UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2005
|_| TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER ________________________________
DIGICORP
(Name of small business issuer in its charter)
Utah 87-0398271
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Wilshire Boulevard, Suite 1750
Santa Monica, CA 90401
----------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone Number: (801) 566-3000
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$.001 par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes |X| No
|_|
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_|
State issuer's revenues for its most recent fiscal year. $0
The aggregate market value of the voting and non-voting common equity held
by non-affiliates, computed by reference to the average bid and asked price of
such common equity as of September 21, 2005, was $7,974,404.
As of September 21, 2005, the issuer had 14,184,033 outstanding shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
TABLE OF CONTENTS
Page
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PART I
Item 1. Description of Business................................................................... 1
Item 2. Description of Property................................................................... 6
Item 3. Legal Proceedings......................................................................... 6
Item 4. Submission of Matters to a Vote of Security Holders....................................... 6
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.................................. 6
Item 6. Management's Discussion and Analysis or Plan of Operation................................. 8
Item 7. Financial Statements...................................................................... 11
Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure...... 21
Item 8A. Controls and Procedures................................................................... 21
Item 8B. Other Information......................................................................... 21
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act......................................... 21
Item 10. Executive Compensation.................................................................... 24
Item 11. Security Ownership of Certain Beneficial Owners and Management............................ 25
Item 12. Certain Relationship and Related Transactions............................................. 27
Item 13. Exhibits.................................................................................. 28
Item 14. Principal Accountant Fees and Services.................................................... 29
SIGNATURES........................................................................................... 30
PART I
Item 1. Description of Business.
Digicorp was incorporated on July 19, 1983 under the laws of the State of
Utah for the purpose of developing and marketing computer software programs.
From 1983 to 1995, our sales and investments were attributable to the sale of
computer software and investments related to oil, gas and mining.
On June 30, 1995, we became a development stage enterprise when we sold
our assets and changed our business plan. Since June 30, 1995, we have been in
the developmental stage and have had no operations other than issuing shares of
common stock for financing the preparation of financial statements and for
preparing filings for the SEC. In August 2001, we elected to file a Form 10-SB
registration statement with the SEC on a voluntary basis in order to become a
reporting company under the Securities Exchange Act of 1934.
Our business plan is to attempt to locate and negotiate with another
company for the purpose of a business combination of the two companies. The
combination will normally take the form of a merger, stock-for-stock exchange or
stock-for-assets exchange. In most instances the company combining with us will
wish to structure the business combination to be within the definition of a
tax-free reorganization under Section 351 or Section 368 of the Internal Revenue
Code of 1986, as amended. No assurances can be given that we will be successful
in locating or negotiating with another company in a business combination.
Significant Recent Event - Acquisition of iCodemedia Assets
On September 19, 2005, we entered into an asset purchase agreement with
Philip Gatch, our Chief Technology Officer, and thereby completed the purchase
of certain assets from Mr. Gatch consisting of the iCodemedia suite of websites
and internet properties and all related intellectual property (the "iCodemedia
Assets"). The iCodemedia suite of websites consists of the websites
www.icodemedia.com, www.iplaylist.com, www.tunecast.com, www.tunebucks.com,
www.podpresskit.com and www.tunespromo.com. We plan to use these websites to
provide a suite of applications and services to enable content creators to
publish and deliver content to existing and next generation devices such as the
Apple iPod and the Sony PSP. The iCodemedia Assets are presently under
development and constitute nominal assets of the Company. As consideration for
the iCodemedia Assets, we issued Mr. Gatch 1,000,000 shares of our common stock.
The issuance of shares of common stock to Mr. Gatch was exempt from registration
requirements pursuant to Section 4(2) of the Securities Act of 1933, as amended.
Our Business Plan is to Identify and Complete One or More Business Combinations
Our business plan is to research and identify viable business
opportunities that can be combined with us through an acquisition of or merger
with another business or an acquisition of business assets. We intend to execute
our business plan through any possible and reasonable means, including personal
contacts, professionals, securities broker-dealers, venture capital firms, other
members of the financial community and others who may present unsolicited
proposals. Other than for the assets of iCodemedia, described above, to date we
have not entered into any definitive agreement, term sheet or letter of intent
to complete a proposed business combination.
Benefits Achieved by Combining With Another Company
There are certain perceived benefits to being a reporting company with a
class of publicly traded securities. Some of these benefits are the ability to
use registered securities to make acquisitions of assets or businesses, to
facilitate raising additional capital when needed, to facilitate borrowing from
financial institutions, increased shareholder liquidity, improved trading
efficiency of a company's stock, increased visibility in the financial
community, market valuation of stock options for compensating key employees and
enhancement of the corporate image.
Business Entities That May Be Interested in a Business Combination with Us
Business entities that may be interested in a business combination with us
include the following:
1
1. A company that desires to go public for the purpose of having its
securities used for the acquisition of assets or other businesses;
2. A company that is unable to find an underwriter for its securities
or is unable to find an underwriter to sell its securities on terms
acceptable to the company;
3. A company that desires to become public with less dilution of its
common stock than would occur with an underwriting;
4. A company that believes it can obtain investment capital on more
favorable terms after it has become public;
5. A foreign company that may desire to enter the equity markets of the
United States;
6. A special situation company, such as a company seeking a public
market to satisfy redemption requirements under a qualified Employee
Stock Option Plan;
7. A company that desires to become public in less time than would be
required for a registration statement; or
8. A company that may desire any other benefits associated with being a
company with publicly trading securities.
A typical business combination among a public reporting company that has
insignificant operations and a private company involves the transfer to the
owners of the private company a significant number of the issued and outstanding
shares of common stock of the public reporting company, and may involve the
substitution or addition of management and/or directors from the private company
to the public reporting company.
No assurances can be given that we will be able to enter into a business
combination, what the terms of any business combination will be, or the nature
of the business that may combine with us.
Competitive Business Conditions
We compete with thousands of other public reporting companies whose
business operations have proven unsuccessful, and whose only viable business
opportunity is to seek a business combination. We also compete with other public
and private companies that are active in mergers and acquisitions of businesses
and assets which may be merger or acquisition target candidates for us. Nearly
all of such companies have significantly greater financial resources, technical
expertise and managerial capabilities than us and, consequently, we are at a
competitive disadvantage in identifying possible business opportunities and
successfully completing a business combination. We do not know of any accurate
method to assess our competitive position in the mergers and acquisitions
market.
Governmental Regulation of our Business
We currently do not have any operations and we do not produce any products
or provide any services. Accordingly, we are not presently subject to any
business-specific governmental regulations. However, in the event that we
complete a merger or acquisition transaction, we will become subject to all
governmental approval requirements to which the merged or acquired business is
subject.
Employees
As of September 21, 2005, we had one full time employee and five part time
employees. Each of these employees is an executive officer, described below. We
believe that relations with our employees are good.
2
RISK FACTORS
Our business involves a high degree of risk. Potential investors should
carefully consider the risks and uncertainties described below and the other
information in this report before deciding whether to invest in shares of our
common stock. Each of the following risks may materially and adversely affect
our business, results of operations and financial condition. These risks may
cause the market price of our common stock to decline, which may cause you to
lose all or a part of the money you paid to buy our common stock.
RISKS RELATED TO OUR BUSINESS
FOR THE PAST TEN YEARS WE HAVE NOT HAD ANY BUSINESS OPERATIONS OR ANY REVENUES
AND WE DO NOT HAVE SIGNIFICANT ASSETS. IF WE DO NOT CONSUMMATE A BUSINESS
COMBINATION, WE WILL CONTINUE TO HAVE NO REVENUES AND OUR SHARE PRICE WILL
LIKELY DECLINE.
As of June 30, 2005, our assets consisted of $465,626 in cash and $341,898
in other current assets, primarily comprised of prepaid legal fees. Since July
1, 1995, we have not generated any revenue. As of June 30, 2005, we had an
accumulated deficit of $609,715. For the fiscal years ended June 30, 2005 and
2004, we incurred total expenses of $81,509 and $2,774, respectively. We will,
in all likelihood, continue to incur operating expenses without corresponding
revenues, at least until the consummation of a business combination or the
successful commercialization of assets that we acquire. As a result, we will
continue to operate at a loss at least until a business combination with another
company can be completed or we successfully develop acquired assets into a
viable business. On September 19, 2005, we entered into an asset purchase
agreement with Philip Gatch, our Chief Technology Officer, and thereby completed
the purchase of certain assets from Mr. Gatch consisting of the iCodemedia suite
of websites and internet properties and all related intellectual property (the
"iCodemedia Assets"). The iCodemedia suite of websites consists of the websites
www.icodemedia.com, www.iplaylist.com, www.tunecast.com, www.tunebucks.com,
www.podpresskit.com and www.tunespromo.com. We plan to use these websites to
provide a suite of applications and services to enable content creators to
publish and deliver content to existing and next generation devices such as the
Apple iPod and the Sony PSP. The iCodemedia Assets are presently under
development and there is no guarantee that the iCodemedia Assets will develop
into a viable business. If we are unable complete a business combination, or
develop assets that we acquire into a viable business, and generate revenues,
our share price will likely decline.
AS OF THE DATE HEREOF, THE ONLY BUSINESS OPPORTUNITY FOR WHICH WE HAVE COMPLETED
A BUSINESS COMBINATION OR ASSET ACQUISITION OR ENTERED INTO A DEFINITIVE
AGREEMENT FOR IS TO ACQUIRE CERTAIN ASSETS FROM A RELATED PARTY. WE DID NOT
CONDUCT A FORMAL VALUATION TO DETERMINE THE FAIRNESS OF THE CONSIDERATION FOR
THE ACQUISITION, WHICH WAS COMPLETED ON SEPTEMBER 19, 2005. IF THE CONSIDERATION
PAID AND THE ACTUAL VALUE OF THE ASSETS ACQUIRED IS LESS THAN EXPECTED, THEN THE
MARKET VALUE OF OUR STOCK MAY DECLINE.
On September 19, 2005, we completed the purchase of the iCodemedia Assets
from Mr. Gatch, our Chief Technology Officer. As consideration for the
iCodemedia Assets, we issued Mr. Gatch 1,000,000 shares of our common stock,
which is approximately 7.1% of our currently outstanding shares. The
consideration for the acquisition was determined by arms' length negotiations
between non-interested members of our management and Mr. Gatch, but there was no
formal valuation of the subject assets by an independent third party. We did not
obtain a fairness opinion by an investment banking firm or other qualified
appraiser. Since the acquisition of the assets did not require the approval of
our stockholders, we are unable to determine whether our stockholders agree with
the determination by our board of directors that the terms of the acquisition
are fair and in the stockholders' best interests. If the consideration paid and
the actual value of the assets acquired is less than expected, then the market
value of our stock may decline.
THE NATURE OF OUR PROPOSED PLAN OF OPERATION IS EXTREMELY SPECULATIVE AND OUR
SUCCESS AND POTENTIAL PROFITABILITY DEPENDS ON A NUMBER OF FACTORS THAT ARE NOT
WITHIN OUR CONTROL. ACCORDINGLY, IT IS VERY DIFFICULT FOR ANYONE TO ACCURATELY
EVALUATE THE MERITS AND RISKS OF AN INVESTMENT IN US. THESE RISKS MAKE IT VERY
LIKELY THAT OUR SHARE PRICE COULD DECLINE.
3
The success of our proposed plan of operation depends to a great extent on
the operations and financial condition of a target business to combine with us.
While our management would prefer business combinations with entities having
established operating histories, there can be no assurance that we will be
successful in locating a candidate that meets such criteria. In the event we
complete a business combination - an event for which there can be no assurance -
the success of our operations will depend upon management of the target
business, other risks inherent to business combination transactions and specific
risks to the type of business acquired, which cannot be determined at this time.
Acquisitions involve numerous risks, including increased expenses and working
capital requirements and the potential loss of key employees and customers of
acquired companies. In addition, acquisitions involve financial risks, such as
potential liabilities of the acquired business, dilutive effects of the issuance
of additional equity securities, the incurrence of additional debt, the
financial impact of transaction expenses and the amortization of goodwill and
other intangible assets involved in any transactions that are accounted for by
using the purchase method of accounting, and possible adverse tax and accounting
effects. All of the foregoing increase the speculative nature of our plan of
operation and make it difficult to accurately evaluate the merits and risks of
an investment in us. All of the foregoing factors make it very likely that that
our share price could decline.
FAILURE TO PROPERLY MANAGE OUR POTENTIAL GROWTH POTENTIAL WOULD BE DETRIMENTAL
TO HOLDERS OF OUR SECURITIES.
Since we currently have no operations and our total assets at June 30,
2005 consisted only of $465,626 in cash and $341,898 in other current assets,
any significant growth will place considerable strain on our financial resources
and increase demands on our management and on our operational and administrative
systems, controls and other resources. There can be no assurance that our
existing personnel, systems, procedures or controls will be adequate to support
our operations in the future or that we will be able to successfully implement
appropriate measures consistent with our growth strategy. As part of this
growth, we may have to implement new operational and financial systems,
procedures and controls to expand, train and manage our employees and maintain
close coordination among our technical, accounting, finance, marketing, sales
and editorial staff. We cannot guarantee that we will be able to do so, or that
if we are able to do so, we will be able to effectively integrate them into our
existing staff and systems. We may fail to adequately manage our anticipated
future growth. We will also need to continue to attract, retain and integrate
personnel in all aspects of our operations. Failure to manage our growth
effectively could hurt our business.
CONSUMMATION OF A BUSINESS COMBINATION INVOLVING THE ISSUANCE OF OUR EQUITY
SECURITIES AS CONSIDERATION OR PARTIAL CONSIDERATION WILL DILUTE THE OWNERSHIP
AND VOTING INTERESTS OF OUR CURRENT STOCKHOLDERS.
Our plan for a business combination may involve the issuance of our equity
securities as consideration, or partial consideration, for acquiring a business.
If we issue significant amounts of our equity securities as consideration for
such a business combination, the ownership and voting interests of our current
stockholders will be materially diluted.
WE CURRENTLY COMPETE FOR BUSINESS COMBINATIONS WITH MANY LARGER COMPANIES THAT
HAVE GREATER FINANCIAL AND OTHER RESOURCES THAN WE DO. THOSE ADVANTAGES COULD
MAKE IT DIFFICULT FOR US TO IDENTIFY A FEASIBLE ACQUISITION TARGET.
We are and will continue to be an insignificant participant in the
business of seeking mergers with and acquisitions of business entities and/or
assets. A large number of established and well-financed entities, including
venture capital firms, are active in mergers and acquisitions of companies and
assets which may be merger or acquisition target candidates for us. Nearly all
such entities have significantly greater financial resources, technical
expertise and managerial capabilities than us and, consequently, we are at a
competitive disadvantage in identifying possible business opportunities and
successfully completing a business combination.
SEC REPORTING REQUIREMENTS MAY DELAY OR PRECLUDE ACQUISITION TARGETS.
Sections 13 and 15(d) of the Exchange Act, and rules promulgated
thereunder, require reporting companies to provide certain information about
significant acquisitions, including audited financial statements for businesses
acquired, covering one, two, or three years, depending on the relative size of
the acquisition. New SEC rules and forms effective in August 2005 require that
reporting companies with insignificant operations must file such audited
financial statements with the SEC within four business days of completing the
acquisition. The time and additional costs that may be incurred by some target
businesses to prepare such financial statements may significantly delay or
essentially preclude consummation of an otherwise desirable acquisition by us.
4
EXISTING TAX LAWS COULD RESULT IN THE IMPOSITION OF BOTH FEDERAL AND STATE TAXES
IN CONNECTION WITH A BUSINESS COMBINATION, WHICH MAY HAVE AN ADVERSE EFFECT OUR
BUSINESS.
Federal and state tax consequences will, in all likelihood, be significant
considerations in any business combination undertaken by us. Currently, such
transactions may be structured so as to result in tax-free treatment to all
parties involved, pursuant to various federal and state tax laws. We intend to
structure any business combination so as to minimize the federal and state tax
consequences to both us and the target business. However, there can be no
assurance that such business combination will meet the statutory and regulatory
requirements of a tax-free reorganization or that the parties will obtain the
intended tax-free treatment upon a transfer of stock or assets. A non-qualifying
reorganization could result in the imposition of both federal and state taxes
which may have an adverse effect on both parties to the transaction.
IF WE DO NOT MAINTAIN THE CONTINUED SERVICE OF OUR EXECUTIVE OFFICERS, WE MAY
NEVER DEVELOP BUSINESS OPERATIONS.
Our success is dependent upon the continued service of our current
executive officers. To date, we have entered into a written employment agreement
only with Philip Gatch, our Chief Technology Officer, and none of our other
executive officers. In addition, we do not have key man life insurance on any of
our executive officers. While none of our executive officers currently has any
definitive plans to retire or leave our company in the near future, any of such
persons could decide to leave us at any time to pursue other opportunities. The
loss of services of any of our executive management team could adversely affect
the opportunity of a business combination for us.
RISKS RELATED TO OUR COMMON STOCK
OUR HISTORIC STOCK PRICE HAS BEEN VOLATILE AND THE FUTURE MARKET PRICE FOR OUR
COMMON STOCK IS LIKELY TO CONTINUE TO BE VOLATILE. FURTHER, THE LIMITED MARKET
FOR OUR SHARES WILL MAKE OUR PRICE MORE VOLATILE. THIS MAY MAKE IT DIFFICULT FOR
YOU TO SELL OUR COMMON STOCK FOR A POSITIVE RETURN ON YOUR INVESTMENT.
The public market for our common stock has historically been very
volatile. Over the past two fiscal years, the market price for our common stock
as quoted on the OTC Bulletin Board has ranged from $0.01 to $0.45. The closing
sale price for our common stock on September 21, 2005 was $0.65 per share. Any
future market price for our shares is likely to continue to be very volatile.
This price volatility may make it more difficult for you to sell shares when you
want at prices you find attractive. We do not know of any one particular factor
that has caused volatility in our stock price. However, the stock market in
general has experienced extreme price and volume fluctuations that have often
been unrelated or disproportionate to the operating performance of companies.
Broad market factors and the investing public's negative perception of our
business may reduce our stock price, regardless of our operating performance.
Further, the market for our common stock is limited and we cannot assure you
that a larger market will ever be developed or maintained. The average daily
trading volume of our common stock has historically been insignificant. Market
fluctuations and volatility, as well as general economic, market and political
conditions, could reduce our market price. As a result, this may make it
difficult or impossible for you to sell our common stock or to sell our common
stock for a positive return on your investment.
OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE
TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR
STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
The SEC has adopted Rule 3a51-1 which establishes the definition of a
"penny stock," for the purposes relevant to us, as any equity security that has
a market price of less than $5.00 per share or with an exercise price of less
than $5.00 per share, subject to certain exceptions. For any transaction
involving a penny stock, unless exempt, Rule 15g-9 requires:
o that a broker or dealer approve a person's account for transactions
in penny stocks; and
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
5
In order to approve a person's account for transactions in penny stocks,
the broker or dealer must:
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prescribed by the SEC relating to the penny
stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
Generally, brokers may be less willing to execute transactions in
securities subject to the "penny stock" rules. This may make it more difficult
for investors to dispose of our common stock and cause a decline in the market
value of our stock.
Item 2. Description of Property.
Our headquarters are located at 100 Wilshire Boulevard, Suite 1750, Santa
Monica, CA 90401, where we occupy office space with Patient Safety Technologies,
Inc. and Ault Glazer Bodnar & Company Investment Management LLC at no cost to
us. Our office space is approximately 2,000 square feet.
Item 3. Legal Proceedings.
We are not a party to any pending legal proceeding, nor is our property
the subject of a pending legal proceeding. None of our directors, officers or
affiliates is involved in a proceeding adverse to our business or has a material
interest adverse to our business.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information
Our common stock is currently quoted on the OTC Bulletin Board under the
symbol "DGCO." For the periods indicated, the following table sets forth the
high and low sales prices per share of common stock.
Fiscal 2005 Fiscal 2004
-----------------------------------------
Fiscal Quarter High Low High Low
- --------------------------------------------------------------------------------------
First Quarter Ended September 30 $0.35 $0.06 $0.10 $0.01
Second Quarter Ended December 31 $0.35 $0.07 $0.15 $0.01
Third Quarter Ended March 31 $0.35 $0.14 $0.13 $0.06
Fourth Quarter Ended June 30 $0.45 $0.18 $0.18 $0.07
6
Holders
As of September 21, 2005, our shares of common stock were held by
approximately 288 stockholders of record.
Dividends
We have not declared any dividends to date. We have no present intention
of paying any cash dividends on our common stock in the foreseeable future, as
we intend to use earnings, if any, to generate growth. The payment by us of
dividends, if any, in the future, rests within the discretion of our Board of
Directors and will depend, among other things, upon our earnings, our capital
requirements and our financial condition, as well as other relevant factors.
There are no restrictions in our articles of incorporation or bylaws that
restrict us from declaring dividends.
Recent Sales of Unregistered Securities
On May 18, 2005, we sold Bodnar Capital Management, LLC 2,941,176 shares
of common stock and warrants to purchase an additional 3,000,000 shares of
common stock. Steven Bodnar is a managing member of and may be deemed a control
person of Bodnar Capital Management, LLC. The Company received gross proceeds of
approximately $500,000 from the sale of the common stock and warrants. The sale
was made in a private placement exempt from registration requirements pursuant
to Section 4(2) of the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder. The shares of common stock were sold at a price of $0.17
per share. In addition, in consideration for the purchase of the shares of
common stock, the Company issued Bodnar Capital Management, LLC: (a) callable
warrants to purchase 500,000 shares of common stock with an exercise price of
$0.25 exercisable for a period of five years; (b) callable warrants to purchase
500,000 shares of common stock with an exercise price of $0.35 exercisable for a
period of five years; (c) callable warrants to purchase 500,000 shares of common
stock with an exercise price of $0.42 exercisable for a period of five years;
(d) callable warrants to purchase 500,000 shares of common stock with an
exercise price of $0.75 exercisable for a period of five years; (e) callable
warrants to purchase 500,000 shares of common stock with an exercise price of
$1.00 exercisable for a period of five years; and (f) callable warrants to
purchase 500,000 shares of common stock with an exercise price of $1.50
exercisable for a period of five years. The sale of the above securities to
Bodnar Capital Management, LLC was exempt from registration requirements
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), and Rule 506 promulgated thereunder.
On July 20, 2005, as consideration for service on our Board of Directors,
we granted to each of Melanie Glazer, Alice M. Campbell, Darrell Grimsley, Lynne
Silverstein and William B. Horne options to purchase 250,000 shares of common
stock with an exercise price of $0.25 per share. These stock options will vest
quarterly over two years, with the first 31,250 options of each grant to vest
September 30, 2005. The issuance of these stock options was exempt from
registration requirements pursuant to Section 4(2) of the Securities Act.
On July 20, 2005, as consideration for service as Chairman of our Audit
Committee, we granted Ms. Campbell options to purchase 100,000 shares of common
stock with an exercise price of $0.25 per share. These stock options will vest
quarterly over two years, with the first 12,500 options to vest September 30,
2005. The issuance of these stock options was exempt from registration
requirements pursuant to Section 4(2) of the Securities Act.
On July 20, 2005, as consideration for service as a member of our Audit
Committee, we granted Ms. Glazer options to purchase 50,000 shares of common
stock with an exercise price of $0.25 per share. These stock options will vest
quarterly over two years, with the first 6,250 options to vest September 30,
2005. The issuance of these stock options was exempt from registration
requirements pursuant to Section 4(2) of the Securities Act.
On July 20, 2005, as consideration for service as our Chief Executive
Officer, we granted Mr. Ault options to purchase 2,000,000 shares of common
stock with an exercise price of $0.25 per share. These stock options will vest
quarterly over two years, with the first 250,000 options to vest September 30,
2005. The issuance of these stock options was exempt from registration
requirements pursuant to Section 4(2) of the Securities Act.
7
On July 20, 2005, as consideration for service as our President of
Operations, we granted Kathryn Queen options to purchase 750,000 shares of
common stock with an exercise price of $0.25 per share. These stock options will
vest quarterly over two years, with the first 93,750 options to vest September
30, 2005. Also on July 20, 2005, as an incentive bonus, subject to the earlier
to occur of us obtaining a market capitalization of $25 million at December 31,
2006, or prior to December 31, 2006, if we obtain, and maintain for 21
consecutive days, a market capitalization of $25 million, we agreed to grant Ms.
Queen options to purchase 750,000 shares of common stock. These stock options
will vest quarterly over four years from the date of grant. The issuance of
these stock options was exempt from registration requirements pursuant to
Section 4(2) of the Securities Act.
On July 20, 2005, as consideration for service as our Chief Technology
Officer, we granted Philip Gatch options to purchase 250,000 shares of common
stock with an exercise price of $0.25 per share. These stock options will vest
in equal amounts on July 20, 2005, 2006 & 2007, with the first 83,333 options to
vest July 20, 2005. Also on July 20, 2005, we agreed to issue restricted stock
valued at $12,500 quarterly during the three-year term of his employment as
Chief Technology Officer. The issuance of these stock options was exempt from
registration requirements pursuant to Section 4(2) of the Securities Act.
On July 20, 2005, as consideration for service as our Chief Financial
Officer, we granted Mr. Horne options to purchase 250,000 shares of common stock
with an exercise price of $0.25 per share. These stock options will vest
quarterly over two years, with the first 31,250 options to vest September 30,
2005. The issuance of these stock options was exempt from registration
requirements pursuant to Section 4(2) of the Securities Act.
On July 20, 2005, as consideration for service as our Controller, we
granted Jeanne Olsky options to purchase 100,000 shares of common stock with an
exercise price of $0.25 per share. These stock options will vest quarterly over
two years, with the first 12,500 options to vest September 30, 2005. The
issuance of these stock options was exempt from registration requirements
pursuant to Section 4(2) of the Securities Act.
On July 20, 2005, as consideration for service as our Corporate Secretary,
we granted Ms. Silverstein options to purchase 150,000 shares of common stock
with an exercise price of $0.25 per share. These stock options will vest
quarterly over two years, with the first 18,750 options to vest September 30,
2005. The issuance of these stock options was exempt from registration
requirements pursuant to Section 4(2) of the Securities Act.
On September 19, 2005, we purchased certain assets from Mr. Gatch
consisting of the iCodemedia suite of websites and internet properties and all
related intellectual property (the "iCodemedia Assets"). The iCodemedia suite of
websites consists of the websites www.icodemedia.com, www.iplaylist.com,
www.tunecast.com, www.tunebucks.com, www.podpresskit.com and www.tunespromo.com.
As consideration for the iCodemedia Assets, we issued Mr. Gatch 1,000,000 shares
of our common stock. The issuance of these shares to Mr. Gatch was exempt from
registration requirements pursuant to Section 4(2) of the Securities Act and
Rule 506 promulgated thereunder.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Forward-Looking Statements
The information in this annual report contains forward-looking statements.
All statements other than statements of historical fact made in this report are
forward looking. In particular, the statements herein regarding industry
prospects and future results of operations or financial position are
forward-looking statements. Forward-looking statements reflect management's
current expectations and are inherently uncertain. Our actual results may differ
significantly from management's expectations.
The following discussion and analysis should be read in conjunction with
the financial statements included herewith. This discussion should not be
construed to imply that the results discussed herein will necessarily continue
into the future, or that any conclusion reached herein will necessarily be
indicative of actual operating results in the future. Such discussion represents
only the best present assessment of our management.
8
Plan of Operation
Our plan of operation for the coming year is to identify and acquire a
favorable business opportunity. We do not plan to limit our options to any
particular industry, but will evaluate each opportunity on its merits. We
believe we have sufficient capital to continue operations until the end of 2005.
After that period if we do not enter a business combination, we anticipate that
our owners, affiliates, and consultants will provide sufficient capital for
another year, but there can be no assurance that this expectation will be
realized.
We have incurred losses since our inception. We will continue to sustain
losses until we establish profitable operations through an acquisition, or
otherwise. The achievement and/or success of these planned measures, however,
cannot be determined at this time. We do not expect to generate any meaningful
revenue or incur significant operating expenses unless and until we acquire an
interest in an operating company.
Off-Balance Sheet Arrangements
We do not have any off balance sheet arrangements that are reasonably
likely to have a current or future effect on our financial condition, revenues,
results of operations, liquidity or capital expenditures.
Critical Accounting Policies
A discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosure of contingent assets
and liabilities. Note 2 to the financial statements describes the significant
accounting policies and methods used in the preparation of the financial
statements. On an ongoing basis, management evaluates its estimates, the most
critical are those that are both important to the presentation of our financial
condition and results of operations and require management's most difficult,
complex, or subjective judgments.
Accounting Developments
In December 2004, Statement of Financial Accounting Standards ("SFAS") No.
123(R), "Share-Based Payment," which addresses the accounting for employee stock
options, was issued. SFAS 123(R) revises the disclosure provisions of SFAS 123,
"Accounting for Stock Based Compensation" and supersedes Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS
123(R) requires that the cost of all employee stock options, as well as other
equity-based compensation arrangements, be reflected in the financial statements
based on the estimated fair value of the awards. This statement is effective for
us as of the beginning of the first interim or annual reporting period that
begins after June 15, 2005. We adopted Statement 123(R) as of July 1, 2005, and
it did not have a material effect on our accounting for employee stock options.
Liquidity and Capital Resources
Our total assets were $807,524 at June 30, 2005 versus $3,991 at June 30,
2004. The change in total assets is primarily attributable to our financing
activities and the issuance of common stock for prepaid legal services valued at
approximately $325,000.
At June 30, 2005 and June 30, 2004, we had $465,626 and $3,991 in cash and
cash equivalents, respectively, representing an increase of $461,635. During
2005, we raised net proceeds of $500,000 in a private placement transaction. We
believe that existing cash resources should be adequate to fund our operations
for the twelve months subsequent to June 30, 2005. However, long-term liquidity
is dependent on our ability to attain future profitable operations. We may
undertake additional debt or equity financings to better enable us to grow and
meet our future operating and capital requirements. We do not currently have any
definitive plans or commitments for such financing and there is no assurance
that we will be successful in obtaining such financing.
Operating activities used $38,365 of cash for the year ended June 30,
2005, compared to using $3,009 for the year ended June 30, 2004.
9
Cash provided by financing activities for the year ended June 30, 2005, of
$500,000 resulted from the net proceeds from issuance of common stock and
warrants to purchase common stock. On May 18, 2005, we entered into a
subscription agreement with Bodnar Capital Management, LLC ("Bodnar Capital"),
pursuant to which we sold Bodnar Capital 2,941,176 shares of our common stock
and warrants to purchase an additional 3,000,000 shares of our common stock. We
received gross proceeds of $500,000 from the sale of stock and warrants to
Bodnar Capital. The warrants are exercisable for a period of five years, are
callable, under certain situations, upon 30 days prior written notice, and have
exercise prices as follows: (a) 500,000 shares with an exercise price of $0.25;
(b) 500,000 shares with an exercise price of $0.35; (c) 500,000 shares with an
exercise price of $0.42; (d) 500,000 shares with an exercise price of $0.75; (e)
500,000 shares with an exercise price of $1.00; (f) 500,000 shares with an
exercise price of $1.50. We intend to use the proceeds from the private
placement transaction primarily for general corporate purposes and to develop
the assets acquired in the iCodemedia transaction, described under Item 1 of
this report.
Results of Operations
Expenses
Operating expenses were $81,509 in the fiscal year ended June 30, 2005,
and $2,774 in the fiscal year ended June 30, 2004. Operating expenses in the
June 30, 2005 fiscal year primarily consisted of professional fees, employee
compensation, and travel related expenses.
Professional fees were approximately $47,000 higher in the fiscal year
ended June 30, 2005 compared to the year ended June 30, 2004 due to significant
increases in legal and accounting fees. In anticipation of an increased level of
legal work required to complete a business combination or acquire assets that
can then be developed into a viable business, and generate revenues, our
management, on May 5, 2005, retained Sichenzia Ross Friedman Ference LLP
("Sichenzia"). Under the terms of the agreement, which was amended on September
23, 2005, Sichenzia agreed to represent us in connection with our continuing
reporting requirements, as well as our general corporate matters. The term of
the agreement is from May 1, 2005 through March 31, 2007.
In consideration for Sichenzia's services, we agreed to a fixed fee of
$50,000 and to issue Sichenzia 500,000 shares of our common stock. The common
stock issued to Sichenzia was valued at approximately $325,000 and is being
amortized over the term of the agreement. At June 30, 2005 we had amortized
approximately $34,000. The increase in accounting fees of approximately $10,000
is attributable to an increase in the amount of work required to perform an
audit with a larger number of transactions and overall business activity.
During May 2005, we hired a full time employee who devoted a significant
amount of time evaluating potential business models. In addition to employee
compensation of approximately $11,000, travel related expenses, primarily
attributed to the activities of our full time employee, amounted to
approximately $12,000 during the fiscal year ended June 30, 2005.
Contractual Obligations
We did not have any contractual obligations as of June 30, 2005
10
Item 7. Financial Statements.
DIGICORP
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Jones Simkins, P.C........................................ 12
Balance Sheets as of
June 30, 2005 and 2004..................................... 13
Statements of Operations for the years
ended June 30, 2005, and 2004.............................. 14
Statements of Stockholders' Equity for the years
ended June 30, 2005 and 2004............................... 15
Statements of Cash Flows for the years
ended June 30, 2005 and 2004............................... 16
Notes to Financial Statements.......................................17-20
11
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders' and
Board of Directors of
DigiCorp
We have audited the accompanying balance sheets of DigiCorp (a developmental
stage company), as of June 30, 2005 and 2004 and the related statements of
operations, stockholders' equity, and cash flows for the years then ended and
the cumulative amounts since inception of developmental stage. 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 standards established by the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of DigiCorp (a developmental stage
company), as of June 30, 2005 and 2004 and the results of its operations and its
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/ JONES SIMKINS, P.C.
Logan, Utah
September 23, 2005
12
DIGICORP
(A Development Stage Company)
==========================================================================================================
Balance Sheets
- ----------------------------------------------------------------------------------------------------------
June 30, June 30,
2005 2004
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 465,626 $ 3,991
Other current assets 341,898
----------- -----------
TOTAL ASSETS $ 807,524 $ 3,991
=========== ===========
- ----------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 59,158 $ --
----------- -----------
TOTAL CURRENT LIABILITIES 59,158
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value: 50,000,000 shares authorized;
13,184,033 and 9,742,857 shares issued and outstanding, respectively 13,184 9,743
Paid-in capital 1,344,897 523,338
Accumulated deficit (511,627) (511,627)
Deficit accumulated during the development stage (98,088) (17,463)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 748,366 3,991
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 807,524 $ 3,991
=========== ===========
- ----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
13
DIGICORP
(A Development Stage Company)
=================================================================================================
Statements of Operations
- -------------------------------------------------------------------------------------------------
Years Ended Cumulative
June 30, June 30,
2005 2004 Amounts
REVENUES $ -- $ -- $ --
------------ ------------ ------------
EXPENSES
Salaries and employee benefits 11,233 11,233
Professional fees 48,826 48,826
Taxes other than income taxes 1,154 1,154
General and administrative 20,296 2,774 37,759
------------ ------------ ------------
Operating expenses 81,509 2,774 98,972
------------ ------------ ------------
Operating loss (81,509) (2,774) (98,972)
Interest, dividend income and other, net 884 884
------------ ------------ ------------
Net loss before income taxes (80,625) (2,774) (98,088)
Provision for income taxes -- -- --
------------ ------------ ------------
Net loss $ (80,625) $ (2,774)
============ ============
Basic and diluted net loss per common share $ (0.01) $ --
Weighted average common shares outstanding 10,166,064 9,576,000
============ ============
- -------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
14
DIGICORP
(A Development Stage Company)
====================================================================================================================================
Statements of Stockholders' Equity
July 1, 1995 to June 30, 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock During the Total
---------------------- Paid-In Accumulated Development Shareholders'
Shares Amount Capital Deficit Stage Equity
----------- -------- ----------- ------------ -------------- --------------
BALANCES, July 1, 1995 7,842,857 $ 7,843 $ 504,238 $ (511,627) $ -- $ 454
Issuance of common stock for cash 200,000 200 3,800 -- -- 4,000
Net loss -- -- -- -- (3,774) (3,774)
----------- -------- ----------- ------------ -------------- --------------
BALANCES, June 30, 1996 8,042,857 $ 8,043 $ 508,038 $ (511,627) $ (3,774) $ 680
Net loss -- -- -- -- (169) (169)
----------- -------- ----------- ------------ -------------- --------------
BALANCES, June 30, 1997 8,042,857 $ 8,043 $ 508,038 $ (511,627) $ (3,943) $ 511
Net loss -- -- -- -- (45) (45)
----------- -------- ----------- ------------ -------------- --------------
BALANCES, June 30, 1998 8,042,857 $ 8,043 $ 508,038 $ (511,627) $ (3,988) $ 466
Net loss -- -- -- -- (202) (202)
----------- -------- ----------- ------------ -------------- --------------
BALANCES, June 30, 1999 8,042,857 $ 8,043 $ 508,038 $ (511,627) $ (4,190) $ 264
Net loss -- -- -- -- (264) (264)
----------- -------- ----------- ------------ -------------- --------------
BALANCES, June 30, 2000 8,042,857 $ 8,043 $ 508,038 $ (511,627) $ (4,454) $ --
Issuance of common stock for:
Cash 500,000 500 4,500 -- -- 5,000
Services 500,000 500 4,500 -- -- 5,000
Net loss -- -- -- -- (5,110) (169)
----------- -------- ----------- ------------ -------------- --------------
BALANCES, June 30, 2001 9,042,857 $ 9,043 $ 517,038 $ (511,627) $ (9,564) $ 4,890
Net loss -- -- -- -- (2,808) (2,808)
----------- -------- ----------- ------------ -------------- -------------
BALANCES, June 30, 2002 8,042,857 $ 9,043 $ 517,038 $ (511,627) $ (12,372) $ 2,082
Net loss -- -- -- -- (2,317) (2,317)
----------- -------- ----------- ------------ -------------- --------------
BALANCES, June 30, 2003 8,042,857 $ 9,043 $ 517,038 $ (511,627) $ (14,689) $ (235)
Issuance of common stock for cash 700,000 700 6,300 -- -- 7,000
Net loss -- -- -- -- (2,774) (2,774)
----------- --------- ----------- ------------ -------------- --------------
BALANCES, June 30, 2004 9,742,857 $ 9,743 $ 523,338 $ (511,627) $ (17,463 ) $ 3,991
Issuance of common stock for:
Cash 2,941,176 2,941 497,059 -- -- 500,000
Services 500,000 500 324,500 -- -- 325,000
Net loss -- -- -- -- (80,625) (80,625)
----------- -------- ----------- ------------ -------------- --------------
BALANCES, June 30, 2005 13,184,033 $ 13,184 $ 1,344,897 $ (511,627) $ (98,088) $ 748,366
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
15
DIGICORP
(A Development Stage Company)
========================================================================================================
Statements of Cash Flows
- --------------------------------------------------------------------------------------------------------
Year Ended
June 30, June 30, Cumulative
2005 2004 Amounts
Cash flows from operating activities:
Net loss $ (80,625) $ (2,774) $ (98,088)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Stock issued for services 325,000 330,000
Changes in operating assets and liabilities:
Other current assets (341,898) (341,898)
Accounts payable and accrued liabilities 59,158 (235) 59,158
--------- --------- ---------
Net cash used in operating activities (38,365) (3,009) (50,828)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock and warrants 500,000 7,000 516,000
--------- --------- ---------
Net cash provided by financing activities 500,000 7,000 516,000
--------- --------- ---------
Net increase in cash and cash equivalents 461,635 3,991 465,172
Cash and cash equivalents at beginning of period 3,991 0 454
--------- --------- ---------
Cash and cash equivalents at end of period $ 465,626 $ 3,991 $ 465,626
========= ========= =========
- --------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
16
Digicorp
Notes to Financial Statements
June 30, 2005
1. DESCRIPTION OF BUSINESS
Digicorp ("the Company") was organized under the laws of the State of Utah on
July 19, 1983. On July 1, 1995, the Company became a development stage
enterprise as defined in SFAS No. 7 when it sold its assets and changed its
business plan. Accordingly the financial statements include cumulative amounts
since July 1, 1995. The Company proposes to seek business ventures that will
allow for long-term growth.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States ("GAAP"). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. These estimates are based on knowledge of
current events and anticipated future events and accordingly, actual results may
differ from those estimates.
Cash and Cash equivalents
The Company considers only highly liquid investments such as money market funds
and commercial paper with maturities of 90 days or less at the date of their
acquisition as cash and cash equivalents.
The Company maintains cash in bank and deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant credit
risk on cash and cash equivalents.
Liquidity
Since June 30, 1995, the Company has been a development stage enterprise with
recurring losses that has relied upon the issuance of its common stock to fund
operations. Management believes that existing cash resources should be adequate
to fund its operations for the 12 months subsequent to June 30, 2005. However,
long term liquidity is dependent on the Company's ability to attain future
profitable operations.
Income Taxes
Deferred income taxes are provided in amounts sufficient to give effect to
temporary differences between financial and tax reporting, principally related
to net operating loss carryforwards.
Stock-Based Compensation
Prior to July 1, 2005, the Company accounted for stock-based compensation in
accordance with Accounting Principles Board ("APB") Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations, as permitted by
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation. In December 2004, SFAS No. 123(R), "Share-Based
Payment," which addresses the accounting for employee stock options, was issued.
SFAS 123(R) revises the disclosure provisions of SFAS 123 and supercedes APB
Opinion No. 25. SFAS 123(R) requires that the cost of all employee stock
options, as well as other equity-based compensation arrangements, be reflected
in the financial statements over the vesting period based on the estimated fair
value of the awards. This statement is effective for the Company as of the
beginning of the first annual reporting period that begins after June 15, 2005.
The Company adopted SFAS 123(R) as of July 1, 2005. Since the Company had no
outstanding options as of June 30, 2005 and 2004, SFAS 123(R) would have had no
impact on the Company's financial statements had the Company elected to adopt
the provisions of SFAS 123(R) in an earlier period.
17
Digicorp
Notes to Financial Statements (continued)
Recent Accounting Pronouncements
SFAS No. 151, Inventory Costs - an amendment of ARB No. 43, Chapter 4, SFAS No.
152, Accounting for Real Estate Time-Sharing Transactions - an amendment of FASB
Statements No. 66 and 67, SFAS No. 153, Exchanges of Nonmonetary Assets - an
amendment of APB Opinion No 29, and SFAS No. 154, Accounting Changes and Error
Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3, were
recently issued. SFAS No 151, 152, 153, and 154 have no current applicability to
the Company or their effect on the financial statements would not have been
significant.
3. INCOME TAXES
For the years ended June 30, 2005, and 2004, Digicorp's tax (provision) benefit
was based on the following:
Years Ended
June 30, June 30, Cumulative
2005 2004 Amounts
Income tax benefit at statutory rate $ 28,000 $ 1,000 $ 47,000
Change in valuation allowance (28,000) (1,000) (47,000)
------------ ------------ -------------
$ -- $ -- $ --
============ ============ =============
Deferred income tax benefit (provision) reflects the impact of "temporary
differences" between amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws.
At June 30, 2005 and 2004, deferred tax assets consist of:
Years Ended
June 30, June 30,
2005 2004
Net operating loss carryforwards $ 47,000 $ 26,000
Valuation allowance (47,000) (26,000)
------------ ------------
$ -- $ --
============ ============
At June 30, 2005, Digicorp had net operating loss carryforwards for income tax
purposes of approximately $138,000, which began to expire in 2005. At a 34%
effective tax rate the after-tax net benefit from this loss would be
approximately $47,000. A change in the ownership of a majority of the fair
market value of the Company's common stock can delay or limit the utilization of
existing net operating loss carryforwards pursuant to the Internal Revenue Code
Section 382.
During the year ended June 30, 2005, the Company had approximately $22,000 of
net operating loss carryforwards which expired.
18
Digicorp
Notes to Financial Statements (continued)
4. LOSS PER COMMON SHARE
Loss per common share is based on the weighted average number of common shares
outstanding. The Company complies with SFAS No. 128, "Earnings Per Share," which
requires dual presentation of basic and diluted earnings per share on the face
of the statements of operations. Basic loss per share excludes dilution and is
computed by dividing income (loss) available to common stockholders by the
weighted-average common shares outstanding for the period. Diluted loss per
share reflects the potential dilution that could occur if convertible preferred
stock or debentures, options and warrants were to be exercised or converted or
otherwise resulted in the issuance of common stock that then shared in the
earnings of the entity.
Warrants outstanding at June 30, 2005, to purchase 3,000,000 shares of common
stock, were not included in the computation of diluted net loss per common share
for the year June 30, 2005, as their inclusion would have been antidilutive. At
June 30, 2004 there were no outstanding warrants.
5. EQUITY TRANSACTIONS
On September 23, 2005, the Company amended the terms of a legal representation
agreement initially entered into with Sichenzia Ross Friedman Ference LLP on May
5, 2005. ("Sichenzia"). Under the amended terms, Sichenzia agreed to represent
the Company in connection with its continuing reporting requirements, as well as
its general corporate matters, including, reviewing and drafting general
corporate documents. The initial term of the agreement is from May 1, 2005
through March 31, 2007.
In consideration for Sichenzia's services, the Company agreed to a fixed fee of
$50,000 and to issue Sichenzia 500,000 shares of the Company's common stock. The
common stock issued to Sichenzia was valued at approximately $325,000.
On May 18, 2005, the Company entered into a subscription agreement with Bodnar
Capital Management, LLC ("Bodnar Capital"), pursuant to which the Company sold
Bodnar Capital 2,941,176 shares of the Company's common stock and warrants to
purchase an additional 3,000,000 shares of the Company's common stock. The
Company received gross proceeds of approximately $500,000 from the sale of stock
and warrants to Bodnar Capital. The warrants are exercisable for a period of
five years, are callable, under certain situations, upon 30 days prior written
notice, and have exercise prices as follows: (a) 500,000 shares with an exercise
price of $0.25; (b) 500,000 shares with an exercise price of $0.35; (c) 500,000
shares with an exercise price of $0.42; (d) 500,000 shares with an exercise
price of $0.75; (e) 500,000 shares with an exercise price of $1.00; (f) 500,000
shares with an exercise price of $1.50. The sale was made in a private placement
exempt from registration requirements pursuant to Section 4(2) of the Securities
Act of 1933, as amended, and Rule 506 promulgated thereunder.
19
Digicorp
Notes to Financial Statements (continued)
6. WARRANTS
The following table summarizes information about common stock warrants
outstanding at June 30, 2005:
Outstanding Exercisable
- ------------------------------------------------------------------------------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Exercise Number Life Exercise Number Exercise
Price Outstanding (Years) Price Exercisable Price
- ---------------- ----------- ----------- ---------- ------------- ---------
$ 0.25 -0.42 1,500,000 4.88 $ 0.34 1,500,000 $ 0.34
$ 0.75 - 1.50 1,500,000 4.88 1.08 1,500,000 1.08
- ---------------- ----------- ----------- ---------- ------------- ---------
$ 0.25 - 1.50 3,000,000 4.88 $ 0.71 3,000,000 $ 0.71
================ =========== =========== ========== ============= =========
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at June 30, 2005 and 2004 are comprised
of the following:
June 30, June 30,
2005 2004
--------------- --------------
Professional fees - legal $ 30,000 $ --
Professional fees - other 10,000
Related party liability 17,295
Accrued - other 1,863
--------------- --------------
$ 59,158 $ --
=============== ==============
8. RELATED PARTY TRANSACTIONS
At June 30, 2005 and 2004, the Company has a liability of $17,295 and $0,
respectively, due to an entity that owned approximately 20% of the outstanding
shares of the Company's common stock. The liability is unsecured, non-interest
bearing and due on demand.
9. SUBSEQUENT EVENTS
On September 19, 2005, the Company entered into an asset purchase agreement with
Philip Gatch, our Chief Technology Officer, and thereby completed the purchase
of certain assets from Mr. Gatch consisting of the iCodemedia suite of websites
and internet properties and all related intellectual property (the "iCodemedia
Assets"). The iCodemedia suite of websites consists of the websites
www.icodemedia.com, www.iplaylist.com, www.tunecast.com, www.tunebucks.com,
www.podpresskit.com and www.tunespromo.com. We plan to use these websites to
provide a suite of applications and services to enable content creators to
publish and deliver content to existing and next generation devices such as the
Apple iPod and the Sony PSP. The iCodemedia Assets are presently under
development and constitute nominal assets of the Company. As consideration for
the iCodemedia Assets, we issued Mr. Gatch 1,000,000 shares of our common stock.
The issuance of shares of common stock to Mr. Gatch was exempt from registration
requirements pursuant to Section 4(2) of the Securities Act of 1933, as amended.
On July 20, 2005, as consideration for services, the Company granted
approximately 5,000,000 options, with an exercise price of $0.25 per share, to
officers, directors and consultants of the Company. These stock options become
exercisable based on a vesting schedule determined for each specific grant and
expire 10 years from the date of grant.
20
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
Item 8A. Controls and Procedures.
As of the end of the period covered by this report, we conducted an
evaluation, under the supervision and with the participation of our chief
executive officer and chief financial officer of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange
Act). Based upon this evaluation, our chief executive officer and chief
financial officer concluded that our disclosure controls and procedures are
effective to ensure that all information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is: (1) accumulated and
communicated to our management, including our chief executive officer and chief
financial officer, as appropriate to allow timely decisions regarding required
disclosure; and (2) recorded, processed, summarized and reported, within the
time periods specified in the Commission's rules and forms. There was no change
in our internal controls or in other factors that could affect these controls
during our last fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
Item 8B. Other Information.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
The following table sets forth the names and ages of the members of our
Board of Directors and our executive officers and the positions held by each.
Name Age Position
- ---- --- --------
Milton "Todd" Ault, III 35 Chief Executive Officer and Chairman
of the Board of Directors
William B. Horne 37 Chief Financial Officer and Director
Kathryn Macenzie Queen 27 President of Operations
Philip Gatch 41 Chief Technology Officer
Lynne Silverstein 33 Secretary and Director
Melanie Glazer 63 Vice Chairman of the Board of Directors
Darrell Grimsley, Jr. 39 Director
Alice Campbell 55 Director
Officers are elected annually by the Board of Directors (subject to the
terms of any employment agreement), at our annual meeting, to hold such office
until an officer's successor has been duly appointed and qualified, unless an
officer sooner dies, resigns or is removed by the Board.
Ms. Silverstein is the daughter of Mrs. Glazer, a current director and
Vice Chairman of our Board of Directors. Except for Ms. Silverstein and Mrs.
Glazer, there are no family relationships between any of our directors,
executive officers or persons nominated or charged by us to become directors or
executive officers.
Below is a brief description of the above persons' business experience
during the past five years based on information supplied by each of them.
21
Milton "Todd" Ault, III, Chief Executive Officer and Chairman of the Board
of Directors. Mr. Ault has been our Chief Executive Officer since April 26, 2005
and has been a director and Chairman of the Board of Directors since July 16,
2005. From April 26, 2005 until July 20, 2005, Mr. Ault also served in the
capacities of our principal financial officer and principal accounting officer.
From May 26, 2005 until July 13, 2005, Mr. Ault served as interim Chief
Executive Officer and as a director of IPEX, Inc., a Nevada corporation whose
common stock is quoted on the OTC Bulletin Board (IPEX). In addition, Mr. Ault
is currently the Chairman and Chief Executive Officer of Patient Safety
Technologies, Inc., a Delaware corporation whose common stock is traded on the
American Stock Exchange ("PST"). Mr. Ault has served as a director of PST since
June 23, 2004. Since December 2004, Mr. Ault has been a manager of Franklin
Capital Properties, a wholly owned subsidiary of PST. Since June 30, 2005, Mr.
Ault has served as Chairman, President and Chief Executive Officer of Ault
Glazer Bodnar Merchant Capital, Inc., which is currently a wholly owned
subsidiary of PST. In addition, Mr. Ault co-founded Ault Glazer & Company
Investment Management LLC ("Ault Glazer") in 1998 and is currently the
controlling and managing member and Chief Investment Officer of Ault Glazer, a
private investment management firm headquartered in Santa Monica, California.
From July 1998 until December 2004, Mr. Ault was a registered representative of
Strome Securities, L.P., a NASD registered broker-dealer.
William B. Horne, Chief Financial Officer and Director. Mr. Horne has been
our Chief Financial Officer and a director since July 20, 2005. Since July 5,
2005, Mr. Horne has also been Chief Financial Officer of PST and its
subsidiaries. From May 2002 to April 2005, Mr. Horne held the position of Chief
Financial Officer of Alaska Wireless Communications, a privately held advanced
cellular communications company. Since January 2002, Mr. Horne has also provided
strategic financial consulting services to both private and public companies.
From November 1996 to December 2001, Mr. Horne held the position of Chief
Financial Officer of The Phoenix Partners, a venture capital limited partnership
located in Seattle, Washington.
Kathryn Macenzie Queen, President of Operations. Ms. Queen has been our
President of Operations since April 26, 2005. From approximately November 2004
until May 2005, Ms. Queen was employed by PST where she advised and assisted the
company's executive officers on investment banking and related matters. From
2002 until November 2004, Ms. Queen worked in various positions in the
entertainment industry. Ms. Queen has held positions at Salomon Smith Barney,
Morgan Stanley and Mutual of New York. Ms. Queen graduated in 2002 from the
Fisher College of Business at the Ohio State University with a B.A. in
Economics, a B.S. in Finance and a B.S. in Accounting.
Philip Gatch, Chief Technology Officer. Mr. Gatch has been our Chief
Technology Officer since June 30, 2005. On June 30, 2005, Mr. Gatch was also
appointed Chief Technology Officer of PST. Since May 12, 2005, Mr. Gatch has
been a 50% owner and President of Cinapse Digital Media, LLC, a company that
operates a production and post-production media content facility. PST owns the
other 50% of Cinapse Digital Media, LLC. From September 2003 to June 2005, Mr.
Gatch was Director of Technical Services of The DR Group. From February 2002 to
April 2003, Mr. Gatch was Director of Research and Development for Media.net.
From 1999 to 2002, Mr. Gatch was Director of Research and Development for
Digital Entertainment Solutions.
Lynne Silverstein, Secretary and Director. Ms. Silverstein has been our
Secretary since April 26, 2005 and a member of our Board of Directors since July
20, 2005. Ms. Silverstein is currently the President and Secretary of PST. Since
June 30, 2005, Ms. Silverstein has also served as Secretary of Ault Glazer
Bodnar Merchant Capital, Inc., which is currently a wholly owned subsidiary of
PST. In addition, Ms. Silverstein has been Chief Executive Officer of Ault
Glazer since October 2003. Prior thereto, she was Director of Operations of Ault
Glazer since January 2001, having joined Ault Glazer in January 1999 as a
Manager.
Melanie Glazer, Vice-Chairman. Mrs. Glazer has been director since
December 30, 2004 and Vice Chairman of the Board of Directors since July 16,
2005. From December 30, 2004 until July 16, 2005, Mrs. Glazer was Chairman of
our Board of Directors. Mrs. Glazer co-founded Ault Glazer in 1998 where she is
a non-managing member and where she currently serves as an analyst. Ms. Glazer
is also a manager of Franklin Capital Properties, a wholly owned subsidiary of
PST, and has held that position since Franklin Capital Properties' inception in
December 2004. In 1989, Mrs. Glazer established her own realty company, Morris
Glazer Realty, which she ran successfully until 2003. Mrs. Glazer joined Dobson
& Johnson, Inc. in 1986, where she was a real estate broker until 1990. Mrs.
Glazer received her Bachelor of Art degree in History in 1964 from George
Peabody College, part of Vanderbilt University.
Darrell Grimsley, Jr., Director. Mr. Grimsley has been a member of our
Board of Directors since July 16, 2005. In addition, Mr. Grimsley has been a
practicing attorney during the last five years. From May 1, 1999 to present, Mr.
Grimsley has been managing member of D.W. Grimsley, Jr., LLC, a law firm
practicing in the areas of credit, toxic torts, employment law, due diligence
reporting and business consulting and advising. From October 1, 2003, Mr.
Grimsley has been managing member of The Bankruptcy Group, LLC a law firm
focusing on business and consumer bankruptcy law.
22
Alice M. Campbell, Director. Ms. Campbell has been a member of our Board
of Directors since July 16, 2005. Since October 22, 2004, Ms. Campbell has been
a director of PST. Since 2001, Ms. Campbell has been, and is currently, an
investigator and consultant, specializing in research and litigation services,
financial investigations and computer forensics, for major companies and law
firms throughout the United States. Ms. Campbell is a certified fraud
specialist, as well as a certified instructor for the Regional Training Center
of the United States Internal Revenue Service and for the National Business
Institute. From 1979 to 2001, Ms. Campbell served as a special agent for the
United States Treasury Department where she conducted criminal investigations
and worked closely with the United States Attorney's Office and with several
federal agencies, including the Internal Revenue Service, Federal Bureau of
Investigation, Secret Service, Customs Service, State Department, Drug
Enforcement Agency, Bureau of Alcohol, Tobacco and Firearms and U.S. Postal
Service.
Audit Committee
The Audit Committee is appointed by the Board of Directors in fulfilling
its responsibilities to oversee: (1) the integrity of our financial statements
and disclosure controls; (2) the qualifications and independence of our
independent accountants; (3) the performance of our independent accountants; and
(4) compliance with legal and regulatory requirements. Alice M. Campbell and
Melanie Glazer are the members of our Audit Committee. The Audit Committee is
chaired by Ms. Campbell.
Compensation Committee
The Compensation Committee is appointed by the Board of Directors to
discharge the responsibilities of the Board relating to compensation of our
executive officers. Alice M. Campbell is currently the only member of our
Compensation Committee and she is Chairman of the Compensation Committee.
Code of Ethics
We have adopted a Code of Ethics and Business Conduct that applies to our
Chief Executive Officer and Chief Financial Officer, which is filed as Exhibit
14.1 to this annual report. Upon request, we will provide to any person without
charge a copy of our Code of Ethics. Any such request should be made to Attn:
Jeanne Olsky, Digicorp, 100 Wilshire Boulevard, Suite 1750, Santa Monica, CA
90401. Our telephone number is (310) 751-1477. We do not maintain a corporate
website.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers and persons who beneficially own more than ten
percent of a registered class of our equity securities to file with the SEC
initial reports of ownership and reports of change in ownership of common stock
and other equity securities of our Company. Officers, directors and greater than
ten percent stockholders are required by SEC regulations to furnish us with
copies of all Section 16(a) forms they file. To our knowledge, the following
persons have failed to file, on a timely basis, the identified reports required
by Section 16(a) of the Exchange Act during the most recent fiscal year:
Number Transactions not Known failures to
Name and Relationship of late reports timely reported file a required form
- --------------------- ---------------- --------------- --------------------
Patient Safety Technologies, Inc., 10% Owner 1 1 0
Melanie Glazer, Director 1 1 0
Don J. Colton, Former Officer, Former Director
and Former 10% Owner 1 3 1
Gregg B. Colton, Former Officer, Former
Director and Former 10% Owner 1 2 1
Pioneer Oil and Gas, affiliate of Former
Director 1 1 1
23
Item 10. Executive Compensation.
The following table sets forth information concerning the annual and
long-term compensation of our Chief Executive Officer and the other named
executive officers, for services as executive officers for the fiscal years
ended June 30, 2005, June 30, 2004 and June 30, 2003.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
-------------------------------------------
Annual Compensation Awards Payouts
------------------------------------- ------------------------------ ------------
All
Other Securities Other
Annual Restricted Under-lying Compen-
Name and Compen- Stock Options/ LTIP sation
Principal Position Year Salary ($) Bonus ($) sation ($) Award(s) ($) SARs (#) Payouts ($) ($)
- ------------------------------ --------- ------------- ---------- ------------ --------------- -------------- ------------- --------
Milton "Todd" Ault, III 2005 0 0 0 0 0 0 0
CEO and Chairman (1) 2004 0 0 0 0 0 0 0
2003 0 0 0 0 0 0 0
(1) Mr. Ault was appointed Chief Executive Officer on April 26, 2005 and has
been a director and Chairman of the Board of Directors since July 16,
2005.
Compensation of Executive Officers
The following is a description of all compensation the Company has paid to
its executive officers as of September 21, 2005.
On July 20, 2005, as consideration for service as our Chief Executive
Officer, we granted Milton "Todd" Ault, III options to purchase 2,000,000 shares
of our common stock with an exercise price of $0.25 per share. These stock
options will vest quarterly over two years, with the first 250,000 options to
vest September 30, 2005.
On July 20, 2005, as consideration for service as our Chief Financial
Officer, we granted William B. Horne options to purchase 250,000 shares of our
common stock with an exercise price of $0.25 per share. These stock options will
vest quarterly over two years, with the first 31,250 options to vest September
30, 2005.
On July 20, 2005, as consideration for service as our President of
Operations, we granted Kathryn Queen options to purchase 750,000 shares of our
common stock with an exercise price of $0.25 per share. These stock options will
vest quarterly over two years, with the first 93,750 options to vest September
30, 2005. Also on July 20, 2005, as an incentive bonus, subject to the earlier
to occur of us obtaining a market capitalization of $25 million at December 31,
2006, or prior to December 31, 2006, if we obtain, and maintain for 21
consecutive days, a market capitalization of $25 million, we agreed to grant Ms.
Queen options to purchase 750,000 shares of our common stock. These stock
options will vest quarterly over four years from the date of grant.
On July 20, 2005, as consideration for service as our Chief Technology
Officer, we granted Philip Gatch options to purchase 250,000 shares of our
common stock with an exercise price of $0.25 per share. These stock options will
vest in equal amounts on July 20, 2005, 2006 & 2007, with the first 83,333
options to vest July 20, 2005. Also on July 20, 2005, we agreed to issue
restricted stock valued at $12,500 quarterly during the three-year term of his
employment as Chief Technology Officer.
On July 20, 2005, as consideration for service as Secretary, we granted
Ms. Silverstein options to purchase 150,000 shares of our common stock with an
exercise price of $0.25 per share. These stock options will vest quarterly over
two years, with the first 18,750 options to vest September 30, 2005.
24
Employment Agreements
Philip Gatch, our Chief Technology Officer, is our only executive officer
with an employment agreement.
On September 20, 2005, we entered into an employment agreement with Mr. Gatch
documenting the terms of his employment as our Chief Technology Officer. The
term of the employment continues for 36 months from September 20, 2005 and
automatically renews for successive one-year terms unless either party delivers
to the other party written notice of termination at least 30 days before the end
of the then current term. Mr. Gatch's base compensation under the agreement is
$95,000 in cash per year and $45,000 in a restricted stock grants each year.
Prior to signing the employment agreement, we granted Mr. Gatch options
entitling him to purchase 250,000 shares of common stock vesting annually over
three years with a strike price of $0.25 per share, which stock options are
reflected in the employment agreement. Mr. Gatch is also eligible to receive an
annual performance bonus determined by our chief executive officer. In addition,
Mr. Gatch was granted rights for three years to (a) veto a chief executive
officer candidate as a replacement to Milton "Todd" Ault, III, and (b) veto a
decision to sell our company or any of our core assets or technologies related
to the iCodemedia Assets in the event we sell for less than $50,000,000. If Mr.
Gatch's employment is terminated for any reason, the veto rights will be
forfeited. The agreement also contains customary provisions for disability,
death, confidentiality, indemnification and non-competition. If Mr. Gatch
voluntarily terminates the agreement or if we terminate the agreement for cause,
Mr. Gatch will not be entitled to any compensation for the period between the
effective termination date and the end of the employment term and all unvested
restricted stock and stock options will be forfeited. If we voluntarily
terminate the agreement without cause, we must pay Mr. Gatch a cash sum equal to
(a) all accrued base salary through the date of termination plus all accrued
vacation pay and cash bonuses, if any, plus (b) as severance compensation,
500,000 unrestricted shares of common stock and $250,000 cash. In the event of a
merger, consolidation, sale, or change of control, the surviving or resulting
company is required to honor the terms of the agreement with Mr. Gatch.
Compensation of Directors
On July 20, 2005, as consideration for service on our Board of Directors,
we granted to each of Melanie Glazer, Alice M. Campbell, Darrell Grimsley, Lynne
Silverstein and William B. Horne options to purchase 250,000 shares of our
common stock with an exercise price of $0.25 per share. These stock options will
vest quarterly over two years, with the first 31,250 options of each grant to
vest September 30, 2005.
On July 20, 2005, as consideration for service as Chairman of our Audit
Committee, we granted Ms. Campbell options to purchase 100,000 shares of our
common stock with an exercise price of $0.25 per share. These stock options will
vest quarterly over two years, with the first 12,500 options to vest September
30, 2005.
On July 20, 2005, as consideration for service as a member of our Audit
Committee, we granted Ms. Glazer options to purchase 50,000 shares of our common
stock with an exercise price of $0.25 per share. These stock options will vest
quarterly over two years, with the first 6,250 options to vest September 30,
2005.
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The following table sets forth certain information, as of September 21,
2005 with respect to the beneficial ownership of the outstanding common stock
by: (i) any beneficial holder of more than five (5%) percent of our outstanding
common stock; (ii) each of the named executive officers and directors; and (iii)
the named executive officers and directors as a group. Except as otherwise
indicated, each of the stockholders listed below has sole voting and investment
power over the shares beneficially owned.
Common Stock Percentage of
Name of Beneficial Owner (1) Beneficially Owned (2) Common Stock (2)
- ---------------------------------------------------------------------------------------------
Milton "Todd" Ault, III 3,554,527 (3) 24.6%
William B. Horne 62,500 (4) *
Lynne Silverstein 50,000 (5) *
Melanie Glazer 148,000 (6) 1.0%
Darrell Grimsley, Jr. 31,250 (7) *
Alice Campbell 43,750 (8) *
Patient Safety Technologies, Inc. 2,792,027 19.7%
Bodnar Capital Management, LLC 5,941,176 (9) 34.6%
- ---------------------------------------------------------------------------------------------
All officers, directors and directors nominees 3,779,527 25.8%
as a group (6 persons)
25
- -----------------------------
* Less than 1%
(1) Except as otherwise indicated, the address of each beneficial owner
is c/o Digicorp, 100 Wilshire Boulevard, Suite 1750, Santa Monica,
CA 90401.
(2) Applicable percentage ownership is based on 14,184,033 shares of
common stock outstanding as of September 21, 2005, together with
securities exercisable or convertible into shares of common stock
within 60 days of September 21, 2005 for each stockholder.
Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission and generally includes voting
or investment power with respect to securities. Shares of common
stock that a person has the right to acquire beneficial ownership of
upon the exercise or conversion of options, convertible stock,
warrants or other securities that are currently exercisable or
convertible or that will become exercisable or convertible within 60
days of September 21, 2005 are deemed to be beneficially owned by
the person holding such securities for the purpose of computing the
percentage of ownership of such person, but are not treated as
outstanding for the purpose of computing the percentage ownership of
any other person.
(3) Includes: (a) 250,000 shares issuable upon exercise of stock options
which vest September 30, 2005, have an exercise price of $0.25 per
share and expire July 20, 2015; (b) 512,500 shares beneficially
owned by certain private investment funds and individual accounts
managed by Ault Glazer & Company Investment Management LLC, for
which Mr. Ault serves as Chief Investment Officer and managing
member; and (c) 2,792,027 shares of the common stock held by Patient
Safety Technologies, Inc., for which Mr. Ault serves as Chairman and
Chief Executive Officer.
(4) Represents shares issuable upon exercise of stock options which vest
September 30, 2005, have an exercise price of $0.25 per share and
expire July 20, 2015.
(5) Represents shares issuable upon exercise of stock options which vest
September 30, 2005, have an exercise price of $0.25 per share and
expire July 20, 2015.
(6) Includes: (a) 110,500 shares of common stock; and (b) 37,500 shares
issuable upon exercise of stock options which vest September 30,
2005, have an exercise price of $0.25 per share and expire July 20,
2015.
(7) Represents shares issuable upon exercise of stock options which vest
September 30, 2005, have an exercise price of $0.25 per share and
expire July 20, 2015.
(8) Represents shares issuable upon exercise of stock options which vest
September 30, 2005, have an exercise price of $0.25 per share and
expire July 20, 2015.
(9) Includes: (a) callable warrants to purchase 500,000 shares of common
stock with an exercise price of $0.25 exercisable for a period of
five years; (b) callable warrants to purchase 500,000 shares of
common stock with an exercise price of $0.35 exercisable for a
period of five years; (c) callable warrants to purchase 500,000
shares of common stock with an exercise price of $0.42 exercisable
for a period of five years; (d) callable warrants to purchase
500,000 shares of common stock with an exercise price of $0.75
exercisable for a period of five years; (e) callable warrants to
purchase 500,000 shares of common stock with an exercise price of
$1.00 exercisable for a period of five years; and (f) callable
warrants to purchase 500,000 shares of common stock with an exercise
price of $1.50 exercisable for a period of five years. Steven J.
Bodnar is a managing member of and may be deemed a control person of
Bodnar Capital Management, LLC.
No Director, executive officer, affiliate or any owner of record or
beneficial owner of more than 5% of any class of our voting securities is a
party adverse to our business or has a material interest adverse to us.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table shows information with respect to each equity
compensation plan under which our common stock is authorized for issuance as of
the fiscal year ended June 30, 2005.
26
EQUITY COMPENSATION PLAN INFORMATION
- ------------------------------------------------------------------------------------------------------------
Plan category Number of securities Weighted average Number of securities
to be issued upon exercise price of remaining available for
exercise of outstanding options, future issuance under
outstanding options, warrants and rights equity compensation plans
warrants and rights (excluding securities
reflected in column (a)
- ------------------------------------------------------------------------------------------------------------
(a) (b) (c)
- ------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Equity compensation plans
not approved by security
holders -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Total -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------
Item 12. Certain Relationships and Related Transactions.
Management believes that all of the below transactions were on terms at
least as favorable as could have been obtained from unrelated third parties.
Change in Control
On December 29, 2004, our then current directors along with several other
shareholders sold 2,229,527 shares of our common stock, representing 22.3% of
our outstanding shares of common stock on such date, to Patient Safety
Technologies, Inc. (formerly, Franklin Capital Corporation ("PST"). Our
directors, Gregg B. Colton, Don J. Colton, Norman Sammis and Glenn W. Stewart,
sold 80% of their holdings of our common stock to PST at $.135 per share.
Another shareholder who was not a principal shareholder or director sold all of
his shares to PST at $.145 per share. The aggregate amount of funds of PST used
to purchase the shares of common stock was approximately $301,998. The source
for such funds was PST's working capital. The directors and shareholders agreed
to sell an additional 1,224,000 shares of our common stock of to PST upon the
shares being registered with the Securities and Exchange Commission. In
addition, prior to the acquisition and change of control, PST owned 327,500
shares of our common stock.
Pursuant to the stock purchase agreement with PST, Melanie Glazer was
appointed as Chairman of our Board of Directors on December 30, 2004, following
the resignation of Glenn W. Stewart, Norman Sammis and Don J. Colton as
directors. Effective April 26, 2005, Gregg B. Colton resigned from his positions
as President, Chief Executive Officer and Chief Financial Officer. On April 26,
2005, our Board of Directors appointed the following officers: (a) Milton C.
Ault, III - Chief Executive Officer; (b) Kathryn Macenzie Queen - President of
Operations; and (c) Lynne Silverstein - Secretary.
On June 30, 2005, we appointed Philip Gatch as our Chief Technology
Officer.
Effective July 16, 2005, Gregg B. Colton resigned from his position as a
director.
Effective July 16, 2005, we appointed Alice M. Campbell, Milton "Todd"
Ault, III and Darrell Grimsley as directors. Upon his appointment, Mr. Ault was
named Chairman of our Board of Directors. Ms. Campbell was appointed to chair
our Audit Committee and to chair our Compensation Committee.
Effective July 20, 2005, we appointed Lynne Silverstein and William B.
Horne as directors. Neither Ms. Silverstein nor Mr. Horne have been named to a
committee of the Board of Directors.
Effective July 20, 2005, we appointed William B. Horne as our Chief
Financial Officer.
As described under Item 9 above, all of our current officers and directors
had and/or currently have employment positions, directorships and/or other
relationships with Ault Glazer & Company Investment Management LLC, Patient
Safety Technologies, Inc. and/or Ault Glazer & Company Investment Management's
or Patient Safety Technologies' current officers and directors.
27
Acquisition of iCodemedia Assets
On September 19, 2005, we entered into an asset purchase agreement with
Philip Gatch, our Chief Technology Officer, and thereby completed the purchase
of certain assets from Mr. Gatch consisting of the iCodemedia suite of websites
and internet properties and all related intellectual property (the "iCodemedia
Assets"). The iCodemedia suite of websites consists of the websites
www.icodemedia.com, www.iplaylist.com, www.tunecast.com, www.tunebucks.com,
www.podpresskit.com and www.tunespromo.com. We plan to use these websites to
provide a suite of applications and services to enable content creators to
publish and deliver content to existing and next generation devices such as the
Apple iPod and the Sony PSP. The iCodemedia Assets are presently under
development and constitute nominal assets. As consideration for the iCodemedia
Assets, we issued Mr. Gatch 1,000,000 shares of common stock.
Item 13. Exhibits.
Exhibit
Number Description
- ----------- ----------------------------------------------------------------
3.1 Bylaws (Incorporated by reference to the Company's registration
statement on Form 10-SB (File No. 000-33067) filed with the
Securities and Exchange Commission on August 9, 2001)
3.2 Amendment No. 1 to Bylaws (Incorporated by reference to the
Company's Form 8-K filed with the Securities and Exchange
Commission on July 21, 2005)
4.1 Form of $0.25 Warrant issued to Bodnar Capital Management, LLC
(Incorporated by reference to the Company's Form 8-K filed with
the Securities and Exchange Commission on May 24, 2005)
4.2 Form of $0.35 Warrant issued to Bodnar Capital Management, LLC
(Incorporated by reference to the Company's Form 8-K filed with
the Securities and Exchange Commission on May 24, 2005)
4.3 Form of $0.42 Warrant issued to Bodnar Capital Management, LLC
(Incorporated by reference to the Company's Form 8-K filed with
the Securities and Exchange Commission on May 24, 2005)
4.4 Form of $0.75 Warrant issued to Bodnar Capital Management, LLC
(Incorporated by reference to the Company's Form 8-K filed with
the Securities and Exchange Commission on May 24, 2005)
4.5 Form of $1.00 Warrant issued to Bodnar Capital Management, LLC
(Incorporated by reference to the Company's Form 8-K filed with
the Securities and Exchange Commission on May 24, 2005)
4.6 Form of $1.50 Warrant issued to Bodnar Capital Management, LLC
(Incorporated by reference to the Company's Form 8-K filed with
the Securities and Exchange Commission on May 24, 2005)
10.1 Subscription Agreement dated May 18, 2005 between Digicorp and
Bodnar Capital Management, LLC (Incorporated by reference to the
Company's Form 8-K filed with the Securities and Exchange
Commission on May 24, 2005)
10.2 Asset Purchase Agreement dated September 19, 2005, among
Digicorp and Philip Gatch (Incorporated by reference to the
Company's Form 8-K filed with the Securities and Exchange
Commission on September 22, 2005)
10.3 Employment Agreement dated September 20, 2005, among Digicorp
and Philip Gatch (Incorporated by reference to the Company's
Form 8-K filed with the Securities and Exchange Commission on
September 22, 2005)
14.1 Code of Ethics
31.1 Certification by Chief Executive Officer, required by Rule
13a-14(a) or Rule 15d-14(a) of the Exchange Act
31.2 Certification by Chief Financial Officer, required by Rule
13a-14(a) or Rule 15d-14(a) of the Exchange Act
32.1 Certification by Chief Executive Officer, required by Rule
13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350
of Chapter 63 of Title 18 of the United States Code
32.2 Certification by Chief Financial Officer, required by Rule
13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350
of Chapter 63 of Title 18 of the United States Code
28
Item 14. Principal Accountant Fees and Services.
Audit Fees
The aggregate fees billed for professional services rendered by our
principal accountants for the audit of our financial statements, for the reviews
of the financial statements included in our annual report on Form 10-KSB, and
for other services normally provided in connection with statutory filings were
$9,150 and $2,225 for the years ended June 30, 2005 and June 30, 2004,
respectively.
All Other Fees
We did not incur any fees for other professional services rendered by our
principal accountants during the years ended June 30, 2005 and June 30, 2004.
Audit Committee Pre-Approval Policies and Procedures
Our Audit Committee was recently formed. The fees for audit services were
approved by our board of directors and the full board approved the financial
statements filed on Forms 10-QSB and 10-KSB. Management is required to
periodically report to the Audit Committee regarding the extent of services
provided by the independent auditor.
29
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, thereunto duly
authorized.
DIGICORP
Date: September 28, 2005 By: /s/ Milton "Todd" Ault, III
--------------------------------
Milton "Todd" Ault, III
Chief Executive Officer
Date: September 28, 2005 By: /s/ William B. Horne
--------------------------------
William B. Horne
Chief Financial Officer and
Principal Accounting Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
- --------------------------------- ----------------------- --------------------
/s/ Milton "Todd" Ault, III Chairman of the Board September 28, 2005
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Milton "Todd" Ault, III
/s/ William B. Horne Director September 28, 2005
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William B. Horne
/s/ Lynne Silverstein Director September 28, 2005
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Lynne Silverstein
/s/ Melanie Glazer Director September 28, 2005
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Melanie Glazer
/s/ Darrell Grimsley, Jr. Director September 28, 2005
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Darrell Grimsley, Jr.
/s/ Alice Campbell Director September 28, 2005
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Alice Campbell
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