9.01
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date
of report (Date of earliest event reported): February 8, 2007 (February
8, 2007)
Amerasia
Khan Ltd.
(Exact
name of registrant as specified in charter)
Nevada
|
000-52211
|
20-2559624
|
(State
or other jurisdiction of
incorporation
or organization)
|
(Commission
File No.)
|
(IRS
Employee Identification
No.)
|
3855
South 500 West, Suite B
Salt
Lake
City, Utah 84115
(Address
of Principal Executive Offices)
(801)263-0699
(Issuer
Telephone number)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
o
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o Soliciting
material pursuant to Rule 14a-12(b) under the Exchange Act (17 CFR
240.14a-12(b))
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act
(17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act
(17 CFR 240.13e-4(c))
This
Form
8-K and other reports filed by Registrant from time to time with the Securities
and Exchange Commission (collectively the “Filings”) contain or may contain
forward looking statements and information that are based upon beliefs of,
and
information currently available to, Registrant’s management as well as estimates
and assumptions made by Registrant’s management. When used in the filings the
words “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan”
or the negative of these terms and similar expressions as they relate to
Registrant or Registrant’s management identify forward looking statements. Such
statements reflect the current view of Registrant with respect to future events
and are subject to risks, uncertainties, assumptions and other factors
(including the risks contained in the section of this report entitled “Risk
Factors”) relating to Registrant’s industry, Registrant’s operations and results
of operations and any businesses that may be acquired by Registrant. Should
one
or more of these risks or uncertainties materialize, or should the underlying
assumptions prove incorrect, actual results may differ significantly from those
anticipated, believed, estimated, expected, intended or planned.
Although
Registrant believes that the expectations reflected in the forward looking
statements are reasonable, Registrant cannot guarantee future results, levels
of
activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, Registrant does not intend
to update any of the forward-looking statements to conform these statements
to
actual results. The following discussion should be read in conjunction with
Registrant’s pro forma financial statements and the related notes that will be
filed herein.
Item
1.01 ENTRY INTO MATERIAL
DEFINITIVE AGREEMENT.
On
February 8, 2007,
Amerasia Khan Ltd. a Nevada corporation (the “Registrant”) executed an Agreement
and Plan of Merger (the “Merger Agreement”) by and between the Registrant and
its wholly owned subsidiary, SZC Acquisition, Inc., a Nevada corporation
(“Subsidiary”) on the one hand and ShieldZone Corporation, a Utah corporation
(“ShieldZone” or “Target”) on the other hand. Pursuant to the Merger Agreement,
ShieldZone merged with Subsidiary, with ShieldZone surviving the merger and
Subsidiary ceasing to exist (the “Merger”).
In
addition, pursuant to the terms and conditions of the Merger
Agreement:
§ |
The
Registrant became the holder of all of the issued and outstanding
shares
of capital stock of Shieldzone, resulting in a parent/subsidiary
relationship between the Registrant and
ShieldZone.
|
§ |
Each
share of ShieldZone common stock issued and outstanding immediately
prior
to the closing of the Merger was exchanged for the right to receive
one
share of the Registrant’s common stock.
|
§ |
Certain
convertible notes, issued by SheildZone in the aggregate principal
amount
of $250,000.00, were converted by the Registrant at an exercise price
of
$0.35 into 714,286 shares of the Registrant’s common
stock
|
§ |
The
Registrant’s board of directors was reconstituted to consist of David Ho,
the Registrant’s director prior to the merger, and Robert G. Pedersen II,
who prior to the Merger was the sole director of ShieldZone.
|
§ |
Each
of the Registrant and SheildZone provided customary representations
and
warranties and closing conditions, including approval of the Merger
by
approval required by law of SheildZone’s stockholders.
|
The
foregoing description of the Merger Agreement does not purport to be complete
and is qualified in its entirety by reference to the complete text of the
Merger
Agreement, which is filed as Exhibit 2.1 hereto and incorporated herein by
reference.
The
Spin-out
On
February 8, 2007,
immediately following consummating the Merger, the Registrant entered into
a
Sale, Assignment, Assumption and Indemnification Agreement with Mr. Johnny
Lee.
This agreement is referred to as the Spin-out Agreement and to the transactions
effected thereby as the Spin-out. Prior to the Merger, Mr. Lee was the
Registrant’s President, CEO, member of the board of directors, and one of its
significant stockholders. Pursuant to the spin-out agreement, immediately
following the Merger on February 8, 2007
(i)
the
Registrant sold Mr. Lee all of its assets; (ii) Mr. Lee assumed all of the
Registrant’s liabilities, (iii) Mr. Lee agreed to indemnify the Registrant for
breaches by Mr. Lee under the spin-out agreement; and (iv) Mr. Lee granted
the
Registrant a general release. As partial consideration in connection with
entering into the Spin-out Agreement, Mr. Lee agreed to cancel his 4,000,000
shares of common stock held in the Registrant.
The
foregoing description of the Spin-out Agreement does not purport to be complete
and is qualified in its entirety by reference to the complete text of the
Merger
Agreement, which is filed as Exhibit 2.2 hereto and incorporated herein by
reference.
Item
2.01 ACQUISITION OR
DISPOSITION OF ASSETS.
Prior
to
the above transactions, the Registrant was in the business or marketing and
selling, or renting, academic regalia, such as caps, gowns and stoles for
use in
college and high school ceremonies. Since inception, this business has generated
nominal revenues. From and after the Merger and Spin-out, the Registrant’s
operations consist of the operations of Target.
In
this
report, when we use phrases such as "we," "our," "Company," "us," we are
referring to Registrant (formerly Amerasia Khan Ltd.) and Target (ShieldZone
Corporation) as a combined entity.
DESCRIPTION
OF BUSINESS
Summary
Overview
Registrant
-
Registrant was incorporated in the State of Nevada on April 2, 2004 and until
the Merger was in the business or marketing and selling, or renting, academic
regalia, such as caps, gowns and stoles for use in college and high school
ceremonies.
Target-
Prior to
the Closing, ShieldZone Corporation was privately owned. It was formed on March
24, 2005. Prior to the Merger, ShieldZone was managed by Mr. Robert G. Pedersen
II as the sole director and executive officer, who managed ShieldZone until
the
Merger. ShieldZone’s corporate headquarters are in Salt Lake City, Utah. Its
primary business has been the design, marketing and sale of a customized
protective film device used to protect the exterior finish of electronic devices
and other household and consumer items which are subject to cosmetic damage,
such as nicks, scratches, debris and chipping of the exterior surfaces of the
devices. SheildZone
was formed under the original name “Protective Solutions, Inc.” ShieldZone
maintains its corporate offices and operational facility at 3855 South 500
West,
Suites B and J, Salt Lake City, Utah, 84115. The telephone number of ShieldZone
is 801-263-0699. ShieldZone’s website addresses are www.ShieldZone.com
and
www.InvisibleShield.com
. The
websites and their contents are not a part of this Current
Report.
Overview
The
Company
custom-designs, markets and sells a form of protective covering for consumer
electronic and hand held devices. The Company’s key product “invisibleSHIELD”™
is made from a protective, film-like covering that was developed originally
to
protect the leading edges of rotary blades of military helicopters. The Company
determined that this same material could be configured to fit onto the surface
of electronic devices and marketed to consumers for use in protecting such
devices from everyday wear and tear including scratches, scrapes, debris and
other surface blemishes. The film also permits touch sensitivity, meaning it
can
be used on devices that have a touch-screen interface. The invisibleSHIELD
material is highly reliable and durable since it was originally developed for
use in a high friction, high velocity, aerospace context. The material provides
long lasting protection for the surface of electronic devices subject to normal
wear and tear. The material is a form of polyurethane substance, akin to a
very
thin, pliable, flexible and durable clear plastic that adheres to the surface
and shape of the object it is applied to.
The
invisibleSHIELD
has been deployed by the Company in over 700 designs to accommodate the specific
size and shape of specific electronic devices. Current
applications include: iPods®, laptops, cell phones (from dozens of
manufacturers), PDAs, watch faces, gaming devices, digital cameras, and many
more items. The
product is “cut” to fit specific devices and packaged together with a moisture
activating spray called “SHIELDspray”™
which
makes the invisibleSHIELD
adhere to the surface of the device literally “like a second skin” virtually
invisible to the eye. Unlike bulky or flashy sleeves or cases, the invisibleSHIELD
is
not readily visible to the eye, and the feel of it is not intrusive to the
touch. It does not hide the design or features of the device. Rather, it
literally “coats” the device with a protective layer that is clear,
touch-penetrable, and completely unobtrusive to the look and feel of the device.
The invisibleSHIELD
is
not ornamental, but rather provides a long lasting barrier to preserve the
brand
new look of the surface of an electronic device.
Design
and Packaging
The
Company
designs and cuts the
invisibleSHIELD
product for application on hundreds of specific electronic devices. The Company
acquires raw materials from third party sources that are delivered to the
Company’s facilities and assembled for packaging. In addition, the Company
out-sources high volume precision-cutting of the materials, which the Company
considers to be more cost effective. The Company then packages the configured
materials together with an installation kit, consisting of SHIELDspray,
a
moisture adhesive-activating solution, a squeegee, and instructions for
application on specific electronic devices. On average, the Company processes
and ships over 15,000 finished packages per month.
The
Company
has a patent pending on the process of wrapping an entire gadget body in a
transparent, durable and semi-permanent film. The Company also custom designs
each cut-out for the film and currently has unique designs for nearly 700
devices. The cut-out designs are developed internally and owned exclusively
by
the Company. The Company does not own the base materials, but believes that
its
relationship with the distributor of the material is on excellent terms and
anticipates no interruption in the Company’s ability to acquire the materials
and produce products.
Market
for Products
The
portable
electronic device market, notably handheld devices, is continuing to see
advancements in performance and functionality in existing models. Furthermore,
the market is expanding as evidenced by new product developments in portable
electronic devices. Correspondingly, the aesthetics of such devices is
increasingly important to the extent that buyers are considering the look and
feel of such devices, as much as performance, in making their purchasing
decisions.
As
a result,
an industry and significant market has emerged in protecting portable electronic
devices, notably the “high end” devices - both in terms of price, and
design/functionality. Consumers are seeking ways to protect the device from
wear
and tear and damage, but not impede the look, feel, or functionality of the
device.
The
Company,
directly and through its distributors and retail sellers, sells the invisibleSHIELD
to
consumers of electronic household and hand-held devices. The Company sells
a
significant amount of product for use on Apple’s “iPod” devices. The
invisibleSHIELD
covers and protects the iPod without detracting in any manner from the look
and
feel of the device or its functionality. The Company anticipates, but cannot
assure, that its product will be equally popular for use with the pending
“iPhone” device - since that device also has a “touch-screen” interface and the
invisibleSHIELD
permits touch sensitivity between the user and the device.
The
Company,
to date, has not partnered with any manufacturers of electronic devices to
bundle the Company’s products with such devices on initial sale, or to include
as part of the device, the application of the Company’s products. In the future,
the Company may seek such an arrangement but has not entered into negotiations
for such an arrangement as yet.
Market
Segments
With
over 700
invisibleSHIELD
products/product configurations available, ShieldZone has a protective covering
for all major market segments of handheld electronic devices, including: iPods,
other brand MP3 players, PDAs, cell phones, laptops, GPS devices, watch faces,
and similar devices and surfaces. The Company intends to continue to configure
the invisibleSHIELD
product for use in newly developed consumer devices. Unlike manufacturers of
competing device cases that need months to design and manufacture customized
accessories for new devices, the invisibleSHIELD
can be quickly configured and packaged for new devices as they enter the
consumer marketplace, making the invisibleSHIELD
available for purchase ahead of competing accessories for new electronic
devices.
One
of the
fastest growing market segments for ShieldZone is the iPod consumer. Most often,
iPod buyers are drawn to the device by its elegant design, as well as its
easy-to-use functionality. However, everyday use often mars the iPod's finish,
screen and other areas that receive wear and tear. Traditional protective
products are bulky and detract from an iPod's elegance by covering it up. Other
common protectors either do not offer enough protection -- such as leaving
the
iPod's function buttons uncovered -- or they are not durable enough to properly
protect the device. However, an invisibleSHIELD
covering is exactly that-- invisible-- meaning it does not cover up the design,
form or functionality of the iPod.
As
sales of
electronics continues to grow, sales of the Company’s complimentary products are
anticipated to grow, as well. The four largest areas of the Company’s market
opportunities relate to sales of iPods, cellular telephones, digital cameras
and
gaming systems. Accordingly to industry sources, over 39,500,000 iPods were
sold
in Apple Corporation’s most recent fiscal year, and over 21,000,000 were sold in
the first quarter of its subsequent fiscal year. Over one billion cell phones
were sold worldwide in 2006. Over 26,000,000 units of digital cameras were
sold
in 2005. Sony’sPSP sold over 20,000,000 units as of August 2006 and Nintendo’s
DS Lite sold over 21,000,000 units during the same period. ShieldZone is
positioned to serve all of these markets with its after-market invisibleSHIELD
products.
Other
Electronic Products and Accessories
In
addition
to the invisibleSHIELD
the Company also acts as a reseller of consumer electronics and related
accessories which it believes
its
invisibleSHIELD
customers would purchase and vice versa. Such products include:
cell phones, digital cameras, GPS devices, MP3 players, PDAs, satellite
radios, heart rate monitors and other small, predominately held-held devices.
The Company also sells accessories for many of these products. Such resale
items
are sold via the Company’s website and in retail locations.
In
connection
with the invisibleSHIELD,
the Company re-sells a product known as “Applesauce.” Applesauce is a buffing
and polishing compound that can be used to remove scrapes or scratches and
restore a “new” look to the surface of the iPod. After application, the
invisibleSHIELD
can be applied to preserve the restoration of the finish.
Marketing
and Distribution
The
Company
sells its products directly on its website, through distributors, through kiosk
vendors in shopping malls and retail centers, and through electronics retailers.
The Company’s products are available for sale world wide via the Company’s
website. Currently the Company advertises its products on the internet and
at
point of sale at retail locations. The Company also advertises its products
on
television currently on local networks. The Company intends to expand its
advertising by implementing a broader television advertising strategy over
the
course of 2007. The Company is also seeking to create strategic partnerships
with makers of iPod and electronic accessories.
Website
Sales
The
Company
sells its products worldwide directly to consumers on its website. Through
September 30, 2006, the Company sold approximately $1.2 million of product
on
its website, or approximately 69% of its overall sales for 2006.
Mall
Vendors
The
Company
sells its
invisibleSHIELD
products to kiosk vendors in shopping malls and retail centers. The Company
enters into agreements with such vendors who purchase the products and resell
them to consumers. The Company also owns and operates several kiosk locations.
Through September 30, 2006, the Company sold approximately $225,000 of product
to kiosk vendors, or approximately 12% of its overall sales for 2006. The third
party kiosk vendors are required to enter into a standard license and resale
agreement with the Company.
Electronics
Retailers
The
Company
sells its invisibleSHIELD
products to electronics retailers and out of its storefront maintained in its
headquarters, predominately independently owned retailers of Apple products
and
accessories. We estimate there are over 300 such independent Apple resellers
worldwide and we currently have agreements with approximately 70, predominately
in the United States. The Company also sells its invisibleSHIELD
products to university bookstores and small independently owned consumer
electronics stores. Through September 30, 2006, the Company sold approximately
$348,000 of product to specialty retailers, or approximately 19% of its overall
sales for 2006. The electronics retailers are required to enter into a standard
reseller agreement with the Company.
The
Company
also generated revenue from shipping charges to customers. Through September
30,
2006, the Company generated approximately $205,000 from shipping
charges.
Distributors
The
Company
utilizes multiple distributors to market and place its products for sale in
the
United States and abroad. The Company has a distributorship agreement with
ENVIOUS, a United Kingdom company, for the marketing, distribution and sale
of
the Company’s products throughout the United Kingdom. This agreement is not
exclusive. The agreement was entered into in January 2007 and has a one year
term.
The
Company
has an exclusive distribution agreement for the marketing and sale of its
products in Japan with CareFit USA. The Agreement provides that CareFit will
establish up to twenty retail sales locations in Japan. CareFit will be
compensated based on actual revenues derived from retail locations established
by CareFit. To date, no revenues have been generated from sales in Japan under
this Agreement and no retail locations have been established in Japan. The
Agreement was entered into on October 3, 2006 and has a six month renewable
term.
The
Company
is continuously negotiating for new distribution relationships in the United
States and abroad to increase the marketing and sale of its products in retail
locations.
Company
Organization
The
Company’s
operations are divided and organized as follows: marketing and sales, which
includes the development and maintenance of the Company’s website, customer
service, production, distribution and shipping, art and graphics, product
design, and general and administration functions.
Competitors
The
market for sales to consumers for “after market” accessories for electronic
devices is very competitive. The Company’s chief competitors are companies that
develop, market and sell protective coverings for consumer electronics. There
are two main categories for these protective coverings; the first is silicone
and leather cases, and the second is traditional screen protectors. Silicone
and
leather cases tend to be bulkier, heavier, ornamental and visually distracting
and cover the design and features of the device, rather than enhance its
design.
Traditional screen protectors are stiff, scratch fairly easily, use static
cling
for adhesion, and are not able to wrap around or protect the entire body
of an
electronic device. While the Company competes with such persons for sales
to
consumers generally, the Company does not consider such other products per
se to
be competitive to the invisibleSHIELD.
Warranties
The
Company
offers a lifetime guaranty of the durability of its
invisibleSHIELD
products. If
the
invisibleSHIELD
is
ever scratched or damaged (in the course of normal use), a customer simply
needs
to send back the old product and ShieldZone will replace it for free.
To
date
only a nominal amount of the Company’s invisibleSHIELDS
sold have been returned under the warranty program.
Intellectual
Property Rights
Patents
The
Company
has filed a patent application for a Protective Covering for Electronic Device
with the United States Patent and Trademark Office. The patent relates to the
field of protective coverings and systems and methods for covering such devices
with thin films. This includes both partial coverings and full coverings. The
Patent Application will not be published until the Patent is
issued.
Trademarks
The
Company
has filed the following Trademark Applications with the United States Patent
and
Trademark Office:
INVISIBLE
SHIELD filed on February 1, 2007, Serial Number 77096911.
Invisible
Shield (with stylized logo image) filed on June 9, 2006, Serial Number
78905019.
The
Company
also claims common law trademark rights in the following marks: “ShieldZone,”
“Shieldspray,” “Pay Once Protect Forever,” “Invisible Invincible,” “Protect Your
Digital Life,” and “Ultimate Scratch Protection.”
Government
Regulations
Our
operations are subject to various federal, state and local employee workplace
protection regulations including OSHA. We believe that compliance with federal,
state and local environmental protection regulations will not have a material
adverse effect on our capital expenditures, earnings and competitive and
financial position. Although
we believe that our worker and employee safety procedures are adequate and
in
compliance with law, we cannot completely eliminate the risk of injury to our
employees, or that we may occasionally, unintentionally, be out of compliance
with application law. In such event we could be liable for damages or fines
or
both.
We
are not a
party to any pending legal proceedings that, if decided adversely to us, would
have a material adverse effect upon our business, results of operations or
financial condition and are not aware of any threatened or contemplated
proceeding by any governmental authority against our company. To our knowledge,
we are not a party to any pending civil or criminal action or
investigation.
Facilities;
Real Property Lease
Our
principal
executive offices and manufacturing facilities are currently located in a 8,300
square foot space located at 3855 South 500 West, Suites B and J, Salt Lake
City, Utah 84115.
We
have a
lease for this facility with a term expiring on June 30 2009 at a monthly rental
of $3,991. The
Company believes this facility is adequate for the foreseeable future.
Employees
We
have 40
full-time employees and 4 part time employees including our management team.
We
have 12 employees in sales and marketing including our website, 6 in general
and
administration, 14 in production, 2 in technology support, 3 in graphic design,
and 7 customer service agents. No employee is represented by a labor union,
and
we have never suffered an interruption of business caused by labor disputes.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Overview
On
February 8, 2007,
Amerasia Khan Ltd. a Nevada corporation (the “Registrant”) executed an Agreement
and Plan of Merger (the “Merger Agreement”) by and between the Registrant and
its wholly owned subsidiary, SZC Acquisition, Inc., a Nevada corporation
(“Subsidiary”) on the one hand and ShieldZone Corporation, a Utah corporation
(“ShieldZone” or “Target”) on the other hand. Pursuant to the Merger Agreement,
ShieldZone merged with Subsidiary, with ShieldZone surviving the merger and
Subsidiary ceasing to exist (the “Merger”).
In
addition, pursuant to the terms and conditions of the Merger
Agreement:
§ |
The
Registrant became the holder of all of the issued and outstanding
shares
of capital stock of Shieldzone, resulting in a parent/subsidiary
relationship between the Registrant and
ShieldZone.
|
§ |
Each
share of ShieldZone common stock issued and outstanding immediately
prior
to the closing of the Merger was exchanged for the right to receive
one
share of the Registrant’s common stock.
|
§ |
Certain
convertible notes, issued by SheildZone in the aggregate principal
amount
of $250,000.00, were converted by the Registrant at an exercise price
of
$0.35 into 714,286 shares of the Registrant’s common
stock
|
§ |
The
Registrant’s board of directors was reconstituted to consist of David Ho,
the Registrant’s director prior to the merger, and Robert G. Pedersen II,
who prior to the Merger was the sole director of ShieldZone.
|
§ |
Each
of the Registrant and SheildZone provided customary representations
and
warranties and closing conditions, including approval of the Merger
by
approval required by law of SheildZone’s stockholders.
|
The
foregoing description of the Merger Agreement does not purport to be complete
and is qualified in its entirety by reference to the complete text of the
Merger
Agreement, which is filed as Exhibit 2.1 hereto and incorporated herein by
reference.
For
purposes
of the following discussion and analysis, references to ‘‘we’’, ‘‘our’’, ‘‘us’’
refers to ShieldZone.
ShieldZone
custom-designs, markets and sells a form of protective covering for consumer
electronic and hand held devices. Our key product “invisibleSHIELD”™
is made from a protective, film-like covering that was developed originally
to
protect the leading edges of rotary blades of military helicopters. We
determined that this same film product could be configured to fit onto the
surface of electronic devices and marketed to consumers for use in protecting
such devices from everyday wear and tear including scratches, scrapes, debris
and other surface blemishes. The film also permits touch sensitivity, meaning
it
can be used on devices that have a touch-screen interface. The invisibleSHIELD
film material is highly reliable and durable since it was originally developed
for use in a high friction, high velocity, aerospace context. The film provides
long lasting protection for the surface of electronic devices subject to normal
wear and tear. The film is a form of polyurethane substance, akin to a very
thin, pliable, flexible and durable clear plastic that adheres to the surface
and shape of the object it is applied to.
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of operations
are
based on our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States (U.S. GAAP).
The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues
and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates based on historical experience and
on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. Significant estimates include the allowance for
doubtful accounts, inventory valuation allowances, sales returns and warranty
liability, the useful life of property and equipment and the valuation allowance
on deferred tax assets.
Accounts
receivable
We
sell our
products to end-users through retailers and other resellers who are extended
credit terms after an analysis of their financial condition and credit
worthiness. We also
accept orders from our website store and corporate owned kiosk stores and
receive credit card payments through our merchant bank.
Credit
terms
to retailers and resellers, when extended, are based on evaluation of the
customers' financial condition and, generally, collateral is not required.
We
maintain allowances for doubtful accounts for estimated losses resulting from
the inability of customers to make required payments. Management regularly
evaluates the allowance for doubtful accounts considering a number of factors.
Accounts receivable
are
generally due within thirty days of the invoice date and considered past due
after thirty days. Estimated losses are based on the aging of accounts
receivable balances, a review of significant past due accounts, and our
historical write-off experience, net of recoveries. If the financial condition
of our customers were to deteriorate, whether due to deteriorating economic
conditions generally, in the industry, or otherwise, resulting in an impairment
of their ability to make payments, additional allowances would be
required.
Accounts
receivable from merchant banks are calculated based on historical collection
history including the merchant bank’s evaluation and holdback
criteria.
We
establish
an allowance and charge bad debt expense on accounts receivable when they become
doubtful of collection, and payments subsequently received on such receivables
are credited to the bad debt expense in the period of recovery.
Inventories
Inventories,
consisting primarily of finished goods and raw materials, are valued at the
lower of cost or market and are accounted for on the first-in, first-out basis.
Management performs periodic assessments to determine the existence of obsolete,
slow moving and non-saleable inventories, and records necessary provisions
to
reduce such inventories to net realizable value. We recognize all inventory
reserves as a component of product costs of goods sold.
Revenue
recognition
We
follow the
guidance of the Securities and Exchange Commission’s Staff Accounting Bulletin
104 for revenue recognition. In general, we record revenue when persuasive
evidence of an arrangement exists or product delivery has occurred, the sales
price to the customer is fixed or determinable, and collectability is reasonably
assured. Our revenue
is derived from sales of our products to retailers, resellers and end consumers.
We record revenue when the product is shipped, net of estimated returns and
discounts.
We
follow the
guidance of Emerging Issues Task Force (EITF) Issue 01-9 ``Accounting for
Consideration Given by a Vendor to a Customer'' and (EITF) Issue 02-16
``Accounting by a Customer (Including a Reseller) for Certain Considerations
Received from Vendors.'' Accordingly, any incentives received from vendors
are
recognized as a reduction of the cost of products. Promotional products given
to
customers or potential customers are recognized as a cost of sales. Cash
incentives provided to our customers are recognized as a reduction of the
related sale price, and, therefore, are a reduction in sales.
Reserve
for Sales Returns and Warranty Liability
Our
return
policy generally allows our end users and retailers to return purchased products
for refund or in exchange for new products within 30 days of end user purchase.
We estimate a reserve for sales returns and record that reserve amount as a
reduction of sales and as a sales return reserve liability.
We
generally
provide the ultimate consumer a warranty with each product and accrue warranty
expense at the time of the sale based on the Company’s prior claims history.
Actual warranty costs incurred are charged against the accrual when paid.
Results
of Operations
Nine
months ended September 30, 2006 as compared to the period from March 24, 2005
(inception) to September 30, 2005
Net
sales
Net
sales for
the nine months ended September 30, 2006 were $1,978,533 as compared to net
sales of $118,364 for the period from March 24, 2005 (inception) to September
30, 2005, an increase of $1,860,169 or 1,571.6%.
The
significant increase in product sales is mainly attributed to continued strong
sales of our invisibleSHIELD
product with approximately 69% of our product being sold through our website
to
retail customers.
Cost
of sales
Cost
of sales
includes raw materials, packing materials and shipping costs. For the nine
months ended September 30, 2006, cost of sales amounted to $537,375 or
approximately 27% of net sales as compared to cost of sales of $17,859 or 15%
of
net sales for the period from March 24, 2005 (inception) to September 30, 2005.
The increase in cost of sales as a percentage of net revenues for the nine
months ended September 30, 2006 as compared to the period ended September 30,
2005 is attributable to an increase in shipping costs and packaging
costs.
Gross
profit
Gross
profit
for the nine months ended September 30, 2006 was $1,441,158 or approximately
73%
of net sales as compared to $100,505 or approximately 85% of net sales for
the
period from March 24, 2005 (inception) to September 30, 2005. The decrease
in
gross profit percentage was attributable to an increase in shipping and
packaging costs. There could be no assurances that we will continue to recognize
similar gross profit margin in the future.
Operating
expenses
Total
operating expenses for the nine months ended September 30, 2006 were $1,426,165,
an increase of $1,384,637 from total operating expenses for the period from
March 24, 2005 (inception) to September 30, 2005 of $41,528. This increase
included the following:
·
|
For
the nine months ended September 30, 2006, salaries and related taxes
increased by $658,495 to $669,895 for the nine months ended September
30,
2006 from $11,400 in the 2005 period due to the hiring of staff to
implement our business plan.
|
·
|
For
the nine months ended September 30, 2006, consulting expense increased
to
$73,750 as compared to $0 in the 2005 period primarily due to
approximately $63,000 paid to a consultant who then became our president.
|
·
|
For
the nine months ended September 30, 2006, advertising and marketing
expenses amounted to $269,689 as compared to $12,766 for the period
from
March 24, 2005 (inception) to September 30, 2005, an increase of
$256,923.
This increase is attributable to an increase in our marketing efforts
as
we roll out product and implement our business plan. We expect our
marketing and advertising expenses to increase as our revenues increase
and expect to spend increased funds on adverting and promotion of
our
products as well as sales training. During fiscal 2007, we intend
to
expand our marketing efforts related to our products.
|
·
|
For
the nine months ended September 30, 2006, we incurred settlement
expenses
of $62,500 related to the early termination of a consulting contract.
Pursuant to a settlement agreement, we agreed to pay $62,500 in cash
which
was accrued as a settlement fee payable at September 30, 2006. The
amount
was paid in October 2006.
|
·
|
For
the nine months ended September 30, 2006, other selling, general
and
administrative expenses amounts to $350,331 as compared to $17,362
in the
2005 period. The increase was attributable to the increase in operations
as we implement our business plan and is summarized
below:
|
|
2006
|
|
2005
|
Professional
fees
|
$
34,937
|
|
$
60
|
Insurance
|
25,491
|
|
-
|
Depreciation
|
17,094
|
|
28
|
Rent
|
30,653
|
|
1,000
|
Travel
and entertainment
|
42,459
|
|
-
|
Other
|
199,697
|
|
16,274
|
|
|
|
|
Total
|
$
350,331
|
|
$
17,362
|
Income
from operations
We
reported
income from operations of $14,993 for the nine months ended September 30, 2006
as compared to income from operations of $58,977 for the period from March
24,
2005 (inception) to September 30, 2005, a
decrease
of $43,984.
Other
income (expense)
For
the nine
months ended September 30, 2006, total other expenses amounted to $11,740 as
compared to $0 for the 2005 period. This change is primarily attributable
to:
·
|
An
increase in interest income of $5,819.
|
|
|
·
|
During
the 2006 period, we sold property and equipment and recorded a gain
of
$1,000.
|
|
|
·
|
During
the 2006 period, we incurred other expense of
$18,559.
|
Income
taxes
During
the
nine months ended September 30, 2006, we recorded a current and deferred income
tax benefit of $13,464. We computed and filed our Federal income tax return
on a
cash basis for 2005 and will file our federal
income
tax return on the accrual basis in 2006.
Net
income
As
a result
of these factors, we reported a net income of $16,717 for the nine months ended
September 30, 2006 as compared to net income of $58,977 for the 2005 period.
Results
of operations for the period from March 24, 2005 (inception) to December 31,
2005 ("Fiscal 2005”)
Net
sales
Net
sales for
fiscal 2005 were $728,786 and related to strong sales of our invisibleSHIELD
product.
Cost
of sales
Cost
of sales
includes raw materials, packing materials, shipping and manufacturing costs.
In
fiscal 2005, cost of sales amounted to $119,410 or 16.4% of net
sales.
Gross
profit
Gross
profit
for fiscal 2005 was $609,376 or 83.6% of net sale.
Operating
expenses
Total
operating expenses for fiscal 2005 were $367,095 and included the
following:
·
|
During
fiscal 2005, salaries and related taxes amounted to $164,038 and
related
to the hiring of staff to implement our business plan.
|
·
|
During
fiscal 2005, we recorded bad debt expense of $22,500 related to the
recording of an allowance for doubtful accounts on our accounts receivable
balances. This amount was primarily related to the risk we incur
on credit
card sales.
|
·
|
During
fiscal 2005, other selling, general and administrative expenses amounts
to
$180,557 and consisted of the following:
|
|
|
2005
|
Professional
fees
|
|
$
3,985
|
Marketing
and advertising
|
|
40,392
|
Contract
labor
|
|
42,211
|
Insurance
|
|
3,454
|
Depreciation
|
|
2,440
|
Rent
|
|
5,918
|
Travel
and entertainment
|
|
4,380
|
Other
|
|
77,777
|
|
|
|
Total
|
|
$
180,557
|
Income
from operations
We
reported
income from operations of $242,281 for fiscal 2005.
Other
income (expense)
For
fiscal
2005, we incurred interest expense of $900.
Income
taxes
During
fiscal
2005, we incurred current and deferred income tax expense of $83,005. We
computed and filed our Federal income tax return on a cash basis for
2005.
Net
income
As
a result
of these factors, we reported net income of $158,376 or $.02 per common share
for fiscal 2005.
Liquidity
and Capital Resources
Liquidity
is
the ability of a company to generate funds to support its current and future
operations, satisfy its liabilities and otherwise operate on an ongoing basis.
At
September
30, 2006, we had a cash balance of $161,414.
Our
working
capital position decreased $37,452 to $38,299 at September 30, 2006 from $75,751
at December 31, 2005. This decrease in working capital is primarily attributable
to an increase of $72,732 in accounts payable. The increase in accounts payable
reflects the effects of increased operating activity during the nine months
ended September 30, 2006.
In
November
2006, we entered into a Convertible Note (the “Convertible Note”), with an
affiliate of the Company’s Chief Executive Officer in the original principal
amount of $100,000. The note is convertible at the holder's option
any
time
up to maturity at a conversion price equal to $.35 per common share. The note
is
due on May 15, 2007, bears interest at 20% per year and is unsecured. Such
interest is payable at maturity. The common shares underlying the
Note
shall have piggy back registration rights.
On
December
27, 2006, we entered into a Secured Convertible Note Purchase Agreement (the
“Convertible Note Agreement”). Pursuant to the Convertible Note Agreement, we
issued a convertible note to the Investor in the original principal amount
of
$250,000. The note is convertible at the holder's option any time up to maturity
at a conversion price equal to $.35 per common share. The note is due on March
1, 2007, bears interest at 4% per year, and is secured by substantially all
of
the assets of the Company. Such interest is payable at maturity and shall be
computed on the basis of a 360-day year. The note shall automatically convert
at
any time prior to maturity upon the sooner of (i) a merger of the Company with
and into a publicly listed or traded entity, or (ii) the Company consummates
the
issuance and sale of an aggregate of $500,000 of common stock. The common shares
underlying the Note shall have piggy back registration rights.
Net
cash
provided by operating activities for the nine months ended September 30, 2006
was $217,032 as compared to $56,973 for the period from March 24, 2005
(inception) to September 30, 2005. For the nine months ended September 30,
2006,
net cash provided by operating activities was
attributable primarily to increases in our accounts payable and accrued expenses
and settlement payable balances of $148,689 and $62,500, respectively, and
a
decrease in accounts receivable of $31,579. For
the
period from March 24, 2005 (inception) to September 30, 2005, net cash provided
by operating activities was
attributable primarily to our net income of $58,977.
Net
cash used
in investing activities for the nine months ended September 30, 2006 was
$171,263 attributable to the purchase of property and equipment. Net cash used
in investing activities for the period from March 24, 2005 (inception) to
September 30, 2005 amounted to $5,582 which was attributable to an increase
in
notes receivable of $3,000 and purchases of equipment of $2,582.
Net
cash
provided by financing activities was $89,984 for the nine months ended September
30, 2006 compared to $0 for the period from March 24, 2005 (inception) to
September 30, 2005. During the nine months ended September 30, 2006, we received
cash from the sale of common stock of $75,000, received a capital contribution
of $25,000 offset by the repayment of equipment financing payable of
$10,016.
We
reported a
net increase in cash for the nine months ended September 30, 2006 of $135,753
as
compared to a net increase in cash of $51,391 for the period from March 24,
2005
(inception) to September 30, 2005.
We
currently
have no material commitments for capital expenditures. Other than working
capital and loans, we presently have no other alternative source of working
capital. We want to build an additional manufacturing line and upgrade our
manufacturing facilities and technologies, in order to expand our products.
We
do not have sufficient working capital to fund the additional line and upgrade
our manufacturing facilities and technologies as well as providing working
capital necessary for our ongoing operations and obligations. We will need
to
raise additional working capital to complete this project. We may seek to raise
additional capital through the sale of equity securities. No assurances can
be
given that we will be successful in obtaining additional capital, or that such
capital will be available in terms acceptable to our company. At this time,
we
have no commitments or plans to obtain additional capital.
RISK
FACTORS
Before
investing in our common stock you should carefully consider the following risk
factors, the other information included herein and the information included
in
our other reports and filings. Our business, financial condition, and the
trading price of our common stock could be adversely affected by these and
other
risks.
RISKS
OF THE BUSINESS
The
markets
for our products are subject to continuing change that may impair our ability
to
successfully sell our products
The
market’s for our products is volatile and subject to continuing change. Consumer
tastes and demands can be unpredictable. We must continuously adjust our
marketing strategy to address the changing state of the markets for our
products, we may not be able to anticipate changes in the market and, as a
result, our product strategies may be unsuccessful.
We
are
dependant on a third party source to acquire sufficient quantities of raw
materials to produce our products. We
acquire substantially all of our raw materials that we use in our products
from
one distributor. While we believe our relationship with that distributor is
excellent, and we foresee no interruption in our ability to obtain raw materials
from such distributor, we might in the future need to find other sources or
attempt to manufacture the raw materials, or a material substantially similar
to
them, ourselves. We believe we could obtain the raw materials from other
sources, or obtain substantially similar raw materials, or even produce similar
materials ourselves. We also keep an inventory of raw materials on hand which
could support our operations even if our sources were interrupted. However
any
unexpected interruption in our acquisition of the raw materials and the
production of our products could harm our results of operations and our
revenues.
We
are
dependent for our success on one key executive officer. Our inability to retain
this officer would impede our business plan and growth strategies, which would
have a negative impact on our business and the value of your
investment.
Our
success depends on the skills, experience and performance of key members of
our
management team including Mr. Robert G. Pedersen II. We do not have an
employment agreement with Mr. Pedersen. We do not have employment agreements
with any other members of our senior management team. Each of those individuals
without long-term employment agreements may voluntarily terminate his employment
with the Company at any time upon short notice. Were we to lose one or more
of
these key executive officers, we would be forced to expend significant time
and
money in the pursuit of a replacement, which would result in both a delay in
the
implementation of our business plan and the diversion of limited working
capital. We can give you no assurance that we can find satisfactory replacements
for these key executive officers at all, or on terms that are not unduly
expensive or burdensome to our company. Although we intend to issue stock
options or other equity-based compensation to attract and retain employees,
such
incentives may not be sufficient to attract and retain key
personnel.
We
are also
dependent for our success on our ability to attract and retain sales and
marketing personnel and other skilled management.
Our
success depends to a significant degree upon our ability to attract, retain
and
motivate skilled and qualified personnel. Failure to attract and retain
necessary technical personnel, sales and marketing personnel and skilled
management could adversely affect our business. If we fail to attract, train
and
retain sufficient numbers of these highly qualified people, our prospects,
business, financial condition and results of operations will be materially
and
adversely affected.
We
experience
seasonal and quarterly fluctuations in demand for our
products.
Our
quarterly results may fluctuate quarter to quarter as a result of market
acceptance of our products, the mix, pricing and presentation of the products
offered and sold, the hiring and training of additional personnel, the timing
of
inventory write downs, the cost of materials, the incurrence of other operating
costs and factors beyond our control, such as general economic conditions and
actions of competitors. We are also affected by seasonal buying cycles of
consumers, such as the holiday season, and the introduction of popular consumer
electronics, such as a new generation of the iPod. Accordingly, the results
of
operations in any quarter will not necessarily be indicative of the results
that
may be achieved for a full fiscal year or any future quarter.
We
do not own
significant proprietary intellectual property rights to protect out products
of
business.
We do
not own proprietary rights with respect to the film we use in our products.
We
have a patent pending with respect to the covering of electronic devices with
thin films. In addition, we own and keep confidential the design configurations
of the film and the process to cut the film which are our copyrights. We seek
to
protect our intellectual property rights through confidentiality agreements
with
our employees, consultants and partners. However, no assurance can be given
that
such measures will be sufficient to protect our intellectual property rights
or
that the intellectual property rights that we have are sufficient to protect
other persons from creating and marketing substantially similar products. If
we
cannot protect our rights, we may lose our competitive advantage. Moreover,
if
it is determined that our products infringe on the intellectual property rights
of third parties, we may be prevented from marketing our products.
We
have no
committed source of additional capital.
For the
foreseeable future, we intend to fund our operations and capital expenditures
from operations and our cash on hand. If our capital resources are insufficient,
we may need additional funds to continue our operations, pursue business
opportunities (such as expansion, acquisitions of complementary businesses
or
the development of new products or services), to react to unforeseen
difficulties or to respond to competitive pressures. We cannot assure you that
at such time as we need funds that alternative financing arrangements will
be
available in amounts or on terms acceptable to us, if at all. If additional
financing is not available when required or is not available on acceptable
terms, we may be unable to fund our expansion, successfully promote our current
products, license new products or enhance our products and services, take
advantage of business opportunities, or respond to competitive pressures, any
of
which could have a material adverse effect on our business and the value of
our
common stock. If we choose to raise additional funds through the issuance of
equity securities, this may cause significant dilution of our common stock,
and
holders of the additional equity securities may have rights senior to those
of
the holders of our common stock. If we obtain additional financing by issuing
debt securities, the terms of these securities could restrict or prevent us
from
paying dividends and could limit our flexibility in making business
decisions.
We
may incur
debt in the future.
In
order to fund operations, we may issue debt instruments which will have a senior
claim on our assets in the event of a sale of assets. Future debt service may
cause strain on cash flow and impair business operations.
We
may issue
shares of common stock which would be dilutive to your holdings.
From
time
to time we may issue shares of common stock in connection with equity financing
activities or as incentives to our officers and business partners. We may expand
the number of shares available under stock incentive and option plans, or create
new plans. All issuances of common stock would be dilutive to your holdings
in
the Company. If your holdings are diluted, the overall value of your shares
may
be diminished and your ability to influence shareholder voting will also be
harmed.
Our
business
could be harmed if we fail to maintain proper inventory
levels.
We
produce our products prior to the time we receive customers’ orders. We do this
to minimize purchasing costs, the time necessary to fill customer orders and
the
risk of non-delivery. However, we may be unable to sell the products we have
produced in advance. Inventory levels in excess of customer demand may result
in
inventory write-downs, and the sale of excess inventory at discounted prices
could significantly impair our brand image and have a material adverse effect
on
our operating results and financial condition. Conversely, if we underestimate
demand for our products or if we fail to produce the quality products that
we
require at the time we need them, we may experience inventory shortages.
Inventory shortages might delay shipments to customers, negatively impact
distributor relationships, and diminish brand loyalty.
We
face
intense competition, including competition from companies with significantly
greater resources than ours, and if we are unable to compete effectively with
these companies, our market share may decline and our business could be
harmed.
Our
market is highly competitive with numerous competitors. Some of our competitors
have greater financial, technological, manufacturing, marketing and distribution
resources than we do. Their greater capabilities in these areas may enable
them
to compete more effectively on the basis of price and production and more
quickly develop new products and technologies. They may also have more fully
developed sales channels for consumer sales including large retail seller
arrangements and international distribution capabilities. In addition, new
companies may enter the markets in which we compete, further increasing
competition in the laser industry. We may not be able to compete successfully
in
the future, and increased competition may result in price reductions, reduced
profit margins, loss of market share and an inability to generate cash flows
that are sufficient to maintain or expand our development and marketing of
new
products, which would adversely impact the trading price of our common
shares.
We
may not be
able to effectively manage our growth.
We
intend to grow our business by expanding our sales, administrative and marketing
organizations. Any growth in or expansion of our business is likely to continue
to place a strain on our management and administrative resources, infrastructure
and systems. As with other growing businesses, we expect that we will need
to
refine and expand our business development capabilities, our systems and
processes and our access to financing sources. We also will need to hire, train,
supervise and manage new employees. These processes are time consuming and
expensive, will increase management responsibilities and will divert management
attention. We cannot assure you that we will be able to:
o
|
expand
our systems effectively or efficiently or in a timely
manner;
|
o
|
allocate
our human resources optimally;
|
o
|
meet
our capital needs;
|
o
|
identify
and hire qualified employees or retain valued employees;
or
|
o
|
incorporate
effectively the components of any business or product line that we
may
acquire in our effort to achieve
growth.
|
Our
inability or failure to manage our growth and expansion effectively could harm
our business and materially and adversely affect our operating results and
financial condition.
If
our
competitors misappropriate our proprietary know-how and trade
secrets,
it
could have a material adverse affect on our business.
We
depend heavily on the expertise of our production team. If any of our
competitors copies or otherwise gains access to similar products independently,
we might not be able to compete as effectively. The measures we take to protect
our designs may not be adequate to prevent their unauthorized use. Further,
the
laws of foreign countries may provide inadequate protection of such intellectual
property rights. We may need to bring legal claims to enforce or protect such
intellectual property rights. Any litigation, whether successful or
unsuccessful, could result in substantial costs and diversions of resources.
In
addition, notwithstanding the rights we have secured in our intellectual
property, other persons may bring claims against us that we have infringed
on
their intellectual property rights or claims that our intellectual property
right interests are not valid. Any claims against us, with or without merit,
could be time consuming and costly to defend or litigate and therefore could
have an adverse affect on our business.
If
our
facilities were to experience catastrophic loss, our operations would be
seriously harmed.
Our
facilities could be subject to a catastrophic loss from fire, flood, earthquake
or terrorist activity. All of our activities, including manufacturing, our
corporate headquarters and other critical business operations are in one
location. Any catastrophic loss at this facility could disrupt our operations,
delay production, and revenue and result in large expenses to repair or replace
the facility. While we have obtained insurance to cover most potential losses,
we cannot assure you that our existing insurance coverage will be adequate
against all other possible losses.
New
rules,
including those contained in and issued under the Sarbanes-Oxley Act of 2002,
may make it difficult for us to retain or attract qualified officers and
directors, which could adversely affect the management of our business and
our
ability to obtain or retain listing of our common stock.
We may
be unable to attract and retain qualified officers, directors and members of
board committees required to provide for our effective management as a result
of
the recent and currently proposed changes in the rules and regulations which
govern publicly-held companies, including, but not limited to, certifications
from executive officers and requirements for financial experts on the board
of
directors. The perceived increased personal risk associated with these recent
changes may deter qualified individuals from accepting these roles. The
enactment of the Sarbanes-Oxley Act of 2002 has resulted in the issuance of
a
series of new rules and regulations and the strengthening of existing rules
and
regulations by the SEC. Further, certain of these recent and proposed changes
heighten the requirements for board or committee membership, particularly with
respect to an individual’s independence from the corporation and level of
experience in finance and accounting matters. We may have difficulty attracting
and retaining directors with the requisite qualifications. If we are unable
to
attract and retain qualified officers and directors, the management of our
business could be adversely affected.
Our
internal
controls over financial reporting may not be effective, and our independent
auditors may not be able to certify as to their effectiveness, which could
have
a significant and adverse effect on our business.
We are
subject to various regulatory requirements, including the Sarbanes-Oxley Act
of
2002. We, like all other public companies, must incur additional expenses and,
to a lesser extent, diversion of our management’s time in our efforts to comply
with Section 404 of the Sarbanes-Oxley Act of 2002 regarding internal
controls over financial reporting. We have not evaluated our internal controls
over financial reporting in order to allow management to report on, and our
registered independent public accounting firm to attest to, our internal
controls over financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC, which
we
collectively refer to as Section 404. We have never performed the system
and process evaluation and testing required in an effort to comply with the
management assessment and auditor certification requirements of
Section 404, which may initially apply to us as of December 31, 2007
and December 31, 2008, respectively. Our lack of familiarity with Section 404
may unduly divert management’s time and resources in executing the business
plan. If, in the future, management identifies one or more material weaknesses,
or our external auditors are unable to attest that our management’s report is
fairly stated or to express an opinion on the effectiveness of our internal
controls, this could result in a loss of investor confidence in our financial
reports, have an adverse effect on our stock price and/or subject us to
sanctions or investigation by regulatory authorities.
Economic,
political, military or other events in the United States could interfere with
our success or operations and harm our business.
We
market and sell our products and services in the United States and abroad.
The
September 11, 2001 terrorist attacks disrupted commerce throughout the
United States and other parts of the world. The continued threat of similar
attacks throughout the world and the military action, or possible military
action, taken by the United States and other nations, in Iraq or other countries
may cause significant disruption to commerce throughout the world. To the extent
that such disruptions further slow the global economy or, more particularly,
result in delays or cancellations of purchase orders for our products or extends
the sales cycles with potential customers, our business and results of
operations could be materially adversely affected. We are unable to predict
whether the threat of new attacks or the responses thereto will result in any
long-term commercial disruptions or if such activities or responses will have
a
long-term material adverse effect on our business, results of operations or
financial condition.
MARKET
RISKS
Our
common
stock may be thinly traded, so you may be unable to sell at or near ask prices
or at all if you need to sell your shares to raise money or otherwise desire
to
liquidate your shares.
Our
shares do not trade on the OTCBB and we have no trading symbol. We will apply
to
have our securities quoted on the OTCBB, however we cannot guarantee that our
securities will be quoted in the near term, if at all. As such, there is
currently no public market for our securities and one may not develop. Absent
a
public market, you may be unable to sell your shares of common stock at as
you
need to, or at a price you desire. Prior to the Merger our predecessor had
no
trading volume on the OTC Bulletin Board. Through this Merger ShieldZone has
essentially become public without the typical initial public offering procedures
which usually include a large selling group of broker-dealers who may provide
market support after going public. Thus, we will be required to undertake
efforts to develop a market and market recognition for us and support for our
shares of common stock in the public market. The price and volume for our common
stock that will develop cannot be assured.
The
number of
persons interested in purchasing our common stock at or near ask prices at
any
given time may be relatively small or non-existent. This situation may be
attributable to a number of factors, including the fact that we are a small
company which is relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community that generate
or
influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-averse and would be reluctant to follow an
unproven company such as ours or purchase or recommend the purchase of our
shares until such time as we became more seasoned and viable. As a consequence,
there may be periods of several days, weeks, months, or more when trading
activity in our shares is minimal or non-existent, as compared to a seasoned
issuer which has a large and steady volume of trading activity that will
generally support continuous sales without an adverse effect on share price.
We
cannot give you any assurance that a broader or more active public trading
market for our common stock will develop or be sustained. While we are trading
on the OTC Bulletin Board, the trading volume we will develop may be limited
by
the fact that many major institutional investment funds, including mutual funds,
as well as individual investors follow a policy of not investing in Bulletin
Board stocks and certain major brokerage firms restrict their brokers from
recommending Bulletin Board stocks because they are considered speculative,
volatile and thinly traded.
The
application of the “penny stock” rules to our common stock could limit the
trading and liquidity of the Common Stock, adversely affect the market price
of
our common stock and increase your transaction costs to sell those
shares.
As long
as the trading price of our common stock is below $5 per share, the open-market
trading of our common stock will be subject to the “penny stock” rules, unless
we otherwise qualify for an exemption from the “penny stock” definition. The
“penny stock” rules impose additional sales practice requirements on certain
broker-dealers who sell securities to persons other than established customers
and accredited investors (generally those with assets in excess of $1,000,000
or
annual income exceeding $200,000 or $300,000 together with their spouse). These
regulations, if they apply, require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the associated risks. Under these regulations, certain brokers who
recommend such securities to persons other than established customers or certain
accredited investors must make a special written suitability determination
regarding such a purchaser and receive such purchaser’s written agreement to a
transaction prior to sale. These regulations may have the effect of limiting
the
trading activity of our common stock, reducing the liquidity of an investment
in
our common stock and increasing the transaction costs for sales and purchases
of
our common stock as compared to other securities.
The
market
price for our common stock may be particularly volatile given our status as
a
relatively unknown company with a small and thinly traded public float and
lack
of history as a public company which could lead to wide fluctuations in our
share price.
The
market for our common stock may be characterized by significant price volatility
when compared to seasoned issuers, and we expect that our share price could
continue to be more volatile than a seasoned issuer for the indefinite future.
The potential volatility in our share price is attributable to a number of
factors. First, as noted above, our shares of common stock may be sporadically
and thinly traded. As a consequence of this lack of liquidity, the trading
of
relatively small quantities of shares by our stockholders may disproportionately
influence the price of those shares in either direction. The price for our
shares could, for example, decline precipitously in the event that a large
number of our shares of common stock are sold on the market without commensurate
demand, as compared to a seasoned issuer which could better absorb those sales
without adverse impact on its share price. Many of these factors will be beyond
our control and may decrease the market price of our common shares, regardless
of our operating performance. We cannot make any predictions or projections
as
to what the prevailing market price for our common stock will be at any
time.
In
addition,
the market price of our common stock could be subject to wide fluctuations
in
response to:
o
|
quarterly
variations in our revenues and operating expenses;
|
o
|
announcements
of new products or services by us;
|
o
|
fluctuations
in interest rates;
|
o
|
significant
sales of our common stock, including “short” sales;
|
o
|
the
operating and stock price performance of other companies that investors
may deem comparable to us; and
|
o
|
news
reports relating to trends in our markets or general economic
conditions.
|
The
stock
market, in general, and the market prices for penny stock companies in
particular, have experienced volatility that often has been unrelated to the
operating performance of such companies. These broad market and industry
fluctuations may adversely affect the price of our stock, regardless of our
operating performance.
Stockholders
should be aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and abuse.
Such
patterns include (1) control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer; (2)
manipulation of prices through prearranged matching of purchases and sales
and
false and misleading press releases; (3) boiler room practices involving
high-pressure sales tactics and unrealistic price projections by inexperienced
sales persons; (4) excessive and undisclosed bid-ask differential and markups
by
selling broker-dealers; and (5) the wholesale dumping of the same securities
by
promoters and broker-dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices and with
consequent investor losses. Our management is aware of the abuses that have
occurred historically in the penny stock market. Although we do not expect
to be
in a position to dictate the behavior of the market or of broker-dealers who
participate in the market, management will strive within the confines of
practical limitations to prevent the described patterns from being established
with respect to our securities. The occurrence of these patterns or practices
could increase the volatility of our share price.
Limitations
on director and officer liability and indemnification of our officers and
directors by us may discourage stockholders from bringing suit against a
director.
Our
articles of incorporation and bylaws provide, with certain exceptions as
permitted by governing state law, that a director or officer shall not be
personally liable to us or our stockholders for breach of fiduciary duty
as a
director, except for acts or omissions which involve intentional misconduct,
fraud or knowing violation of law, or unlawful payments of dividends. These
provisions may discourage stockholders from bringing suit against a director
for
breach of fiduciary duty and may reduce the likelihood of derivative litigation
brought by stockholders on our behalf against a director. In addition, our
articles of incorporation and bylaws may provide for mandatory indemnification
of directors and officers to the fullest extent permitted by governing state
law.
We
do not
expect to pay dividends for the foreseeable future, and we may never pay
dividends.
We
currently intend to retain any future earnings to support the development and
expansion of our business and do not anticipate paying cash dividends in the
foreseeable future. Our payment of any future dividends will be at the
discretion of our board of directors after taking into account various factors,
including but not limited to our financial condition, operating results, cash
needs, growth plans and the terms of any credit agreements that we may be a
party to at the time. In addition, our ability to pay dividends on our common
stock may be limited by state law. Accordingly, investors must rely on sales
of
their Common Stock after price appreciation, which may never occur, as the
only
way to realize their investment.
Our
Chief
Executive Officer and Directors, and one other shareholder, own or control
at
least 50% of our outstanding common stock, which may limit your ability and
the
ability of our other stockholders, whether acting alone or together, to propose
or direct the management or overall direction of our Company. Additionally,
this
concentration of ownership could discourage or prevent a potential takeover
of
our Company that might otherwise result in shareholders receiving a premium
over
the market price for our shares.
We
estimate that approximately 50% of our outstanding shares of common stock is
owned and controlled by our Chief Executive Officer and directors and one other
stockholder. Such concentrated control of the Company may adversely affect
the
price of our common stock. Our principal stockholders may be able to control
matters requiring approval by our stockholders, including the election of
directors, mergers or other business combinations. Such concentrated control
may
also make it difficult for our stockholders to receive a premium for their
shares of our common stock in the event we merge with a third party or enter
into different transactions which require stockholder approval. These provisions
could also limit the price that investors might be willing to pay in the future
for shares of our common stock. Accordingly, the existing principal stockholders
together with our directors and executive officers will have the power to
control the election of our directors and the approval of actions for which
the
approval of our stockholders is required. If you acquire shares, you may have
no
effective voice in the management of the Company.
Future
sales
of our equity securities could put downward selling pressure on our securities,
and adversely affect the stock price. There is a risk that this downward
pressure may make it impossible for an investor to sell his securities at any
reasonable price, if at all.
Future
sales of substantial amounts of our equity securities in the public market,
or
the perception that such sales could occur, could put downward selling pressure
on our securities, and adversely affect the market price of our common
stock.
DESCRIPTION
OF PROPERTY
The
Company’s
headquarters and operating facility is located at 3855 South 500 West, Suites
B
and J, Salt Lake City, Utah, 84115. This facility is approximately 8,300 square
feet which allows us to conduct our operations on site,
including processing and packaging. The Company believes that this facility
is
sufficient for its needs for the foreseeable future.
SECURITY
OWNERSHIP OF CERTAIN
BENEFICIAL
OWNERS AND MANAGEMENT
SECURITY
OWNERSHIP OF BENEFICIAL OWNERSHIP AND MANAGEMENT PRIOR TO THE MERGER AGREEMENT
The
following
table sets forth, as of February 1, 2007, certain information regarding the
ownership of the Company’s capital stock by the following persons on such date:
each of the directors and executive officers, each person who is known to be
a
beneficial owner of more than 5% of any class of our voting stock, and all
of
our officers and directors as a group. Unless otherwise indicated below, to
our
knowledge, all persons listed below had sole voting and investing power with
respect to their shares of capital stock, except to the extent authority was
shared by spouses under applicable community property laws.
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 our common stock subject to options, warrants
or convertible securities exercisable or convertible within 60 days of February
1, 2007 were deemed outstanding for computing the percentage of the person
or
entity holding such options, warrants or convertible securities but are not
deemed outstanding for computing the percentage of any other person, and was
based upon the number of shares of the Common Stock issued and outstanding,
as
of February 1, 2007 which was 9,000,000 shares.
Title
of
Class
|
|
Name
and Address
Of
Beneficial
Owners (1)
|
|
Amount
and Nature
Of
Beneficial Ownership
|
|
Percent
Of
Class
|
Common
Stock
|
|
Johnny
Lee, Director, President and Chief Executive Officer
Block
4, 11A Rhythm Garden
242
Choi Hung Road, Kowloon
Hong
Kong, China
|
|
4,000,000
|
|
44.44%
|
Common
Stock
|
|
David
Ho, Director, Secretary and Treasurer, and Chief Financial
Officer
1409
Forbes Avenue
North
Vancouver, B.C.
V7M
2Y2
Canada
|
|
400,000
|
|
4.44%
|
|
|
All
officers and directors as a group (2 persons)
|
|
4,400,000
|
|
48.88%
|
SECURITY
OWNERSHIP OF BENEFICIAL OWNERSHIP AND MANAGEMENT AFTER THE CLOSING OF THE
MERGER AGREEMENT
The
following
table sets forth information with respect to the beneficial ownership of the
outstanding shares of Company’s capital stock immediately following the Merger
by (i) each person known by Registrant who will beneficially own five percent
(5%) or more of the outstanding shares; (ii) the officers who will take office
as of the effective date of the Merger; (iii) directors as of the effective
date
of the Merger and director nominees who will take office as soon as the
appropriate information statement can be mailed to the stockholders of
registrant and the accompanying waiting period passes and (iv) all the
aforementioned officers and directors as a group.
Title
of
Class
|
|
Name
and Address
Of
Beneficial
Owners (1)
|
|
Amount
and Nature
Of
Beneficial Ownership
|
|
Percent
Of
Class
(3)
|
Common
Stock
|
|
Robert
G. Pedersen II, President and Chief Executive Officer
(2)(4)
|
|
6,785,714
|
|
41.15%
|
Common
Stock
|
|
David
Ho, Director
1409
Forbes Avenue
North
Vancouver, B.C.
V7M
2Y2
Canada
|
|
0
(6)
|
|
2.46%
|
Common
Stock
|
|
Andrew
C. Park
201
Post Street, 11th Floor
San
Francisco, CA 94108
|
|
1,058,235
|
|
6.53%
|
Common
Stock
|
|
SunCreek,
LLC (5)
2873
Tolcate Lane
Holladay,
Utah 84121
|
|
5,285,714
|
|
30.85%
|
|
|
All
officers, directors and director nominees as a group (2
persons)
|
|
7,185,714
|
|
43.58%
|
(1)
|
Unless
otherwise noted, the address for each of the named beneficial owners
is:
3855 South 500 West, Suite B, Salt Lake City, Utah, 84115. Unless
otherwise indicated, beneficial ownership is determined in accordance
with
Rule 13d-3 promulgated under the Exchange Act and generally includes
voting and/or investment power with respect to securities. Shares
of
common stock subject to options or warrants that are currently exercisable
or exercisable within sixty days of February 9, 2007 are deemed to
be
beneficially owned by the person holding such options or warrants
for the
purpose of computing the percentage of ownership set forth in the
above
table, unless otherwise indicated.
|
|
|
(2)
|
Such person is a director nominee that
the directors of Registrant have elected to the Board of Directors
which
appointment shall be effective upon compliance with Rule 14f1 of the
Securities and Exchange Act of 1934. |
|
|
(3)
|
The
calculations of percentage of beneficial ownership are based on 16,203,572
shares of common stock outstanding as of February 9, 2007 assuming
the
closing of the Merger.
|
|
|
(4)
|
Includes 1,500,000 shares
of
Common Stock held directly by Mr. Pedersen and 5,000,000 shares of
Common
Stock held by SunCreek, LLC, an entity wholly owned by Mr. Pedersen.
Mr.
Pedersen exercises sole voting and investment control over the shares
held
by SunCreek, LLC. Also includes 285,714 shares subject to issuance
upon
the conversion of a convertible promissory note in the principal amount
of
$100,000 owned by SunCreek, LLC. The conversion rate per share under
the
note is $0.35. The note is due May 15, 2007, if not sooner paid or
converted. |
|
|
(5)
|
Also
includes 285,714 shares subject to issuance upon the conversion of
a
convertible promissory note in the principal amount of $100,000 owned
by
SunCreek, LLC. The conversion rate per share under the note is
$0.35.
The
note is due May 15, 2007, if not sooner paid or converted. SunCreek,
LLC
is an entity wholly owned by Mr. Pedersen. Mr. Pedersen exercises
sole
voting and investment control over the shares held by
SunCreek,
LLC.
See note 4, above.
|
|
|
(6) |
Mr.
David Ho, our former Chief Financial Officer
and current director, agreed to cancel his 400,000 shares of the
Registrant’s common stock.
|
DIRECTORS
AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS-
APPOINTMENT
OF NEW OFFICERS AND DIRECTORS
In
connection
with the Merger Agreement, effective February 8, 2007,
Mr. Ho
resigned as Chief Financial Officer but will remain a director of the Company
subject to a resignation to take effect on the tenth day following the mailing
of the 14f1 to shareholders of Registrant. Mr. Lee resigned as director and
Chief Executive Officer effective February 8, 2007.
On
February 8, 2007,
Mr. Ho
as sole director appointed Robert G. Pedersen II as Chief Executive Officer
and
President and a director on the Board of Directors.
Our
existing
board of directors has the authority to appoint new directors of the Company,
subject to Section 14f1 of the Securities Act of 1934 which requires that if
a
change in control of the board occurs, such change of control is not effective
until 10 days after mailing a written notice of such change in control to all
shareholders. The Company intends to prepare and mail such notice promptly
after
filing this Form 8-K. The person so appointed to the Board of Directors is
Mr.
Robert G. Pedersen II. Information regarding this Director nominee is included
in this Form 8-K.
The
following
tables summarize the Company's current executive officers and directors and
the
proposed executive officers and directors of the Company:
Name
|
|
Age
|
|
Position
|
Robert
G. Pedersen II
|
|
40
|
|
Chief
Executive Officer, Director Nominee *
|
David
Ho
|
|
49
|
|
Director
|
*Mr.
Pedersen was appointed to our Board as of the closing of the Merger and the
appointment will be effective upon our compliance with Rule 14f1.
Robert
G.
Pedersen II. Mr.
Pedersen provides the overall vision and strategy of ShieldZone Corporation.
Mr.
Pedersen has more than 20 years' experience in executive management, sales
and
marketing, communications, as well as owning and managing several start-up
businesses and enterprises. Since 1998, Mr. Pedersen was a co-owner and
executive manager for Del Sol, LC, a Utah-based specialty retailer of apparel
and accessories. In 2002, he created and was the director of DelSol.com, the
Del
Sol, LC’s Internet presence. In September 2002 Mr. Pedersen founded PayTeck,
Inc., a Utah provider of Internet-based payment processing services, which
was
later sold to Zion's Bank, a public company, in 2005. Mr. Pedersen joined
ShieldZone in January 2006 in a full time capacity and has served as its Chief
Executive Officer since that time. Robert earned a Masters Degree (MBA) from
Brigham Young University in Business Administration with an emphasis in
marketing, finance and organizational communications in 2000, and earned a
degree in business administration (BSBA) from the University of Phoenix which
was granted in 1996. Mr. Pedersen and his wife and six children reside in
Holladay, Utah.
David
Ho.
Mr. Ho
became our Secretary and Treasurer and a Director on April 2, 2004. He was
appointed as Chief Financial Officer on April 02, 2004. Since 1980 to the
present, Mr. Ho has been the President of Apex Travel Ltd. in Vancouver, British
Columbia, Canada. From 1980 to 1999, Mr. was the General Manager of L & L
Developments Inc. In 1979, Mr. Ho obtained a degree in Computer/Math from the
University of Manitoba, Manitoba, Canada. Mr. Ho resigned as our Chief Financial
Officer effective February 8, 2007.
EXECUTIVE
COMPENSATION
None
of our
executive officers of Registrant prior to the Merger received compensation
in
excess of $100,000 for the fiscal years ended December 31, 2006, 2005 or 2004,
respectively. Mr. David Ho did not receive compensation for his position as
an
officer of the Registrant.
SHIELDZONE
SUMMARY COMPENSATION TABLE
The
table
below summarizes all compensation awarded to, earned by, or paid to our former
or current executive officers for the fiscal years ended 2006, 2005 and
2004.
SUMMARY
COMPENSATION TABLE
|
Name
and principal
Position
|
Year
|
Salary ($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
Robert
G. Pedersen II
CEO
& President
|
2004
2005
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
85,000
(3)
|
-
85,000
|
|
2006
|
40,000
|
-
|
-
|
-
|
-
|
-
|
-
|
40,000
|
Phillip
Chipping (1)
|
2004
2005
|
-
54,614
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
54,614
|
|
2006
|
98,500
|
-
|
-
|
-
|
-
|
-
|
-
|
98,500
|
David
Ho
Former
CFO (4)
|
2004
2005
|
-
-
|
-
-
|
-
9,600
(2)
|
-
-
|
-
-
|
-
-
|
-
-
|
-
9,600
|
|
2006
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Johnny
Lee
Former President, CEO and Director (5)
|
2004
2005
|
-
-
|
-
-
|
-
48,000
(2)
|
-
-
|
-
-
|
-
-
|
-
35,000
(6)
|
-
83,000
|
|
2006
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1) |
Effective
December 15, 2006, Mr. Chipping resigned his position as an officer
and
director of the Company.
|
(2) |
The
Company issued 400,000 shares of common stock to Mr. David Ho at
$0.001
per share on June 10, 2005 in settlement of $400 of debt, and 2,000,000
shares of common stock to Mr. Johnny Lee at $0.001 per share on
the same
date in settlement of $2,000 in debt. The conversion rate of $0.001
for
these issuances was the price determined by considering both the
stock
price at the time and the great deal of time and effort our officers
and
directors expended in developing our business plan and establishing
the
contacts necessary to progress the company thus far. We recorded
a noncash
charge of $9,600 to Mr. Ho and $48,000 to Mr. Lee for management
compensation to reflect the fair value of the common stock issued
to
Messrs. Ho and Lee. These issuances were made by Amerasia Khan
Ltd. prior
to the merger transaction with
ShieldZone.
|
(3) |
Represents
a consulting fee paid to a company owned by Mr. Pedersen for services
rendered through July 2006, but paid in fiscal 2005. In
January 2006, Mr. Pedersen purchased a 50% interest in the equity
of the
Company through an affiliated entity and was appointed Chief Executive
Officer and Director of ShieldZone.
|
(4) |
Mr.
Ho has resigned as the Chief Financial Officer of the Company and
ten days
following the consummation of the Merger, his resignation as a director
will become effective.
|
(5) |
Mr.
Lee has resigned as the President, CEO and Director of the
Company.
|
(6) |
On
May 1, 2004, the Company entered into a Management Services Agreement
with
Mr. Johnny Lee, the Company’s former President, CEO and Director. Pursuant
to the terms of the Management Services Agreement, Mr. Lee received
a
consulting fee of $2,500 per month, payable on the last day of each
month
effective from May 1, 2004 to April 30, 2005. On May 01, 2005, the
Company
entered into an extension of the Management Agreement for another
12
months period ending April 30, 2006. In return, because of Mr. Lee’s local
knowledge of the manufacturing industry in China and Mongolia, Mr.
Lee
agreed to (i) provide the Company with local (China) knowledge of
the
manufacturing factories in China; (ii) provide quality control for
all
products produced by the local (China) factories; (iii) management
services, including office and administration services, telephone
and
computer services; and (iv) to carry out management and direction
of the
Company’s business, including managing, supervising and the coordinating
of any export activities from China/Mongolia carried out by the Company.
From inception to June 29, 2005 Mr. Lee received a total of $35,000.
On
June 29, 2005, the Company and Mr. Johnny Lee mutually agreed to
suspend
the Management Agreement, until such date that the Company is more
profitable and viable. Subsequently, Mr. Lee released the Company
from any
obligations in connection with this matter pursuant to the
Sale,
Assignment, Assumption and Indemnification Agreement.
|
STOCK
OPTION GRANTS AND EXERCISES
For
the
fiscal year ended December 31, 2006, neither the Company nor ShieldZone issued
any options to any officers, employees or directors. The Company currently
does
not have a stock option or incentive plan; however the Board of Directors has
reserved 725,000 shares of common stock for use in such a plan to be established
after the filing of this Current Report on Form 8-K.
EMPLOYMENT
AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS FOR
SHIELDZONE
Except
as
disclosed in footnote 6 to the above Summary Compensation Table, neither
the
Company nor ShieldZone had any such arrangement in the past three years.
COMPENSATION
OF DIRECTORS
During
the
year ended December 31, 2006, the directors of Registrant did not receive any
compensation for services as directors. The directors of ShieldZone did not
receive any separate compensation for their duties as directors during the
year
ended December 31, 2006.
We
intend to
adopt a director compensation policy for directors which will include
compensation on a per meeting basis or upon appointment which will likely be
a
combination of cash compensation and stock options.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In
October
2005, the Company executed a nine month consulting agreement with SunCreek,
LLC,
an entity wholly owned by Robert G. Pedersen II who subsequently became the
Company’s Chief Executive Officer. Compensation in the amount of $85,000 was
paid under the Agreement as of December 2005. No further compensation is due
under the Agreement. The Agreement also provided for the sale by Phillip J.
Chipping, the then sole owner of the Company, of 50% of the equity securities
of
the Company to SunCreek, LLC for the amount of $25,000.
In
November
2006, the Company ssued a Convertible Note (the “Note”), with an affiliate of
the Company’s Chief Executive Officer in the original principal amount of
$100,000. The Note is convertible at the holder's option any time up to maturity
at a conversion price equal to $.35 per common share. The Note is due on May
15,
2007, bears interest at 20% per year and is unsecured. Such interest is payable
at maturity. The common shares underlying the Note have piggy back registration
rights.
On
February 8, 2007, immediately following consummating the Merger, the Registrant
entered into a Sale, Assignment, Assumption and Indemnification Agreement with
Mr. Johnny Lee. Prior to the Merger, Mr. Lee was the Registrant’s President,
CEO, member of the board of directors, and one of its significant stockholders.
Pursuant to the spin-out agreement, (i) the Registrant sold Mr. Lee all of
its
assets; (ii) Mr. Lee assumed all of the Registrant’s liabilities, (iii) Mr. Lee
agreed to indemnify the Registrant for breaches by Mr. Lee under the spin-out
agreement; and (iv) Mr. Lee granted the Registrant a general release. As partial
consideration in connection with entering into the Spin-out Agreement, Mr.
Lee
agreed to cancel his 4,000,000 shares of common stock held in the Registrant.
In
addition Mr. David Ho, our former Chief Financial Officer and current director,
agreed to cancel his 400,000 shares of the Registrant’s common stock.
DESCRIPTION
OF SECURITIES
GENERAL
Our
Company’s
Articles of Incorporation provide for authority to issue 50,000,000 shares
of
Common Stock with $0.001 value per Share.
COMMON
STOCK
The
holders
of the Common Stock are entitled to receive dividends when and as declared
by
the Board of Directors, out of funds legally available therefore. The Company
has not paid cash dividends in the past and does not expect to pay any within
the foreseeable future since any earnings are expected to be reinvested in
the
Company. In the event of liquidation, dissolution or winding up of the Company,
either voluntarily or involuntarily, each outstanding share of the Common Stock
is entitled to share equally in the Company's assets. Each outstanding share
of
the Common Stock is entitled to equal voting rights, consisting of one vote
per
share.
OPTIONS
The
Company
intends to adopt an equity incentive plan for its officers, directors, employees
and consultants. The Company has reserved 725,000 shares of Common Stock (none
of which have been issued or granted) for use under the contemplated equity
incentive plan.
MARKET
PRICE OF AND DIVIDENDS ON COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our
common stock is not listed, quoted or traded on any stock exchange or quotation
system. Prior to the Closing of the Merger, as of February 7, 2007, there
were approximately 37 stockholders of record of our common
stock.
DIVIDENDS
We
have never
paid any cash dividends on the Common Stock. We currently anticipate that any
future earnings will be retained for the development of our business and do
not
anticipate paying any cash dividends on the Common Stock in the foreseeable
future.
TRANSFER
AGENT
Our
transfer
agent is Empire Stock Transfer Inc., 2470 St. Rose Pkwy, Suite 304, Henderson,
Nevada, 89074. Telephone 702-818-5898.
LEGAL
PROCEEDINGS
From
time to
time, we may be involved in litigation or other business disputes involving
our
business. The Company’s management is not aware of any material legal
proceedings pending against the Company.
RECENT
SALES OF UNREGISTERED SECURITIES
All
shares of common stock issued by ShieldZone prior to the merger were converted
to and exchanged for shares of our common stock pursuant to the Merger. The
convertible notes, issued by SheildZone in the aggregate principal amount
of
$250,000.00 were converted by us pursuant to the Merger at an exercise price
of
$0.35 into 714,286 shares of our common stock. The issuance of shares of
our
common stock pursuant to the Merger was made pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended,
and
Rule 506 promulgated thereunder and Regulation D.
On
July 7,
2006, ShieldZone issued and sold 39,604 shares of common stock to an accredited
investor, for $75,000. The shares of common stock were subject to various stock
splits after the issuance, and immediately prior to the Merger Agreement
represented 100,000 shares of common stock of ShieldZone. The shares were issued
pursuant to an exemption from registration provided by Rule 506 of Regulation
D,
as they were issued without any form of general solicitation or general
advertising and the purchaser qualified as an accredited investor and accepted
the shares for his personal account and not with a view towards
distribution.
In
November
2006, the Company issued a Convertible Note (the “Note”), with an affiliate of
the Company’s Chief Executive Officer in the original principal amount of
$100,000. The Note is convertible at the holder's option any time up to maturity
at a conversion price equal to $.35 per common share. The Note is due on May
15,
2007, bears interest at 20% per year and is unsecured. Such interest is payable
at maturity. The common shares underlying the Note have piggy back registration
rights. The Note was issued pursuant to an exemption from registration provided
by Rule 506 of Regulation D, as it was issued without any form of general
solicitation or general advertising and the purchaser qualified as an accredited
investor and accepted the Note and underlying shares for its personal account
and not with a view towards distribution.
On
December
27, 2006, ShieldZone issued a Secured Convertible Promissory Note in the
principal amount of $250,000 to an accredited investor. The Note is convertible
into shares of the Company’s common stock at a conversion price per share of
$0.35. The Note was issued pursuant to an exemption from registration provided
by Rule 506 of Regulation D, as it was issued without any form of general
solicitation or general advertising and the purchaser qualified as an accredited
investor and accepted the Note and underlying shares for its personal account
and not with a view towards distribution.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Our
By-Laws
and Section 78.7502 of the Nevada Revised Statutes provides that we may
indemnify any person who was or is a party, or is threatened to be made a party,
to any action, suit or proceeding brought by reason of the fact that he is
or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or
agent of another corporation or other entity. The expenses that are subject
to
this indemnity include attorneys’ fees, judgments, fines, and amounts paid in
settlement actually and reasonably incurred by the indemnified party in
connection with the action, suit or proceeding. In order for us to provide
this
statutory indemnity, the indemnified party must not be liable under section
78.138 of the Nevada Revised Statutes or must have acted in good faith and
in a
manner he reasonably believed to be in, or not opposed to, the best interests
of
the corporation. With respect to a criminal action or proceeding, the
indemnified party must have had no reasonable cause to believe his conduct
was
unlawful.
Section
78.7502 also provides that we may indemnify any person who was or is a party,
or
is threatened to be made a party, to any action or suit brought by or on behalf
of the corporation by reason of the fact that he is or was serving at the
request of the corporation as a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or other entity
against expenses actually or reasonably incurred by him in connection with
the
defense or settlement of such action or suit if he is not liable under section
78.138 of the Nevada Revised Statutes or if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of
the corporation. We may not indemnify a person if the person is judged to be
liable to the corporation, unless and only to the extent that the court in
which
such action or suit was brought or another court of competent jurisdiction
shall
determine upon application that, despite the adjudication of liability but
in
view of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity.
Section
78.7502 further requires us to indemnify present and former directors or
officers against expenses if they have been successful on the merits or
otherwise in defense of any action, suit, or proceeding, or in defense of any
claim, issue, or matter.
Item
3.02 UNREGISTERED
SALES OF EQUITY SECURITIES
See
Recent
Sales of Unregistered Securities in Item 2.01 above, which is incorporated
by
reference to this Item 3.02.
Under
the
Merger Agreement, the Registrant issued 11,233,235 shares of its common stock
to
stockholders of the Target, plus 714,286
to the holder of a convertible note in the amount of $250,000. The
shares issued to Target shareholdes equaled at least 69% of the
outstanding shares of the Registrant’s common stock. The closing of this
transaction occurred on February 8, 2007
(the
“Closing Date”). In addition, Mr. Ho has provided a resignation to be effective
ten days following the effectiveness of Merger Agreement in compliance with
Rule
14f1, and Messrs. Lee and Ho agreed to cancel 4,400,000 shares they
held of the Registrant's common stock. As such, a change in control
ocurred. Mr. Johnny Lee resigned as the Company’s Chief Executive
Officer and director. Mr. David Ho, as the Company’s sole remaining member of
the Board, appointed Mr. Robert G. Pedersen II as the Company’s Chief Executive
Officer and President. The Board consisting of Mr. Ho has nominated Mr. Robert
G. Pedersen II as a director. His appointment as director will be effective
upon
our compliance with Rule 14f1.
Item
5.02 DEPARTURE
OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF
PRINCIPAL OFFICERS
(a)
Resignation
of Director
Effective
February 8, 2007
Mr.
Lee
resigned from the board of directors of the Registrant. There were no
disagreements between him and any officer or director of the Registrant. The
Registrant provided a copy of the disclosures it is making in response to this
Item 5.02 to him and informed him that he may furnish the Registrant as promptly
as possible with a letter stating whether he agrees or disagrees with the
disclosures made in response to this Item 5.02, and that if he disagrees, then
the Registrant requests that he provide the respects in which he does not agree
with the disclosures. The Registrant will file any letter received from him
as
an exhibit to an amendment to this current report on Form 8-K within two
business days after receipt by the Registrant.
(b)
Resignation
of Officers
Effective
February 8, 2007,
Mr. Lee
resigned as the Chief Executive Officer of the Registrant and
director. Effective February 8, 2007,
Mr. Ho
resigned as the Chief Financial Officer.
(c)
Appointment
of Directors
Effective
February 8, 2007,
Mr.
Pedersen was appointed to Registrant’s Board of Directors and he will begin his
service as a director as soon as Registrant complies with Rule
14f1.
Descriptions
of the newly appointed directors and officers can be found in Item 2.01 above,
in the section titled “DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS.”
(d)
Appointment
of Chief Executive Officer and President
Effective
February 8, 2007
Mr.
Robert G. Pedersen was appointed as Chief Executive Officer and President of
the
Registrant. There
are
no family relationships with any of the Company’s other executive officers or
directors. Any related party transactions involving Mr. Pedersen are described
above.
Item
5.03 AMENDMENTS
TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN FISCAL
YEAR
As
a result
of the Merger, the fiscal year end of the Registrant will change from March
30
to December 31, which is ShieldZone’s fiscal year end.
Item
5.06 CHANGE
IN SHELL COMPANY STATUS
Under
the
Merger Agreement by and between Registrant on one hand and Target on the other
hand, on the Closing Date, the Registrant’s wholly-owned subsidiary merged with
Target in exchange for the issuance of 10,175,000 shares of Common Stock to
Target’s shareholders. The closing of this transaction occurred on February
8, 2007.
Prior to the transaction, the Registrant was in the business or renting and
selling academic regalia, such as caps, gowns and stoles. That business
generated nominal revenue for the Registrant. From and after the closing, the
Registrant’s operations will consist of the operations of Target.
Item
9.01 FINANCIAL STATEMENTS
AND EXHIBITS
(a)
Financial
Statements of Business Acquired
The
financial
statements of ShieldZone Corporation for the period from March 24, 2005
(inception) through years ended December 31, 2005 and the unaudited financial
statements for the nine months ended September 30, 2006 and 2005 are
incorporated herein by reference to Exhibit 99.2 and Exhibit 99.3 to this
Current Report.
(b)
Unaudited
Pro Forma Financial Statements
The
unaudited
pro forma financial statements are incorporated herein by reference to Exhibit
99.4 to this Current Report.
(c)
INDEX
TO EXHIBITS.
Exhibit
Number
|
Description
|
|
|
|
|
3.1(1)
|
Articles
of Incorporation of Registrant as filed with the State of
Nevada
|
3.2
(1)
|
Bylaws
of Registrant
|
10.1
(1)
|
Management
Services Agreement dated May 1, 2005
|
10.2
(1)
|
Extension
of Management
Services Agreement dated May 1, 2005
|
10.3
(1)
|
Suspension
of Management Services Agreement Dated May 1, 2005
|
10.4
(1)
|
Academic
Regalia Purchase and Rental Agreement Dated June 15,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Incorporated
by Reference from Registrant’s Registration Statement on Form SB-2 filed
December 2, 2005, as amended.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this Report to be signed on its behalf by the undersigned hereunto
duly authorized.
Date:
February 9, 2007
|
|
By:
|
/s/
Robert
G. Pedersen II
|
|
Robert
G. Pedersen II,
Chief
Executive Officer and President
|