UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
(MARK ONE)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM ___________ TO _____________
 
Commission file number 000-33033
 
hereUare, Inc.
(Name of registrant in its charter)

Delaware
 
02-0575232
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification Number)
 
228 Hamilton Ave., 3rd floor
Palo Alto, CA 94301
(Address of Principal Executive Offices including Zip Code)
 
(650) 798-5288
(Registrant's Telephone Number, Including Area Code)
 
Securities registered pursuant to Section 12(b) of the Act: None
 
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0001 par value
 
(Title of Class)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   o Yes         x No
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  o Yes         x No
 
Indicate by check mark whether the registration (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     x Yes         o No
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o                                 Accelerated filer o
 
Non-accelerated filer o (Do not check if a smaller reporting company)               Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     o Yes         x No
 
Aggregate market value of common stock held by non-affiliates at March 31, 2010:   $34,376,386 (see Note A)
 
Number of shares of common stock outstanding at March 31, 2010: 34,678,813
 
DOCUMENTS INCORPORATED BY REFERENCE:   None
 
Note A: Based upon the $2.00 price in the most recent transaction involving the sale of the Company's common stock as there is no active trading market.
Total Number of Pages: 40
Exhibit Index is on Page 40
 

 
HEREUARE,  INC.
 
2009 ANNUAL REPORT ON FORM 10-K
 
INDEX
 
Part I.
 
Page
   Item 1.
Business
1
   Item 2.
Description of Property
15
   Item 3.
Legal Proceedings
15
   Item 4.
Submission of Matters to a Vote of Security Holders
15
Part II.
 
 
   Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
15
   Item 6.
Selected Financial Data
16
   Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
16
   Item 8.
Financial Statements and Supplementary Data
19
   Item 9.
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
33
   Item 9A(T).
Controls and Procedures
33
   Item 9B.
Other Information
34
Part III.
 
 
   Item 10.
Directors, Executive Officers and Corporate Governance
34
   Item 11.
Executive Compensation
36
   Item 12.
Security Ownership of Certain Beneficial Owners and Management
36
   Item 13.
Certain Relationships and Related Transactions, and Director Independence
38
   Item 14.
Principal Accounting Fees and Services
38
   Item 15.
Exhibits, Financial Statement Schedule
38
Signatures
  
39
Exhibits Index
  
40
Certifications
  
 
 

 
PART I
 
Our disclosure and analysis in this report contains forward-looking statements. When used in this discussion, the words "believes," "anticipates" and "intends" and similar expressions are intended to identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward looking. Forward-looking statements include, but are not limited to, statements about our product development, product release, marketing, fundraising and expansion plans, and our objectives, expectations, intentions, and target markets, and are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated in these forward-looking statements for many reasons, including the factors described under "Description of Business—Risk Factors Affecting Future Performance" and elsewhere in this report. We undertake no obligation to publicly release any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of anticipated events. Readers are urged, however, to review the factors and risks we describe in reports we file from time to time with the Securities and Exchange Commission, which may be accessed at the Commission's website at www.sec.gov .
 
Item 1. Business.
 
General
 
hereUare, Inc. ("hereUare", "HUA", or "the Company"), formerly known as PeopleNet International Corporation, is a Delaware corporation headquartered in Santa Clara, California. hereUare was incorporated on February 5, 1997 under the original name of American Champion Media, Inc. hereUare was formed by, and had been a wholly owned subsidiary of Pacific Systems Control Technology, Inc., formerly known as American Champion Entertainment, Inc., a Delaware corporation. The board of directors of Pacific Systems determined that it was in the stockholders' best interest to separate the two companies and allow them to operate independently. Through a spin-off transaction on February 8, 2002, hereUare became an independent entity and Pacific Systems distributed its shares of hereUare to the stockholders of Pacific Systems as of the record date of January 16, 2002. The securities of hereUare are not currently traded on any market.
 
On September 22, 2006, the Company acquired hereUare Communications, Inc., a Delaware corporation, by reverse merger. Details of the acquisition are available on the Company's Current Report on Form 8-K dated September 22, 2006, as filed with the SEC on September 28, 2006, as amended by Form 8-K/A filed on December 8, 2006. On March 26, 2007, the Company changed its name from PeopleNet International Corporation to hereUare, Inc.
 
Discontinued Business
 
In 2001 and 2002, we licensed and then purchased safe web browser software for children. We evaluated this asset at December 31, 2003 and determined that this asset had been impaired and was of no value, based upon the fair market value of similar assets.  We recorded an impairment expense equal to the remaining book value of this asset.
 
In 2002 we purchased all rights relating to the intellectual property of a business communication software package. We evaluated this asset at December 31, 2003 and determined that this asset has been impaired and was of no value, based upon the fair market value of similar assets. We recorded an impairment expense equal to the remaining book value of this asset.
 
Business Overview
 
hereUare, Inc. ("hereUare," "HUA," or "the Company") is a diversified technology company developing Internet software and telecom solutions. The Company's key products deliver a simple, yet powerful platform, which can be uniquely tailored to different Internet needs or telecom styles.  The Company's products provide a unique online platform for users, from individuals, through small & medium businesses to larger corporate enterprises, with a personalized, all-in-one web-based solution that aggregates any user's needs, from any location, with the use of any Internet device. The innovative hereUare platform and accompanying solutions are a result of seven years of comprehensive research and development packaged into a portfolio of products, some of which utilize pioneering and involved patent pending technologies that may drastically enhance a user's Internet experience.
 
1

 
Different from many Internet companies, hereUare approaches the online market and wireless communications with a holistic view that focuses on daily usage patterns.  hereUare's integrated product suite consists of five primary applications as described below, and serves five primary Internet revenue segments: a) Consumers, b) Retailers, c) Advertisers, d) Small & Medium Businesses ("SMBs"), and e) Larger Enterprises.
 
hereUare applications:
 
hereUareEngineSearch - a powerful and intelligent search tool that efficiently delivers applicable information from the Internet in a simple and precise presentation through its unique hereUare patent pending "relevancy search bar".  hereUareEngine is capable of searching over 10 billion indexed pages, providing powerful information and is designed for all types of users from novice to expert.  hereUare had indexed 10 billion pages but discovered that a majority of the indexed pages were duplicates or contained SPAM . hereUare has developed a methodology to filter pages as they are indexed in order to help avoid (but not entirely eliminate) duplicate pages and SPAM.  hereUare is the process of indexing pages using this filter and thus has not yet achieved its goal of a 10 billion page index but plans to do so during 2009, although no assurance of success can be given.
 
hereUareClassifiesClassified Advertising - our centralized online marketplace for merchandise, jobs, real estate, automotive, etc. in local communities around the world for the buying and selling of items.

hereUareMessagee-Messaging & Groupware - a hereUare web-based office tool that allows for group collaboration through emails, group emails, and shared calendars and tasks, using a concentrated common interfaced network and database.
 
Additionally, hereUare has developed and plans to launch “hereUareVoice, VoIP”, a peer-to-peer Internet voice connection which would use advanced patent-pending hereUare engineered "click-to-call" and "follow-me-everywhere" custom calling features.  This application’s cost-structure, primarily inter-connects with telephone and cell phone providers, has made it fiscally unfeasible for hereUare at this time, but the Company plans to launch this application in the future.
 
Every hereUare application is interconnected through the interchangeable functionalities of each application. For example, a user can click a phone number from a website generated from our hereUareEngine search to order a pizza through our hereUareVoice VoIP, when released, or conversely click a phone number from a user’s hereUareMessage contact list to place a call.  Both functions are enabled without the requirement of a user to insert user data or information.  This level of seamlessness is designed to increase user efficiency, while greatly enhancing the overall ease-of-use for a user.  hereUare believes there is a direct correlation between product integration and the success of a business that relies on the Internet as its point of sale.
 
Our Mission
 
hereUare is committed to transforming communication between people, markets and communities who use them. hereUare is dedicated to designing user-friendly applications and collaborative interactive technology that includes our unique search, messaging and voice applications to facilitate mobility for online user convergence across the globe.
 
The hereUare team understands the broad global and local connectivity that is required to conduct business competitively and effectively; as such we pride ourselves on providing one seamless, easy-to-use platform that limitlessly expands the communication reach of enterprises, businesses and individuals in the 21st century.
 
Through the intuitive integration of various technology channels, hereUare’s goal is to place an all-in-one communication solution at the fingertips of its users. It is our mission to build useful online applications that collaborate with any device, anywhere, that meet and exceed the far-reaching expectations of our diverse users.
 
2

 
hereUare Applications and Solutions
 
As a daily Web destination, hereUare intends to offer a Product Suite of four key revenue producing applications.  Providing a valuable sense of the style that is illustrated in the design of our applications, our desire is to present a warm and welcoming presence for any community on the Internet today. It is our intention to continue developing unique applications that provide daily relevance to any user, anytime whether it applies to our search, VoIP, or messaging technology. The direction of the Company over the past several years is to place a premium on quick, easy and efficient online tools that enhance the online experience for any user.
 
hereUare Engine Search
 
The hereUareEngine search solution stems from two primary design philosophies: 1) a "green" search engine that is environmental responsible and 2) a search style that's easily navigated regardless of the user's experience level.  This solution offers comprehensive and relevant search results which will eventually access over 10 billion indexed pages.  The required software that powers hereUareEngine search uses less hardware than typically used by our competitors to search indexed pages; hence, the "green" search solution which uses less energy. This equates to a lower capital requirement and operating cost; one of the product's key competitive advantages. In addition to the "green" search engine, hereUare offers a search style that categorizes the keyword search to allow further refinement without requiring the user to use a sophisticated Boolean search approach.

hereUareEngine Search features:
 
 
Dynamically generated graphical indicators of relevant content - hereUare provides a unique way to indicate the level of relevancy of a search result. This allows the user to easily identify the most relevant search data results rather than reading a long list of content that is potentially not of interest or relevant to the user.
 
 
Large search library – will consist of over 10 billion indexed pages once hereUare completes the indexing process.  hereUare had believed it already had indexed over 10 billion pages but discovered that a majority of the pages were duplications or contained spam and as a result, hereUare has less than one billion indexed pages currently.  Our hereUare Engine search product requires us to increase the number of indexed pages to over 10 billion in order to be effective.  As a result, we have developed and implemented some new technologies in order to eliminate the page duplications and spam that existed in our prior number of indexed pages and we are crawling or spidering the web in order to increase the number of indexed pages.  We are not planning to offer our hereUare search engine product until after we have indexed close to 10 billion pages for our hereUare Engine software to search. When complete, this will be an entry barrier to any new search engine.  It is time-consuming and expensive to build a library of billions of indexed pages for a competitive result and there can be no assurance of when hUa will have a complete library.

 
More efficient scaling algorithm - requiring significantly less servers compared to the competition in the market when indexing the same number of pages.  This is achieved through advanced proprietary software and indexing algorithms.
 
 
High relevancy - supports sophisticated search queries allowing nested Boolean format for experts, and also supports simple step-by-step searches, leading novices through categories to the most relevant information they seek.

 
Search query – hereUare Engine query results include all common formats such as PDF, Microsoft Word, Power Point, Excel and Postscript documents.
 
hereUareEngine search engine is supported by an advertisement server which is designed to provide the Company with a powerful revenue-generating source. With hereUareEngine acting as the backbone of the hereUare product suite, particularly hereUareClassifies, the Company is poised to offer effective methods for advertisers to narrowly target their online marketing campaigns across hereUare's product suite and applications.
 
3

 
hereUareVoice VoIP
 
The hereUareVoice Voice over Internet Protocol (VoIP) telephony solution will offer a peer-to-peer (P2P) connection, delivering high quality audio while requiring minimal bandwidth.  The service will work over almost any Internet connection, even at dial-up access speeds.  The hereUareVoice VoIP service will be managed through our hereUare engineered 'Softphone' a multi-media user interface that works in association with our VoIP technology.  It serves as a dialing pad for initiating calls directly from a PC to any receiving device over the Internet. The Softphone applet is downloaded from the hereUare website as a stand-alone onscreen phone.
 
For versatility, the Softphone supports an external phone or headset connected to a computer for dialing and receiving calls.  The Softphone is designed to be a multi-media communication portal, which when expanded incorporates and connects to –hereUareEngine and hereUareMessage.
 
hereUare does not intend to charge customers monthly fees or connection charges for hereUareVoice VoIP, or to require a user contract for VoIP service.  Calls made between two hereUareVoice connections will be free from anywhere in the world. For calls made outside of the hereUare community, hereUare will offer one of the most competitive international rates on the market.  However, the cost of these inter-connects is prohibitive for the Company at this time and will remain until the Company has substantial cash on hand.  Yet, the Company believes that being able to offer such interconnects is essential to the success of hereUareVoice.  Therefore, the Company does not currently plan to be offering this product except on a limited basis until after the Company has raised approximately one million dollars in financing.
 
Planned hereUareVoice VoIP Features:
 
 
Peer-to-peer connection - resulting in low voice delay.
 
 
Direct Inward Dialing (DID) - offering maximum privacy by allowing users from outside the hereUare network to reach a hereUare VoIP user without the need to give out any personal number.

 
Follow-me-everywhere call forwarding capability - allowing users to direct calls to their land or mobile number, even when the computer is not online.
 
 
Click-to-Call - a patent-pending hereUare engineered technology that is capable of detecting a phone number in a web browser and allowing the hereUareVoice or VoIP user to initiate a call by simply clicking on the number.
 
The company holds an International FCC 214 license and is telecom compliant for all tariff requirements in the United States.
 
Click-to-Call and Pay-per-Call Market Opportunity
 
Although the Click-to-Call (CTC) will be a feature built into our hereUareVoice solution, the application will be powerful enough to stand on its own as a unique online downloadable browser tool.  hereUare's CTC will take consumers directly to advertisers and retailers in one step by clicking on the displayed phone number resulting from a search or an advertisement.  The hereUare patent-pending CTC technology will immediately connect users to their selected destination from any web page. This feature will take targeted marketing campaigns to the next level by providing a convenient way for impulse buyers and advertisers to achieve immediate satisfaction.
 
The CTC feature will allow hereUare to be innovative with its business proposal to advertisers by allowing a "pay-per-call" model.  According to this model, the advertisers will pay only when a customer initiates a call.  The billing will be reversed so that the caller does not pay, rather the advertiser subsidizes the cost of the call. Businesses will greatly benefit from this model as it minimizes the investment risk for their advertisement dollars and provides a powerful way to capture their audience.  Consumers will benefit from this convenience, while at the same time their privacy is protected, because their home numbers and personal information are shielded.  Businesses are able to self-manage the tools such that they do their own "auditing" of the efficacy of the pay-per-call advertising; thus, they improve the return on investment of their online marketing campaigns. The hereUare CTC model will eliminate the click fraud experienced by many advertisers.  By including "pay-per-call" in its service offerings, hereUare expects to be able to increase VoIP and advertising revenue, plus increase market shares through push and pull marketing.
 
4

 
Studies by the Kelsey Group indicate that the response rate for telephone-based ads is 8%, compared with 3% for Pay-per-Click ads.  hereUare's CTC feature has the potential, if properly positioned and successful, to capture a significant share of this new emerging market.
 
hereUareClassifies Classified Advertising
 
hereUareClassifies allows consumers and businesses to buy, sell, advertise, and connect to the discussion forums based on topics like business, relationships, entertainment, and shopping. hereUareClassifies provides advertisers with simple uploading for their listings through the use of pictures and step-by-step descriptions that allow users to instantly start utilizing the services.
 
hereUareClassifies features:
 
 
Multiple options - from a simple basic service plan to a premium package
 
 
Self-managed listings - with simple step-by-step walkthrough and visual ad displays

 
Priority Ranking - options which keep an ad on the top of the category in which it is posted to improve response and generate more advertising exposure
 
 
Differentiating capability - allow listings with a variety of font options for ad text

 
Sponsored Links - in any category, help businesses stand out
 
While the main portion of the hereUareClassifies product has been developed, further testing is required and launch is currently planned during the second quarter of 2009 provided the required testing is successful and the Company raises adequare financing.
 
hereUareMessage e-Messaging & Groupware
 
hereUareMessage offers a powerful and simple solution for messaging with collaborative applications for the SMB market and email hosting business.  The application is a web-based design which provides SMBs with a collaborative tool to support multiple office locations in a shared-management environment.  The web-based messaging solution reduces IT overhead for businesses.
 
hereUareMessage provides a user-friendly graphical web-based interface with instant access to information. Email messages, contacts, appointments and tasks are clearly arranged and easy to manage from almost any location, anywhere. Users are provided with a choice to assign tasks, appointments and information as private and/or public for others to view.
 
In addition to providing publicly accessible basic features free of charge that are comparable to the largest email systems available from market leaders such as Yahoo and Google, our hereUareMessage system will also provide paid solutions for more demanding users and SMBs such as private domain names, file sharing, and calendar sharing.
 
The Company believes that hereUareMessage is ready for release and once the Company raises approximately two hundred thousand dollars, the Company intends to recruit and retain a sales team and release hereUareMessage.
 
The Market for hereUare Applications
 
Based on the Internet advertising model, Internet Search is the most recognized revenue generating application.  Search revenue is primarily fueled by targeted ads and revenue from "pay for Click".  The online classified market continues to grow as users rapidly migrate to the Internet as their source for news, research, and commerce. As the number of consumers that visit the Internet increases, advertisers have followed suit, thus shifting a greater proportion of their ad dollars to the Internet from the older forms of media. It is estimated that newspaper classified revenues have fallen by as much as 40% recently in certain categories.
 
5

 
Messaging, also referred to as Groupware or Collaborative software, has been widely accepted by Internet users and is now expanding to serve SMBs.  As virtual offices are established in dispersed locations to address a global work environment, the acceptance of a centralized web-based office tool is expected to create a new category of users for an old application: email. SMBs, too small to create and maintain their own communication networks, will give new life to an application that the individual user now expects for free.
 
VoIP technology has advanced drastically in recent years as voice quality and call stability has improved. This trend will lead to greater market opportunities as individual consumers and businesses accept the technology as a low cost option to traditional telecom solutions.   This application is in the initial stages of growth and is expected to continue to expand in worldwide acceptance as VoIP technology is more readily understood and accepted
 
hereUare Marketing Plan
 
Our initial marketing strategy is to market hereUare message to the SMB market.  This approach focuses on both on direct sales and channel development with value-added resellers (VARs) and distributors who will offer our hereUareMessage messaging product line to SMBs and enterprises.  If we are able to gain traction with this product, and if we are able to complete the hereUareClassifies product and index 10 billion pages for the hereUareSearch product, the Company intends to release these two products along with hereUareVoice, and thereby market a suite of interrelated products.
 
For this suite, our planned marketing strategy approaches the market from three different perspectives, with the primary goal of driving adoption of hereUare's applications. Our first approach would focus on building brand awareness primarily through online advertising and eyeball acquisition of carefully placed and strategically located ads and links that draw attention to the hereUare Search page that will be the Company's landing page. The hereUare marketing team has identified multiple sites as co-branding partners which will host hereUare search and links. As a central destination web page, the hereUare landing page is designed to lead users into the company's other applications.
 
The second prong for marketing once our product suite is available would be an active public relations campaign where the Company and its applications are promoted through a viral marketing approach that attract interested users through word of mouth. Active viral marketing or viral advertising refers to marketing techniques that use pre-existing social networks to produce or increase in brand awareness, through a self-replicating or viral process using social connections and word-of-mouth or online Internet dialogue to enhance the power of online networking. Viral marketing is a unique online phenomenon that facilitates and encourages people to pass along fresh ideas, concepts and products, and therefore market a message voluntarily. Viral promotions may take the form of video clips, interactive games, images, or emails and have proven very effective in recent years, as proven by the success of YouTube, MySpace and Facebook. Some data suggest that a satisfied customer tells an average of three people about a product or service he/she likes, and eleven people about a product or service which he/she did not like.  Viral marketing is based on this natural human behavior, and has been very useful to the online community in promoting ideas, concepts and products.
 
Our third approach for marketing once the product suite is available would center around the establishment of relationships with large communities for positioning hereUare as the default user gateway or portal to the Internet.  As described below, hereUare had identified large communities of Internet users among unique demographic groups in the USA and in Asia.
 
hereUare plans to jumpstart the viral marketing effect with identified vertical market segments and partners. We are attempting to establish relationships with community groups in the U.S., Vietnam and China. These relationships, if established, can give us access to user gateways of a large number of users that play an essential role in the success of our commercial launch for our hereUareEngine, hereUareVoice, and hereUareMessage applications.  Our goal is to establish these relationships on the basis of hereUare being the default user gateway.  We would direct our marketing programs toward a vertical focus through promotion with sponsorships, radio stations, bulletin board groups, and community events. These relationships could drive traffic through hereUare products, and the strategy is designed to attract eyeballs to the hereUare website; this could enable a network effect that stems from self-proliferating community behavior.
 
6

 
We plan to employ both online and offline components in our sales-focused campaign.  Online initiatives will include keyword advertisements, targeted banner advertisements, email lists, and contextual text links.  Offline campaigns will focus on direct marketing strategies that will include mailings and inserts in relevant publications.  Our direct sales team will establish channels with value-added resellers (VARs) and distributors to expand and actively reach the enterprise market with our messaging (and eventually VoIP) solutions.
 
International Strategy
 
Currently, the Company is not marketing its products outside the United States.  However, uniquely positioned, hereUare's executive team has established strong working relationships with the relevant branches of the governments of Vietnam and China.  These relationships are critical to entering the Asia market, where economies are projected to continue double digit growth well into the next decade.  These relationships potentially are a key competitive advantage for hereUare over competitors who face high barriers of entry in these markets.
 
Vietnam and China have historically had poor telecom infrastructure. The development and establishment of VoIP as a communication alternative will meet the immediate needs of many users that cannot afford traditional telecom infrastructure.  The VoIP solution provides voice connectivity without the extra cost of data infrastructure, while it provides greater access to telecom products without a high termination fee.  With a communication infrastructure that is still under developed in these countries, VoIP is an easy, cost-efficient solution. In these countries, government approval is vital and necessary for rolling out and distributing our VoIP product solution. The hereUareMessage e-messaging application is another cost-effective solution to the communication problems that continue to exist in these countries.  The hereUare messaging system includes an email hosting solution that scales from small business to governmental level usage.  This allows the government the flexibility to support and control the development of communication tools in regions that lack investment capital.
 
hereUare presently has an office in Vietnam where it undertakes a substantial portion of its engineering and operations activities.  In doing so in a location with lower labor and overhead costs, hereUare has been able to reduce the costs of such activities.
 
Branding Strategy
 
The Internet is a consumer market in which brand recognition is essential to any viral marketing campaign for the attraction and retention of traffic.  Therefore, hereUare has carefully studied and selected its brand and domain name. Extensive focus group studies indicate that the hereUare name suggests and promotes a central Internet destination that serves all the needs of the user.  As a brand, the hereUare message delivers the company's mission as a one-stop destination, where any device can be used, anywhere, any time. "hereUare" is easily pronounced and understood by non-English speaking users, which enhances its acceptance as a global brand. Generally speaking, the Internet domain name has become a valuable commodity. As a result, it has become a serious challenge to find a name that will resonate with consumers, while serving as a company's mission. hereUare has overcome this challenge successfully, with its easily understood name and products registered and trademarked.
 
Online the company plans to promote its brand through the use of sponsored links and vertical event sponsorships.  As described in the Market Entry section above, sponsorship of events in large communities similar to the Christian Life Center mirrors the viral marketing effect and creates brand awareness. In partnership or in a syndicated situation, the hereUare logo is to be used followed by the powered by hereUare tagline.
 
Intellectual Property
 
We rely on a combination of patent, trademark, copyright, and trade secret laws in the U.S. and other jurisdictions as well as confidentiality procedures and contractual provisions to protect our proprietary technology and our brand. We also enter into confidentiality and invention assignment agreements with our employees and consultants and confidentiality agreements with other third parties, and we rigorously control access to our proprietary technology.  We license our search technology on a non-exclusive royalty-bearing basis; our license expires, unless renewed by agreement with the licensor, in October 2016. Trademarks which we own or license include "hereUare".
 
7

 
The Company has been granted two US patents:
 
Granted February 2006 - method and system for simulating multiple independent client devices in a wired or wireless network;
Granted February 2007 - system for distributed network authentication and access control.
 
The Company has not included the use of the technology covered by these two patents in its current plans.
 
We have U.S. patents pending covering aspects of our hereUareEngine and hereUareVoice applications, which we cannot be sure will be granted or if they are granted will be valid and enforceable and of a scope to cover aspects of commercial importance. We cannot predict whether the failure to obtain these patents or the invalidation of any patents we obtain would result in the introduction of competitive products which would adversely affect our future revenues. We presently intend to pursue any infringement of patents which issue from these applications either by litigation, arbitration, or negotiation. However, there can be no assurance that any of our patents will be sufficiently broad in scope to afford protection from products with comparable characteristics that may be sold by competitors in the future. There also can be no assurance that the validity of any patents actually granted will not be challenged.
 
Government Regulation
 
Once we begin to offer our services, we will be subject to a number of foreign and domestic laws and regulations that affect companies conducting business on the Internet.  In addition, laws and regulations relating to user privacy, freedom of expression, content (including gambling and underage sexual material), advertising, information security and intellectual property rights are being debated and considered for adoption by many countries throughout the world.  In the U.S., laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, which include actions for defamation, libel, invasion of privacy and other data protection claims, tort, unlawful activity, copyright or trademark infringement and other theories based on the nature and content of the materials searched, the ads posted or the content generated by users. Certain foreign jurisdictions are also testing the liability of providers of online services for activities of their users and other third parties. Any court ruling that imposes liability on providers of online services for activities of their users and other third parties could adversely impact our business prospects. In addition, because our services may become accessible worldwide, certain foreign jurisdictions may claim that we are required to comply with their laws, even where we have no local entity, employees or infrastructure.
 
Employees
 
As of December 31, 2009, we have five full-time employees.  In order to conserve cash, thirteen employees in Vietnam have been put on leave without pay.  Assuming the Company can raise the necessary financing, the Company plans to re-hire them although no assurance can be given.
 
Risk Factors Affecting Future Performance.
 
We lack revenue history and currently do not have a proven business model to generate revenue.   Absent revenue, our business will fail.
 
In the past years, we have concentrated on developing our products and have not generated significant revenues.  We have only recently begun testing our products and services on a limited basis and have generated minimal revenues.  There can be no assurance that as we roll-out our products, we will be able to generate material revenues from them.  Many of our services, such as search and VoIP, have been historically offered free of charge to users, with companies depending upon advertising to generate revenues.  There can be no assurance that we will be able to persuade advertisers that it is cost effective for them to pay us for advertising their products and services.  Even if we are successful initially in generating advertising revenue, there can be no assurance that we will be successful long-term.  hereUareMessage has not generated any revenue to date and is the product from which we plan to receive most of our revenue in the near-term.  Because we have no experience in selling hereUareMessage, there can be no assurances that we will be successful in generating revenue from it.
 
8

 
We have never been and may never become profitable. We will need to be profitable in order to succeed.
 
We have never been profitable. In fact, during both fiscal 2009 and 2008, we were not even able to operate with a gross profit. There can be no assurance that we will ever generate a gross profit, much less and operating profit. Even if we achieve profitability, there can be no assurance that we will be able to sustain it.  As a result of the economic collapse, we were unable to finish our research and development programs.
 
We expect to incur operating losses for the foreseeable future.
 Some of our products are still in the developmental stage, and prior to completing the commercialization of our products, we anticipate that we may incur operating expenses without realizing substantial revenues, for example while indexing 10 billion pages for hereUare Search.  We therefore expect to incur losses into the foreseeable future.
 
If we are unable to manage our projected growth, our prospects may be limited and our potential for profitability may be adversely affected.
 
We intend to expand our sales and marketing, and research and development programs.  Rapid expansion may strain our managerial, financial and other resources.  If we are unable to manage our projected growth, our business, operating results and financial condition could be adversely affected.  Our systems, procedures, controls and management resources also may not be adequate to support our future operations.  We will need to continually improve our operational, financial and other internal systems to manage our growth effectively, and any failure to do so may lead to inefficiencies and redundancies and result in reduced prospects for our company.
 
We are materially dependent on acceptance of our products in development by our target markets.  If our products, when commercially ready, are not accepted, our revenues will be adversely affected and we may not be able to generate revenue from these markets.
 
The target markets for our technologies and products in development will principally include consumers, retailers, advertisers, small to medium businesses, and enterprises. If our products in development are not widely accepted by these markets, we may not be able to generate sales of our products into these markets.  Technology for the Internet evolve quickly as compared to other industries, if technology evolves beyond the capabilities of our products, the market may not accept our products.
 
Our dependence on new products and enhancements to current products means that we are dependent upon our research and development team for key components of our platforms and delivery systems and technical or personnel issues could delay the launch of our products and reduce acceptance rates of our products.
 
We depend on our research and development department for the delivery of components integral to our systems.  Our reliance on these teams creates risks related to our potential inability to launch our systems.  Specifically, we depend or may in the future depend on these teams to write software code to power our systems or to help implement them, such as indexing ten billion pages for hereUareSearch.  Any interruption of our technology development could significantly delay the introduction or update our products and have a material adverse effect on our revenues, profitability and financial condition. Within the last year we have abandoned two products: OneBizDirectory (a web-based yellow pages) and OneUniverse (a social networking platform), in part because of team issues and in part due to market conditions.  There can be no assurance that we will be able to continue with our new product development  and the enhancement of our current products and failure to do so may requires us to abandon additional products.
 
Defects in our systems could reduce demand for our products and result in delays in market acceptance and injury to our reputation.
 
Complex software systems and technologies used in our products may contain undetected defects that are subsequently discovered at any point in the lifecycle of our products.  Defects in our products may result in a loss of sales, delay in market acceptance, loss of opportunity or other economic loss to our customers, and injury to our reputation and increased costs to remedy interruptions in our service or products.
 
9

 
We depend on our technology and products which incorporate our technology.  The loss of access to this technology as a result of intellectual property claims or otherwise would terminate or delay the further development of our products, injure our reputation or otherwise impair our viability as a company.
 
We rely on technologies that we acquired or developed through our proprietary research and development efforts.  The loss of these technologies for any reason would seriously impair our business and future viability.  If we are required to enter into license agreements with third parties for replacement technologies, and assuming such licenses are even available to us, we could be subject to high royalty payments.  In addition, any defects in our technology or any technology we may license in the future could prevent the implementation or impair the functionality of our products, delay new product introductions or injure our reputation and results of operations. 
 
We may be unable to adapt or upgrade our technologies and products as the markets in which we compete evolve, which would leave us at a significant competitive disadvantage. 
 
The Internet and online marketplace is rapidly evolving as new technologies are developed to create unforeseen needs.  We may be unable to adapt or upgrade our technologies, or otherwise invent and develop new technologies, to meet theses competitive technologies. If we cannot develop new more sophisticated or advanced technologies and systems, or interface with newly developed technologies from our competitors our business could suffer serious harm to its reputation and could negatively impact our results of operations.
 
We have few capital resources and will be dependent upon future financing to generate the cash necessary to operate our business. Should we fail to raise such financing, we may be forced to cease operations.
 
As of December 31, 2009 we had cash of only $24,393 and working capital of ($1,583,461). Historically, we relied on funds raised from private sale of our common stock to accredited investors and were only able to support our small operation and development of our technology.  Although we are currently seeking substantial financing to launch our products and services and to pay down our third party accounts payable and accrued expenses of $1,056,528 as of December 31, 2009, the loss we incurred during 2009, and our debt to related parties $257,683 as of December 31, 2009, there is no assurance that we will be successful in raising the funds necessary on favorable terms.  Management remains doubtful whether enough revenues can be generated in the near term to sustain our operations and intends to seek substantial funding for introducing and marketing our suite of software products. Otherwise, we will not be able to introduce them in a large-scale manner and may have to scale down or cease our operations.  In the event that financing activities cannot generate adequate funds to launch our marketing efforts, we intend to curtail our operations until such funds are available. Although the Company continues to seek financing to support our working capital needs, we have no assurance that we will be successful in raising the funds required.  In the event that the Company is not successful in generating sufficient capital resources on terms acceptable to us, there could be a material adverse effect on our business, results of operations, liquidity, and financial condition.
 
We will need to raise additional capital, which will be dilutive to our current shareholders.
 
We will need to raise additional funds in order to advance our business plan, and to carry out a full scale commercialization of our products. To the extent we need to raise additional capital, we may do so in the near future, if conditions in the markets are favorable.  If and when we achieve initial market acceptance our technologies and products, we may desire to attempt to accelerate our growth to take advantage of increasing demand and raise additional capital at that time as well. Any additional capital could take the form of equity or debt financing. In addition, any future equity financing will be dilutive to shareholders.
 
We face significant competition from large-scale Internet content, product and service aggregators, principally Google, Microsoft and AOL.
 
We face significant competition from companies, principally Google, Microsoft and AOL, that have aggregated a variety of Internet products, services and content in a manner similar to ours. These companies are in dominant positions in the Internet service industry and have well established relationships with online advertisers. Their strength may adversely affect our ability to execute our business plan. Their services directly compete with ours, including Internet search, local search and directories, consumer e-mail service, VoIP, and advertising solutions. These large-scale competitors and possible additional entrants have significantly greater operational, strategic, financial, personnel or other resources than we do, as well as greater brand recognition overall. These competitors are expected to be continuously more effective than us in targeting services and advertisements to the specific preferences of their users thereby giving them a competitive advantage.
 
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We also face competition from other Internet service companies, including Internet access providers, device manufacturers offering online services and destination websites.
 
Our users must access our services through Internet access providers, including wireless providers and providers of cable and broadband Internet access. To the extent that an access provider or device manufacturer offers online services competitive with ours, the user may elect to use the services or properties of that access provider or manufacturer. In addition, the access provider or manufacturer may make it difficult to access our services by not listing them in the access provider's or manufacturer's own directory. Such access providers and manufacturers may prove better able to target services and advertisements to the preferences of their users. 
 
We also compete for customers, users and advertisers with many other providers of online services, including destination websites and social media and networking sites. Some of these competitors may have more expertise in a particular segment of the market, and within such segment, have longer operating histories, larger advertiser or user bases, and more brand recognition or technological features than we offer.
 
In the future, competitors may acquire additional competitive offerings, and if we are unable to complete strategic acquisitions or investments, our business could be adversely affected. Further, competitors may consolidate with each other to become more competitive, and new competitors may enter the market. If our competitors are more successful than we are in developing compelling products or attracting and retaining users, advertisers or customers, then we may have difficulty in executing our business plan.
 
We face significant competition from traditional media companies which could limit our ability to generate advertising revenue.
 
We also compete with traditional media companies for advertising. Most advertisers currently spend only a small portion of their advertising budgets on Internet advertising. We do not have indication that these traditional advertisers will allocate some of their advertising budget for our services.
 
Decreases or delays in advertising spending by advertisers due to general economic conditions could harm our ability to generate advertising revenue.
 
Expenditures by advertisers tend to be cyclical, reflecting overall economic conditions and budgeting and buying patterns. Since our business plan anticipates significant activities from advertising, any decreases in or delays in advertising spending due to general economic conditions could reduce our chances in carrying out our plan.
 
We are, and may in the future be, subject to intellectual property infringement claims, which are costly to defend, could result in significant damage awards, and could limit our ability to provide certain content or use certain technologies in the future.
 
Internet, technology, media companies and patent holding companies often possess a significant number of patents. Further, many of these companies and other parties are actively developing or purchasing search, indexing, electronic commerce and other Internet-related technologies, as well as a variety of online business models and methods. We believe that these parties will continue to take steps to protect these technologies, including, but not limited to, seeking patent protection. As a result, disputes regarding the ownership of technologies and rights associated with online business are likely to continue to arise in the future. 
 
As we expand our business and develop new technologies, products and services, we may become increasingly subject to intellectual property infringement claims. In the event that there is a determination that we have infringed third-party proprietary rights such as patents, copyrights, trademark rights, trade secret rights or other third party rights such as publicity and privacy rights, we could incur substantial monetary liability, be required to enter into costly royalty or licensing agreements or be prevented from using the rights, any of which could require us to change our business practices in the future and limit our ability to compete effectively. We may also incur substantial expenses in defending against third-party infringement claims regardless of the merit of such claims. 
 
11

 
If we are unable to protect our intellectual property, or obtain patents for the technologies we are currently researching, we may lose a competitive advantage or incur substantial litigation costs to protect our rights and we be unable to protect our intellectual property rights.
 
Our future success depends in part upon our proprietary technology.  Our protective measures, including future patents, trademarks and trade secret laws, may prove inadequate to protect our proprietary rights.  We are in the process of filing patent applications for our technologies and although we do not currently foresee issues arising as a result of our pending patents, there can be no assurance that any of these patents will be issued or that patents will not be challenged.  Established companies in our industry generally are aggressive in attempts to block new entrants to their markets, and our products, if developed and commercialized, may interfere (or may be alleged to interfere) with the intellectual property rights of these companies.  Our viability will depend on its products not infringing patents that we expect would be vigorously prosecuted.  Furthermore, the validity and breadth of claims in our technology patents involve complex legal and factual questions and, therefore, are highly uncertain.  Even if we are granted patents relating to our technology, there can be no assurance that we would be able to successfully assert our patents against competing products.  Once we receive a patent, the scope of any patent to which we have or may obtain rights may not prevent others from developing and selling competing products.  The validity and breadth of claims covered in technology patents involve complex legal and factual questions, and the resolution of such claims may be highly uncertain, lengthy, and expensive.  In addition, any future patents which we may file may be held invalid upon challenge; others may claim rights in or ownership of our patents.  
 
We may not be able to enforce or protect our intellectual property rights, which may harm our ability to compete and adversely affect our business.
 
Our ability to enforce our patents, copyrights, software licenses, and other intellectual property is subject to general litigation risks, as well as uncertainty as to the enforceability of our intellectual property rights in various countries. When we seek to enforce our rights, we are often subject to claims that the intellectual property right is invalid, is otherwise not enforceable, or is licensed to the party against whom we are asserting a claim. In addition, our assertion of intellectual property rights often results in the other party seeking to assert alleged intellectual property rights of its own against us, which may adversely impact our business in the manner discussed above. If we are not ultimately successful in defending ourselves against these claims in litigation, we may not be able to sell a particular product or family of products, due to an injunction, or we may have to pay material amounts of damages, which could in turn negatively affect our results of operations. In addition, governments may adopt regulations or courts may render decisions requiring compulsory licensing of intellectual property to others, or governments may require that products meet specified standards that serve to favor local companies. Our inability to enforce our intellectual property rights under these circumstances may negatively impact our competitive position and our business.
 
If we are unable to retain our existing senior management and key personnel and hire new highly skilled personnel, we may not be able to execute our business plan.
 
We are substantially dependent on the continued services of our senior management, including our chief executive officer, Benedict Van, and our chief technical officer (name withheld due to privacy purposes). These individuals have acquired specialized knowledge and skills in the Internet industries and our business operations. The loss of any of these individuals could harm our business. Additionally, within the past year, we have experienced a great deal of turnover.  Our CFO resigned, effective as of December 4, 2008, and our engineering manager in charge of certain new product development previously resigned.  Our business is also dependent on our ability to retain, hire and motivate talented, highly skilled personnel, particularly sales people.  The competition for such executives and for other highly skilled personnel can be intense, particularly in the San Francisco Bay Area, where our corporate headquarters, and the headquarters of several of our vertical and horizontal competitors, are located. If we do not succeed in recruiting, retaining and motivating our key employees and in attracting new key personnel, we may be unable to meet our business plan and as a result, our stock price may decline.  Because the success of hereUareMessage is highly dependent on sales personnel, if we do not succeed in recruiting, retaining and motivating top sales people, the success of our hereUareMessage launch could be in jeopardy.
 
12

 
Our directors and executive officers may experience conflicts of interest which may detrimentally affect our business development activities and our results of operations.
 
Our principal executive officers and directors, also serve in capacities at other companies that may be a direct or indirect conflict to our business.  They may also be inventors or visionaries of our technologies.  To the extent that our interests diverge from those of the other companies our executive officers and directors may become subject to conflicts of interest which could lead them to make decisions which are not necessarily in the best interests of our other stockholders.  This could result in material adverse consequences to our company, its value and the value of your investment in the Company.
 
We operate in intensely competitive industries, and our failure to respond quickly to technological developments and incorporate new features into our products could have an adverse effect on our ability to compete.
 
We operate in intensely competitive industries that experience rapid technological developments, changes in industry standards, changes in customer requirements, and frequent new product introductions and improvements. If we are unable to respond quickly and successfully to these developments, we may lose our competitive position, and our products or technologies may become uncompetitive or obsolete. To compete successfully, we must maintain a successful R&D effort, develop new products and enhance the synergies between our products, and improve our existing products and processes at the same pace or ahead of our competitors. We may not be able to successfully develop and market these new products, the products we invest in and develop may not be well received by customers, and products developed and new technologies offered by others may affect the demand for our products. These types of events could have a variety of negative effects on our competitive position and our financial results, such as reducing our revenue, increasing our costs, lowering our gross margin percentage, and requiring us to recognize impairments of our assets.
 
We may have difficulty scaling and adapting our existing technology architecture to accommodate increased traffic when we launch our products and services.
 
Our products and services have only been tested on a limited basis. As we launch our products and services through our marketing campaign, we expect Internet traffic to our websites to significantly increase over a short time.  We have very limited experience in handling a heightened traffic level by our hardware and customer service operations. Our future will depend on our ability to adapt to rapidly changing technologies, to adapt our products and services to evolving industry standards and to improve the performance and reliability of our products and services. Rapid increases in the levels or types of use of our online properties and services could result in delays or interruptions in our service.
 
New technologies could block our advertisements or our search marketing listings, which would harm our operating results.
 
Technologies have been developed and are likely to continue to be developed that can block the display of our advertisements or our search marketing listings. Advertisement-blocking technology could have an adverse affect on our ability to execute our plan to capture revenues.
 
Our online operations are subject to security risks and systems failures.
 
Security risks.
 
Online security breaches could materially adversely affect our collective businesses, financial condition, or results of operations. Any well-publicized compromise of security could deter use of the Internet in general or use of the Internet to conduct transactions that involve transmitting confidential information or downloading sensitive materials in particular. In offering online payment services, we may increasingly rely on technology licensed from third parties to provide the security and authentication necessary to effect secure transmission of confidential information, such as consumer credit card numbers. Advances in computer capabilities, new discoveries in the field of cryptography or other developments could compromise or breach the algorithms that we use to protect our consumers' transaction data. In addition, experienced programmers or "hackers" may attempt to misappropriate proprietary information or cause interruptions in our services which could require us to expend significant capital and resources to protect against these problems.
 
13

 
Other system failures.
 
The uninterrupted performance of our computer systems is critical to the operations of our Internet sites. We may have to restrict access to our Internet sites to solve problems caused by computer viruses or other system failures. Our customers may become dissatisfied by any systems disruption or failure that interrupts our ability to provide our content. Repeated system failures could substantially reduce the attractiveness of our Internet site and/or interfere with commercial transactions, negatively affecting our ability to generate revenues. Our Internet sites must, in the future if we grow, accommodate a high volume of traffic and deliver regularly updated content. Our sites have, on occasion, experienced slower response times and network failures. These types of occurrences in the future could cause users to perceive our web sites as not functioning properly and therefore induce them to frequent Internet sites other than ours. In addition, our customers depend on their own Internet service providers for access to our sites. Our revenues could be negatively affected by outages or other difficulties customers experience in accessing our Internet sites due to Internet service providers' system disruptions or similar failures unrelated to our systems.
 
We may be exposed to liability over privacy concerns.
 
Despite the display of our privacy policy on our website, any penetration of our network security or misappropriation of our customers' personal or credit card information could subject us to liability. We may be liable for claims based on unauthorized purchases with credit card information, impersonation or other similar fraud claims. Claims could also be based on other misuses of personal information, such as for unauthorized marketing purposes. These claims could result in litigation, which could divert management's attention from the operation of our business and result in the imposition of significant damages. In addition, the Federal Trade Commission and several states have investigated the use by Internet companies of personal information. In 1998, the U.S. Congress enacted the Children's Online Privacy Protection Act of 1998. The Federal Trade Commission recently promulgated final regulations interpreting this act. We depend upon collecting personal information from our customers and we believe that the regulations under this act will make it more difficult for us to collect personal information from some of our customers. Any failure to comply with this act may make us liable for substantial fines and other penalties. We could also incur expenses if new regulations regarding the use of personal information are introduced or if our privacy practices are investigated.
 
Our management owns or controls a significant number of the outstanding shares of Common Stock and will continue to have significant ownership of its voting securities for the foreseeable future.
 
Our management, either directly or indirectly through their control of affiliated companies, own or control approximately 48.01% of our issued and outstanding capital stock as of December 31, 2009.  See "Security Ownership of Certain Beneficial Owners and Management."  As a result, these persons would have the ability, acting as a group, to effectively control our affairs and business, including the election of directors and subject to certain limitations, approval or preclusion of fundamental corporate transactions.  This concentration of ownership may be detrimental to the interest of our minority shareholders in that it may: 
 
 
limit shareholders' ability to elect or remove directors;
 
 
delay or prevent a change in the control;

 
impede a merger, consolidation, take over or other transaction involving the Company; or
 
 
discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company.
 
We do not intend to pay dividends in the foreseeable future.
 
We have never paid cash dividends.  We do not anticipate that we would pay cash dividends in the foreseeable future.  Instead, we intend to retain future earnings, if any, for reinvestment in its business and/or to fund future acquisitions.  You should not invest in our securities in the anticipation of receiving dividends.
 
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Item 2. Description of Property.
 
On June 8, 2006, the Company entered into a 5-year lease agreement with CarrAmerica Techmart which expires on June 15, 2011. Rent expenses in future periods pursuant to this lease agreement are shown below. In July 2008, we subleased the space for the remainder of the lease term to Egenera, Inc. pursuant to a sublease agreement by which the sublessee pays for all of the future rent expenses.
 
Year
 
Expense
   
Sub-lease
   
Net Expense
 
2010
 
$
93,666
   
$
93,666
   
$
-
 
2011
 
$
43,458
   
$
43,458
   
$
-
 
 
On January 28, 2008, the Company entered into a 5-year lease agreement, with an option to purchase, with 1061 Terra Bella Associates, LLC, which expires on February 28, 2013. Rent expense per this new lease agreement is as following:
 
2010:
  $ 294,100  
2011:
  $ 304,300  
2012:
  $ 314,500  
Thereafter:
  $ 52,700  
 
The Company ceased paying its monthly rent in December of 2008 and is therefore in default under this lease, owing approximately $200,000 as of December 31, 2009, after the landlord applied its security deposit.  The Company received a notice of abandonment from the landlord during June, 2009.  The Company intends to negotiate a settlement with its landlord although there can be no assurance it will succeed or what the terms of any such settlement would be.
 
Since April 2009, the Company has been leasing approximately 4,000 square feet of office space in Palo Alto, CA on a month to month basis for $15,000 per month from eCapital Group, Inc., an entity controlled by Company CEO Benedict Van.
 
Item 3. Legal Proceedings.
 
No lawsuits or proceedings are currently pending against hereUare.
 
Item 4. Submission of Matters to a Vote of Security Holders.
 
Not applicable.
 
PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.
 
Market Information
 
There is currently no active market for our securities.
 
Holders
 
As of December 31, 2009 there were 379 holders or record of our common stock. The number of record holders does not include beneficial owners whose shares are held in the names of banks, brokers, nominees or other fiduciaries.
 
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Dividends
 
hereUare has not declared or paid any cash dividends on its common stock. It intends to retain any future earnings to finance the growth and development of its business, and therefore it does not anticipate paying any cash dividends on its common stock in the future. The board of directors will determine any future payment of cash dividends depending on the financial condition, results of operations, capital requirements, general business condition and other relevant factors. If the Company issues preferred shares, although not currently anticipated, no dividends may be paid on the outstanding common stock until all dividends then due on the outstanding preferred stock will have been paid.
 
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
 
In the quarterly period ended December 31, 2009, the Company sold an aggregate of 140,500 shares of $0.0001 par value common stock to three people in a private placement exempt from registration under Rule 506 of Regulation D of the Securities Act of 1933. The shares were sold from $2.00 to $9.00 per share for aggregate proceeds of $316,000.
 
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 
There were no purchases made by or on behalf of Registrant or any "affiliated purchaser" (as defined in Exchange Act Rule 10b-18(a)(3)) of shares of Registrant's $0.0001 par value common stock during the fourth quarter of fiscal 2008.
 
Item 6. Selected Financial Data.
 
Not applicable
 
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
 
The following section discusses the significant operating changes, business trends, financial condition, earnings and liquidity that have occurred in the Company's as of and for the fiscal years ended December 31, 2009 and 2008. This discussion should be read in conjunction with the Company's consolidated financial statements and notes appearing elsewhere in this report.
 
The following discussion may contain forward-looking statements that are subject to risks and uncertainties. When used in this discussion, the words "believes," "anticipates" and "intends" and similar expressions are intended to identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward looking. Forward-looking statements include, but are not limited to, statements about our product development, product release, marketing, fundraising and expansion plans, and our objectives, expectations, intentions, and target markets, and are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated in these forward-looking statements for many reasons, including the factors described under "Description of Business—Risk Factors Affecting Future Performance" and elsewhere in this report. We undertake no obligation to publicly release any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of anticipated events. Readers are urged, however, to review the factors and risks we describe in reports we file from time to time with the Securities and Exchange Commission, which may be accessed at the Commission's website at www.sec.gov.
 
Critical Accounting Policies
 
In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company believes that the following discussion addresses the Company's most critical accounting policies, which are those that are most important to the portrayal of the Company's financial condition and results or because their application requires significant management judgment, are described in the following paragraphs. The Company constantly re-evaluates these significant factors and makes adjustments where facts and circumstances dictate. Although historically, actual results have not significantly deviated from those determined using the necessary estimates inherent in the preparation of financial statements, future actual results may vary significantly. Estimates and assumptions include, but are not limited to, customer receivables, long-term asset lives, contingencies and litigation. The Company has also chosen certain accounting policies when options were available, including:
 
16

 
 
The intrinsic value method, or APB Opinion No. 25, to account for our common stock incentive awards; and
 
We record an allowance for credit losses based on estimates of customers' ability to pay. If the financial condition of our customers were to deteriorate, additional allowances may be required.
 
The Company expects to apply the provisions of Statement of Position 97-2 as well as SAB 101, to account for the sales of software and related services that may be bundled with the software license.
 
These Company's most critical accounting policies are applied consistently for all years presented and many are described in Note 2 of our financial statements. Our operating results would be affected if other alternatives were used. Information about the impact on our operating results is included in the footnotes to our consolidated financial statements.

Recent Accounting Pronouncements

In June 2009, the FASB issued ASC 105 (previously SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles ("GAAP") - a replacement of FASB Statement No. 162), which will become the source of authoritative accounting principles generally accepted in the United States recognized by the FASB to be applied to nongovernmental entities.
 
In June 2009, the FASB issued ASC 855 (previously SFAS No. 165, Subsequent Events), which establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before the financial statements are issued or available to be issued. It is effective for interim and annual periods ending after June 15, 2009. There was no material impact upon the adoption of this standard on the Company’s consolidated financial statements.
 
In June 2009, the FASB issued ASC 860 (previously SFAS No. 166, “Accounting for Transfers of Financial Assets”) , which requires additional information regarding transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. SFAS 166 eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures. SFAS 166 is effective for fiscal years beginning after November 15, 2009. The Company does not believe this pronouncement will impact its financial statements.
 
In June 2009, the FASB issued ASC 810 (previously SFAS No. 167) for determining whether to consolidate a variable interest entity. These amended standards eliminate a mandatory quantitative approach to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity in favor of a qualitatively focused analysis, and require an ongoing reassessment of whether an entity is the primary beneficiary. These amended standards are effective for us beginning in the first quarter of fiscal year 2010 and we are currently evaluating the impact that adoption will have on our consolidated financial statements.
 
In August 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, which amends ASC Topic 820, Measuring Liabilities at Fair Value, which provides additional guidance on the measurement of liabilities at fair value. These amended standards clarify that in circumstances in which a quoted price in an active market for the identical liability is not available, we are required to use the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities, or quoted prices for similar liabilities when traded as assets. If these quoted prices are not available, we are required to use another valuation technique, such as an income approach or a market approach. These amended standards are effective for us beginning in the fourth quarter of fiscal year 2009 and are not expected to have a significant impact on our consolidated financial statements.
 
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Results of Operation
 
hereUare, whose name was changed from PeopleNet International Corporation on March 26, 2007 to hereUare, Inc., was formed in February 1997, under the name American Champion Media, as a wholly owned subsidiary of Pacific Systems Control Technology ("PSCT"), formerly known as American Champion Entertainment. Through a spin-off transaction on February 8, 2002, hereUare became an independent entity and PSCT distributed its shares of hereUare to the shareholders of PSCT as of the record date of January 16, 2002. Throughout the year ended December 31, 2009, the Company was primarily developing products and was not generating material revenues.
 
Revenues and Gross Profit (Loss)
 
During the year ended December 31, 2009, we only generated sales of $5,575 which was mainly from the Company's VoIP product. Cost of goods was $2,567 which included domestic and international telecom termination charges for testing purposes, resulted in a gross loss figure of $3,009.  Revenue for the year ended December 31, 2008, also primarily from the VoIP product, was $27,737 and cost of goods was $32,485 resulting in a gross loss of $4,748
 
Development of our Internet software technologies has generally been completed as of year-end 2009, and we plan to attempt to market our hereUare Message e-messaging and groupware products to small and medium-sized businesses beginning in the second quarter of 2010.  However, there can be no assurance that we can generate significant sales from such attempts. We are currently not intending to market our hereUare Voice VoIP software due to interconnect and other costs until we are on a more secure financial footing.  Our hereUare Engine search product requires us to increase the number of indexed pages in order to be effective as we implemented some new technologies in order to eliminate the page duplications that existed in our prior number of indexed pages due largely from spam.  We also are not planning to offer our hereUareEngine search engine product until after we have indexed close to 10 billion pages for our hereUare Engine software to search.
 
Costs and Expenses
 
Our depreciation and amortization expenses were $333,570 and $415,575 for the years ended December 31, 2009 and 2008Most of the decrease was due to the retirement of assets during 2009.

Our rent expenses were $535,241 and $402,423 for the years ended December 31, 2009 and 2008.  Of the $535,241 for 2009, $517,187 was for our US locations and $18,053 was for our Vietnam location.  Of the $402,423 for 2008, $326,782 was for our US locations and $72,719 was for our Vietnam location.  The main part of the increased rent in 2009 versus 2008 in our US locations involved our moving our principal executive offices from our Mountain View to our Palo Alto facility, which we are still held liable for even if we have default on the lease.

Our payroll expenses were $183,321 which reflected a sudden decrease in engineering, marketing, and management staff as compared to $1,106,375 for the previous year.  For the year ended December 31, 2009, we also incurred professional fees of $356,451.62 which included $155,146.08 for legal, $40,330 for accounting, $150,020 in consulting fees for software engineering and business consultation, and $10,956 for agent fees. In the prior year, we had professional fees of $934,741 which included $181,258 for legal, $18,181 for accounting, $735,302 in consulting fees for software engineering and business consultation, and $7,514 for agent fees.  The bulk of the decrease in professional fees in 2009 versus 2008 was therefore in consulting fees for software engineering, business consultation, which decrease by $585,282, with most of that decrease being from the decrease in number of consultants.
 
General and administrative expenses for the year ended December 31, 2009 were $7,709,883 which included $7,480,293 in non-cash option and warrant expenses estimated by using a Black-Scholes option pricing model  G&A expenses for the previous year were $4,122,645  which included non-cash option expenses in the amount of $3,223,391. Our non-cash option expenses increased largely because of the expenses associated with options that were renewed in the first half of 2009. During December 31, 2009, the company wrote off $105,851 worth of property and equipment as compared to zero in 2008.
 
18

 
As a result of foregoing factors, our net loss was $9,257,874 for the year ended December 31, 2009, as compared to $8,156,861 for the year ended December 31, 2008. Net loss per share increased to $0.27 in 2009 from $0.24 in 2008, while weighted average number of shares outstanding increased to 34,453,892 by the end of the year 2009 from 34,340,393 of a year ago.
 
Liquidity and Capital Resources
 
Net cash flow for the twelve months ended December 31, 2009 was $17,493. There was a net inflow of $616,013 from financing activities. Cash flow from operating activities was a negative $623,210 on a consolidated basis while net cash provided by investing activities was $24,690.
 
Our Company has not generated significant revenues from our operations over the last several years and management remains doubtful that enough revenues can be generated from operations in the next twelve months to cover the cost of our operations. In addition, as of December 31, 2009, we had cash of only $24,393 and working capital of ($1,583,461)  As a result of our weak cash position, we are in default of some of our contractual obligations, including our Terra Bella Avenue lease.  We will be seeking substantial funding within the next year to pay down our accounts payable and accrued expenses of $1,056,528 as of December 31, 2009, the loss we incurred during the first quarter of 2009, and for introducing and marketing our hereUare Message e-messaging and groupware software product. Otherwise, we may not be able to survive and will not be able to introduce such software in a large-scale manner and may have to scale down or cease our operations.
 
As a result of limited capital resources and insignificant revenues from operations, the Company has relied on the issuance of equity securities in financing transactions for our operational needs. During fiscal 2009, the Company raised approximately $.38 million from the sale of approximately 0.17 million shares while during fiscal 2008 the Company raised approximately $2.7 million from the sale of approximately 0.3 million shares. The independent auditor's report on the Company's December 31, 2009 financial statements included in this report states that there is substantial doubt about our Company's ability to continue as a going concern. In the event that financing activities cannot generate adequate funds to launch our marketing efforts, we intend to curtail our operations until such funds are available and we may have to cease our operations entirely. Although the Company continues to seek financing to support our working capital needs, we have no assurance that we will be successful in raising the funds required. In the event that the Company is not successful in generating sufficient capital resources on terms acceptable to us, there could be a material adverse effect on our business, results of operations, liquidity and financial condition.
 
Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements.
 
Item 8. Financial Statements and Supplementary Data.
 
The financial statements of the Company and the independent registered public accounting firm's report are filed herewith on pages 21 through 24 of this report.
 
19

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
To the Board of Directors and Stockholders
hereUare, Inc.
(formerly known as PeopleNet International Corporation)
 
We have audited the accompanying balance sheets of hereUare, Inc. (formerly known as PeopleNet International Corporation) as of December 31, 2009 and 2008 and the related statements of operations, stockholders' equity, and cash flows for the years ended December 31, 2009 and 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of hereUare, Inc. as of December 31, 2009 and the results of its operations and its cash flows for the years ended December 31, 2009 and 2008, in conformity with accounting principles generally accepted in the United States of America.
 
The Company’s financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has deficit accumulated at December 31, 2009 of $86,457,703 including net losses of $9,251,874 for the year ended December 31, 2009. These factors as discussed in Note 13 to the financial statements, raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 13. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 
 
/s/ Kabani & Company, Inc.

CERTIFIED PUBLIC ACCOUNTANTS

Los Angeles, California
 
April  15, 2010
 
20

 
HEREUARE, INC. AND SUBSIDIARIES
(FORMERLY PEOPLENET INTERNATIONAL CORPORATION)
 CONSOLIDATED BALANCE SHEETS
 
 
   
DECEMBER 31,
 
   
2009
   
2008
 
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
 
$
24,393
     
6,900
 
Account receivable
   
439
     
106
 
Prepaid expenses
   
8,753
     
35,301
 
Total Current Assets
   
33,585
     
42,307
 
                 
PROPERTY AND EQUIPMENT-NET
   
389,056
     
701,289
 
INTANGIBLE ASSETS-NET
   
57,343
     
206,608
 
DEPOSITS
   
50,000
     
185,293
 
Total Non-Current Assets
   
496,398
     
1,093,190
 
                 
TOTAL ASSETS
 
$
529,983
     
1,135,496
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
               
                 
CURRENT LIABILITIES:
               
Accounts payable and accrued expenses
 
$
1,111,528
     
511,472
 
Deferred revenue
   
9,390
     
12,390
 
Due to related parties
   
257,683
     
309,070
 
Short term notes payable, net
   
109,445
     
-
 
Convertible notes payable
   
120,000
     
-
 
Shares to be issued
   
64,000
     
45,000
 
Total current liabilities
   
1,617,046
     
877,932
 
                 
STOCKHOLDERS' EQUITY:
               
Common stock, $0.0001 par value;
               
100,000,000 shares authorized;
               
34,678,813 shares issued and 34,578,813 shares outstanding 
as of December 31, 2009 and 34,338,313 shares issued and outstanding as of December 31, 2008.
   
3,468
     
3,454
 
Treasury Stock; 100,000 shares
   
(10
)
   
(10
)
Additional paid in capital
   
85,399,233
     
77,466,062
 
Subscription receivable
   
-
     
(8,000
)
Prepaid consulting
   
(33,937
)
   
-
 
Accumulated deficit
   
(86,457,703
)
   
(77,205,829
)
Translation Adjustment
   
1,886
     
1,886
 
Total stockholders' equity/(deficit)
   
(1,087,062
)
   
257,563
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
529,983
     
1,135,496
 
 
The accompany notes are an integral part of these unaudited consolidated financial statement
 
21

 
HEREUARE, INC. AND SUBSIDIARIES
(FORMERLY PEOPLENET INTERNATIONAL CORPORATION)
CONSOLIDATED STATEMENT OF OPERATIONS
 
   
FOR THE YEARS ENDED DECEMBER 31,
 
   
2009
   
2008
 
NET REVENUE
  $ 5,575     $ 27,737  
COST OF GOODS SOLD
    2,567       32,485  
GROSS PROFIT/(LOSS)
    3,009       (4,748 )
                 
OPERATING EXPENSES
               
Depreciation and amortization
    333,570       415,575  
Rent
    590,241       402,423  
Salaries and payroll taxes
    183,321       1,106,375  
Professional fees
    356,452       934,742  
Impairment of advance
    -       170,000  
Impairment of property and equipment
    105,851       -  
Impairment of investment
    -       1,000,000  
General and administrative expenses
    7,709,883       4,122,645  
Total operating expenses
    9,224,317       8,151,760  
                 
LOSS FROM OPERATIONS
    (9,221,308 )     (8,156,508 )
                 
OTHER INCOME (EXPENSE)
               
Interest income
    121       2,167  
Interest expense
    (31,699 )     -  
Gain on sale of property
    2,613       -  
Total Other Income/(loss)
    (28,966 )     2,167  
                 
LOSS BEFORE INCOME TAXES
    (9,250,274 )     (8,154,341 )
                 
INCOME TAX
    1,600       2,520  
                 
NET LOSS
    (9,251,874 )     (8,156,861 )
                 
OTHER COMPREHENSIVE INCOME
               
Foreign currency translation gain
    -       1,886  
                 
NET COMPREHENSIVE LOSS
  $ (9,251,874 )   $ (8,154,975 )
                 
*BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF
               
COMMON STOCK OUTSTANDING
    34,453,892       34,340,393  
                 
BASIC AND DILUTED NET LOSS PER SHARE
  $ (0.27 )   $ (0.24 )
 
*
Weighted average number of shares used to compute basis and diluted loss per share is the same since the effect of dilutive securities is anti-dilutive
 
The accompany notes are an integral part of these unaudited consolidated financial statement
 
22

 
HEREUARE, INC. AND SUBSIDIARIES
(formerly known as PeopleNet International Corporation)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 
Common stock
 
Treasury stock
             
Other
     
Total
 
Number of
     
Number of
     
Additional
 
Subscription
 
Prepaid
 
comprehensive
 
Accum.
 
stockholders'
 
shares
 
Amount
 
shares
 
Amount
 
paid in capital
 
Receivable
 
Consulting
 
income
 
deficit
 
equity (deficit)
Balance as of January 1, 2008
   34,239,864
$
  3,424
 
             -
$
            -
$
      71,606,663
$
        (53,000)
$
                 -
$
                     -
$
 (69,048,968)
$
        2,508,119
                                       
Shares issued for cash
        298,449
 
       30
 
             -
 
            -
 
        2,685,998
 
                 -
 
                 -
 
                     -
 
                  -
 
        2,686,028
                                       
Cash received for subscription  receivable from 2007
                  -
 
        -
 
             -
 
            -
 
                     -
 
          45,000
 
                 -
 
                     -
 
                  -
 
             45,000
                                       
Purchase of treasury shares
                  -
 
        -
 
    100,000
 
         (10)
 
           (49,990)
 
                 -
 
                 -
 
                     -
 
                  -
 
            (50,000)
                                       
Option expenses
                  -
 
        -
 
             -
 
            -
 
        3,223,391
 
                 -
 
                 -
 
                     -
 
                  -
 
        3,223,391
                                       
Foreign currency translation
                  -
 
        -
 
             -
 
            -
 
                     -
 
                 -
 
                 -
 
               1,886
 
                  -
 
               1,886
                                       
Net loss for the year
   
        -
 
             -
 
            -
 
                     -
 
                 -
 
                 -
 
                     -
 
   (8,156,861)
 
       (8,156,861)
                                       
Balance as of December 31, 2008
   34,538,313
 
  3,454
 
    100,000
 
         (10)
 
      77,466,062
 
          (8,000)
 
                 -
 
               1,886
 
 (77,205,829)
 
           257,563
                                       
Shares issued for cash
        140,500
 
       14
 
             -
 
            -
 
           315,986
 
                 -
 
                 -
 
                     -
 
                  -
 
           316,000
                                       
Written off of subscription receivable
                  -
 
        -
 
             -
 
            -
 
                     -
 
            8,000
 
                 -
 
                     -
 
                  -
 
               8,000
                                       
Granted of warrants for notes payable
                  -
 
        -
 
             -
 
            -
 
             74,206
 
                 -
 
                 -
 
                     -
 
                  -
 
             74,206
                                       
Granted of warrants for services
                  -
 
        -
 
             -
 
            -
 
             38,420
 
                 -
 
        (33,937)
 
                     -
 
                  -
 
               4,483
                                       
Warrants issued for cash
                  -
 
        -
 
             -
 
            -
 
           318,131
 
                 -
 
                 -
 
                     -
 
                  -
 
           318,131
                                       
Option expenses
                  -
 
        -
 
             -
 
            -
 
        7,186,428
 
                 -
 
                 -
 
                     -
 
                  -
 
        7,186,428
                                       
Net loss for the year
                  -
 
        -
 
             -
 
            -
 
                     -
 
                 -
 
                 -
 
                     -
 
   (9,251,874)
 
       (9,251,874)
                                       
Balance as of December 31, 2009
   34,678,813
$
  3,468
 
    100,000
$
         (10)
 
      85,399,233
$
                 -
$
        (33,937)
$
               1,886
$
 (86,457,703)
$
       (1,087,062)
 
The accompany notes are an integral part of these unaudited consolidated financial statement
 
23

 
HEREUARE, INC. AND SUBSIDIARIES
(FORMERLY PEOPLENET INTERNATIONAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
FOR THE YEARS ENDED DECEMBER 31,
 
   
2009
   
2008
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net loss
  $ (9,251,874 )   $ (8,156,861 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
    333,570       415,575  
Issuance of stock options for compensation
    7,186,428       3,223,391  
Amortization of warrants expense for services
    267,614       -  
Amortization of warrant expense for notes payable
    26,251       -  
Impairment of property and equipment
    105,851       -  
Impairment of an investment and advances
    -       1,170,000  
Write off of subscription receivable
    8,000       -  
Gain on sale of property
    (2,613 )     -  
(Increase) decrease in current assets:
               
Account receivable
    (333 )     -  
Inventory
    -       21,811  
Prepaid expense
    26,548       130,356  
Deposits
    135,293       (78,303 )
Increase (decrease) in current liabilities:
               
Accounts payable and accrued expenses
    545,056       112,033  
Deferred Revenue
    (3,000 )     12,144  
Net cash used in operating activities
    (623,210 )     (3,149,853 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Proceeds from sale of property
    27,000       -  
Purchase of property and equipment
    (1,100 )     (437,079 )
Purchase of software
    (1,210 )     (70,471 )
Leasehold Improvement
    -       (89,768 )
Net cash provide by/(used in) investing activities
    24,690       (597,318 )
CASH FLOWS FROM FINANCING ACTIVITIES
               
Proceeds from/payment to related parties
    (51,387 )     320,318  
Proceeds from subsciption receivable
    -       45,000  
Proceeds from short term notes payable
    157,400       -  
Proceeds from convertible note payable
    120,000       -  
Proceeds from issuance of common stock for cash and shares to be issued
    335,000       2,731,028  
Proceeds from warrants
    55,000       -  
Repurchase treasury stock
    -       (50,000 )
Net cash  provided by financing activities
    616,013       3,046,346  
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
    -       1,887  
                 
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS
    17,493       (698,939 )
CASH & CASH EQUIVALENTS, BEGINNING BALANCE
    6,900     $ 705,839  
CASH & CASH EQUIVALENTS, ENDING BALANCE
  $ 24,393     $ 6,900  
                 
SUPPLEMENTAL DISCLOSURES:
               
Income tax payments
  $ 1,600     $ 2,520  
Interest payments
  $ -     $ -  
                 
NONCASH SUPPLEMENTAL DISCLOSURES:
               
Warrants issued for notes payable
  $ 74,206     $ -  
Warrants issued for services
  $ 38,420     $ -  
 
The accompany notes are an integral part of these unaudited consolidated financial statement
 
24

 
HEREUARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
Note 1 - Nature of Operations and Spin-off

Nature of Operations - hereUare, Inc. (the "Company") was incorporated on February 5, 1997 in the state of Delaware. The Company focuses on development and sales of communication software solutions including web-based email and office automation bundle and a voice over internet protocol telephony product. The Company had been a wholly owned subsidiary of Pacific Systems Control Technology, Inc. ("PSCT") until February 8, 2002 when the Company completed its spin-off transaction from PSCT and became an independent entity.
 
On September 22, 2006, the Company acquired 100% of hereUare Communications, Inc., a Delaware corporation ("hereUare"). hereUare is an operator of web-based search engine and other Internet software solutions founded in 2002. Consequently, hereUare's financial position, results of operations and cash flows subsequent to the acquisition are included in the accompanying audited consolidated financial statements.

In August 2007, the Company established a wholly owned subsidiary in Vietnam, hereUare Communications Company Ltd. Vietnam, in anticipation of engaging in business activities in that country.  As of December 31, 2009, the subsidiary in Vietnam has not generated revenue for the Company but has served as an engineering and operations center.

Note 2 - Summary of Significant Accounting Policies

Basis of Presentation: The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.

Principles of Consolidation: The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, hereUare Communications, Inc. and hereUare Communications Company Ltd. Vietnam.  All material inter-company accounts have been eliminated in consolidation.

Use of Estimates, Risks and Uncertainties - The preparation of financial statements in conformity with generally accepted accounting principles in the United States ("GAAP") requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the collectibility of accounts receivable, accounts payable, sales returns and recoverability of long-term assets.
 
Cash and cash equivalents - The Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents.

Property and Equipment - Property and equipment is stated at cost. Depreciation for property and equipment is computed using the straight-line method over an estimated useful life of three years for computer equipment and five years for non-electronic property. Depreciation on leasehold improvements is recorded on the shorter of the life of improvement or life of lease.

Long-lived assets - Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("ASC 360"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations for a Disposal of a Segment of a Business." The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC 360. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.
 
25

 
Intangible Assets - The Company evaluates intangible assets for impairment, at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets, other long-lived assets and, goodwill is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss. As at December 31, 2009 no impairment in intangible assets is recorded.
 
Revenue Recognition - Revenue from certain licensing programs is recorded when license agreement has been executed, the software package has been delivered or shipped, the fee is determined and the customer is invoiced. Subscription Fees or Perpetual License Fees and Support Fees revenues are recognized on an accrual basis for the term of the agreement.  The Company has adopted the provisions of Statements of Position 97-2 and 98-4 and SEC Staff Accounting Bulletin104 (ASC 605). The Company did receive a small amount of revenue from licensing agreements in the year ended December 31, 2009.
 
Income Taxes - The Company utilizes SFAS No. 109, (ASC 740) "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Stock-based compensation 

The Company adopted SFAS No. 123 (Revised 2004) (ASC 718), Share Based Payment (“SFAS No. 123R”), under the modified-prospective transition method on January 1, 2006. SFAS No. 123R requires companies to measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value. Share-based compensation recognized under the modified-prospective transition method of SFAS No. 123R includes share-based compensation based on the grant-date fair value determined in accordance with the original provisions of SFAS No. 123, Accounting for Stock-Based Compensation, for all share-based payments granted prior to and not yet vested as of January 1, 2006 and share-based compensation based on the grant-date fair-value determined in accordance with SFAS No. 123R for all share-based payments granted after January 1, 2006. SFAS No. 123R eliminates the ability to account for the award of these instruments under the intrinsic value method prescribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and allowed under the original provisions of SFAS No. 123. Prior to the adoption of SFAS No. 123R, the Company accounted for our stock option plans using the intrinsic value method in accordance with the provisions of APB Opinion No. 25 and related interpretations.
 
Basic and diluted net loss per share - Net loss per share is calculated in accordance with the Statement of financial accounting standards No. 128 (SFAS No. 128) (ASC 260), "Earnings per share". SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Net loss per share for all periods presented has been restated to reflect the adoption of SFAS No. 128. Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
 
26

 
Fair value of financial instruments - Statement of financial accounting standard No. 107 (ASC 460), Disclosures about fair value of financial instruments, requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for assets and liabilities qualifying as financial instruments are a reasonable estimate of fair value.
 
Concentrations of Risk - Financial instruments which potentially subject the Company to concentrations of credit risk are cash and accounts receivable. The Company places its cash with financial institutions deemed by management to be of high credit quality. The amount on deposit in any one institution that exceeds federally insured limits is subject to credit risk.
 
Recent Accounting Pronouncements

In June 2009, the FASB issued ASC 105 (previously SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles ("GAAP") - a replacement of FASB Statement No. 162), which will become the source of authoritative accounting principles generally accepted in the United States recognized by the FASB to be applied to nongovernmental entities.
 
In June 2009, the FASB issued ASC 855 (previously SFAS No. 165, Subsequent Events), which establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before the financial statements are issued or available to be issued. It is effective for interim and annual periods ending after June 15, 2009. There was no material impact upon the adoption of this standard on the Company’s consolidated financial statements.
 
In June 2009, the FASB issued ASC 860 (previously SFAS No. 166, “Accounting for Transfers of Financial Assets”) , which requires additional information regarding transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. SFAS 166 eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures. SFAS 166 is effective for fiscal years beginning after November 15, 2009. The Company does not believe this pronouncement will impact its financial statements.
 
In June 2009, the FASB issued ASC 810 (previously SFAS No. 167) for determining whether to consolidate a variable interest entity. These amended standards eliminate a mandatory quantitative approach to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity in favor of a qualitatively focused analysis, and require an ongoing reassessment of whether an entity is the primary beneficiary. These amended standards are effective for us beginning in the first quarter of fiscal year 2010 and we are currently evaluating the impact that adoption will have on our consolidated financial statements.
 
In August 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, which amends ASC Topic 820, Measuring Liabilities at Fair Value, which provides additional guidance on the measurement of liabilities at fair value. These amended standards clarify that in circumstances in which a quoted price in an active market for the identical liability is not available, we are required to use the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities, or quoted prices for similar liabilities when traded as assets. If these quoted prices are not available, we are required to use another valuation technique, such as an income approach or a market approach. These amended standards are effective for us beginning in the fourth quarter of fiscal year 2009 and are not expected to have a significant impact on our consolidated financial statements.
 
27

 
Note 3 - Property and Equipment
 
The property & equipment comprised of the following at December 31:
 
   
2009
   
2008
 
Equipment
 
$
836,812
   
$
934,964
 
Furniture
   
141,078
     
141,078
 
Leasehold improvement
   
-
     
89,768
 
Total Property & Equipment 
   
977,890
     
1,165,810
 
Less accumulated depreciation
   
(588,834
   
(464,522
)
Net Property & Equipment 
 
$
389,506
   
$
701,289
 
 
Depreciation expense was $183,095 and $255,451 for the years ended December 31, 2009 and 2008, respectively.

During December 31, 2009, the company wrote off $105,851 worth of equipment and leasehold improvement as compared to zero in 2008.
 
Note 4 - Intangible Assets
 
Intangible assets include software solutions and domain names, and the related accumulated amortization as of December 31 are as follows:
 
   
2009
   
2008
 
             
Software solutions
 
$
548,122
   
$
546,912
 
                 
Domain name
   
32,321
     
32,321
 
                 
Total Intangible Assets 
   
580,443
     
579,233
 
                 
Less accumulated amortization
   
(523,100
)
   
(372,625
)
                 
Net Intangible Assets 
 
$
57,343
   
$
206,608
 
 
Amortization expense was $150,475 and $185,624 for the years ended December 31, 2009 and 2008, respectively.
 
Amortization expenses of intangible assets over the next two years are as follows:
 
   
Amortization
 
       
2010:
 
$
49,825
 
2011:
 
$
7,518
 
 
Note 5 - Deposits
 
Deposits comprised of the following at December 31:

   
2009
   
2008
 
Rent deposit – Mountain View
 
$
-
   
$
114,750
 
Rent deposit – Los Angeles
   
-
     
2,189
 
Rent deposit – Vietnam
   
-
     
10,000
 
Attorney retainer deposit
   
50,000
     
50,000
 
Others
   
-
     
8,354
 
Total Deposits 
 
$
50,000
   
$
185,293
 
 
28

 
Note 6 - Accounts Payable and Accrued Expenses
 
Account payable and accrued expenses comprised of the following at December 31:
 
   
2009
   
2008
 
Accounts payable
 
$
869,349
   
$
378,873
 
Accrued litigation
   
72,000
     
72,000
 
Other accrued expenses
   
115,179
     
65,600
 
Total accounts payable and accrued expenses 
 
$
1,056,528
   
$
511,472
 
 
Note 7 - Related Party Transactions
 
During the year ended December 31, 2009, the amount due to eCapital Group, Inc. was $257,683, a company owned by the CEO of the Company.  The amounts are due on demand, interest-free and unsecured as of December 31, 2009. As of December 31, 2008, the Company had an amount due to eCapital Group, Inc. of $309,070.
 
The company received approximately $13,000 for ten (10) years software license from Ecapital, a related party through common director, during 2008 year ended. During December 31, 2009, the company has recorded $3000 as revenue, and the remaining of $9,390 was recorded as deferred revenue on the balance sheet.

Starting from April 2009, the Company has been leasing approximately 4,000 square feet of office space in Palo Alto, CA on a month to month basis for $15,000 per month from eCapital Group, Inc.

Note 8 - Income Taxes
 
No provision was made for Federal income tax since the Company has significant net operating loss carry forward. Through December 31, 2009, the Company incurred net operating losses for tax purposes of approximately $35,817,000. The net operating loss carry forward may be used to reduce taxable income through the year 2029. Net operating loss carry forward for the State of California is generally available to reduce taxable income through the year 2019. The availability of the Company's net operating loss carry forward is subject to limitations if there is a 50% or more change in the ownership of the Company's stock.
 
The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Consolidated Statements of Operations:
 
   
2009
   
2008
 
The United States Tax Rates-Federal
    (34 %)     (34 %)
State Tax
    (6 %)     (6 %)
Vietnam Tax Rate
    (25 %)     (25 %)
Changes in valuation allowance
    65 %     65 %
Tax expense at actual rate
    -       -  
 
Income tax expense consisted of the following:

   
December 31,
 
   
2009
   
2008
 
Current tax expense:
           
Federal
  $ -     $ -  
State
    1600       2,520  
Vietnam
    -       -  
Total current
  $ 1,600     $ 2,520  
                 
Deferred tax
               
Federal
    2,800,000     $ 2,695,000  
State
    494,000       449,000  
Vietnam Deferred Tax
    91,000       65,000  
Total deferred tax asset (liabilities)
  $ 3,385,000     $ 3,209,000  
Valuation allowance
    (3,385,000 )     (3,209,000 )
Net deferred tax asset
    -       -  
Tax expense
  $ 1,600     $ 2,520  
 
The components of the net deferred tax asset are summarized below:
 
   
12/31/2009
   
12/31/2008
 
Deferred tax asset
    14,327,000       10,663,000  
Valuation allowance
    (14,327,000 )     (10,663,000 )
    $ -     $ -  
 
Due to the uncertainty of future taxable income and limitations related to Section 382 of the Internal Revenue Code, a 100% valuation allowance for the net amount of the deferred tax assets has been recorded at December 31, 2009 and 2008.
 
29

 
Note 9 - Commitments and Contingencies
 
As a result of litigation against its prior parent corporation, Pacific Systems Control Technology ("PSCT"), PSCT and its subsidiaries, including the Company, entered into a global settlement and mutual release of all claims with a former PSCT employee. Under the agreement, PSCT and the other former parties to the litigation, including the Company, agreed to pay to the former employee a total sum of $100,000 plus interest at the rate of 10% per year, payable in installments at the rate of $3,000 per month. As of December 31, 2004, the outstanding balance under the settlement agreement was $72,000. The Company accrued the $72,000 on its financial statements as of December 31, 2004 in the event PSCT is unable to fulfill its obligations under the settlement agreement.

On June 8, 2006, the Company entered into a 5-year lease agreement with CarrAmerica Techmart which expires on June 15, 2011. Rent expenses in future periods pursuant to this lease agreement are shown below. In July 2008, we subleased the space for the remainder of the lease term to Egenera, Inc. pursuant to a sublease agreement by which the sublessee pays for all of the future rent expenses.
 
Year
 
Expense
   
Sub-lease
   
Net Expense
 
2010
 
$
93,666
   
$
93,666
   
$
-
 
2011
 
$
43,458
   
$
43,458
   
$
-
 
 
On August 1, 2007, the Company entered into a lease for 530 square meters of office space in Vietnam with Nguyen Van Tan and Vo Thi Ngoc Lan which expires on August 1, 2012. The lease commences on August 1, 2007 and rent expense is fixed at approximately $4,200 per month. The Company prepaid the rent under this lease for 24 months through July 31, 2009.In December 2009, the Company has terminated its lease in Vietnam with Nguyen Van Tan and Vo Thi Ngoc Lan, as a result, the Company was refunded approximately $33,600.

On January 28, 2008, the Company entered into a 5-year lease agreement, with an option to purchase, with 1061 Terra Bella Associates, LLC, which expires on February 28, 2013. Rent expense per this new lease agreement is as following:
 
2010:
 
$
294,100
 
2011:
 
$
304,300
 
2012:
 
$
314,500
 
Thereafter:
 
$
52,700
 
 
Since April 2009, the Company has been leasing approximately 4,000 square feet of office space in Palo Alto, CA on a month to month basis for $15,000 per month from eCapital Group, Inc., an entity controlled by Company CEO Benedict Van.
 
Note 10 - Common Stock / Options
 
Common Stock
 
2009
 
During the year ended December 31, 2009, the Company issued the 140,500 shares of common stock for $45,000 in cash at the price of $9 per share and$271,000 at the price of $2 per share.  Shares to be issued amounted to $64,000 as of December 31, 2009.
 
2008
 
During the year ended December 31, 2008, the Company issued the 298,449 shares of common stock for $31,000 in cash at the price of $9 per share and and repurchased 100,000 shares for $50,000 into treasury stock. Shares to be issued amounted to $45,000 as at December 31, 2008.
 
Stock Options
 
Between January 22 and March 17, 2008, the Company granted a total of 560,000 options with an exercise price of $9.00 per share to 3 employees and 1 consultant. These options expire in 5 years and vest between one to four years.
 
Between May 19 and June 23, 2008, the Company granted a total of 55,000 options with an exercise price of $9.00 per share to 2 employees. These options expire in 5 years and vest between one to four years.
 
On September 2, 2008, the Company granted a total of 200,000 options with an exercise price of $9.00 per share to 3 employees.  These options expire in 5 years and vest over 4 years.
 
On May 18, 2009, the Board of Directors approved the extension of expiration of 3,639,999 options which would expire in May 2009, for another 3 years to May 2012, including 2,699,999 options held by its CEO, director, and largest beneficial stockholder Benedict Van and 30,000 options held by an outside director.

Due to the termination of employees and contractors, the number of options that expired within the year ended December 31, 2009 was 688,000 shares, as opposed to 2,868,000 for the year ended December 31, 2008.
 
30

 
The following summary presents the incentive and non-qualified options under the plan granted, exercised, expired and outstanding at December 31, 2009:

         
Weighted
       
   
       
Average
   
Aggregate
 
         
Exercise
   
Intrinsic
 
   
Under Plan
   
Price
   
Value
 
Balance, December 31, 2008
   
5,383,999
     
0.97
   
$
5,222,479
 
Granted
                       
Lapsed
   
688,000
     
2.49
         
Exercised
   
0
     
-
         
Balance, December 31, 2009
   
4,695,000
     
0.74
     
-
 
 
The following summary presents the weighted average exercise prices, number of options outstanding and exercisable, and the remaining contractual lives of the Company's stock options at December 31, 2009:
 
       
Options
             
       
Outstanding
     
Options Exercisable
 
       
Weighted
             
       
Average
 
Weighted
     
Weighted
 
       
Remaining
 
Average
     
Average
 
   
Number
 
Contractual
 
Exercise
 
Number
 
Exercise
 
   
Outstanding
 
Life
 
Price
 
Exercisable
 
Price
 
                       
Options
   
4,695,999
 
2.18
 
$
0.74
 
4,562,032
 
$
0.64
 
 
Warrants
 
In a settlement with three shareholders in December 2006, the Company granted a three-year warrant to purchase 750,000 shares of the Company's stock at $6 per share. The non-cash expense of the warrant, calculated by a Black-Scholes model, in the amount of $1,238,303 was recorded in the Company's financial statements for the year ended December 31, 2006. In the second quarter of 2009, in exchange for $55,000, the Company and this warrant holder have agreed to increase the number of warrants by 200,000, that is from 750,00 to 950,000, and to extend the term for another three years, so that the warrant will expire on December 31, 2012, instead of December 31, 2009.
 
In exchange for certain consulting services, the Company granted two shareholders a three year warrant to purchase 100,000 shares of the Company's stock at $9 per share.

For the year ended December 31, 2009, the Company also granted seven lenders, 4 of which are shareholders, a three year warrant to purchase 485,500 shares of the Company’s stock at $9 per share.

The company also granted warrants to purchase 25,000 shares of its common stock  at $9 per share to one of the stockholder in connection with common stock issued during December 31, 2009
 
The following summary presents the warrants granted, exercised, expired and outstanding at December 31, 2009: 
 
         
Weighted
       
         
Average
   
Aggregate
 
         
Exercise
   
Intrinsic
 
         
Price
   
Value
 
Balance, December 31, 2008
   
750,000
   
$
6.00
   
$
-
 
Granted
   
810,500
     
8.26
     
-
 
Exercised
   
-
     
-
     
-
 
Balance, December 31, 2009
   
1,560,500
   
$
6.66
   
$
-
 

The following summary presents the weighted average exercise prices, number of warrants outstanding and exercisable, and the remaining contractual lives of the Company's warrants at December 31, 2009:
 
         
Warrants
                   
         
Outstanding
       
  
   
         
Weighted
         
Warrants Exercisable
 
         
Average
   
Weighted
         
Weighted
 
         
Remaining
   
Average
         
Average
 
   
Number
   
Contractual
   
Exercise
   
Number
   
Exercise
 
   
Outstanding
   
Life
   
Price
   
Exercisable
   
Price
 
                               
Warrants
   
1,560,500
     
3.01
   
$
6.66
     
1,472,167
   
$
6.91
 
 
31

 
Note 11 - Convertible Debt

On various dates in June 2009 to September 2009, the Company entered into five convertible debt agreements pursuant to which the company borrowed a total of $120,000.  Under the terms of the agreements, the Company is obligated to pay a fixed interest rate of between 2% and 8% (4.68% weighted average rate).  The loans all mature between July and October of 2009.  Each of the loan agreements gives the lender the right to convert the amount due into the common stock of the Company at price of $2.00 per share at any time prior to the loan being paid.  As of December 31, 2009, the Company is under default under the terms of these loans.

Note 12-Notes payable

For the year ending December 31, 2009, the Company entered into nine short-term notes payable agreements in which the Company borrowed a total of $157,400.  In connection with some notes payable, the Company issued 488,500 warrants with an exercise price of $9.00 per shar which are expired between October 2012 and December 2010. The total fair value allocated to the notes payable was calculated using the black schole model was determined at $74,206. During December 31, 2009, $26,251 warrants discount has been amortized and recorded as interest expense. The remaining unamortized warrant discount of $47,955 was included with the face notes payable balance as of December 31, 2009

For eight of the agreements, the Company is to pay a fixed interest rate between 2% to 7%.  The loans all matures between September 2009 and May 2010.  One of which is interest free, unsecured debt and is due on demand.  As of December 31, 2009, the Company has defaulted on payment of $24,297.
 
Note 13 - Going concern
 
The Company's consolidated financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has an accumulated deficit of $86,457,703 at December 31, 2009. The Company incurred a net loss of $9,251,874 and $$8,156,861 for the years ended December 31, 2009 and 2008, respectively, and as of December 31, 2009, had cash of only $24,393 and working capital of ($1,583,461). In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to raise additional capital, obtain financing and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
Management's plans and the ongoing operations of the Company are expected to require additional working capital in the next twelve months. However, there can be no assurance that sufficient capital could be raised at acceptable terms due to current investment climate.
 
Note 14  Subsequent Event

On January 27, 2010, one of the Company’s note holders filed a complaint in Santa Clara County Superior Court pursuing a $50,000 promissory note bearing 7% interest which was due on October 16, 2009.  The Company did not respond to the complaint and the claimant’s counsel filed a request for entry of default on March 16, 2010.  Thereafter, as the Company did not respond, the claimant counsel filed a request for judgment on April 6, 2010 in the amount of $50,000 principal, $2,816.52 interest, and $1,395 of costs and attorneys fees, or $54,211.52 in the aggregate.
 
32

 
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
 
Not applicable.
 
Item 9A(T). Controls and Procedures
 
(a) Disclosure Controls and Procedures.
 
Disclosure Controls and Procedures. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the Company's reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, including, without limitation, that such information is accumulated and communicated to Company management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosures.
 
Limitations on the Effectiveness of Disclosure Controls. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
 
Evaluation of Disclosure Controls and Procedures. Our principal executive and financial officer has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rules 13a-14(c) as of December 31, 2009, and has determined that they are reasonably effective, taking into account the totality of the circumstances, including the limitations described above.
 
(b) Internal Control over Financial Reporting.
 
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, which is designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
 
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2009. In making this assessment we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework.
 
Based on the assessment using those criteria, management concluded that, as of December 31, 2009, our internal control over financial reporting is effective. Our assessment takes into consideration that we currently have little or no revenue and inventory so that the impact of revenue recognition and inventory write-down policies and controls has not been material to our financial reporting. We currently maintain our books using QuickBooks and we intend to switch as our business grows.
 
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities Exchange Commission that permit us to provide only management's report on internal control over financial reporting in this annual report.
 
33

 
There were no significant changes in the Company's internal control over financial reporting that occurred during the Company's fiscal 2008 fourth quarter ended December 31, 2009, that have materially affected, or are reasonably likely to materially affect, such control.
 
Item 9B. Other Information.
 
None.
 
PART III
 
Item 10. Directors, Executive Officers and Corporate Governance
 
Our directors, executive officers and key employees and their respective ages and positions are set forth below. Biographical information for each of those persons is also presented below. Our executive officers are appointed by our Board of Directors and serve at its discretion.
 
MANAGEMENT
 
Directors and Executive Officers
 
The following table sets forth, as of March 31, 2009, the names and ages of all of our directors and executive officers and all positions and offices held. All directors hold office until such director's successor is elected and qualified. Each officer serves at the pleasure of the board and may be removed at any time by a vote of a majority of the authorized directors.  It is anticipated that each of the remaining directors and executive officers will continue in his position, although there is no understanding or arrangement to that effect. However, any of the above directors or executive officers could resign and any of the officers could be replaced or removed by the Board of Directors at any time. There are no family relationships among any directors or executive officers of the Company.
 
Name
Age
Position with the Company
Benedict Van
49
Chief Executive Officer, Chief Financial Officer, and Chairman of the Board of Directors
James McCargo
58
Director
David A. Brewer
57
Director
 
The board of directors has appointed committees of the board comprising a compensation committee and an audit committee. The members of both committees are the Company's independent directors, Messrs. Brewer and McCargo.
 
Business Experience
 
The following summarizes the occupation and business experience during the past five years for our officers and directors.
 
Benedict Van. Since 2002, Mr. Van has served as Chairman of the Board of Directors, CEO and CFO of hereUare, Inc. Mr. Van has over 22 years of success and experience as a tech visionary, with a specialty in building and restructuring high tech related companies. In 1996, he founded eCapital Group, an investment firm specialized in nurturing high tech, biotech, and energy ventures through their development stages. Portfolio investments for eCapital Group have included hereUare Communications, eCity, Inc., 3E Systems, Inc., hereUare, Inc., 3Net Communications Corporation, PeopleWeb Communications, Inc., BenSys Corporation, and Doles Networks Corporation. Prior to eCapital, he founded in 1985 Crownland Group of Companies and served as CEO of the international conglomerate that engaged in venture capital investments in telecom, electronics, and medical devises. Crownland invested successfully into Biocompatible, Inc., and Cardio Genesis (formerly Eclipse Surgical Technology, Inc.). Mr. Van received his Doctorate of Business Administration from University of the Pacific.
 
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James McCargo. Mr. McCargo has served as a member of our Board of Directors since November 2004. Mr. McCargo served as President and CEO of Omega Designs, and was the principal founder of InterArt Designs. Before founding InterArt, Mr. McCargo spent over 20 years involved in the computer and high-tech industry, including positions with Fairchild Semiconductors, Hunt Chemical, and 3M Corporation. Mr. McCargo served as a Trustee for the University of the Pacific, and was the Vice Chairman of the Board of Regents for the University of the Pacific. Mr. McCargo holds a Bachelor's of Arts degree in pre-law from University of the Pacific.
 
David A. Brewer. Mr. Brewer has served as a member of our Board of Directors since February 2006. Mr. Brewer is the Managing Partner of Aragon Ventures, a Menlo Park, California venture capital firm specializing in early stage, high technology companies. He serves on the boards of directors of Notify Technology Corp., Cuica Technologies, Inc., FirstStone Incubators LLC, and PriaVision, Inc.  He currently serves as an officer, direc