing their new sever, to either insure the
integrity of the software or be able to provide the technical support required
to support the software program.
Thus Seamless Internet was expanded and the acquisition of FMS NetCheck in
February 2006 allowed us to offer Web-monitoring for our clients as part of our
hosting services. These services were created to facilitate the eventual
implementation of Phenom(R) secure communications services for clients who do
not have Oracle-compatible equipment and do not wish to purchase their own
Oracle server. Creating our own high-security hosting facility provides the most
robust infrastructure possible to potential clients seeking secure network
services. We have clients that are interested in our products that do not have
the information security systems and hardware in place for fail-safe
implementations. Offering secure hosting services allows us to meet this
potential client demand while also giving us the ability to support our products
in the most efficient manner.
5
In March 2006, we acquired the patent, development and marketing rights for the
ED.1 (Entertainment Device) minicomputer and communication device from Vercel
Corporation. The ED.1 is an ergonomically-designed portable entertainment device
and full-fledged computer boasting a form factor of 5" x 4" x 2" and weighing
less than 12 ounces. When closed, it offers an MP3 player, a gaming device when
opened, and a full-fledged internet communications device and computer when the
integrated keyboard is unfolded. The keyboard offers almost full-size keyboard
functionality and ergonomics.
Our new unit, while maintaining its small size, has been specifically designed
with a fully deployable folding and removable keyboard for data manipulation and
navigation allowing the user easy access. It has a 4 inch high definition screen
that provides a clear and crisp screen display. The unit is extremely versatile
and the present plan for the first version has, among it many capabilities, the
ability to be used as a completely loaded Wireless working computer. It is "Blue
Tooth" enabled and can be used as an entertainment and gaming unit. The unit
will also contain the Seamless patent-pending encryption software incorporated
into its system to protect sensitive information.
The new unit's size places it in between the "Palm and the Lap Top" size
category - in the Ultra Mobile Personal Computer (UMPC) class of minicomputers
and as such, it can be transported easily because it readily fits into a pocket
or a purse, or be easily carried by hand. It does not require a carrying case,
and despite its small size, it is designed so that its batteries can last up to
eight hours.
Seamless Internet named its mobile minicomputer the S-XGen (for Seamless Next
Generation) Mobile Computing and Communications Device. In addition, we have
been undertaking an aggressive redesign and are preparing for volume
manufacturing of the device. We have also expanded the features and
functionality of the S-XGen, including increasing standard internal memory from
128 Kb to 256 Kb, integrating an onboard camera and also more gaming buttons to
facilitate gaming interactivity.
COMPETITION
Management feels that even though there are over 1,000 different devices that
fall within the mini-mobile, communication, location (GPS), and computer, none
have an almost full size keyboard and comparable feature set. However, indirect
competitors include Nokia, Sony, T-Mobile, and Verizon, among others.
MARKETING STRATEGY
We are first offering the S-XGen as a small, easy to carry, wireless "Working
Computer" with a wide range of capabilities, targeting the business community,
travelers, and users in need of a small easy to carry and readily accessible
computer (for example, our product will offer great benefits for mobile sales
force, first responders, etc.).
The S-XGen will also be offered with the capability of being used for
entertainment and gaming
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purposes with the Transflective LCD with integrated touch screen providing the
user with high resolution picture viewing capability. This will address and
target the gaming and entertainment user market.
Pre-market test units are being Beta tested and reviewed now. We expect that we
will be manufacturing units by the end of 2007
SOURCES AND AVAILABILITY OF RAW MATERIAL AND PRINCIPAL SUPPLIERS
Raw material used for molded parts and circuit boards are readily available with
limited lead time. Parts such as CPUs and hard drives are also standard
productions parts and are readily available. However some of our parts do
require an eight week lead time. These parts are also available through many
suppliers.
DEPENDENCE ON MAJOR CUSTOMERS
We are not dependent on any one customer for a substantial portion of our sales
of any product or service.
INTELLECTUAL PROPERTY
We own the following registered trademarks:
o Phenom
o Seamless P2P
o Seamless Peer2Peer
o !
o PP
We have applied for trademark registration for the following marks:
o Freek2Freek
o Phenom Mobile
o S-SIB
o Seamless SIB
o Get SINB
o Get Phenom
o SINB
o SXGEN
We have patents pending for the:
o Phenom(R) Encryption Software
o S-SIB (TM)
o Various accessories for the S-XGen (TM)
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GOVERNMENT APPROVAL
Regulation of the following areas could impact our operations:
REGULATION OF THE INTERNET
To date, there has been some regulation of content providers on the Internet and
this regulation may increase due to the increasing popularity and use of the
Internet by broad segments of the population. It is possible that new laws and
regulations may be passed and/or adopted with respect to the Internet pertaining
to access, content of Web sites, privacy, pricing, encryption standards,
consumer protection, electronic commerce, taxation, and copyright infringement
and other intellectual property issues. No one is able to predict the effect, if
any, what future regulatory changes or developments may have on the demand for
Internet services, access and/or other Internet-related activities. Changes in
the regulatory environment relating to the Internet access industry may include
the enactment of laws and/or regulations that directly or indirectly affect the
costs of telecommunications and Internet access. These changes could increase
competition from national and/or regional telephone companies and other Internet
access providers. These changes could adversely affect our business, operating
results and financial condition.
REGULATION OF INTERNET ACCESS
We provide Internet service by using Internet access provided by
telecommunications carriers. Terms, conditions and prices for telecommunications
services are subject to economic regulation by state and federal agencies.
Internet access providers are not currently subject to direct economic
regulation by the FCC or any state regulatory body, other than the type and
scope of regulation that is applicable to businesses generally. In April 1998,
the FCC reaffirmed that Internet access providers should be classified as
unregulated "information service providers" rather than regulated
"telecommunications providers" under the terms of the Federal Telecommunications
Act of 1996. Currently, we are not subject to federal regulations applicable to
telephone companies and similar carriers because the Internet access services
offered are provided by third-party telecommunications providers. To date, no
state has attempted to exercise economic regulation over Internet service
providers.
REGULATION OF WIRELESS ACCESS
Wi-Fi Internet access products primarily operate in unregulated frequencies. Due
to the growth of Wi-Fi and the corresponding increased use within this
bandwidth, there may be regulation in the near future. The regulation could
impact broadcast range and use within given locations; however, at present the
broadcast frequency remains unregulated.
REGULATION OF PEER 2 PEER COMMUNICATION
The courts and the legislature have recently become active in the peer 2 peer
communications space, which can negatively impact us due to our acquisition of
peer 2 peer software technology.
8
If the legislatures and court determine that this type of communications
violates existing laws and/or new laws may be proposed that could limit and/or
prohibit this type of communication then this could have a negative impact on
our ability to generate revenue from this type of communications.
REGULATION OF COMMUNICATION DEVICES
Communications industry regulation changes rapidly, and such changes could
adversely impact us. The following discussion describes some of the major
communications-related regulations that affect us, but numerous other
substantive areas of regulation not discussed here also may influence our
business.
Communications services are regulated to varying degrees at the federal level by
the Federal Communications Commission ("FCC") and at the state level by public
utilities commissions ("PUCs"). Seamless's suite of wireless broadband products
and services is subject to federal regulation in a number of areas, including
the licensing and use of spectrum, and the technical parameters, certification,
marketing, operation and disposition of wireless devices. Applicable consumer
protection regulations also are enforced at the federal and state levels. his
does not describe all present and proposed federal, state and local legislation
and regulations affecting the communications industry. Some legislation and
regulations are the subject of ongoing judicial proceedings, legislative
hearings and administrative proceedings that could change the manner in which
our industry is regulated and the manner in which we operate. We cannot predict
the outcome of any of these matters or their potential impact on our business
and as such cannot predict potential risks in our development efforts in these
areas.
RESEARCH AND DEVELOPMENT COSTS
We spent $1,274,000 on research and development during the fiscal year ended
June 30, 2007 as compared to $516,000 spent on research and development during
the year ended June 30, 2006.
Since the end of the fiscal year June 30, 2007 to date, we have spent an
additional $447,000 on research and development.
EMPLOYEES
As of the date hereof, we have seven full-time employees and ten independent
contractors. We hire independent contractors for sales personnel, technical
support and installation expertise. We have no collective bargaining agreements
with our employees. We believe that our employee relationships are satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
The following locations are the principal places of business of the Company,
some of the Companies share facilities:
800 N. Rainbow Blvd., Ste 208 3155 E. Patrick Lane Ste 1 2050 Russett Way, Ste 338,
Las Vegas, Nevada 89107 Las Vegas, Nevada 89120 Carson City, Nevada 89703
9
We rent some of the locations on a month-to-month basis and it leases, through
its subsidiary, other locations. The monthly office rental and lease agreements
(which expire on August 31, 2010) are listed below. Rental and lease expense
under these agreements for the years ended June 30, 2007 and 2006 were $47,222
and $35,136, respectively. Commitments under the current monthly rentals and
operating leases are as follows:
Fiscal year ending June 30:
Rental Leases
Monthly $800 2008 $ 53,687
2009 50,340
2010 50,340
ITEM 3. LEGAL PROCEEDINGS
On March 30, 2006, the Superior Court of the State of California, County of
Orange, entered a judgment against us and other defendants, jointly and
severally, in the total amount of $452,714.79 in the matter of Globalist
Internet Technologies, Inc. vs. Iron Horse Holdings, Inc., et al.
To the best knowledge of our management, there are no legal proceedings pending
or threatened against us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET FOR COMMON EQUITY
Our common stock is currently quoted on the Over-The-Counter Bulletin Board
under the Symbol "SLWF." Set forth below is the trading history of our common
stock without retail mark-up, mark-down or commissions:
HIGH LOW
2005
Third Quarter.......................... 0.63 0.30
Fourth Quarter......................... 0.40 0.0039
2006
First Quarter.......................... 0.14 0.011
Second Quarter......................... 0.155 0.0251
Third Quarter.......................... 0.048 0.0245
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Fourth Quarter......................... 0.026 0.0039
2007
First Quarter.......................... 0.00319 0.00162
Second Quarter......................... 0.0015 0.000625
On October 3, 2007, the closing sale price was $0.0003.
The above quotations are inter-dealer quotations from market makers of our
common stock. At certain times the actual closing or opening quotations may not
represent actual trades that took place.
HOLDERS
As of October 4, 2007, there were approximately 163 shareholders holding
certificated securities and approximately 70,000 shareholders currently listed
in the Depository Trust Company as holding shares in brokerage accounts.
DIVIDENDS
We have paid no cash dividends on our common stock since inception and do not
anticipate or contemplate paying cash dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
NONE.
ITEM 6. 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, including the notes thereto, appearing elsewhere in this
Report.
THE FOLLOWING INFORMATION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS OF OUR
MANAGEMENT. FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT ESTIMATE THE
HAPPENING OF FUTURE EVENTS AND ARE NOT BASED ON HISTORICAL FACT. FORWARD-LOOKING
STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS
"MAY," "COULD," "EXPECT," "ESTIMATE," "ANTICIPATE," "PLAN," "PREDICT,"
"PROBABLE," "POSSIBLE," "SHOULD," "CONTINUE," OR SIMILAR TERMS, VARIATIONS OF
THOSE TERMS OR THE NEGATIVE OF THOSE TERMS. THE FORWARD-LOOKING STATEMENTS
SPECIFIED IN THE FOLLOWING INFORMATION HAVE BEEN COMPILED BY OUR MANAGEMENT ON
THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND CONSIDERED BY MANAGEMENT TO BE
REASONABLE. OUR FUTURE OPERATING RESULTS, HOWEVER, ARE IMPOSSIBLE TO PREDICT AND
NO REPRESENTATION, GUARANTY, OR WARRANTY IS TO BE INFERRED FROM THOSE
FORWARD-LOOKING STATEMENTS.
11
OVERVIEW
During the fiscal year ended June 30, 2007, Seamless Wi-Fi, Inc, through its
subsidiaries Seamless Skyy-Fi, Inc, Seamless Peer 2 Peer, Inc, and Seamless
Internet, Inc. Inc. was/and is in the process of developing products and
services to offer to the business community and consumers.
Seamless Skyy-Fi, Inc. has developed the Seamless Secure Internet Browsing
(S-SIB(TM)) software program for use by the consumer to access the Internet in a
secure Wi-Fi signal. S-SIB(TM) encrypts Wi-Fi transmissions signal based upon
RSA's government certified 256 bit AES encryption. Seamless Skyy-Fi, Inc.
released its proprietary S-SIB(TM) technology on August 15, 2007. Seamless
Skyy-Fi, Inc. also maintains 30 Wi-Fi locations at hotels and other locations.
Seamless Skyy-Fi, Inc. also provides 24/7 tech support for its Wi-Fi locations
and for the S-SIB(TM) software program.
Seamless Peer 2 Peer, Inc. is developing its proprietary, patent pending
Phenom(R) Encryption Software. Phenom(R) encrypts Peer 2 Peer communications
based upon RSA's government certified 256 bit AES encryption coupled with RSA's
Public Key Infrastructure flexible telecom data and voice transport solutions.
Phenom(R) software allows secure communications over Wi-Fi, local area network
("LAN"), and wide area networks ("WAN") with its Virtual Internet Extranet
Network technology. Phenom(R) software provides secure peer mail, chat, file
transfer, and remote PC access in a two-megabyte download. Phenom(R) software's
application protocol interface ("API") also supports voice over Internet
protocol ("VoIP"), video voice conferencing, and white boarding. We expect
Phenom(R) will be available in 2008.
Seamless Internet, Inc. provides an in-house server solution for the parent
company, Seamless Wi-Fi. Inc. The expansion of services in fiscal 2006 and 2007
includes supporting Seamless Peer 2 Peer, Inc. and Seamless Skyy-Fi, Inc. secure
software programs and its own software of FMS NetCheck. FMS allows Seamless
Internet, Inc. clients Website monitoring as part of our hosting services.
In March 2006, Seamless Internet, Inc. acquired the patent rights to a pocket
personal computer, and began a development program to make the pocket PC into a
mobile communication and computer device. Seamless Internet, Inc. named the
device the S-XGen and plans to begin manufacturing the S-XGen Mini-Mobile
Personal Computing and Communications device by the end of 2007 .
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, our selected financial
information:
June 30, 2007 June 30, 2006
--------------- ---------------
Revenues $ 42,717 $ 38,793
Cost of revenues 165,580 115,070
--------------- ---------------
12
Gross loss (122,863) (76,277)
Cost and expenses:
Selling, general and administration 715,732 624,273
Software development cost -0- 1,795,369
Technology development cost -0- 38,552
Financing fees 265,000 345,000
Consulting 598,932 1,446,351
Legal 86,988 291,445
Office payroll 456,031 -0-
Write down of investments -0- 1,345,384
Bad debt expenses 105,437 229,265
Depreciation and amortization 31,749 12,344
--------------- ---------------
Total 2,259,869 6,127,983
Net loss from operations (2,382,732) (6,204,260)
Adjustment of tax assessment -0- 460,957
Gain on liquidation of debt 4,904,508 -0-
Interest income 143,130 111,093
Interest expense (291,535) (1,388,335)
Other income 836,298 652,630
Income (loss) before income taxes 3,209,669 (6,367,915)
Net income (loss) $ 3,209,669 $ (6,367,915)
Net income (loss) per common share $ 0.002 $ (0.048)
Weighted average basic and diluted
common shares outstanding 2,087,742,032 133,750,923
FISCAL YEAR ENDED JUNE 30, 2007 COMPARED TO FISCAL YEAR ENDED JUNE 30, 2006
(AUDITED)
Our revenues for the fiscal year ended June 30, 2007 of $42,717 is an increase
of 9% in revenue when compared with $38,793 in revenues for the fiscal year
ended June 30, 2006.
We had net income of $3,209,669 for the fiscal year ended June 30, 2007 as
compared to a net loss of ($6,367,915) for the year ended June 30, 2006. This
increase in income is primarily due to income credit of $4,904,508 as payment in
full for loans and interest as per our loan satisfaction agreement with Ayuda
Funding, LLC.
COMPARISON BY SEGMENT
In accordance with SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," management has determined that there are three reportable
segments, such determination was based on the level at which executive
management reviews the results of operations in order to make decisions
regarding performance assessment and resource allocation.
13
Certain general expenses related to advertising and marketing, information
systems, finance and administrative groups are not allocated to the operating
segments and are included in "other" in the reconciliation of operating income
reported below. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies (Note 1).
Information on reportable segments is as follows:
Fiscal Year Ended Fiscal Year Ended
June 30, 2007 June 30, 2006
------------- -------------
Seamless Skyy-Fi Sales $ 41,229 $ 38,793
Operating Expenses $ 287,908 $ 115,070
Seamless Peer 2 Peer Sales $ 0 $ 0
Operating Expenses $ 87,542 $ 2,128,765
Seamless Internet Sales $ 1,409 $ 0
Operating Expenses $ 552,846 $ 146,042
Cost And Expenses $ 885,658 $ 2,351,084
Other Net Income $ 4,386,862 $ 1,224,680
Other Expenses $ 291,535 $ 5,241,511
Net Income (Loss) $ 3,209,669 $(6,367,915)
SEAMLESS SKYY-FI: The resultant loss for this segment for the fiscal year ended
June 2007 was ($246,679). This loss was due to expenses of expanding its tech
support and improving operations. The income increased to $41,229 as compared to
$38,793 for the prior fiscal year ended 2006. Operating expenses also increased
to $287,908 as compared to $115,070 for the prior fiscal year. The increased
expenses are because several locations were changed and 24/7 tech support
incorporated.
SEAMLESS PEER 2 PEER SOFTWARE: The resultant loss for this segment for the
fiscal year ended June 2007 was ($87,542). This loss was due to reduced
expenditures in the development of the PHENOM (R) Since the software program is
not available to market, no revenue has been generated by the product for fiscal
years ended 2007 and 2006, respectively. Operating expenses for 2007 also
decreased to $87,542 as compared to $2,128,765 for the prior fiscal year. The
decreased expenses are because PHENOM(R) has been in beta testing for most of
this fiscal year with expectation of deployment in 2008.
SEAMLESS INTERNET PRODUCTS AND SERVICES: The resultant loss for this segment for
the fiscal year ended June 2007 was ($551,437). This loss was due to expenses
developing the S-XGen(TM) and improving the server array at our co-location.
Income increased to $1,409 as compared to no income for the prior fiscal year
ended 2006. Operating expenses also increased to $552,846 as compared to
$146,042 for the prior fiscal year. The increased expenses are primarily due to
the development of the S-XGen The S-XGen is a Mini-Mobile Personal Computing and
Communications device which we expect will be available by the end of 2007 .
OTHER: For the fiscal year ended June 30, 2007, this segment received income
credit $4,904,508 as payment in full for loans and interest totaling $4,904,508
as per our loan satisfaction agreement with Ayuda Funding, LLC. The agreement
provided that we would transfer 1,000,000 shares of 1st Global Financial
Corporation common stock and 500,000 shares of DLR
14
Funding, Inc. common stock owned by us to Ayuda Funding LLC. The losses of
($6,367,915) for the June 30, 2006 fiscal year were due to the start-up
operations and development cost of our product lines and services and increased
operations costs.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operations activities of $2,046,002 for the year ended June 30,
2007 decreased by $1,067,121 compared to the net cash used in operational
activities of $3,113,123 for the year ended June 30, 2006. The decreases in net
cash were primarily from the reduction in expenditures required to develop our
Peer 2 Peer software, maintain our Internet operations, develop its mini
computer and support our operations.
CRITICAL ACCOUNTING POLICIES
The Securities and Exchange Commission issued Financial Reporting Release No.
60, "Cautionary Advice Regarding Disclosure About Critical Accounting Policies,"
or FRR 60, suggesting that companies provide additional disclosure and
commentary on their most critical accounting policies. The most critical
accounting policies are the ones that are most important to the portrayal of a
company's financial condition and operating results, and require management to
make its most difficult and subjective judgments, often as a result of the need
to make estimates of matters that are inherently uncertain. Our management
believes that of the significant accounting policies used in the preparation of
the consolidated financial statements (see Note B to the Financial Statements),
the following are critical accounting policies, which may involve a higher
degree of judgment, complexity and estimates. The methods, estimates and
judgments we use in applying these most critical accounting policies have a
significant impact on the results reported in our financial statements.
OFF BALANCE SHEET ARRANGEMENTS
We have not entered into any off balance sheet arrangements that have, or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, result of operations,
liquidity, capital expenditure, or capital resources, which would be considered
material to investors.
USE OF ESTIMATES
The preparation of the consolidated financial statements are in conformity with
United States generally accepted accounting principles require us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION ARRANGEMENTS
We issue shares of common stock to various individuals and entities for certain
management, legal, consulting and marketing services. These issuances are valued
at the fair market value of the service provided and the number of shares issued
is determined, based upon the closing price
15
of our common stock on the date of each respective transaction. These
transactions are reflected as a component of general and administrative expenses
in the accompanying statement of operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
NO. 123(R), "Share-Based Payment," which revises SFAS No. 123. SFAS No. 123(R)
requires all share-based payments to employees, including grants of employee
stock options, to be recognized as compensation expenses upon based their fair
value. Effective January 1, 2003, we adopted the fair value recognition
provision of SFAS No. 123. We plan to adopt SFAS No. 123(R) effective July 1,
2005, using the modified prospective method and do not expect any impact on our
results of operations or financial position.
In December, the FASB issued SFAS No 153, Exchange of Nonmonetary Assets, an
amendment of APB No. 29, Accounting for Nonmonetary Transactions exchanges of
similar productive assets and replaces it withy a general exception for
exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. We are
required to adopt FAS 153, on a prospective basis, for nonmonetary exchanges
beginning June 15, 2005 the adoption of FAS 153 did not have any impact on our
financial condition, results of operations and cash flows.
In December 2003, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 104, "Revenue Recognition" ("SAB 104"). SAB 104
clarifies existing guidance regarding revenue recognition. Our adoption of SAB
104 did not have an impact on our consolidated results of operations, financial
position or cash flows.
INFLATION
The moderate rate of inflation over the past few years has had an insignificant
impact on our sales and results of operations during the period.
CAPITAL EXPENDITURES
There were no capital expenditures during the 2007 fiscal year.
NET OPERATING LOSS CARRY FORWARDS
No provision for income taxes has been recorded in the accompanying financial
statements as a result of our net operating losses. We have unused tax loss
carry forwards of approximately $18,687,528 to offset future taxable income.
Such carry forwards expire in the years beginning 2021.
The net income of $3,209,669 for fiscal year ended June 30, 2007 is offset by
the tax loss carry forwards of the previous fiscal year of June 30, 2006 which
was $21,897,197. We have reduced the deferred tax asset resulting from our tax
loss carry forwards by a valuation allowance of an
16
equal amount as the realization of the deferred tax asset is uncertain. The net
change in the deferred tax asset and valuation allowance from July 1, 2006 to
June 30, 2007 was a decrease of approximately $3,000,000.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements required to be filed pursuant to this Item 7 begin on
page F-1 of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 8A CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer (the "Certifying
Officers") are responsible for establishing and maintaining our disclosure
controls and procedures. The Certifying Officers have designed such disclosure
controls and procedures to ensure that material information is made known to
them, particularly during the period in which this report was prepared. The
Certifying Officers have evaluated the effectiveness of our disclosure controls
and procedures as of the end of the period covered by this report and believe
that our disclosure controls and procedures are effective based on the required
evaluation. During the period covered by this report, there were no changes in
internal controls that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 8B OTHER INFORMATION
On October 11, 2007, the Board of Directors elected Albert Reda to serve as
corporate Secretary, effective immediately, until the next annual meeting of the
Board of Directors and until his successor is elected and qualified.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
Our directors and executive officers are as follows:
NAME AGE POSITION
Albert R. Reda 62 Director, Chief Executive Officer, Chief
Financial Officer, Secretary
Matt Sebal 37 Director
17
John Domerego 63 Director
ALBERT R. REDA, CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER, SECRETARY AND
DIRECTOR. Mr. Reda joined us in November 1998. From 1996 through 1998, he was
employed with CRT Corporation as Vice President in charge of production for
manufacturing frozen food products. For the period of 1994 to 1995, Mr. Reda was
self-employed in the financial lending area, buying and selling loans between
individuals and institutions. Mr. Reda received his Bachelor of Science Degree
from California State University, Long Beach, with a major in engineering. Mr.
Reda is also a director of DLR Funding, Inc, Carbon Jungle, Inc. and of 1st
Global Debit Cash Card, Inc.
MATT SEBAL, DIRECTOR. Mr. Sebal became one of our directors in October 2005.
Since January 2002, he has been serving as President and Director of 51st State
Systems, Inc. which provides technology and consulting services in Vancouver, BC
Canada. From May 2002 and continuing through the present, Mr. Sebal has served
as President and as a Director of DCM Enterprises, Inc., a management and
investment holding company. From October, 2001 through the present, he has
served as Secretary and as a Director of Hosting Site Networks, Inc., a provider
of Internet services including web hosting, web consulting, and electronic mail
services. From June 2000 to January 2003, Mr. Sebal held one or more of the
following the positions with Return Assured Incorporated: Secretary, President,
Chairman and CEO, and DirectoR. Return Assured Incorporated was involved with
enabling e-retail transactions. From November 2000 to October 2003, Mr. Sebal
served as a Director of Mindfuleye, Inc., which developed software for licensing
to the investment community. Mr. Sebal holds a baccalaureate degree in Political
Science from the University of Western Ontario, Canada.
JOHN DOMEREGO, DIRECTOR. Mr. Domerego has been a Director of Seamless Wi-Fi,
Inc. since October 2005 and President of Seamless Internet Inc. since February
2005. Mr. Domerego was previously involved in the development, designing,
engineering and erection of co-generation and power generating facilities both
as an employee of Raytheon Engineering and self-employed as an associate of
Malcolm Jones Associates, an engineering company where he managed multi-million
dollar projects from conception to completion. Mr. Domerego also has 20 years
experience in the pulp and paper industry where he was employed and performed as
chief engineer and eventually as general manager. He was responsible for all
facets of the industry involving the successful operation of paper mills and
facilities. Mr. Domerego has a Bachelor of Science degree in Mechanical
Engineering.
Directors serve until the next annual meeting or until their successors are
qualified and elected. Officers serve at the discretion of the Board of
Directors.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our
directors and certain officers, as well as persons who own more than 10% of a
registered class of our equity securities, ("Reporting Persons") to file reports
of ownership and changes in ownership on Forms 3, 4 and 5 with the Securities
and Exchange Commission. The following Reporting Persons have not complied on a
timely basis with all filing requirements applicable to them:
18
o Mildred Carroll, Secretary, failed to file a Form 4 disclosing
her change in ownership from 520,000 shares of common stock to
420,006 shares of common stock during our last fiscal year;
o Matt Sebal, Director, failed to file a Form 4 disclosing his
change in ownership from 2,700,000 shares of common stock to
5,100,000 shares of common stock during our last fiscal year;
and
o John Demerego, Director, was delinquent in filing a Form 4
disclosing his change in ownership from 2,700,000 shares of
common stock to 5,100,000 shares of common stock during our
last fiscal year.
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
Set forth below is a summary of compensation for our principal executive officer
and our two most highly compensated officers other than our principal executive
officer (collectively, the "named executive officers") for our last two fiscal
years. There have been no annuity, pension or retirement benefits ever paid to
our officers, directors or employees.
With the exception of reimbursement of expenses incurred by our named executive
officers during the scope of their employment and unless expressly stated
otherwise in a footnote below, none of the named executive officers received
other compensation, perquisites and/or personal benefits in excess of $10,000.
==========================================================================================================================
Name and Non-Equity
Principal Salary ($) Bonus Stock Option Incentive All Other Total
Position Year ($) Awards ($) Awards Plan Compen- ($)
($) Compensation sation
($) (s)
--------------------------------------------------------------------------------------------------------------------------
Albert R. Reda, CEO, 2007 $240,000 $0 $0 $0 $0 $0 $240,000
CFO, Secretary
(Principal Executive
Officer)
--------------------------------------------------------------------------------------------------------------------------
2006 $240,000 $0 $0 $0 $0 $0 $240,000
--------------------------------------------------------------------------------------------------------------------------
Mildred Carroll, 2007(1) $54,000 $0 $0 $0 $0 $0 $54,000
Secretary
--------------------------------------------------------------------------------------------------------------------------
2006 $72,000 $0 $0 $0 $0 $0 $72,000
--------------------------------------------------------------------------------------------------------------------------
GRANTS OF PLAN-BASED AWARDS
We did not grant any plan-based awards during this fiscal year ended June 30,
2007.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth information for the named executive officers
regarding the number of shares and underlying shares both exercisable and
unexercisable stock options, as well as the exercise prices and expiration dates
thereof, as of June 30, 2007.
----------------------
(1) Resigned on April 11, 2007.
19
Option Awards Stock Awards
---------------- -------------------------------------------------------------------------------- ----------------------------------
Name Number of Number of Equity Option Option Number of Market Equity Equity
securities securities Incentive Exercise Expiration Shares of Value of Incentive Incentive
Underlying Underlying Plan Awards: Price Date Units of Shares Plan Plan
Unexercised Unexercised Number of ($) Stock or Units Awards: Awards
Options Options Securities that have of Stock Number of Market
(#) (#) Underlying not vested that Unearned or
Exercisable Unexercisable Unexercised (#) have not Shares, Payout
Unearned vested Units or Value of
Options ($) other Unearned
(#) rights Shares,
that Units of
have other
not rights
vested that
# have not
vested
$
---------------- -------------- -------------- --------------- --------- ------------ ----------- ---------- ------------ ----------
Albert R. -0- -0- -0- $-0- -0- -0- -0- -0- -0-
Reda, CEO,
CEO, Secretary
(Principal
Executive
Officer)
---------------- -------------- -------------- --------------- --------- ------------ ----------- ---------- ------------ ----------
Mildred -0- -0- -0- $-0- -0- -0- -0- -0- -0-
Carroll,
Secretary
---------------- -------------- -------------- --------------- --------- ------------ ----------- ---------- ------------ ----------
EMPLOYMENT AGREEMENTS
On June 8, 2007, we entered into an Employment Agreement with Albert Reda as our
Chief Executive Officer. The Employment Agreement has a term of five years with
automatic one year renewals unless either party gives notice to the other at
least 30 days prior to the end of any term. The Employment Agreement provides
for an annual salary of $300,000, makes provision for salary increases subject
to profitability of the Company, and bonuses in the discretion of the Board of
Directors. The Employment Agreement provides for severance of the entire
remaining compensation payable for the remainder of any term of the Agreement in
the event of termination without cause.
COMPENSATION OF DIRECTORS
Our Directors do not receive any cash compensation, but are entitled to
reimbursement of their reasonable expenses incurred in attending directors'
meetings.
We do not have any audit, nominating, compensation or other committee of our
Board of Directors.
20
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The following table sets forth certain information regarding our shares of
outstanding common stock beneficially owned as of the date hereof by (i) each of
our directors and executive officers, (ii) all directors and executive officers
as a group, and (iii) each other person who is known by us to own beneficially
more than 5% of our common stock based upon 6,841,422,154 issued shares of
common stock.
================================================================================================================
Name and Address of Beneficial Owners(2) Amount and Nature of Percent
Beneficial Ownership Ownership(3)
----------------------------------------------------------------------------------------------------------------
Albert R. Reda, CEO, CFO, Secretary, Director 1,026,455,000(4) 13.1%
----------------------------------------------------------------------------------------------------------------
Matt Sebal, Director 5,100,000 *
----------------------------------------------------------------------------------------------------------------
John Domerego, Director 5,100,000 *
----------------------------------------------------------------------------------------------------------------
All executive officers and directors as a group (four persons)
1,036,655,000 13.2%
================================================================================================================
*Less than 1%.
----------
(1) C/o our address, 800 N. Rainbow Blvd., Suite 200, Las Vegas, NV 89109,
unless otherwise noted
(2) Except as otherwise indicated, we believe that the beneficial owners of
Common Stock listed above, based on information furnished by such owners, have
sole investment and voting power with respect to such shares, subject to
community property laws where applicable. Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options or
warrants currently exercisable, or exercisable within 60 days, are deemed
outstanding for purposes of computing the percentage of the person holding such
options or warrants, but are not deemed outstanding for purposes of computing
the percentage of any other person.
(3) Includes 56,250 shares of preferred stock held by the Reda Family Trust
convertible into 562,500,000 shares of common stock; 2,965,000 shares of common
stock held by ARR, LLC; and 45,924 shares of preferred stock held by
ARR, LLC convertible into 459,240,000 shares of common stock.
21
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
None.
ITEM 13. EXHIBITS
3.1 Articles of Incorporation, dated December 4, 1998(1)
3.2 Certificate of Amendment of Certificate of Incorporation,
dated February 17, 1999(2)
3.3 Certificate of Amendment of Articles of Incorporation, dated
June 30, 1999(1)
3.4 Certificate of Amendment of Articles of Incorporation, dated
December 22, 1999(3)
3.5 Certificate of Amendment of Articles of Incorporation, dated
February 9, 2000(3)
3.6 Certificate of Designation, Number, Powers, Preferences and
Other Rights and Qualifications, Limitations, Restrictions and
Other Characteristics of Series "C" Preferred Stock, dated
September 30, 2004(4)
3.7 Bylaws, dated June 1, 1999(5)
10.1 Form of Location Provider Agreement(5)
10.2 Asset Purchase Agreement between Seamless P2P, LLC and
Seamless Peer 2 Peer, Inc., dated January 18, 2005(6)
10.3 Promissory Note and Security Agreement from 1st Global
Financial Corporation, dated July 14, 2006(7)
10.4 Revolving Line of Credit Agreement with DLR Funding, Inc.,
dated January 15, 2007(7)
10.5 Secured Promissory Note Payable in Agreed Installments and
Secured Term Note, dated October 1, 2006(7)
10.6 Loan Agreement with Ayuda Funding Corp., dated October 26,
2006
10.7 OEM Mobility License Agreement with Microsoft Licensing, GP,
dated May 22, 2007
10.8 Microsoft Services OEM Foundation Service Agreement -
Non-Standard, dated June 9, 2007
10.9 Loan Satisfaction Agreement with Ayuda Funding Corp. dated
June 7, 2007
10.10 Employment Agreement with Albert Reda, dated June 8, 2007
14 Code of Business Conduct and Ethics (8)
21 Subsidiaries
----------
(1) Incorporated by reference from our Quarterly Report on Form 10-QSB for the
quarterly period ended September 30, 1999, filed on December 1, 1999.
(2) Incorporated by reference from our Quarterly Report on Form 10-QSB for the
quarterly period ended March 31, 1999, filed on May 19, 1999.
(3) Incorporated by reference from our Quarterly Report on Form 10-QSB for the
quarterly period ended March 31, 2000, filed on May 22, 2000.
(4) Incorporated by reference from our Current Report on Form 8-K, filed on
October 4, 2004.
(5) Incorporated by reference from our Current Report on Form 8-K, filed on
October 7, 2004.
(6) Incorporated by reference from our Current Report on Form 8-K, filed on
January 19, 2005.
(7) Incorporated by reference from our Quarterly Report on Form 10-QSB for the
quarterly period ended December 31, 2006, filed on February 20, 2007.
(8) Incorporated by reference from our Annual Report on Form 10-KSB for the
fiscal year June 30, 2004, filed on November 12, 2004.
22
31.1 Certification of Chief Executive Officer Pursuant to the
Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
31.2 Certification of Chief Financial Officer Pursuant to the
Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
32 Certification pursuant to 18 U.S.C Section 1350, as adopted
pursuant to Section 906 of the Sarbanes Oxley Act of 2002
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
KEMPISTY & COMPANY, CPA'S ("KEMPISTY")
Kempisty was our independent auditor and examined our financial statements for
the fiscal years ending June 30, 2007 and June 30, 2006. Kempisty performed the
services listed below and was paid the fees listed below for the fiscal years
ended June 30, 2007 and June 30, 2006.
AUDIT FEES
Kempisty was paid aggregate fees of approximately $60,000 for the fiscal year
ended June 30, 2007 and approximately $40,000 for the fiscal year ended June 30,
2006 for professional services rendered for the audit of our annual financial
statements and for the reviews of the financial statements included in our
quarterly reports on Form 10-QSB during these fiscal years.
AUDIT RELATED FEES
Kempisty was not paid additional fees for either of the fiscal years ended June
30, 2007 or June 30, 2006 for assurance and related services reasonably related
to the performance of the audit or review of our financial statements.
TAX FEES
Kempisty was not paid additional fees for either of the fiscal year ended June
30, 2007 and June 30, 2006 for professional services rendered for tax
compliance, tax advice and tax planning during these fiscal years.
ALL OTHER FEES
Kempisty was not paid any other fees for professional services during the fiscal
years ended June 30, 2007 and June 30, 2006.
AUDIT COMMITTEE
We do not have an audit committee.
23
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, duly
authorized.
SEAMLESS WI-FI, INC.
DATED: October 12, 2007 By: /s/ Albert R. Reda
-----------------------
Albert R. Reda
Director, Chief Executive Officer,
Chief Financial Officer, and
Secretary (Principal Executive
Officer, Principal Financial
Officer and Principal Accounting
Officer)
24
Financial Index to be inserted
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Seamless Wi-Fi, Inc.
We have audited the accompanying consolidated balance sheet of Seamless Wi-Fi,
Inc. and Subsidiaries as of June 30, 2007 and the related statements of
operations, changes in stockholders' equity (deficit) and cash flows for each of
the years in the two year period ended June 30, 2007. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). atementtpndards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Seamless Wi-Fi, Inc. and
Subsidiaries at June 30, 2007 and the results of its' operations and its cash
flows for each of the years in the two year period ended June 30, 2007 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that Seamless
Wi-Fi, Inc. and Subsidiaries will continue as a going concern. As more fully
described in Note 4, the Company has incurred operating losses since inception
and requires additional capital to continue operations. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans regarding these matters are described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Kempisty & Company CPAs, P.C.
Kempisty & Company
Certified Public Accountants PC
New York, New York
October 12, 2007
F-2
SEAMLESS WI-FI, INC.
F/K/A ALPHA WIRELESS BROADBAND, INC.
CONSOLIDATED BALANCE SHEET
June 30, 2007
------------
ASSETS
Current assets
Cash $ 15,181
Accounts receivable 124,077
Accrued interest receivable 236,132
------------
Total current assets 375,390
Property and equipment (net of accumulated depreciation $44,093) 51,158
Technology 1,968,991
Employee advance 22,319
Notes receivable - related parties (net of allowance $334,703) 2,493,153
Restricted cash 75,000
Security deposit 6,600
------------
TOTAL ASSETS $ 4,992,611
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 239,226
Payroll taxes 96,706
Judgments payable 361,054
Other current liabilities 828,000
Investment payable 50,000
------------
Total current liabilities 1,574,986
Stockholders' equity
Convertible Preferred A stock, par value $0.001, 10,000,000 shares authorized,
498,914 shares issued and outstanding 498
Convertible Preferred B stock, par value $0.001, 10,000,000 shares authorized,
0 shares issued and outstanding --
Convertible Preferred C stock, par value $1.00, 5,000,000 shares authorized,
300,000 shares issued and outstanding 300,000
Common stock, par value $0.001, 11,000,000,000 shares authorized,
4,847,202,154 shares issued and outstanding 4,847,201
Additional paid-in capital 17,057,454
Accumulated deficit (18,687,528)
------------
Total stockholders' equity 3,517,625
Less: Treasury stock at cost 100,000
------------
Adjusted stockholders' equity 3,417,625
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,992,611
============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
SEAMLESS WI-FI, INC.
f/k/a ALPHA WIRELESS BROADBAND, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
June 30,
2007 2006
--------------- ---------------
Revenues $ 42,717 $ 38,793
Cost of revenues 165,580 115,070
--------------- ---------------
Gross Loss (122,863) (76,277)
--------------- ---------------
Expenses:
Selling, general and admin. 715,732 624,273
Software development costs -- 1,795,369
Technology development costs -- 38,552
Consulting 598,932 1,446,351
Finance 265,000 345,000
Legal 86,988 291,445
Officer payroll 456,031 --
Write down of investments -- 1,345,384
Bad Debt 105,437 229,265
Depreciation and amortization 31,749 12,344
--------------- ---------------
Total Expenses 2,259,869 6,127,983
--------------- ---------------
Net loss from operations (2,382,732) (6,204,260)
Other income/(expense)
Adjustment of tax assessment -- 460,957
Gain on liquidation of debt 4,904,508 --
Interest income 143,130 111,093
Interest expense (291,535) (1,388,335)
Other 836,298 652,630
--------------- ---------------
Income/(Loss) before income taxes 3,209,669 (6,367,915)
--------------- ---------------
Income taxes (benefit) (note 7) -- --
--------------- ---------------
Net Income/(Loss) 3,209,669 (6,367,915)
=============== ===============
Basic and Diluted
income/(loss) per common shares $ 0.00 $ (0.05)
=============== ===============
Weighted average basic and diluted common shares 2,087,742,032 133,750,923
=============== ===============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
SEAMLESS WI-FI, INC
f/k/a ALPHA WIRELESS BROADBAND, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE YEAR ENDED JUNE 30, 2006
Convertible Preferred Stock Common Stock
----------------------------------------- -------------------------- Additional
Shares Shares ($0.001 Par Value) Paid in
a Par $.001 C Par $1.00 Amount Shares Amount Capital
------------ ------------- ------ ------ ------ -------
Balance June 30, 2005 976,819 700,000 $ 700,977 24,468,944 $ 24,469 $ 11,709,065
Common stock issued for
Services 2,022,500 2,023 646,752
Preferred C stock issued for (300,000) (300,000) 5,655,190 5,655 294,346
SEAMLESS
Preferred C returned to Treasury (100,000) (100,000) 100,000
Common stock issued for
conversion of preferred A stock (31,278) (32) 312,780,520 312,780 4,767,946
Adjustments to equity
Loss for fiscal year ended
June 30, 2006 --------------------------------------------------------------------------------------
BALANCE JUNE 30, 2006 945,541 300,000 $ 300,945 344,927,154 $ 344,926 $ 17,518,109
=======================================================================================
[table continued]
Accumulated Treasury
Deficit Stock Total
------- ----- -----
Balance June 30, 2005 $ (15,817,276) $ - $ (3,382,765)
Common stock issued for
Services 648,775
-
Preferred C stock issued for 0
SEAMLESS -
-
Preferred C returned to Treasury 100,000 (100,000)
Common stock issued for -
conversion of preferred A stock 5,080,694
Adjustments to equity 287,994 287,994
-
Loss for fiscal year ended (6,367,915) (6,367,915)
June 30, 2006 ---------------------------------------------------
BALANCE JUNE 30, 2006 $ (21,897,197) $ 100,000 $ (3,833,217)
===================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
(CONTINUED) FOR THE YEAR ENDED JUNE 30, 2007
Convertible Preferred Stock Common Stock
--------------------------------------- --------------------------------- Additional
Shares Shares ($0.001 Par Value) Paid in
a Par $.001 C Par $1.00 Amount Shares Amount Capital
------------ ----------- ------ ------ ------ -------
Balance June 30, 2006 945,541 300,000 $ 300,945 344,927,154 $ 344,926 $ 17,518,109
Common stock issued for Services 36,005,000 36,005 124,045
Common stock issued for
conversion of Preferred A stock
to settle operating expenses (500) (1) 5,000,000 5,000 19,000
Common stock issued for
conversion of preferred A stock (446,127) (446) 4,461,270,000 4,461,270 (2,067,832)
Adjustment to additional paid
in capital 1,464,132
Income for the fiscal year ended
June 30, 2007
-------------------------------------------------------------------------------------------
BALANCE JUNE 30, 2007 498,914 300,000 $ 300,498 4,847,202,154 $ 4,847,201 $ 17,057,454
===========================================================================================
[table continued]
Accumulated Treasury
Deficit Stock Total
------- ----- -----
Balance June 30, 2006 $ (21,897,197)$ 100,000 $ (3,833,217)
Common stock issued for Services 160,050
Common stock issued for
conversion of Preferred A stock
to settle operating expenses 24,000
Common stock issued for
conversion of preferred A stock 2,392,992
Adjustment to additional paid
in capital 1,464,132
Income for the fiscal year ended
June 30, 2007 3,209,669 3,209,669
----------------------------------------------------
BALANCE JUNE 30, 2007 $ (18,687,528)$ 100,000 3,417,625
====================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
SEAMLESS WI-FI, INC.
f/k/a ALPHA WIRELESS BROADBAND, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
June 30,
2007 2006
----------- -----------
Cash flows used in operating activities
Net loss from continuing operations $ 3,209,669 $(6,367,915)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 31,749 12,344
Issuance of common stock for services 184,050 648,775
Issuance of common stock for payment of financing costs -- 984,000
Write-down of capitalized software costs -- 1,500,570
Write-down of investments -- 1,075,000
Cancellation of indebtedness (836,223) (649,080)
Gain on liquidation of long term debt (4,904,508) --
Interest expense 214,829 --
Financing cost 265,000 345,000
Bad debt expense 105,438 229,265
Changes in operating assets and liabilities
Investments -- 135,192
Accounts receivable (124,077) --
Accrued interest receivable (125,039) (111,093)
Other receivable -- 135,192
Accounts payable (865) 141,464
Other current liabilities 81,204 (683,254)
Payroll taxes payable (95,564) (468,394)
Judgements payable -- (40,189)
Payable to officer (51,665) --
----------- -----------
Net cash used by operating activities (2,046,002) (3,113,123)
Cash flows used in investing activities:
Equipment -- (95,251)
Technology (1,552,991) (91,000)
Investments -- (85,000)
Advances to related party (1,478,503) (132,099)
----------- -----------
Net cash used in investing activities (3,031,494) (403,350)
Cash flows from financing activities
Increase in current liabilities -- 44,014
Increase in long term debt 5,017,803 3,765,767
Repayment of notes payable (19,468) (79,500)
Repayment of advances from officer -- (35,922)
Repayment of related party advances -- (83,814)
----------- -----------
Net cash provided by financing activities 4,998,335 3,610,545
Increase (decrease) in cash (79,161) 94,072
Cash at beginning of period 94,342 270
----------- -----------
Cash at end of period $ 15,181 $ 94,342
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-7
SEAMLESS WI-FI, INC.
f/k/a ALPHA WIRELESS BROADBAND, INC
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
JUNE 30,
2007 2006
---- ----
Cash paid for:
Interest $ -- $ --
Taxes $ -- $ --
Noncash investing, and financing activities
Common stock issued for services $ 160,050 $ 648,775
Common stock issued for payment of financing costs $ -- $ 984,000
Common stock issued for conversion of preferred A stock and settle operating expenses $2,416,992 $4,588,768
Common stock and preferred stock issued for acquisition of assets $ -- $ 200,000
SEE NOTES TO FINANCIAL STATEMENTS.
F-8
SEAMLESS WI-FI, INC.
F/K/A ALPHA WIRELESS BROADBAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND OPERATIONS
Prior to December 31, 1997, Seamless Wi-Fi, Inc (the "Company") formerly known
as Alpha Wireless Broadband, Inc. was in the food product manufacturing business
and formerly known as International Food and Beverage, Inc. In November 1998,
new stockholders bought majority control from the previous Chief Executive
Officer through a private transaction. Immediately thereafter, the former CEO
resigned and the new stockholders assumed the executive management positions. In
December 1998, after new management was in place, a decision was made to change
the Company's principal line of business from manufacturing to technology. The
Company changed its name from International Food & Beverage, Inc. to Internet
Business's International, Inc., and reincorporated the Company on December 8,
1998 in the state of Nevada. During April of 1999, the Company announced the
opening of its first e-commerce site and engaged in the development, operation
and marketing of a number of commercial web sites. The Company's subsidiaries
consisted of: Lending on Line (providing real estate loans and equipment
leasing), Internet Service Provider (providing national Internet access dial-up
service, wireless high speed Internet, and Internet web design and hosting), E.
Commerce (providing Auction sites), and Direct Marketing (providing direct
marketing of long distance phone service, computers with Internet access, and
Internet web design hosting). The Company ceased operations during the fiscal
year ended June 30, 2003. During the fiscal year ended June 30, 2004, the
Company changed its name to Alpha Wireless Broadband, Inc, and started a new
wireless operation through its wholly owned subsidiary, Skyy-Fi, Inc., a Nevada
Corporation. Skyy-Fi began providing access to the Internet, by installing
equipment in locations such as hotels and coffee shops for use by their patrons
for a fee or free basis. These locations are commonly known as Wi-Fi Hotspots.
The Company has 36 Wi-Fi locations.
In January 2005, the Company acquired the assets of Seamless P2P, LLC and
contributed these assets to its 80% owned subsidiary, Seamless Peer to Peer,
Inc., which is a developer and provider of a patent pending software program,
Phenom Encryption Software, that encrypts Wi-Fi transmissions based upon RSA's
government certified 256 bit AES encryption coupled with RSA's Public Key
Infrastracture flexible telecom data and voice transport solutions.
In May 2005, the Company changed its name from Alpha Wireless Broadband, Inc. to
Seamless Wi-Fi, Inc., which was approved by the Board of Directors and changed
the name of its subsidiary from Skyy-Fi, Inc. to Seamless Skyy-Fi, Inc.
In December 2005, the Company started a hosting company, Alpha Internet,
offering Seamless clients a high-security hosting facility.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and its wholly
owned subsidiaries and majority-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation.
F-9
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles 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 financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant estimates include allowances for doubtful accounts and notes and
mortgage loans receivable. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all short-term, highly liquid investments with an original
maturity date of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated using the straight-line
method over the estimated useful life of the assets, which is generally three to
five years for computers and computer related equipment and five to seven years
for furniture and other non-computer equipment. Leasehold improvements are
amortized using the straight-line method over the shorter of their estimated
useful lives or the term of the lease, ranging from one to five years.
INVESTMENTS
Investments are stated at the lower of cost or market value.
PROPRIETARY SOFTWARE IN DEVELOPMENT
In accordance with SFAS No. 86, accounting for the Cost of Computer Software to
be Sold, Leased, or Otherwise Marketed Software ("FAS 86"), the Company has
capitalized certain computer software development costs upon the establishment
of technological feasibility. Technological feasibility is considered to have
occurred upon completion of a detailed program design which has been confirmed
by documenting and tracing the detailed program design to product
specifications. Amortization is provided based on the greater of the ratios that
current gross revenues for a product bear to the total of current and
anticipated future gross revenues for that product. The estimated useful life
for the straight-line method is determined to be two to five years.
The unamortized computer software and computer software development costs were
$1,570,000 at September 30, 2005. During the quarter ended December 31, 2005 the
computer software development team failed to deliver the completed software
program as per agreement. The unamortized development cost was expensed and on
January 2006, a new computer software development team was contracted and the
costs related to the development will be expensed until the development of the
computer software program is completed. As of the year ended June 30, 2007,
there were no software development expenses.
REVENUE RECOGNITION
For current Company operations, providing wireless Internet access, fees are
charged either to the proprietor of the Wi-Fi hotspot location or the customer
using the services. The fees paid by a proprietor for services provided on a
month-to-month basis are billed at the end of each month for which the service
is contracted. The fees paid by customers using the wireless Internet access are
paid at the time service is provided and therefore recorded as revenue at that
time.
F-10
ADVERTISING EXPENSE
All advertising costs are expensed when incurred.
CONCENTRATION OF CREDIT RISK
The Company is subject to credit risk through trade receivables. Monthly
internet access fees and web hosting are generally billed to the customer's
credit card, thus reducing the credit risk. The Company routinely assesses the
financial strength of significant customers and this assessment, combined with
the large number and geographic diversity of its customers, limits the Company's
concentration of risk with respect to trade accounts receivable.
INCOME TAXES
The Company accounts for income taxes under the asset and liability approach of
reporting for income taxes. Deferred taxes are recorded based upon the tax
impact of items affecting financial reporting and tax filings in different
periods. A valuation allowance is provided against net deferred tax assets where
the Company determines realization is not currently judged to be more likely
than not. The Company and its 80% of more owned U.S. subsidiaries file a
consolidated federal income tax return. Although income tax returns have not
been filed since 1999, the Company has no material tax liability due to its
losses during these periods. The Company is currently having these income tax
returns prepared.
EARNINGS (LOSS) PER SHARE ("EPS")
Basic EPS is computed by dividing income (loss) by the weighted average number
of common shares outstanding for the period. Diluted EPS is computed giving
effect to all dilutive potential common shares that were outstanding during the
period. Dilutive potential common shares consist of incremental shares issuable
upon conversion of preferred stock outstanding.
STOCK BASED COMPENSATION
The Company has elected to early adoption of SFAS 123R which requires all share
based payments to officers, directors, and employees, including stock options to
be recognized as a cost in the financial statements based on their fair values.
The Company accounts for stock based grants issued to non-employees at fair
value in accordance with SFAS 123 and ETIF 96-18 "Accounting for Equity
Instruments That are Issued to Other Than Employees for Acquiring, or In
Conjunction with Selling, Goods, or Services." There were no options granted
during the years ended June 30, 2007 and 2006, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In February 2007, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 159, "Fair Value Option for Financial Assets and Financial
Liabilities." SFAS 159 permits all entities to choose to measure eligible items
at fair value at specified election dates. The Company is currently assessing
the impact of adopting SFAS 159 on its consolidated financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 157, "Fair Value Measurements," which establishes a framework for
reporting fair value and expands disclosures about fair value measurements. SFAS
No. 157 is effective for financial statements issued for
F-11
fiscal years beginning after November 15, 2007 and interim periods within those
fiscal years. The Company is currently assessing the impact of the adoption of
this standard on its financial statements.
NOTE 2: GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. The Company has experienced significant losses in
recent years; at June 30, 2007 working capital deficiency is $292,120.
The Company is actively pursuing additional financing through discussions with
investment bankers and private investors. There can be no assurance the Company
will be successful in its effort to secure additional financing. The Company's
ability to continue as a going concern is contingent upon its ability to secure
financing and attain profitable operations. The financial statements do not
include any adjustment to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the possible inability of the Company to
continue as a going concern.
NOTE 3: LONG TERM DEBT
During the year ended June 30, 2007, the Company entered into a loan
satisfaction agreement with Ayuda Funding, LLC. The agreement provided the
Company would transfer 1,000,000 shares of 1st Global Financial Corporation
common stock and 500,000 shares of DLR Funding, Inc. common stock, valued at $1
per share to Ayuda Funding, LLC as payment in full of loans and interest
totaling $4,904,508.
In addition, Ayuda Funding, LLC converted 76,027 shares of Series A Preferred
Stock into 760,270,000 shares of common stock due to a default on one of the
notes, valued at $2,392,992, and as a payment of the loan plus interest.
NOTE 4: OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
Credit cards payable $ 316,228 (1)
Payable to Integrated Communication 235,585
Various liabilities assumed from
Alpha Tooling acquisition 276,187
--------
$828,000
========
(1) Payments in varying amounts are due monthly with interest at 18% per
annum.
(2) Results from contract cancellation.
NOTE 5: RELATED PARTY TRANSACTIONS
F-12
The Company has made the following loans and advances to related parties as of
June 30, 2007:
Allowance for
Loan/Advance for uncollectible Balance
Balance loans/advances Net
---------- ---------- -----------
Accepted Sales (A) $ 338,033 $ 338,033
Carbon Jungle, Inc. (B) 236,543 $ 236,543 --
DK Corp. (C) 98,160 98,160 --
DLR Funding (D) 667,159 667,159
1st Global Financial Service (E,F) 1,487,961 1,487,961
---------- ---------- -----------
Total: $2,827,856 $ 334,703 $ 2,493,153
========== ========== ===========
The above interest at annual rates ranges from 6% to 12%. The net balance at
June 30, 2007 is $2,493,153 matures in the fiscal years ended June 30 as
follows:
2008 $ 400,877
2009 506,599
2010 1,585,677
----------
$2,493,153
===========
(A) Accepted Sales is a division of 1st Global Financial Services
noted below.
(B) The President of the Company is a Director of the Company; the
Secretary of the Company is an officer of this Company.
(C) DK Corp is a business held by David Karst.
(D) The President of the Company is a stockholder and director of
this Company. The Secretary of the Company is an officer and
stockholder of this Company.
(E) The President of the Company is a stockholder and director of
this Company. The Secretary of the Company is an officer and
stockholder of this Company. A director of 1st Global is paid
$10,000 per month by the Company, which is recorded as a loan
receivable by the Company.
(F) The President of the Company is an officer of this Company.
The Company has recorded interest income on the above for the year ended June
30, 2007 in the amount of $ 236,132.
During the year ended June 30, 2006, the Company owned 19% of the common stock
of 1st Global Financial Services, Inc. (1st Global). Accepted Sales is a wholly
owned subsidiary of 1st Global. Albert Reda, the Company's CEO, is a director of
1st Global. 1st Global is in the debit/credit carding processing business and is
in the process of becoming a credit card processor. 1st Global may collaborate
with the Company to market Seamless Skyy-Fi services to its merchants. The
Company has made advances to 1st Global until they can obtain permanent
financing from other sources.
As of June 30, 2007, the Company owned 4.9 % of the common stock of 1st Global
Services, Inc. This decrease of ownership was due to the Company having entered
into a loan satisfaction agreement with Ayuda Funding, LLC. The agreement
provided for the Company transferring to Ayuda Funding, LLC 1,000,000 shares of
its 1st Global common stock and 500,000 shares of its DLR Funding, Inc. common
stock as payment in full of loans and interest totaling $4,904,508. (See Note 3:
Long Term Debt.)
F-13
Creditor Trust
The Company established a creditor trust pursuant to the terms and conditions of
a trust agreement whereby shares of the Company's common stock were to be held
in trust to return the maximum amount to beneficiaries and to allow the Company
to continue to operate without interruption. Following the submission of claims
and validation of such claims, the trustee was to liquidate the trust property
and distribute the proceeds to the trust beneficiaries in a manner the trustee
deems most beneficial.
As of September 30, 2005, the Company appointed Financial Services LLC as the
Trust Protector for the Creditor Trust. The Trust is currently managed by Albert
Reda who is an officer and director of the Company. The Company's previous
Creditor Trust had appointed KFG LLC as Trust Protector which was managed by
David Karst as the Trustee for the Creditor Trust.
NOTE 6: STOCKHOLDER'S EQUITY
ISSUANCE OF COMMON STOCK AND PREFERRED STOCK
The Board of Directors of the Corporation may from time to time authorize by
resolution the issuance of any or all shares of the Company's authorized common
stock and preferred stock in accordance with the terms and conditions set forth
in the Articles of Incorporation for such purposes, in such amounts to such
persons, corporations, or entities, for such consideration and in the case of
the preferred stock, in one or more series, all as the Board of Directors in its
discretion may determine and without any vote or either action by the
stockholders, except as otherwise required by law. The Board of Directors, from
time to time also may authorize by resolution, options, warrants and other
rights convertible into common or preferred stock (collectively "securities").
The securities must be issued for such consideration, including cash, property,
or services, as the Board of Directors may deem appropriate, subject to the
requirement that the value of such consideration be less than the par value of
the shares issued. Any securities issued for which the consideration so fixed
paid or delivered shall be fully paid stock and the holder of such securities
shall not be liable for any further call assessment or any other payment
thereon, provided that the actual value of such consideration is not less than
the par value of the securities so issued. The Board of Directors may issue
shares of common stock in the form of a distribution or distributions pursuant
to a stock dividend or split-up of the shares of the common stock only to then
holders of the outstanding shares of the common stock.
Preferred A shares converts as follows: 1 share of Preferred converts into
10,000 shares of common.
Preferred C shares converts as follows: one share of C which has a par value of
$1.00 converts into $1.00 worth of common shares.
Examples:
1. If the common stock 10 day average prior to the date of conversion, was
trading at $.10 per share, one share of preferred C would convert into 10 shares
of common.
2. If the common stock 10 day average prior to the date of conversion, was
trading at $.001 per share, one share of preferred C would convert into 1,000
shares of common.
STOCK ISSUANCE
DURING THE FISCAL YEAR ENDED JUNE 30, 2007, THE FOLLOWING SECURITIES WERE
ISSUED:
F-14
Ayuda Funding, LLC converted 175,000 shares of Series A Preferred Stock into
1,750,000,000 shares of common stock.
Ayuda Funding, LLC converted 76,027 shares of Series A Preferred Stock into
760,270,000 shares of common stock to pay back Ayuda in the amount of
$2,392,992.
36,005,000 shares of common stock were issued for services and expensed for
officer's compensation at $160,050.
500 shares of Series A Preferred Stock were converted into 5,000,000 shares of
common stock for consulting services and expensed at $24,000.
Global Debit Card Ltd. converted 100 shares of Series A Preferred Stock valued
at $ 0.10 into 1,000,000 shares of common stock valued at $1,000.
DURING THE FISCAL YEAR ENDED JUNE 30, 2006, THE FOLLOWING SECURITIES WERE
ISSUED:
2,022,500 shares of common stock were issued for operational services valued at
$648,775.
Ayuda Funding LLC converted 24,703 shares of Series A preferred stock into
247,030,520 shares of common stock, of which $773,145 was used to pay judgments,
and pay back Ayuda Funding LLC in the amount of $617,575.
Adobe Oil acquired 400,000 shares of Series C preferred stock from Seamless P2P
valued at $400,000, which 300,000 shares were converted into 5,656,537 shares of
common stock and 100,000 shares were returned to Treasury. See Note 6: Related
Party Transaction.
Windsor Professional Plaza LLC converted 6,575 shares of Series A preferred
stock into 65,750,000 shares of common stock of which 10,000,000 shares of
common stock were issued for consulting services and expensed at $473,000.
NOTE 7: INCOME TAXES
No provision for income taxes has been recorded in the accompanying financial
statements as a result of the Company's net operating losses. The Company has
unused tax loss carry forwards of approximately $20,000,000 to offset future
taxable income. Such carry forwards expire in the years beginning 2021. The
deferred tax asset recorded by the Company as a result of these tax loss carry
forwards is approximately $7,000,000 for both years ended June 30, 2007 and
2006. The Company has reduced the deferred tax asset resulting from its tax loss
carry forwards by a valuation allowance of an equal amount as the realization of
the deferred tax asset is uncertain. There is no net change in the deferred tax
asset and valuation allowance from July 1, 2006 to June 30, 2007.
NOTE 8: COMMITMENTS AND CONTINGENCIES
LEASE
The Company has entered into lease agreements for office space and an automobile
which expire on August 31, 2010 and October 8, 2007, respectively. The Company
rents additional office space in Nevada, on a month to month basis. Rent expense
under these leases for the years ended June 30, 2007
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and 2006 was $47,222 and $35,136, respectively. Remaining commitments under the
operating leases are as follows:
Fiscal year ending June 30:
2008 $ 53,687
2009 50,340
2010 50,340
LEGAL PROCEEDINGS
The Company is a party to the following legal proceedings:
GLOBALIST V. INTERNET BUSINESS'S INTERNATIONAL, INC. ET AL
On March 30, 2006, the Superior Court of the State of California, County of
Orange, entered a judgment against the Company and other defendants, jointly and
severally, in the total amount of $452,714.79 in the matter of Globalist
Internet Technologies, Inc. vs. Iron Horse Holdings, Inc., et al.
EMPLOYMENT CONTRACT
The Company has an employment contract with their Chief Executive Officer,
Albert Reda that calls for a base salary of $240,000 for the year ended June 30,
2007 and thereafter, a base annual salary of $300,000 increasing to $360,000
once the Company is profitable, from July 2007 until its expiration date in June
2012. In addition, the contract includes a bonus that will be determined by the
Company's Board of Directors. Severance for the remainder of any term is also
required in the event of termination without cause.
NOTE 9: SEGMENT INFORMATION
In accordance with SFAS No. 131 "Disclosure about Segments of an Enterprise and
Related Information," management has determined that there are three reportable
segments based on the customers served by each segment: Such determination was
based on the level at which executive management reviews the results of
operations in order to make decisions regarding performance assessment and
resource allocation.
The Company is currently a start up business that is providing "Wireless
Internet" access at business locations and a developer and provider of a patent
pending software. In December 2005 the Company started a hosting company Alpha
Internet offering Seamless clients a high-security hosting facility (See Note 1:
Organization and Operations.) Certain general expenses related to advertising
and marketing, information systems, finance and administrative groups are not
allocated to the operating segments and are included in "other" in the
reconciliation of operating income reported below.
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Information on reportable segments is as follows:
Fiscal year ended June 30,
2007 2006
----------- -----------
Wi-Fi ISP net sales $ 42,717 $ 38,793
Cost of Wi-Fi sales (165,580) (115,070)
Cost and expenses (2,551,404) (7,516,318)
Other net income 5,883,936 1,224,680
----------- -----------
Net loss $ 3,209,669 $(6,367,915)
=========== ===========
NOTE 10: SUBSEQUENT EVENTS
On August 7, 2007, the Company's board of directors approved a distribution to
its shareholders of 400,000 shares of 1st Global Financial Corporation common
stock owned by the Company which had zero carry value on the Company's books. On
September 14, 2007, one share of 1st Global Financial Corporation common stock
was distributed for each 20,000 shares of Company common stock held by Company
shareholders as of the record date, September 7, 2007. Company common stock
shareholders owning less than 20,000 shares of Company common stock were not
entitled to receive any distribution as it was not economically feasible for the
Company to make cash in lieu payments or issue fractional shares.
During the quarter ending September 30, 2007, $75,000 of cash was used to pay
professional fees per agreed settlement, see Note 8: Commitment &
Contingencies-Legal Proceedings, with the approval of the Company's Board of
Directors.
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