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EX-99.1 - Rosca, Inc. | securepathfinancials.htm |
EX-99.2 - Rosca, Inc. | proformafinancials.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities and Exchange Act of
1934
February 11, 2010
Date
of Report (date of Earliest Event Reported)
ROSCA,
INC.
(Exact
Name of Registrant as Specified in its Charter)
NEVADA
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333-144287
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20-8552192
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||
(State
or Other Jurisdiction of
Incorporation
or Organization)
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(Commission
File No.)
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(I.R.S.
Employer
Identification
No.)
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844
Seward Street
Los
Angeles, CA 90038
(Address
of principal executive offices and zip code)
323-993-8830
(Registrant’s
telephone number, including area code)
1286
University Ave. #708
San
Diego, CA 92103
(Former
name or former address, if changed from last report)
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):
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
|
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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2
CURRENT
REPORT ON FORM 8-K
ROSCA,
INC.
TABLE OF CONTENTS
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Page
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Item
2.01
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4
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7
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Forward – Looking
Statements
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14
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15
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23
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25
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26
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27
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Item
3.02
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33
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Item
5.01
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34
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Item
5.02
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34
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Item
5.06
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34
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Item
9.01
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34
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3
On
February 11, 2010, Secure Path Technology LLC, a California limited liability
company (“Secure Path”), was merged with and into Rosca, Inc., a Nevada
corporation (“Rosca”), in accordance with the Agreement and Plan of Merger
entered into by the parties.
The
Merger
On
December 17, 2009, we entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with Secure Path. Upon closing of the transaction contemplated under
the Merger Agreement (the “Merger”), Secure Path merged with and into Rosca and
Rosca became the surviving corporation.
Pursuant
to the terms and conditions of the Merger Agreement:
At
the closing of the Merger, all of the issued and outstanding membership
interests in Secure Path were converted into the right to receive
2,325,000 pre-dividend shares (4,650,000 post-dividend shares - see below
under this headingfor discreptceny of providing stock dividend of our
common stock. No fractional shares were issued and no rounding
up of fractional shares was required. Accordingly, an aggregate of
2,350,000 pre-dividend shares (4,650,000 post-dividend shares) of our
common stock are to be issued to members of Secure
Path.
|
Upon
the closing of the Merger, a new director and new executive officers were
appointed.
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The
foregoing description of the Merger 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.
On
December 10, 2009, our Board of Directors approved a stock dividend of our
common stock to our existing shareholders of record as of December 20, 2009,
whereby every stockholder had the right to receive, for every one (1) share
held, one (1) additional share. As of the date of this filing, this stock
dividend has not been processed and effected in the market by FINRA. However,
the stock dividend will not be applicable to the shares to be issued to Secure
Path’s Members described above.
Following
the closing of the Merger and the cancellation of 4,000,000 shares held by our
former sole officer and director, Christian Mancillas, there will be 6,825,000
pre-dividend shares (14,250,000 post-dividend shares) of common stock issued
and outstanding. Approximately 34.1% of such issued and
outstanding shares are held by the former members of Secure
Path.
4
The
shares of our common stock issued to former members of Secure Path stock in
connection with the Merger were not registered under the Securities Act of 1933,
as amended (the “Securities Act”), in reliance upon an exemption from
registration provided by Section 4(2) under the Securities Act and Regulation D
promulgated thereunder. These securities may not be transferred or sold absent
registration under the Securities Act or an applicable exemption
therefrom.
Changes to the
Business. We intend to carry on the business of Secure Path as
our sole line of business. Upon closing of the Merger, we relocated our
executive offices to Secure Path and our telephone number is (323)
993-8830.
Under
California law, Secure Path members who did not vote in favor of the Merger may
under certain circumstances seek to be paid the fair value of their shares
determined by judicial proceeding by exercising statutory rights reserved for
dissenters of certain major actions. Determination of fair value is based on
many relevant factors, except that a court may disregard any appreciation or
depreciation resulting from the anticipation or accomplishment of an event such
as the Merger. As of January 28, 2010, no member of Secure Path common stock had
notified the Company of their intention to seek to exercise the right to seek
appraisal of their membership interests.
Changes to the Board of Directors and
Executive Officers. Pursuant
to the terms of the Merger Agreement, Secure Path has the right to name two (2)
members to the Rosca Board of Directors. Upon the closing of the
Merger, Mr. Brian Weiss resigned from the Board of Directors of Rosca to
allow Secure Path’s nominees to the Board. Mr. Terry Mackin was
appointed as Chairman of the Board of Directors and Chief Executive Officer of
Rosca and Mr. Josh C. Kline was appointed as a member of the Rosca Board of
Directors and as Rosca’s President and Chief Operating Officer.
Mr.
Mackin has been the President of Foresight Lab, of New York, NY, since he
founded it in May 2009. Foresight Lab is a global media consulting practice
advising media owners who are seeking financial and/or organizational
restructuring of traditional and new-media assets. From November 2008 to
February 2009, Mr. Mackin served as a Strategic Advisor to the President of
Tribune Broadcasting & Entertainment, New York, NY, which operates
businesses in publishing, interactive and broadcasting, including 23 television
stations, WGN America, WGN-AM and the Chicago Cubs baseball team. Mr. Mackin was
responsible for advising the company on how to build asset value in WGN America,
which was the media division of Tribune Broadcasting & Entertainment. From
March 2008, through August 2008, he served as the President of Univision
Communications, Inc., of New York, NY, which is the country’s leading
Spanish-language media company. From May 1999 to February 2008, Mr. Mackin was
an Executive Vice President of Hearst-Argyle Television, Inc., New York, NY,
which owns and manages 29 television stations as well as two radio stations in
the U.S.
5
Mr.
Mackin earned a Bachelor of Science in Communications from Ohio University,
Athens, Ohio in 1980. Mr. Mackin currently is not serving as an executive
officer or director any public reporting company.
Mr. Kline
was the founder of Secure Path and has been its President since 2005. From 2001
to present, Mr. Kline has also been the Chairman of Sample Digital Inc. and was
also one its co-founders. Sample Digital is a provider of online review and
approval systems (Digital Dailies™) and media asset management solutions. Mr.
Kline is an alumnus of U.S.C.’s School of Planning and Development. Mr. Kline is
not an executive officer or a director of any other public reporting
company.
Our board
of directors consists of between one and 15 persons, fixed from time to time by
the board or our stockholders. A vacancy on our board of directors
may be filled by the vote of a majority of the directors holding
office. All directors hold office for one-year terms until the
election and qualification of their successors. Officers are
appointed by the board of directors and serve at the discretion of the
board.
Accounting Treatment. The
acquisition is being accounted for using the purchase method of accounting in
accordance Accounting Standards Codification No. 805, “Business Combinations”,
whereby the estimated purchase price has been allocated to tangible and
intangible net assets acquired based upon preliminary fair values at the date of
acquisition.
Tax Treatment; Small Business
Issuer. The Merger is intended to constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the “Code”), or such other tax free reorganization exemptions that may
be available under the Code.
Following
the Merger, the Company will continue to be a “smaller reporting company,” as
defined in Item 10(f)(1) of Regulation S-K, as promulgated by the
SEC.
6
Description
of Our Company
The
Company was incorporated as a Nevada corporation on February 21, 2007, with a
mission of operating tequila bars in major tourist locations on the east and
west coast of Mexico. On December 10, 2009, the Company approved a
1:1 stock dividend for its shareholders of record as of December 20, 2009. On
February 11, 2010, the Company was merged with Secure Path Technology LLC, with
the Company being the surviving entity.
Secure
Path was formed as a California limited liability company on November 29, 2005.
Secure Path has never been involved in any bankruptcy, receivership or similar
proceedings. Secure Path has never conducted any material reclassification,
merger, consolidation, or purchase or sale of a significant amount of assets not
in the ordinary course of business.
Secure
Path is the largest registration agency for the International Standard
Audiovisual Number (“ISAN”) in North America and is the exclusive global
Licensing Agency providing commercial access to the ISAN
database. There are two other registration agencies in North America;
however, they only sell ISAN numbers and do not have commercial rights to the
ISAN database, which resides exclusively with Secure Path.
ISAN is
an International Standards Organization (“ISO”) standard, which provides a
unique, permanent and internationally recognized reference number for the
identification of every audiovisual work, including film, television, online and
mobile content, regardless of the format in which the work is distributed (e.g.
theatrical, DVD, streaming media). The ISAN code was developed to be the
identifier for the audiovisual (AV) industry’s supply chain, just as the
International Standard Book Number (“ISBN”) code is the unique identifier for
publications and the foundation for all tracking (e.g. distribution, inventory,
royalties) for the global publishing industry.
The ISAN
standard was initiated in order to make more efficient the process of
identifying audiovisual works, and significantly enhance the ability to collect,
distribute and/or receive royalties and residuals.
Secure
Path holds two seats on the 12 member Administration Committee which oversees
ISAN International Agency (“ISAN-IA”), with responsibilities including budget,
policy and the approval of new Registration Agencies. Secure Path also holds one
seat on the three-member Executive Committee, which has direct oversight of ISAN
International Agency’s personnel. This new governance structure ensures that
Secure Path will be integrally involved in guiding the development of the
standard in a way that is amenable to the markets the Company serves, and is
commercially viable.
7
Principal
products or services and their markets
Secure
Path Technology is the primary Registration Agency for the ISAN standard in
North America. ISAN is to the audiovisual industry what ISBN is to the
publishing industry. Additionally, Secure Path is the exclusive global license
agency, providing commercial access to the ISAN database, representing the
single point of contact for all commercial ISAN data licensing. To enhance the
value of ISAN and help customers manage their related metadata, the Company
built a web-based services platform, MediaDNS™, which allows users a much
quicker, more efficient and cost-effective method to manage, transform and
distribute audio visual metadata. These three functions comprise Secure Path’s
revenue streams:
·
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ISAN Code Sales
(ISAN Primary North American Registration
Agency)
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a.
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Primary
customers for ISAN codes are content producers such as movie and
television studios, DVD authoring facilities, content library owners and
distributors, etc.) who either wish to identify their works using an
international standard content identifier, or who have business
requirements which mandate the use of ISAN, such as Blu-ray disc
production, U.S. talent guild reporting mandates or European royalty
collection.
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·
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ISAN Data
Licensing (ISAN Exclusive Global License
Agency)
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a.
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Each
ISAN code corresponds to a set of descriptive metadata (such as title,
director, actors, etc.). In the aggregate, this information constitutes a
database which will be licensed to many entities across the digital media
supply chain, which needs to verify information about audiovisual content
based on the ISAN code. For reference, the ISBN database is licensed out
to approximately 3,000 North American entities per year for similar
purposes.
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·
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Metadata
Management (MediaDNS SaaS Platform
Provider)
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a.
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Much
like digital asset/content management, metadata management is a critical
component of the digital media supply chain. Metadata management is
complex, and increasingly important as content distribution moves to a
file-based environment, as it is metadata which forms the foundation of
content discovery, consumption reporting and remuneration. Secure Path
built MediaDNS as an aid to this process, and has licensed the platform to
Microsoft’s Xbox/Zune platform as their metadata ingest platform of
record. The Company is presently involved in other industry efforts such
as DECE (Digital Entertainment Content Ecosystem) and the EMA
(Entertainment Merchants Association) Digital Council which represent
significant commercial opportunity for our metadata management
business.
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8
Distribution
methods of the products or services
All of
Secure Path’s services are delivered via MediaDNS, which is a web-based
technology platform. The platform is made available via Secure Path’s website
for lower volume activity, or via web-service integration to client IT systems
for higher volume activity. There is extensive online support and technical
integration documentation.
Status
of any publicly announced new product or service;
All of
Secure Path’s services have been in the marketplace for between one and three
years.
Competitive
business conditions and the company's competitive position in the industry and
methods of competition
ISAN Code
Sales: Secure Path is one of 17 ISAN Registration Agencies
globally and one of three in North America. However, Secure Path is the
Registration Agency, representing approximately 50% of all of the ISAN codes
registered in the global database, and manages the ISAN accounts for all of the
major content producers in the U.S. Additionally, Registration Agencies are
chosen to represent specific territories and vertical markets, so there is no
competitive threat to Secure Path’s role as primary U.S. ISAN Registration
Agency. The challenge has always been one of adoption, and after evangelizing
the ISAN standard over the course of the past four years, it is clear that the
market is realizing tremendous uptake of ISAN, including:
9
·
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The
Chinese government has announced that it will adopt ISAN as the content
identifier of record.
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·
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ANGOA,
the AGICOA partner in France which processes cable and satellite
retransmission royalties, and PROCIREP, its partner organization which
processes private copy levies, announced in August that starting January
1, 2010, they will only process content royalties for titles with ISAN
codes. This includes all MPAA studio content in
France.
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·
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EGEDA,
the AGICOA partner in Spain which processes cable and satellite
retransmission royalties as well as private copy levies, announced in
October that starting January 1, 2010, they will only process content
royalties for titles with ISAN codes. This includes all MPAA studio
content in Spain.
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·
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AGICOA
announced at a meeting at the MPAA in November that they are heading
towards ISAN-based content identification throughout their network of 35
countries.
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·
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ARIBSAN,
the Spanish ISAN Registration Agency, concluded a deal with Television
Espanola (Spanish State Television) to identify all content they broadcast
with ISAN codes.
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·
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ISAN
UK, the London-based ISAN Registration Agency, is in the implementation
phase of a deal with ITV to identify all works with ISAN
codes.
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·
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In
November 2009, CBS signed a six-figure, multi-year enterprise ISAN
registration agreement.
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·
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In
December 2009, NBCU signed a six-figure, multi-year enterprise ISAN
registration agreement.
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ISAN Data
Licensing: Beyond Secure Path’s role as one of 17 Registration
Agencies worldwide which are responsible for the issuance of ISAN codes, the
Company holds a unique and commercially advantageous position as the exclusive
global ISAN License Agency via an agreement with the ISAN International Agency
that secures this right through 2026. As a result of this negotiated role, all
entities across the content supply chain which will require authenticated
content lookup services will have a commercial relationship with Secure
Path.
The
projected value of Secure Path’s ISAN data licensing business is based on the
industry’s unanimous need for a global content identifier in concert with a
cloud-based lookup engine in order to ascertain content attributes
anytime/anywhere. Entities projected to license ISAN data include distributors,
content monitoring companies, post-production facilities, commercial metadata
providers, Etailers, and search engines. Secure Path is in direct communication
with many likely licensees, and is also engaged with industry consortia and
trade associations that have collective influence and/or need for these
services, such as CableLabs, Entertainment Merchants Association, Digital
Entertainment Content Ecosystem, MPAA, MovieLabs, etc.
10
Lower
volume customers of ISAN data will access that data via web service lookups to
the ISAN database managed by Secure Path. Higher volume customers will license
regularly updated copies of the database to be managed internally. An example of
a lower volume customer of ISAN data is a Blu-ray authoring facility which needs
to verify that the ISAN code supplied by the content producer matches the
content on the disc. Secure Path has identified hundreds of potential low volume
ISAN data customers. An example of a higher volume customer of ISAN data is a
multi-platform content distributor (e.g. Comcast, AT&T, etc.) which is
ingesting and managing millions of media assets, and needs an efficient way to
identity those assets across all platforms, and accurately report on their
consumption back to the content owners. This universe of customers also numbers
in the hundreds.
In order
to drive ubiquity of the standard, it is our intent to make flat rate data
licenses affordable and available to all but the lowest volume users. We believe
this will jumpstart the ISAN data licensing market, and create additional demand
for ISAN code registrations.
Metadata
Management Services: The increasing number of content creators
and distributors creates a data management and interoperability problem for both
sides. The ISAN standard addresses the identification needs of the media supply
chain, but MediaDNS is the exchange, or clearinghouse, that allows participants
throughout the supply chain to exchange data in a consistent manner. Secure Path
offers MediaDNS metadata management services on transactional
terms.
Microsoft’s
Xbox Live Marketplace and Zune group is a customer of MediaDNS. Microsoft
licenses content from dozens of providers, which required a team of a dozen
metadata specialists in order to reformat and normalize the data feed to
something Microsoft’s content publishing systems can use. By integrating
MediaDNS in to their workflow, Microsoft has determined that it can reassign
half of the metadata specialists to new roles, while realizing at least a 20%
cost reduction. Secure Path entered into phase one of a projected five phase
MediaDNS services agreement with Microsoft in May of 2009, and is in the process
of on-boarding Warner Brothers, NBC Universal and Sony, and will continue to
on-board all of Microsoft’s content providers.
11
The halo
effect is that once content providers have entered their metadata into MediaDNS,
Secure Path can then offer them automated ISAN registration and metadata
transformation services to fulfill all of their other distributor delivery
requirements at a significant savings over current methods.
Additionally, Secure
Path is a member of DECE (Digital Entertainment Content Ecosystem - www.decellc.com), the
media interoperability consortium which is scheduled to launch in 2010. Secure
Path is a member of a consortium which includes Neustar (www.neustar.biz) that
responded to the RFP to build and manage DECE’s Coordinator, the database-driven
platform which will manage users, devices and content throughout the ecosystem.
In December 2009, our bid response team was awarded the commission. Secure Path
will recognize a fee for the provisioning of content metadata record to DECE,
which is a mandatory step for making content available in the ecosstem. As a
testament to the design of MediaDNS, there is little work which must be
undertaken in order for Secure Path to provide the required services.
Additionally, the ISAN standard figures prominently throughout DECE
specifications, and Secure Path expects to generate meaningful revenue from DECE
activities.
Sources
and availability of raw materials and the names of principal
suppliers
Secure
Path’s key “raw materials” are its ISAN Registration Agency Agreement which
provides the Company with its ability to issue ISAN codes, and its exclusive
Global License Agency Agreement, both of which are between it and the ISAN
International Agency. As stated above, the License Agency Agreement runs through
2026, and the Registration Agency Agreement automatically renews for successive
one-year periods, every December 12th. To date, no ISAN Registration Agency
(“RA”) has had its RA status terminated. Further, Secure Path’s role on
ISAN-IA’s board of directors (2 of 12 seats) and Management Committee (1 of 3
seats) cements its relationship with ISAN-IA for the foreseeable
future.
Dependence on one
or a few major customers
12
Secure
Path’s ISAN Registration services are most dependent on the large content
producers in our territory, the Motion Picture Association of American (“MPAA”)
studios, CBS, MGM, Discovery Communications, National Geographic, etc., all of
which are active ISAN registration customers. Because Secure Path is local, has
built technology solutions to enable ISAN services and provides
language-appropriate support, there is no logical reason for any of our
customers to opt to work with a different ISAN Registration Agency.
Once
enacted in 2010, it is expected that Secure Path’s Data Licensing business will
serve a customer base encompassing the scope of the digital media supply chain,
numbering in the hundreds, ultimately growing to the thousands. So long as the
ISAN Registration business continues to grow, the Data Licensing business can be
expected to follow suit, as it is the number of ISAN codes registered which
creates value for the underlying database.
At
present, Microsoft is Secure Path’s only customer for Metadata Management
Services. At present, Secure Path is not actively marketing these services
outside of our work in DECE and the EMA, both of which could result in
significant revenue. It has been the Company’s strategy to focus on the ISAN
code and data businesses first, then bring on sales personnel who will focus on
metadata management services, which is now expected to occur in the first
quarter of 2010.
Effect
of existing or probable governmental regulations on the business
There are
no current government regulations which affect Secure Path’s business nor does
Secure Path need any governmental approval of its principal products and
services.
Estimate
of the amount spent during each of the last two fiscal years on research and
development activities, and if applicable, the extent to which the cost of such
activities is borne directly by customers;
·
|
During
the fiscal years ended June 30, 2009 and 2008, we spent $44,000 and
$650,049, respectively on research and development of our
software.
|
Employees
We
currently have five (5) full-time employees and four (4) part-time
employees.
13
Forward-Looking
Statements
Statements
in this Current Report on Form 8-K and other written reports made from time to
time by us that are not historical facts constitute so-called “forward-looking
statements,” all of which are subject to risks and uncertainties.
Forward-looking statements can be identified by the use of words such as
“expects,” “plans,” “will,” “forecasts,” “projects,” “intends,” “estimates,” and
other words of similar meaning. Forward-looking statements are likely to address
our growth strategy, financial results and product and development programs,
among other things. One must carefully consider any such statement and should
understand that many factors could cause actual results to differ from our
forward-looking statements. Such risks and uncertainties include but are not
limited to those outlined in the section entitled “Risk Factors” and other risks
detailed from time to time in our filings with the SEC or otherwise. These
factors may include inaccurate assumptions and a broad variety of other risks
and uncertainties, including some that are known and some that are not. No
forward-looking statement can be guaranteed and actual future results may vary
materially.
Information
regarding market and industry statistics contained in this Report is included
based on information available to us that we believe is accurate. It
is generally based on industry and other publications that are not produced for
purposes of securities offerings or economic analysis. We have not
reviewed or included data from all sources, and cannot assure investors of the
accuracy or completeness of the data included in this
Report. Forecasts and other forward-looking information obtained from
these sources are subject to the same qualifications and the additional
uncertainties accompanying any estimates of future market size, revenue and
market acceptance of products and services. We do not assume any
obligation to update any forward-looking statement. As a result,
investors should not place undue reliance on these forward-looking
statements.
PROPERTIES
Secure
Path rents offices at 844 Seward Street, Los Angeles, CA 90038, consisting of 5
individual offices and a conference room shared with the landlord. This office
space is currently being rent on a month-to-month basis at a cost of $2,850 per
month.
Description
of Capital Stock
Authorized
Capital Stock
14
We have
authorized 75,000,000 shares of capital stock, par value $0.001 per
share.
Capital
Stock Issued and Outstanding
After
giving effect to the Merger, we have 14,250,000 issued and outstanding shares of
common stock on a fully diluted basis as follows:
Common
Stock
The
holders of our common stock are entitled to one vote per share. Our Certificate
of Incorporation does not provide for cumulative voting. The holders of our
common stock are entitled to receive ratably such dividends, if any, as may be
declared by our board of directors out of legally available funds; however, the
current policy of our board of directors is to retain earnings, if any, for
operations and growth. Upon liquidation, dissolution or winding-up,
the holders of our common stock are entitled to share ratably in all assets that
are legally available for distribution. The holders of our common stock have no
preemptive, subscription, redemption or conversion rights. The rights,
preferences and privileges of holders of our common stock are subject to, and
may be adversely affected by, the rights of the holders of any series of
preferred stock, which may be designated solely by action of our board of
directors and issued in the future.
Trading
Information
Our
common stock is currently approved for quotation on the OTC Bulletin Board
maintained by the Financial Industry Regulatory Authority, Inc. under the symbol
RSCA and there is no sustained trading market for our stock. We have
notified the OTC Bulletin Board of our name change and will obtain a new
symbol. As soon as practicable, and assuming we satisfy all necessary
initial listing requirements, we intend to apply to have our common stock listed
for trading on the NYSE Amex Equities or The Nasdaq Stock Market, although we
cannot be certain that any of these applications will be approved.
Transfer
Agent
The
transfer agent for our common stock is Transhare Corporation, 5105 DTC Parkway,
suite 325, Greenwood Village, CO 80111, (303) 662-1112
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
15
This
discussion should be read in conjunction with the other sections of this Report,
including “Risk Factors,” “Description of Business” and the Financial Statements
attached hereto pursuant to Item 9.01 and the related exhibits. The
various sections of this discussion contain a number of forward-looking
statements, all of which are based on our current expectations and could be
affected by the uncertainties and risk factors described throughout this
Report. See “Forward-Looking Statements.” Our actual results may
differ materially.
Recent
Events
On
February 11, 2010, we completed a merger with Secure Path. In
connection with the merger, we discontinued our former business and succeeded to
the business of Secure Path as our sole line of business. The merger is being
accounted for using the purchase method of accounting in accordance Accounting
Standards Codification No. 805, “Business Combinations”, whereby the estimated
purchase price has been allocated to tangible and intangible net assets acquired
based upon preliminary fair values at the date of acquisition.
Merger and
Reorganization
On
February 11, 2010, the merger of Secure Path was completed, and the business of
Secure Path was adopted as our business. As such, the following Management
Discussion is focused on the current and historical operations of Secure Path,
and excludes the prior operations of Rosca.
Overview
Secure
Path is the primary North American ISAN Registration Agency and the only full
service content identification and metadata services company on the continent.
Founded in Los Angeles in 2005, the Company provides digital media asset
registration and data management solutions for the media and entertainment
industry, including every MPAA film studio, television networks, and independent
producers.
The
groundbreaking MediaDNS™ technology platform eliminates many of the digital
distribution challenges faced by the media and entertainment industry by
enabling centralized data management, distribution, analytics and reporting
across the digital media supply chain.
Critical Accounting Policies
and Estimates
16
Our
discussion and analysis of our results of operations and liquidity and capital
resources are based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. 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 disclosure of contingent assets and liabilities. On
an ongoing basis, we evaluate our estimates and judgments, including those
related to capitalization of internal-use software, useful lives associated with
property and equipment, and assumptions underlying an embedded derivative
liability. We base our estimates on historical and anticipated results and
trends and on various other assumptions that we believe are reasonable under the
circumstances, including assumptions as to future events. These estimates form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. By their nature,
estimates are subject to an inherent degree of uncertainty. Actual results that
differ from our estimates could have a significant adverse effect on our
operating results and financial position. We believe that the following
significant accounting policies and assumptions may involve a higher degree of
judgment and complexity than others.
Long-Lived
Assets
Long-lived
assets, which consist primarily of property and equipment, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable. An impairment loss is
recognized when estimated undiscounted future cash flows expected to result from
the use of the asset and its eventual disposition are less than its carrying
value. If an asset is determined to be impaired, the impairment is
measured by the amount that the carrying value of the asset exceeds its fair
value. The Company uses quoted market prices in active markets to
determine fair value whenever possible. When quoted market prices are
not available, Management estimates fair value based on the best alternative
information available, which may include prices charged for similar assets or
other valuation techniques such as using cash flow information and present value
accounting measurements.
Internal
Use Software
The
Company accounts for the costs of computer software obtained or developed for
internal use in accordance with Accounting Standards Codification 350,
Intangibles – Goodwill and Other (formerly Statement of Position No.
98-1). Accordingly, the Company expenses costs incurred in the
preliminary project and post implementation stages of software development and
capitalizes costs incurred in the application development stage and costs
associated with significant enhancements to existing internal use software
applications. Costs incurred related to less significant
modifications and enhancements, as well as maintenance and bug fixes are
expensed as incurred. For costs incurred internally, the Chief
Technology Officer tracks time allotted by key individuals involved in software
development and on a monthly basis, uses a percentage allocation based on actual
time to allocate costs amongst those that should be capitalized or
expensed.
17
Internal
use software development costs that qualifies for capitalization (as described
above) includes compensation and related expenses, costs of computer software,
and other direct costs incurred in developing features and
functionality.
Revenue
Currently,
Secure Path derives its revenue from fees charged to customers for the
registration of audiovisual works. These registration fees are due at
the time the registration is completed by the customer. From
time-to-time, customers pre-pay for ISAN numbers in bulk. When such
bulk sales occur, the Company books a prepaid liability that is amortized over
the term of the license. These bulk rate licenses generally allow the
client to register as many ISAN numbers as they need within a given period of
time.
As the
ISAN standard takes hold, we intend, through the Company’s worldwide licenses
agreement, to sell commercial access to the ISAN database. Such
access agreements will be tailored to the individual clients, but generally
models will include a flat rate license or per-use access
charge. Generally, flat rate licenses will be paid monthly and
recognized as billed. For licenses paid in advance, such license fees
will be booked as a liability, with revenue recognized straight-line over the
term of the license agreement. For those clients that are billed on a
per-use charge, revenue will be recognized as billed.
The
Company sells meta-data management services through use if it’s MediaDNS™
platform. Similar to the Company’s ISAN access agreements, such access
agreements will be tailored to the individual clients, but generally models will
include a bulk use licenses or a per use charge. Generally, bulk use
licenses will be paid monthly and recognized as billed. For licenses
paid in advance, such license fees will be recorded as a liability, with revenue
recognized straight-line over the term of the license agreement. For
those clients that are billed on a per-use basis, revenue will be recognized as
services are provided.
18
From
time-to-time, clients will engage the Company for additional consulting services
related to MediaDNS™ integration. These are billed and recognized as
services are provided to the client.
Cost of Goods
Sold
Cost of
revenue primarily consists of expenses relating to the wholesale cost of ISAN
codes, software licenses, royalties, and depreciation on property and equipment
related to the development of MediaDNS.
Gross
Profit
Gross
profit has been and will continue to be affected by a variety of factors
including ISAN adoption, research and development costs, ability to sell ISAN
database/access licenses, and ability to sell MediaDNS services to large and
well established media and entertainment customers. The extended
sales cycles and the adoption curve of the Company’s potential customer base,
poses substantial short term challenges, which give rise to significant
volatility of Gross Profit margins.
Operating
Expenses
Secure
Path's general and administrative expenses relate primarily to the compensation
and associated costs for general and administrative personnel, professional
fees, software related costs (including research and development), and other
general overhead and facility costs.
Software
costs relate to costs associated with MediaDNS bug fixes, maintenance, and
research and development activity. As part of the normal course of
business, the Company is enhancing the platform to expand feature set offerings
to the market as well as implementing specific customization enhancements for
individual clients. These new features sets and enhancements are
capitalized and then amortized in cost of goods sold (discussed
below). On a go forward basis, virtually all expensed software costs
included in operating expenses relate to maintenance and bug fixes as there is
little research and development related activity.
Results of
Operations
Revenue
The
following table represents the consolidated results of Secure Path for the
periods indicated:
19
Gross
Profit and Cost of Goods Sold
Year
Ended
June
30,
|
Quarters
Ended September 30,
|
|||||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||||
Revenue
|
$
|
122,792
|
$
|
19,605
|
$
|
14,865
|
$16,700
|
|||||||||||
Cost
of revenue
|
350,440
|
240,969
|
157,207
|
$51,999
|
||||||||||||||
Gross
profit (loss)
|
$
|
(227,648)
|
$
|
(221,364)
|
$
|
(142,342)
|
$(35,299)
|
Operating
Loss and Expenses
Year
Ended
June
30,
|
Quarters
Ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Total
operating expenses
|
$1,662,577
|
$2,502,868
|
$397,036
|
$418,343
|
||||||||||||
Operating
income(loss)
|
$1,890,225
|
$2,724,232
|
$(539,378)
|
$(453,642)
|
Revenue. Revenues decreased
slightly to $14,865 for the three-months ended September 30, 2009 compared to
$16,700 for the same period in 2008. This decrease was due to fewer
ISAN numbers being registered during the time period. However,
revenue for the year ended June 30, 2009, increased to $122,792 compared to
revenue of $19,605 for the year ended June 30, 2008. This increase was due to
MediaDNS services sold to Microsoft and increased ISAN registrations over the
respective year.
Cost of Revenue. Cost of
revenue for the three-months ended September 30, 2009 was $157,207, as compared
to $51,999 for the same period in 2008. The cost of revenue for the year ended
June 30, 2009, increased to $350,440 from $240,969 for the fiscal previous year.
This increase was primarily due to depreciation of developed software related to
MediaDNS, which began in December 2008.
Selling and Marketing, General and
Administrative, and Research and Development Expenses. Selling and
marketing, general and administrative, and research and development expenses
include salaries, software development not capitalized (which included research
and development), travel and entertainment, infrastructure, consulting fees,
outside services, professional fees and marketing expenses. Selling
and marketing, general and administrative, and research and development expenses
for the three-month period ended September 30, 2009 was $397,036 compared to
$418,343 for the same period in 2008.
20
The
decrease was primarily attributable to a decreased in salaries resulting from
reduced staffing, partially offset by an increase in infrastructure costs in
general and administrative expenses. Total operating expenses for the
fiscal year ended June 30, 2009 decreased to $1,662,577 from $2,502,868 during
the prior fiscal year. This decrease was primarily due to (i) lower salary
expense resulting from reduced staffing, and (ii) lower research and development
costs, which decreased from $650,049 to $44,000, respectively. The reduced
amount of research and development costs was a result of the “technological
feasibility” threshold being overcome as it relates to MediaDNSTM in
the second half of fiscal 2008. There were significant costs prior to
the “technological feasibility” threshold being overcome in the first half of
fiscal 2008, which is the primary reason why research and development costs are
higher in fiscal 2008 compared to fiscal 2009. Due to the continuing
development and build out of MediaDNSTM in
the second half of fiscal 2008 and during fiscal 2009, certain of these costs
are capitalized and depreciated, which is included in Cost of Revenue. Research
and development costs going forward are primarily software allocated costs not
capitalized as they relate to bug fixes and maintenance activities. These
decreases in operating expenses were partially offset by higher professional
fees during the year ended June 30, 2009, mostly related to legal and accounting
fees incurred as a result of this transaction and negotiations with the
international license agency.
Loss from Operations. Loss
from operations was $539,378 for the three-month period ended September 30,
2009, compared to $453,642 for the same period in 2008. This increase was due
principally to the increase in cost of revenue for such period. Loss from
operations for the fiscal year ended June 30, 2009, was $1,890,225, compared to
$2,724,232 from the prior fiscal year. This decrease in loss from operations was
primarily due to decreases in general and administrative expenses as described
above.
Net Loss. Net loss for the
three-month period ended September 30, 2009 was $708,988 as compared to $455,905
for the same period in 2008. The increase in net loss was due largely to the
change in fair value of embedded derivative liability of $132,516, interest
expense of $37,096 and increased loss from operations. Net loss for the fiscal
year ended June 30, 2009 decreased to $2,089,058 compared to $2,690,438 for the
previous fiscal year. Such decrease was largely due to decreased loss from
operations, offset in part by the change in fair value of embedded derivative
liability.
Liquidity
and Capital Resources
21
Cash and
cash equivalents were $22,440 at June 30, 2009 and $1,524,109 at June 30, 2008.
Total current assets were $56,666 at June 30, 2009 as compared to $1,536,529 at
June 30, 2008. Total current liabilities were $1,189,238 at June 30, 2009 as
compared to $310,034 at June 30, 2008.
The
working capital deficit at September 30, 2009 was $1,963,228, compared with a
working capital deficit of $1,132,572 at June 30, 2009. This increase in working
capital deficit was primarily due to an increase in our notes payable to related
parties from $97,096 to $746,482, notes payable from $162,845 to $178,936 and
embedded derivative liability from $366,420 to
$498,936.
During
the three-month period ended September 30, 2009, net cash used by operating
activities was $475,721. This use reflects on-going day-to-day
expenses of the Company absent significant increases in revenue and net of
non-cash expenses totaling $202,227. Net cash used in investing
activities was $176,309, reflecting a loan of $125,337 made to the international
rights agency so that it could ensure worldwide rights to the ISAN database and
purchase equipment so that it could manage the rollout of
MediaDNS™. In addition, the Company spent $61,127 for property
and equipment, which was solely used for adding functionality to the MediaDNS
system. Net cash flow provided by financing activities was $649,386,
which consisted primarily of bridge loans the Company received so that it could
maintain on-going operations and enter into a worldwide agreement with the
international rights agency. Without such financing the, the Company could not
continue on-going operations.
Year
Ended
June
30,
|
Quarters
Ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Cash
(Used) in Operations
|
(1,319,052)
|
(3,632,962)
|
(475,721)
|
(536,169)
|
||||||||||||
Cash
(Used) in investing
activities
|
(610,275)
|
(335,561)
|
(176,309)
|
(86,176)
|
||||||||||||
Cash
from Financing
|
427,658
|
3,992,396
|
649,386
|
(67,629)
|
During
the three-month periods ending September 30, 2009 and September 30, 2008, the
Company capitalized $61,127 and $88,348 of internal use software,
respectively. During the twelve month period ending June 30, 2009 and
June, 30, 2008, the Company capitalized $386,482 and $315,898 of internal use
software, respectively. The Company will continue to incur these costs in
connection with MediaDNS development. The costs associated with
internal use software costs include allocated salaries, wages, and interest
costs and direct outsourced development costs. These costs are
amortized over a period of five years into cost of revenues.
22
During
the three month period ending September 30, 2009 and September 30, 2008, the
Company paid and capitalized $0 and $23,541 of prepaid license fees,
respectively. For the year ended June 30, 2009 and June 30, 2008, the
Company paid and capitalized $45,450 and $149,619 of prepaid license fees,
respectively. This decrease resulted from the reduction of prepaid
fees that were payable only through the end of 2008. Any future
prepayments must be renegotiated with the international rights agency and are
not anticipated at this time. These costs will be expensed into cost
of revenues based on a usage allocation of ISAN numbers that are
registered.
The
report of our independent registered public accounting firm on the consolidated
financial statements for the year ended June 30, 2009 contains an explanatory
paragraph expressing substantial doubt about our ability to continue as a going
concern as a result of losses since inception and significant working capital
and accumulated deficits. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
would be necessary if we are unable to continue as a going concern.
Management
intends to seek additional capital either through debt or equity offerings and
is attempting to increase sales volume. Management believes that as
the adoption of the ISAN standard increases, the Company will be able to offer
increasingly valuable products and services that will drive sales
volume. There are no assurances that the Company will be successful
in its efforts to raise capital or increase sales volume.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements as of September 30, 2009.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We are
required under Regulation S-K of the Securities Exchange Act of 1934 (the
“Exchange Act”) to provide certain information, with respect to any person
(including any “group”, as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) who is known
to us to be the beneficial owner of more than five (5) percent of any class of
our voting securities, and as to those shares of our equity securities
beneficially owned by each of our directors, our executive officers and all of
our directors and executive officers and all of our directors and executive
officers as a group. Based on our review of statements filed with the
Securities and Exchange Commission (the “Commission”) pursuant to Sections 13
(d), 13 (f), and 13 (g) of the Exchange Act with respect to our common stock and
a review of our shareholders list, as of February 11, 2010, had one (1)
shareholder who held 5% or more of our common stock, which is our only class of
capital stock. As of February 11, 2010, there were 8,800,000 shares
of our common stock outstanding.
23
The
number of shares of common stock beneficially owned by each person is determined
under the rules of the Commission and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such
rules, beneficial ownership includes any shares as to which such person has sole
or shared voting power or investment power and also any shares which the
individual has the right to acquire within sixty (60) days after the date
hereof, through the exercise of any stock option, warrant or other
right. Unless otherwise indicated, each person has sole investment
and voting power (or shares such power with his or her spouse) with respect to
the shares set forth in the following table. The inclusion herein of
any shares deemed beneficially owned does not constitute an admission of
beneficial ownership of those shares.
The table
also shows the number of shares beneficially owned as of February 11, 2010 by
each of the individual directors and executive officers and by all directors and
executive officers as a group.
Title
of Class
|
Name
and Address of Beneficial Owner
|
Amount
and Nature of Beneficial Ownership
|
Percent
of Class1
|
Common
|
Chris
Harano – member of the Board
324
Lindo Avenue
Newport
Beach, CA 92661
|
150,000
|
1.7%
|
Common
|
Terry
Mackin – member of the Board
63
Maple Avenue
Greenwich,
CT 06830
|
-2
|
-
|
Common
|
Josh
C. Kline – member of the Board
and
President
2118
Sunset Crest Drive
Los
Angeles, CA 90018
|
-3
|
-
|
All
officers and directors as a group
|
150,000
|
1.7%
|
24
Beneficial
Owners:
Common
|
Celeritis
LLC
C/o
Michael Mailas
9130
S. Dadeland
Miami,
FL 33156
|
1,432,292
|
10.1%
|
(1)
Percent of Ownership is calculated in accordance with the Securities and
Exchange Commission’s Rule 13(d) – 13(d)(1).
(2)
As of the time of this filing, no shares have been issued to Mr. Mackin;
however, Rosca has agreed to issue 300,000 post-dividend shares to Mr. Mackin in
exchange for his agreement to serve on the Board of Directors.
(3)
As of the time of this filing, no shares have been issued to Mr. Kline.
Pursuant to the Merger Agreements Mr. Kline shall receive, upon completition
ofthe stock dividend, 179,895 post-split shares.
Changes
in Control
We have
not entered into any arrangements which may result in a change in of
control.
EXECUTIVE
COMPENSATION
Josh
Kline and Marlin Prager entered into employment agreements in June of
2007. These called for guaranteed one year compensation and
thereafter employment was at will. Josh Kline’s salary is $250,000
per year and Marlin Prager’s was $200,000 per year. In July of 2009,
Mr. Prager took a voluntary reduction to $120,000 per year and is staying on as
a temporary CFO until such time that this offering is complete and a new CFO is
hired.
David
Benson entered into an employment agreement in April 2006 at an annual amount of
$125,000 per year. His termination benefits expired in April 2007 and he is an
at will employee. His annual salary was raised to $200,000 in June of
2007.
25
Following
the initial funding in June 2007, Max Leitman was paid $100,000 for twelve
months. Since this time he has been paid reduced amounts for ongoing legal and
consulting services. Mr. Leitman will be paid $25,000 for services rendered over
the last year.
Paul
Campbell began work for Secure Path in May of 2008 at a rate of $12,500 per
month. In March 2009, Paul’s rate was raised to $16,667 per month and continued
until August 2009 at which point Paul’s employee status converted to consultant,
and cash compensation ceased.
Andrew
Ferrone was hired as Vice President of Business Development commencing November
1, 2009 at an annual salary of $120,000.
RELATED-PARTY
TRANSACTIONS
On March
14, 2006, the Company recorded a liability for a loan to an affiliated company,
Sample Digital, Inc., in the amount of $2,350,000. The loan included (i)
certain Secure Path expenses which were paid by the related party on behalf of
the Company, and (ii) cash proceeds which were advanced to the Company.
This note was recorded as a current liability as it was due on demand.
This note bears interest at 17.5% per annum and no interim principal or interest
payments are required. As of June 30, 2008 and 2009, there was $194,438
and $97,096 outstanding under the loan, respectively. As of September 30,
2009, there was $96,502 outstanding under the loan. There are no scheduled
future minimum annual principal payments. As part of the merger, this loan will
be paid in full. Although there will be common shareholders of both companies
there will no longer be any formal ties between the two companies.
Between
July 1, 2009 and September 30, 2009, the Company raised cash proceeds of
$649,980 by securing demand loans from TRX Capital LLC, Verdmont Capital, and
Bertram Ellis, who are considered related parties due to the significant
influence they possess as the primary providers of capital during this
time. Subsequent to September 30, 2009 an additional $210,553 was
funded from certain of these parties. These demand loans bear
interest at 8% per annum and are due on demand at the close of a merger. There
are no provisions for interim principal or interest payments.
LEGAL
PROCEEDINGS
We are
not a party to any legal proceedings.
26
Contingent
Liability
On April
23, 2009, Secure Path entered into a an agreement with Silverwood Partners LLC
(“Silverwood”) pursuant to which Silverwood would provide Secure Path with
financial advisory and investment banking services in connection with the sale
of Secure Path or a private placement of Secure Path’s securities. The
definition of a private placement under such agreement included, among other
items, a private placement of equity, debt or other securities by Secure Path to
one or more investors, as well as the merger of Secure Path into a public shell
or public special purpose acquisition company with the value of such merger
being deemed the gross proceeds thereunder.
The
agreement with Silverwood provides that a cash fee equal to 5.0% of the gross
proceeds of a private placement, along with a certain number of warrants based
on a calculation involving the gross proceeds of the private placement and the
purchase price per share, would be payable to Silverwood. However, the agreement
excludes from the private placement fee provision any proceeds received from
certain parties with whom Secure Path had a pre-existing relationship. On
September 29, 2009, Secure Path terminated the agreement with Silverwood. At
that time, no agreements for the sale of Secure Path, private placements or any
other transactions had been entered into by Secure Path as a result of
Silverwood’s efforts.
Subsequent
to the termination of the agreement with Silverwood, Secure Path was introduced
to Rosca as a possible merger candidate. None of the parties or their
representatives was introduced to each other by Silverwood and therefore any
transaction with Rosca would be excluded from the fee provision under the
Silverwood agreement. It is the position of Secure Path that no fees have been
earned by Silverwood as a result of the transaction with Rosca. Nevertheless, on
February 4, 2010, Secure Path received an invoice from Silverwood for a cash fee
in the amount of $2,047,500, plus 682,500 warrants with a strike price of $3.00
per share and other minor fees and expenses, despite the fact that Silverwood
has not consulted in any way on this transaction.
It is
Secure Path’s position that Silverwood’s claim for payment is frivolous due to
the fact Silverwood did not earn the cash fee per the terms of the agreement and
it has communicated its position to Silverwood. As of this time,
Silverwood has not threatened to seek payment of these fees through
litigation.
27
There are
numerous and varied risks, known and unknown, that may prevent us from achieving
our goals. If any of these risks actually occur, our business,
financial condition or results of operation may be materially adversely
affected. In such case, the trading price of our common stock could
decline and investors could lose all or part of their investment.
Risks
Relating to Our Business
Media
industry may adopt ISAN standard slower than anticipated, which would result in
lower content registration and database licensing activity.
The
service that Secure Path provides requires that the media industry adopts the
ISAN standard. The adoption of any new standard technology can take an extended
period of time and we cannot anticipate the rate at which the ISAN standard will
be accepted. If this standard is not accepted as project, we will achieve lower
revenue and it will take longer for us to reach profitability.
DECE’s
anticipated 2010 commercial launch could be delayed or otherwise result in less
financial activity than anticipated, directly impacting Secure Path’s metadata
services business.
The
Digital Entertainment Content Ecosystem LLC (DECE) is a cross-industry
initiative developing the next generation digital media experience based on
open, licensable specifications and designed to create a viable, global digital
marketplace. The DECE is currently made up of 48 different companies from
entertainment, software, hardware, retail, infrastructure and delivery
industries. This new digital media specification and logo program will enable
consumers to purchase digital video content from a choice of online retailers
and play it on a variety of devices and platforms from different
manufacturers.
Secure
Path is a subcontractor to Neustar, which is a member of DECE and has been
selected as the vendor for DECE’s Digital Rights Locker, which is a cloud-based
authentication service and account management hub that allows consumers rights
access to their digital entertainment. Secure Path expects to launch B2B
services mid-year 2010, with B2C availability of DECE services expected in time
for the holiday season (Q4) 2010. This will require a substantial amount of
development work from Neustar and Secure Path, and the participation of many of
the members of DECE. This is the presumed game plan, but as with any large scale
initiative requiring input from multiple parties, delays are a possibility.
Secure Path has modeled its revenue from DECE in its metadata services business
projections, and if there are delays in the launch, these revenues will be
pushed out.
28
Microsoft
could slow their anticipated increased usage of MediaDNS for metadata ingest
purposes, directly impacting Secure Path’s metadata services
business.
Secure
Path recently emerged from a successful pilot phase with Microsoft which
generated approximately $58,800 through September 30, 2009. Based on recent
meetings, Secure Path is now moving into the next phase of the engagement
wherein MediaDNS services will ramp up, and we anticipate $200,000 - $250,000 in
revenue in calendar year 2010. If, however, the anticipated increase in MediaDNS
usage is slowed, then revenue increases will suffer accordingly.
The
financial well-being of the ISAN International Agency could negatively impact on
Secure Path’s ISAN business lines.
In Q1 2009, the ISAN International
Agency had financial problems as a result of mismanagement and poor budgeting.
As a result, Secure Path was instrumental in a reorganization effort that
resulted in the removal of the Managing Director, the realignment of the Board
of Directors and an overhaul of the budgeting process. This process also
involved a recapitalization of the International Agency via loans from Secure
Path, AGICOA, CISAC, ISAN France and ISAN Spain. The International Agency has
been operating according to the new budget since the beginning of Q3 2009.
However, Secure Path does have a dependency on the successful management and
operation of the ISAN standard, and should the ISAN International Agency have
financial problems again in the future, it could have a meaningful impact on
Secure Path’s ISAN-dependant business lines (ISAN code registrations and ISAN
data licensing).Risks Relating to Our Organization and Our Common
Stock
We
are subject to the reporting requirements of a public company, which is costly
and time consuming.
As a
result of the Merger, we became a consolidated subsidiary of a public reporting
company and, accordingly, subject to the information and reporting requirements
of the Exchange Act and other federal securities laws (the “Sarbanes-Oxley
Act”). The costs of preparing and filing annual and quarterly
reports, proxy statements and other information with the SEC and furnishing
audited reports to stockholders will cause our expenses to be higher than they
would have been if we remained privately held and did not consummate the Share
Exchange.
If
we fail to establish and maintain an effective system of internal control, we
may not be able to report our financial results accurately or to prevent
fraud. Any inability to report and file our financial results
accurately and timely could harm our reputation and adversely impact the trading
price of our common stock.
29
It may be
time consuming, difficult and costly for us to develop and implement the
internal controls and reporting procedures required by the Sarbanes-Oxley
Act. We may need to hire additional financial reporting, internal
controls and other finance personnel in order to develop and implement
appropriate internal controls and reporting procedures. Effective
internal control is necessary for us to provide reliable financial reports and
prevent fraud. If we cannot provide reliable financial reports or
prevent fraud, we may not be able to manage our business as effectively as we
would if an effective control environment existed, and our business and
reputation with investors may be harmed. In addition, if we are
unable to comply with the internal controls requirements of the Sarbanes-Oxley
Act, then we may not be able to obtain the independent accountant certifications
required by such act, which may preclude us from keeping our filings with the
SEC current and may adversely affect any market for, and the liquidity of, our
common stock.
Public
company compliance may make it more difficult for us to attract and retain
officers and directors.
The
Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have
required changes in corporate governance practices of public
companies. As a public company, we expect these new rules and
regulations to increase our compliance costs and to make certain activities more
time consuming and costly. As a public company, we also expect that
these new rules and regulations may make it more difficult and expensive for us
to obtain director and officer liability insurance in the future and we may be
required to accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. As a result, it
may be more difficult for us to attract and retain qualified persons to serve on
our board of directors or as executive officers.
Our
stock price may be volatile.
The
market price of our common stock is likely to be highly volatile and could
fluctuate widely in price in response to various factors, many of which are
beyond our control, including the following:
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changes
in our industry;
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competitive
pricing pressures;
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our
ability to obtain working capital financing;
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additions
or departures of key personnel;
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limited
“public float” in the hands of a small number of persons whose sales or
lack of sales could result in positive or negative pricing pressure on the
market price for our common stock;
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sales
of our common stock;
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our
ability to execute our business plan;
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operating
results that fall below expectations;
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loss
of any strategic relationship;
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economic
and other external factors; and
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period-to-period
fluctuations in our financial
results.
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In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies. These market fluctuations may also materially
and adversely affect the market price of our common stock.
We
may not pay dividends in the future. Any return on investment may be
limited to the value of our common stock.
We do not
anticipate paying cash dividends in the foreseeable future. The
payment of dividends on our common stock will depend on earnings, financial
condition and other business and economic factors affecting us at such time as
our board of directors may consider relevant. If we do not pay
dividends, our common stock may be less valuable because a return on your
investment will only occur if our stock price appreciates.
There
is currently no liquid trading market for our common stock and we cannot ensure
that one will ever develop or be sustained.
To date
there has not been a liquid trading market for our common stock. We
cannot predict how liquid the market for our common stock might
become. As soon as is practicable, we anticipate applying for listing
of our common stock on either the NYSE Amex Equities, The Nasdaq Capital Market
or other national securities exchange, assuming that we can satisfy the initial
listing standards for such exchange. We currently do not satisfy the
initial listing standards, and cannot ensure that we will be able to satisfy
such listing standards or that our common stock will be accepted for listing on
any such exchange. Should we fail to satisfy the initial listing
standards of such exchanges, or our common stock is otherwise rejected for
listing and remains quoted on the OTC Bulletin Board or is suspended from the
OTC Bulletin Board, the trading price of our common stock could suffer and the
trading market for our common stock may be less liquid and our common stock
price may be subject to increased volatility.
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Furthermore,
for companies whose securities are quoted on the OTC Bulletin Board, it is more
difficult (i) to obtain accurate quotations, (ii) to obtain coverage for
significant news events because major wire services generally do not publish
press releases about such companies and (iii) to obtain needed
capital.
Offers
or availability for sale of a substantial number of shares of our common stock
may cause the price of our common stock to decline.
If our
stockholders sell substantial amounts of our common stock in the public market,
including shares issued in the Private Placement upon the effectiveness of a
registration statement with respect to such shares, or upon the expiration of
any statutory holding period under Rule 144, or issued upon the exercise of
outstanding options or warrants, it could create a circumstance commonly
referred to as an “overhang” and in anticipation of which the market price of
our common stock could fall. The existence of an overhang, whether or
not sales have occurred or are occurring, also could make more difficult our
ability to raise additional financing through the sale of equity or
equity-related securities in the future at a time and price that we deem
reasonable or appropriate. In addition, the shares of our common
stock sold in the Private Placement will be freely tradable upon the earlier of:
(i) effectiveness of a registration statement covering such shares and (ii) the
date on which such shares may be sold without registration pursuant to Rule 144
(or other applicable exemption) under the Securities Act.
We Have a Limited Operating
History.
We have a
limited operating history. Our operations will be subject to all the
risks inherent in the establishment of a developing enterprise and the
uncertainties arising from the absence of a significant operating
history. No assurance can be given that we may be able to operate on
a profitable basis.
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We Require Significant
Additional Financing if we are to attain profitability and There is No Assurance
that such Funds will be Available.
Our
ability to increase our revenues and reach profitability will be dependent upon
our ability to raise significant additional financing. There can be
no assurance that we will be able to obtain financing on acceptable terms in
light of factors such as the market demand for our securities, the state of
financial markets generally and other relevant factors.
Unproven Profitability Due
to Lack of Operating History Makes an Investment in Us an Investment in an
Unproven Venture.
Since our
date of inception, we have not had significant revenues. Due to our
lack of operating history, the revenue and income potential of our business is
unproven. If we cannot successfully implement our business
strategies, we may not be able to generate sufficient revenues to operate
profitably. Since our resources are very limited, insufficient
revenues would result in termination of our operations, as we cannot fund
unprofitable operations unless additional equity or debt financing is
obtained.
Secure Path’s Independent
Auditors’ Report States that there is a Substantial Doubt that it will be able
to Continue as a Going Concern.
Secure
Path’s independent auditors state in their audit report, that since has incurred
losses since inception to date of approximately $12,303,285, there is a
substantial doubt that it will be able to continue as a going concern. Prior to
it’s merger with Secure Path, Rosca was a development stage
company.
INDEMNIFICATION OF DIRECTORS
AND OFFICERS.
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The
Company does not currently have an errors and omissions policy in
effect.
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EXHIBITS
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33
On
February 11, 2010, pursuant to the Merger, we issued 4,650,000 shares of common
stock to the former members of Secure Path. The shares were not registered under
the Securities Act, or the securities laws of any state, and were offered and
sold in reliance on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding provisions of
state securities laws, which exempt transactions by an issuer not involving a
public offering.
Information
set forth in Item 2.01 of this Current Report on Form 8-K with respect to the
issuance of unregistered equity securities in connection with the Merger is
incorporated by reference into this Item 3.02.
Reference
is made to the disclosure set forth under Item 2.01 of this Current Report on
Form 8-K, which disclosure is incorporated herein by reference.
Pursuant
to the terms of the Merger Agreement, our new directors and officers are as set
forth therein. Reference is made to the disclosure set forth under
Item 2.01 of this Current Report on Form 8-K, which disclosure is incorporated
herein by reference.
Following
the consummation of the Share Exchange described in Item 2.01 of this Current
Report on Form 8-K, we believe that we are not a shell corporation as that term
is defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange
Act.
(a) Financial
Statements of Businesses Acquired. In accordance with Item 9.01(a),
Secure Paths’ audited financial statements for the fiscal years ended June 30,
2009 and 2008 and unaudited financial statements for the three (3) months ended
September 30, 2009 are filed in this Current Report on Form 8-K as Exhibit 99.1.
Pro forma financial statements showing the effects of the merger with Secure
Path for the period ended
(b) Exhibits.
The
exhibits listed in the following Exhibit Index are filed as part of this Current
Report on Form 8-K.
34
Exhibit
No.
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Description
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99.1
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Secure
Path Technology LLC financial statements for the fiscal years ended June
30, 2009 and 2008 and unaudited financial statements for the quarters
ended September 30, 2009 and 2008
|
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99.2
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Pro
Forma financial statements showing the effects of the merger with Secure
Path for the period ended June 30, 2009 and September 30,
2009.
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35
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 thereunto
duly authorized.
Date: February
11, 2010
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ROSCA,
INC.
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By:
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/s/ Josh C. Kline |
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Name:
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Josh
C. Kline
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Title:
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President
and COO
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