10QSB: Optional form for quarterly and transition reports of small business issuers
Published on November 14, 2005
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NUMBER ____________
DIGICORP
--------
(Exact 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)
Issuer's telephone number: (310) 752-1477
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 |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |X| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of October 20, 2005, the issuer
had 14,200,104 outstanding shares of Common Stock, $.001 par value.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.............................................. 1
Item 2. Management's Discussion and Analysis or Plan of Operation......... 8
Item 3. Controls and Procedures........................................... 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................. 15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds....... 15
Item 3. Defaults Upon Senior Securities................................... 17
Item 4. Submission of Matters to a Vote of Security Holders............... 17
Item 5. Other Information................................................. 17
Item 6. Exhibits.......................................................... 18
SIGNATURES.................................................................. 19
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
DIGICORP
(A Development Stage Company)
================================================================================
Balance Sheet (Unaudited)
- --------------------------------------------------------------------------------
September 30,
2005
--------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 338,939
Other current assets 195,730
--------------
TOTAL CURRENT ASSETS 534,669
Property and equipment, net 6,970
Software development costs 41,600
Other intangible assets 300,000
Other long term assets 98,926
--------------
TOTAL ASSETS $ 982,165
==============
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 35,077
--------------
TOTAL CURRENT LIABILITIES 35,077
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value: 50,000,000 shares authorized;
14,200,104 shares issued and outstanding 14,200
Paid-in capital 1,835,481
Accumulated deficit (511,627)
Deficit accumulated during the development stage (390,966)
--------------
TOTAL STOCKHOLDERS' EQUITY 947,088
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 982,165
==============
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these
condensed financial statements.
1
DIGICORP
(A Development Stage Company)
================================================================================
Statements of Operations (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these
condensed financial statements.
2
DIGICORP
(A Development Stage Company)
================================================================================
Statements of Cash Flows (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these
condensed financial statements.
3
Digicorp
Notes to Condensed Financial Statements (Unaudited)
September 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
Basis of Presentation
The accompanying condensed financial statements have been prepared in accordance
with the instructions to Form 10-QSB and do not include all the information and
disclosures required by accounting principles generally accepted in the United
States of America. The preparation of financial statements in conformity with
accounting principles generally accepted in the U.S. requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. The actual results may differ from
management's estimates.
The interim condensed financial information is unaudited, but reflects all
normal adjustments that are, in the opinion of management, necessary to provide
a fair statement of results for the interim periods presented. The condensed
interim financial statements should be read in connection with the financial
statements in the Company's Annual Report on Form 10-KSB for the year ended June
30, 2005, as filed with the Securities and Exchange Commission.
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 through the end of the Company's current fiscal year,
June 30, 2006. However, long term liquidity is dependent on the Company's
ability to attain future profitable operations.
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 September 30, 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. During the
three months ended September 30, 2005, the Company had stock-based compensation
expense of $168,786, from the issuance of 5,100,000 options to purchase shares
of the Company's common stock, included in reported net loss of $292,878. All
options that we granted in 2005 were granted at the per share fair market value
on the grant date. Vesting of options differs based on the terms of each option.
The Company utilized the Black-Scholes option pricing model and the assumptions
used for each period are as follows:
4
Digicorp
Notes to Condensed Financial Statements (continued)
September 30, 2005
Three months ended
September 30,
-----------------------------
2005 2004
------------ ------------
Weighted average risk free interest rates 3.75% --
Weighted average life (in years) 3.55 --
Volatility 155% --
Expected dividend yield 0% --
Weighted average grant-date fair value
per share of options granted $ 0.56 $ --
OTHER INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
142, "Goodwill and Other Intangible Assets", which provides accounting and
reporting standards for acquired intangible assets. Under SFAS No. 142, goodwill
and other intangible assets with indefinite useful lives are no longer amortized
but tested for impairment at least annually. The Company adopted SFAS No. 142 in
connection with its purchase of the iCodemedia Assets from our Chief Technology
Officer, a related party, during September 2005 (see note 4). Upon adoption of
SFAS No. 142, the Company recorded the iCodemedia Assets as other intangible
assets, as those assets met the criteria under SFAS No. 142 for separate
identification. The Company will perform an impairment test on all intangible
assets, in accordance with the guidance provided by SFAS No. 144, "Accounting
for the Impairment of Disposal of Long-Lived Assets", at least annually, unless
events and circumstances indicate that such assets might be impaired.
3. 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 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.
Options and warrants outstanding as of September 30, 2005 to purchase 10,575,000
and 3,050,000 shares of common stock, respectively were not included in the
computation of diluted net loss per common share for the three months ended
September 30, 2005, as their inclusion would have been antidilutive. At
September 30, 2004 there were no outstanding options or warrants. See note 8 for
subsequent cancellation of warrants.
4. 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 and is
being amortized over the term of the agreement. At September 30, 2005 the
unamortized balance is $293,478. Of this balance $195,652 is included in other
current assets and $98,926 is included in other long term assets.
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
valued at $300,000. Intangible assets with an indefinite life are not subject to
amortization, but will be subject to periodic evaluation for impairment (see
Other Intangible Assets). 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 September 30, 2005, we entered into a non-binding Letter of Intent (the
"LOI") to purchase (the "Acquisition") all of the issued and outstanding shares
of capital stock of Rebel Crew Films, Inc., a California corporation ("Rebel
Crew"). As proposed in the LOI, upon closing the Acquisition, we would issue 20
million shares of our common stock to the shareholders of Rebel Crew as
compensation for the issued and outstanding capital stock of Rebel Crew. Also on
September 30, 2005, the Company entered into a Term Sheet (the "Term Sheet") to
purchase a $345,435 loan receivable (the "Loan Receivable") of Rebel Holdings,
LLC, a California limited liability company ("Rebel Holdings"), in exchange for
the issuance to Rebel Holdings of a $345,435 principal amount convertible note
(the "Note"). The Loan Receivable constitutes monies loaned by Rebel Holdings to
Rebel Crew to pay for operating expenses of Rebel Crew. The proposed Note would
have a term of five years from closing, would bear 4.5% simple interest and
would be convertible into shares of the Company's common stock at a conversion
price of $0.69087 per share.
5
Digicorp
Notes to Condensed Financial Statements (continued)
September 30, 2005
5. WARRANTS
In July 2005, the Company issued 50,000 warrants to purchase shares of common
stock at $0.25 per share to a consultant. The warrants are immediately
exercisable and have a five-year life. The warrants were valued at $11,500 and
were expensed during the three months ended September 30, 2005.
Warrants granted during the three months ended September 30, 2005 were valued
using the Black-Scholes valuation model assuming expected dividend yield,
risk-free interest rate, expected life and volatility of 0%, 3.75%, five years
and 155%, respectively. As of September 30, 2005, all warrants issued remain
outstanding.
Subsequent to September 30, 2005, 3,000,000 warrants issued to Bodnar Capital
Management, LLC were cancelled (see note 8).
The following table summarizes information about common stock warrants
outstanding at September 30, 2005:
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at September 30, 2005 and June 30, 2004
are comprised of the following:
September 30, June 30,
2005 2005
---------------- ----------------
Professional fees - legal $ 25,000 $ 30,000
Professional fees - other 5,750 10,000
Related party liability -- 17,295
Accrued - other 4,327 1,863
---------------- ----------------
$ 35,077 $ 59,158
================ ================
6
Digicorp
Notes to Condensed Financial Statements (continued)
September 30, 2005
7. RELATED PARTY TRANSACTIONS
At September 30, 2005 and June 30, 2005, the Company has a liability of $0 and
$17,295, 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.
8. SUBSEQUENT EVENTS
On October 24, 2005, the Company cancelled warrants issued to Bodnar Capital
Management, LLC ("Bodnar Capital") to purchase 3,000,000 shares of the Company's
common stock and issued warrants under terms similar to the cancelled warrants
to purchase 500,000 shares of the Company's common stock with an exercise price
of $0.01. The cancelled warrants were initially issued to Bodnar Capital on
April 5, 2005 pursuant to a subscription agreement with Bodnar Capital, whereby
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 were exercisable for
a period of five years, were callable, under certain situations, upon 30 days
prior written notice, and had 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. On November 2, 2005, Bodnar Capital exercised its warrants to
purchase 500,000 shares of the Company's common stock with an exercise price of
$0.01.
On November 11, 2005, the Company entered into a consulting agreement with Aegis
Equity LLC. In the event the transactions with Rebel Crew and Rebel Holdings,
discussed in Note 4, are consumated we agreed to issue Aegis Equity LLC 530,000
shares of common stock and warrants to purchase 300,000 shares of common stock
with an exercise price of $0.65 per share.
7
Item 2. Management's Discussion and Analysis or Plan of Operation.
Forward-Looking Statements
The information in this 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.
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.
Overview
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.
8
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.
On September 19, 2005, upon entering into an asset purchase agreement with
Philip Gatch, our Chief Technology Officer, we completed the initial transaction
to transform us from that of a development stage enterprise to a digital media
and content delivery company. The assets purchased consisted 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 and the related intellectual property to provide a suite of
applications and services to enable content creators the ability to publish and
deliver content to existing and next generation digital media devices, such as
the Apple iPod and the Sony PSP, based upon the consumers' expectation for
broader and on-demand access to content and services.
On September 30, 2005, we entered into a non-binding Letter of Intent (the
"LOI") to purchase (the "Acquisition") all of the issued and outstanding shares
of capital stock of Rebel Crew Films, Inc., a California corporation ("Rebel
Crew"). As proposed in the LOI, upon closing the Acquisition, we would issue 20
million shares of our common stock to the shareholders of Rebel Crew as
compensation for the issued and outstanding capital stock of Rebel Crew. Rebel
Crew was founded in 2001 and is film licensing and distribution company of
Latino home entertainment products. Rebel Crew currently maintains more than 200
Spanish language films and serves some of the nation's largest wholesale,
retail, catalog, and e-commerce accounts. Rebel Crew's titles can be found at
Wal-Mart, Best Buy, Blockbuster, K-Mart, and hundreds of independent video
outlets across the United States and Canada.
Also on September 30, 2005, the Company entered into a Term Sheet (the
"Term Sheet") to purchase a $345,435 loan receivable (the "Loan Receivable") of
Rebel Holdings, LLC, a California limited liability company ("Rebel Holdings"),
in exchange for the issuance to Rebel Holdings of a $345,435 principal amount
convertible note (the "Note"). The Loan Receivable constitutes monies loaned by
Rebel Holdings to Rebel Crew to pay for operating expenses of Rebel Crew. The
proposed Note would have a term of five years from closing, would bear 4.5%
simple interest and would be convertible into shares of the Company's common
stock at a conversion price of $0.69087 per share.
Since the Acquisition of Rebel Crew and purchase of the Loan Receivable
are subject to further negotiation of definitive agreements, we cannot assure
our shareholders that the proposed transactions will be completed. However, we
believe that the proposed transactions, if consummated, will allow us to
leverage Rebel Crew's Latino content and industry relationships with the
iCodemedia Assets to create a compelling digital media and content delivery
company.
We believe we have sufficient capital to continue operations until the end
of our current fiscal year, June 30, 2006. 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 either
complete the proposed Acquisition with Rebel Crew or acquire an interest in
another operating company.
9
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. Our office
space is approximately 2,000 square feet.
Liquidity and Capital Resources
Our total assets were $982,165 at September 30, 2005 versus $807,524 at
June 30, 2005. The change in total assets is primarily attributable to an
increase in intangible assets of $300,000 from our completion of the iCodemedia
Asset acquisition, offset by our operating and investing activities of $77,750
and $48,937, respectively.
At September 30, 2005 and June 30, 2005, we had $338,939 and $465,626 in
cash and cash equivalents, respectively, representing a decrease of $126,687.
During the three months ended September 30, 2005, we spent approximately $49,000
on the development of applications related to the iCodemedia Assets and other
fixed assets and paid approximately $24,000 toward accrued liabilities. The
remaining decrease in cash is attributed to recurring operating expenses. 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 $77,750 of cash for the three months ended
September 30, 2005, compared to $115 for the three months ended September 30,
2004.
Results of Operations
Expenses
Operating expenses were $296,654 in the three months ended September 30,
2005, and $1,515 in the three months ended September 30, 2004. Operating
expenses in the September 30, 2005 three month period primarily consisted of
professional fees and employee compensation.
Professional fees for the three months ended September 30, 2005 increased
approximately $68,000 over the six months ended September 30, 2004 due to
significant increases in legal and other professional fees. Of this increase,
approximately $47,000 related to the amortization of prepaid legal fees to
Sichenzia Ross Friedman Ference LLP ("Sichenzia") pursuant to the terms of the
May 5, 2005 legal retainer agreement, as amended. We entered into this legal
retainer agreement 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. Under the terms of the amended
agreement, 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 September 30, 2005 we had amortized
approximately $82,000. The increase in other professional fees of approximately
$21,000 is attributable to services performed by consultants assisting in the
development of our digital media strategy, primarily related to the iCodemedia
Assets.
At September 30, 2005, we had two full time employees as opposed to no
employees at September 30, 2004. In addition to cash based employee compensation
of approximately $28,000, we incurred approximately $180,000 in stock based
compensation expense related to our officers, employees and non-employee
directors performing services for the Company, all of which were expensed during
the three months ended September 30, 2005, in accordance with SFAS 123(R). The
Company valued the nonqualified stock options of $169,000 using the
Black-Scholes valuation model assuming expected dividend yield, risk-free
interest rate, expected life and volatility of 0%, 3.75%, two to five years and
155%, respectively. The restricted stock awards of $11,000 were valued at the
closing price on the date the restricted shares were granted. During the three
months ended September 30, 2004, we did not incur any stock based compensation
expense.
10
Contractual Obligations
We did not have any contractual obligations as of September 30, 2005
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 September 30, 2005, our assets consisted of $338,939 in cash and
$195,730 in other current assets, primarily comprised of prepaid legal fees.
Since July 1, 1995, we have not generated any revenue. As of September 30, 2005,
we had an accumulated deficit of $902,593. For the three months ended September
30, 2005 and 2004, we incurred total expenses of $296,655 and $1,515,
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.
On September 30, 2005, we entered into a non-binding Letter of Intent (the
"LOI") to purchase (the "Acquisition") all of the issued and outstanding shares
of capital stock of Rebel Crew Films, Inc., a California corporation ("Rebel
Crew"). As proposed in the LOI, upon closing the Acquisition, we would issue 20
million shares of our common stock to the shareholders of Rebel Crew as
compensation for the issued and outstanding capital stock of Rebel Crew. Rebel
Crew was founded in 2001 and is rapidly becoming a leading film licensing and
distribution company of Latino home entertainment products. Rebel Crew currently
maintains more than 200 Spanish language films and serves the nation's largest
wholesale, retail, catalog, and e-commerce accounts. Rebel Crew's titles can be
found at Wal-Mart, Best Buy, Blockbuster, K-Mart, and hundreds of independent
video outlets across the United States and Canada. Since the Acquisition is
subject to further negotiation of definitive agreements, we cannot assure our
shareholders that the proposed transactions will be completed. However, we
believe that the proposed Acquisition, if consummated, will allow us to leverage
Rebel Crew's Latino content and industry relationships with the iCodemedia
Assets to create a compelling digital media and content delivery company. 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.
11
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 Philip 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 7.0% 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.
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 September
30, 2005 consisted only of $338,939 in cash and $195,730 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.
12
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.
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.
13
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 $1.37. The closing
sale price for our common stock on October 19, 2005 was $0.99 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.
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.
14
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 3. 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.
PART II
Item 1. 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 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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 of
1933, as amended (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 vest
quarterly over two years, with the first 250,000 options to vest September 30,
2005. On September 30, 2005, we accelerated the vesting of such options such
that options to purchase 475,000 shares of common stock vested immediately.
Further, such 475,000 options will be exercisable by Mr. Ault for a period of 18
months from the date of closing of the proposed acquisition of all of the issued
and outstanding shares of capital stock of Rebel Crew Films, Inc., a California
corporation. The remaining options to purchase 1,525,000 shares of common stock,
to the extent not vested in accordance with the initial grant, will be cancelled
upon completing the acquisition of Rebel Crew Films, Inc. The issuance of these
stock options was exempt from registration requirements pursuant to Section 4(2)
of the Securities Act.
15
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.
On September 30, 2005, we granted Jay Rifkin, as interim President,
options to purchase 4,400,000 shares of common stock with an exercise price of
$0.85 per share, which stock options will vest annually over a period of three
years from the date of closing of the proposed acquisition of all of the issued
and outstanding shares of capital stock of Rebel Crew Films, Inc. If the
acquisition of Rebel Crew Films, Inc. is not completed, such options will be
cancelled. The grant of these options was exempt from registration requirements
pursuant to Section 4(2) of the Securities Act and Rule 506 promulgated
thereunder.
16
On September 30, 2005, we granted Cesar Chatel, as President of Rebel Crew
Films, Inc., options to purchase 800,000 shares of common stock with an exercise
price of $0.85 per share, which stock options will vest annually over a period
of three years from the date of closing of the proposed acquisition of all of
the issued and outstanding shares of capital stock of Rebel Crew Films, Inc. If
the acquisition of Rebel Crew Films, Inc. is not completed, such options will be
cancelled. The grant of these options was exempt from registration requirements
pursuant to Section 4(2) of the Securities Act and Rule 506 promulgated
thereunder.
On September 30, 2005, we granted Oscar Carreno, as Director of Sales of
Rebel Crew Films, Inc., options to purchase 150,000 shares of common stock with
an exercise price of $0.85 per share, which stock options will vest annually
over a period of four years from the date of closing of the acquisition of all
of the issued and outstanding shares of capital stock of Rebel Crew Films, Inc.
If the acquisition of Rebel Crew Films, Inc. is not completed, such options will
be cancelled. The grant of these options was exempt from registration
requirements pursuant to Section 4(2) of the Securities Act and Rule 506
promulgated thereunder.
On September 30, 2005, we granted Ian Monsod, as Manager of Operations of
Rebel Crew Films, Inc., options to purchase 125,000 shares of common stock with
an exercise price of $0.85 per share, which stock options will vest annually
over a period of four years from the date of closing of the acquisition of all
of the issued and outstanding shares of capital stock of Rebel Crew Films, Inc.
If the acquisition of Rebel Crew Films, Inc. is not completed, such options will
be cancelled. The grant of these options was exempt from registration
requirements pursuant to Section 4(2) of the Securities Act and Rule 506
promulgated thereunder.
On November 11, 2005, we issued 530,000 shares of common stock to Aegis
Equity LLC. On the same date we also issued Aegis Equity LLC warrants to
purchase 300,000 shares of common stock with an exercise price of $0.65 per
share exercisable for a term of five years. These shares of common stock and
warrants were issued as compensation for investor relations and advisory
services in connection with our proposed acquisition of Rebel Crew Films, Inc.
The issuance of these securities was exempt from registration requirements
pursuant to Section 4(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
On November 11, 2005, we entered into a consulting agreement with Aegis
Equity LLC. Such services include M&A advisory services related to the proposed
acquisition of Rebel Crew Films, Inc. and certain loans receivable of Rebel Crew
Holdings LLC, including performance and coordination of due diligence, advice on
integration, legal affairs, and communications advisory services. As
consideration for such services we agreed to issue Aegis Equity LLC 530,000
shares of common stock and warrants to purchase 300,000 shares of common stock
with an exercise price of $0.65 per share. In addition, one of our principal
stockholders, Patient Safety Technologies, Inc., agreed to pay Aegis Equity LLC
cash from the sale of 100,000 shares of our common stock held by such
stockholder. The consulting agreement terminates immediately upon the earlier of
120 days from execution, mutual written agreement among the parties to terminate
or a breach by either party of the consulting agreement. The above securities
will be issued pursuant to an exemption from registration requirements provided
by Section 4(2) of the Securities Act of 1933, as amended.
17
Item 6. Exhibits.
Exhibit Number Description
- -------------- --------------------------------------------------------------
3.1 Bylaws (Incorporated by reference to Digicorp'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
Digicorp's Form 8-K filed with the Securities and Exchange
Commission on July 21, 2005)
10.1 Binding Letter of Intent to purchase iCodemedia Assets, dated
July 15, 2005, among Digicorp and Philip Gatch (Incorporated
by reference to Digicorp's Form 8-K filed with the Securities
and Exchange Commission on July 21, 2005)
10.2 Asset Purchase Agreement made as of September 19, 2005 by and
among Digicorp and Philip Gatch (Incorporated by reference to
Digicorp's Form 8-K filed with the Securities and Exchange
Commission on September 22, 2005)
10.3 Employment Agreement effective as of September 20, 2005 by and
between Digicorp and Philip Gatch (Incorporated by reference
to Digicorp's Form 8-K filed with the Securities and Exchange
Commission on September 22, 2005)
10.4 Consulting Agreement entered into November 11, 2005 among
Digicorp, Aegis Equity LLC and Patient Safety Technologies,
Inc.
99.1 Letter of Intent to purchase the outstanding capital stock of
Rebel Crew Films, Inc. dated September 30, 2005 among
Digicorp, Rebel Crew Films, Inc. and the stockholders of Rebel
Crew Films, Inc. (Incorporated by reference to Digicorp's Form
8-K filed with the Securities and Exchange Commission on
October 5, 2005)
99.2 Term Sheet dated September 30, 2005 among Digicorp and Rebel
Holdings, LLC (Incorporated by reference to Digicorp's Form
8-K filed with the Securities and Exchange Commission on
October 5, 2005)
31.1 Certification by Chief Executive Officer and 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 and 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
18
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DIGICORP
Dated: November 14, 2005 By: /s/ William B. Horne
-------------------------------
William B. Horne
Chief Executive Officer, Chief
Financial Officer and Principal
Accounting Officer
19