Cautionary Statement regarding Forward-Looking Statements
This Annual Report on Form 10-K of Data Call Technologies, Inc.
(hereinafter the "Company", the "Registrant", we,
us, or "Data Call") includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Registrant has based these
forward-looking statements on its current expectations and projections about future
events. These forward-looking statements are subject to known and unknown risks,
uncertainties and assumptions about the Registrant that may cause its actual results,
levels of activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should,"
"could," "would," "expect," "plan,"
"anticipate," "believe," "estimate," "continue,"
or the negative of such terms or other similar expressions. Factors that might cause or
contribute to such a discrepancy include, but are not limited to, those described in this
Annual Report on Form 10-K and in the Registrant's other Securities and Exchange
Commission filings. Should one or more of these risks or uncertainties materialize, or
should any of our assumptions prove incorrect, actual results may vary in material
respects from those projected in the forward-looking statements. For a more detailed
discussion of the foregoing risks and uncertainties, see "Risk Factors".
ITEM 1. DESCRIPTION OF
Data Call Technologies, Inc. was incorporated under the laws of the
State of Nevada as Data Call Wireless on April 4, 2002 and is sometimes referred to herein
as "we", "us", "our", "Data Call" or the
"Company". On March 1, 2006, we changed our name to Data Call Technologies, Inc.
Our mission is to integrate cutting-edge information/content delivery
solutions currently deployed by the media and make this content rapidly available to and
within the control of our retail and commercial clients. The Company's software
and services put its clients in control of real-time, news, and other content, including
emergency alerts, displayed within one building as well as to thousands of local, regional
and national clients, through Digital Signage and Kiosk networks.
Our business plan is to focus on growing our client base by continued
offering of real-time information/content, seeking to continually improve the delivery,
security and variety of information/content to the Digital Signage and Kiosk community,
while developing a similar offering for smart phones through the app community.
What Is Digital Signage?
Plasma and LCD displays are rapidly replacing printed marketing
materials such as signs and placards, as well as the old fashioned whiteboard, for product
and corporate branding, marketing and assisted selling. The appeal of instantly updating
product videos and promotional messages on one or a thousand remotely located displays is
driving the adoption of this exciting marketing tool. Digital signage presentations are
typically comprised of repeating loops of information used to brand, market or sell the
owners products and services. But once seen, this information becomes repetitive and
the viewer tunes it out, resulting in low retention of the clients message. As
digital signage comes of age, the dynamic characteristic of the presentation
has taken center stage Dynamic being fresh, relevant, updated content.
Digital Signage Comes of Age
Digital signage is coming of age and DataCall Technologies has been
there from the start. Five years ago, a company wanting to take the digital signage plunge
was faced with a myriad of hardware and software companies, all offering their own
vision of what digital signage should be. They were given the tools of digital
signage, but were left pretty much left to their own devices as to what to build. Those
companies that took the early plunge where then faced with the fact that no one had come
before them to show the rights and wrongs, the dos and donts of content development.
But, even at this early stage of the game, DataCall recognized that these pioneers of
digital signage lacked a key component that would become an integral part of any
successful implementation-active content.
In the years since those early days of digital signage, the market has
taken care of weeding out the weaker providers of hardware and software. Companies now
have a clearer understanding of what digital signage is, what is needed for a successful
implementation and the best use of content space given their more-defined and attainable
goals. In the past three years, as the cost of platforms, supporting infrastructure and
displays has fallen dramatically; digital signage has become more accessible to a wider
range of companies while the growing Kiosk market has cross-pollenated with Digital
Signage. And those combined companies are realizing that the initial, one-time cost of
getting into the game is far outweighed by the cost of staying in the game, in the form of
ongoing content development. As the cost of deployment decreased, companies began focusing
on attention-grabbing content. Whether the goal of the presentation was product branding,
marketing or assisted selling, content became king. Active content is on everyones
needs list because it is proven to draw customers to the core message and keep
customers engaged throughout the presentation, And DataCall stands ready to serve this
The Need for Speed--Active Content
Active content is that part of a digital signage presentation that is
constantly updated with timely and relevant information. For instance, a typical
presentation may contain ten 15-second loops that provide the primary message of the
presentation, but the active dynamic content, such as that provided by DataCall, is
updated with new information throughout the day. Those seeking to add active and dynamic
content to their digital signage presentations are advised to employ DataCalls
integrated content rather than shoehorning broadcast content into their digital signage
However, by integrating DataCalls active content alongside their
presentations, companies can provide the entertainment content so necessary in dwell-time
retention without disrupting the core message of the presentation. Information categories
provided by DataCall include news, weather, sports, financial data and the latest traffic
alerts, amongst others. With such a broad range of offerings, companies have access to the
active and dynamic content they need, regardless of the market they are addressing.
The opportunities for DataCall in the digital signage industry are
countless. Many companies nowadays would outsource all or part of their content creation.
DataCall stands ready as their outsourced provider of active content data. Whether
its general entertainment information (news, sports, stocks, etc.) or
location-targeted active content (weather, traffic, etc), research is validating the
long-held assumption that it is active content that draws viewers to digital signage and
keeps them engaged throughout the presentation.
Over the past six years, DataCall has worked with the industry leaders
in digital signage to develop the data formats and communication methods to allow
DataCalls active content to be easily integrated into their hardware and software
Partners, Not Customers
DataCalls approach to customer relations is to not accumulate
customers, but to build partnerships. Each DataCall partner is as unique as the digital
signage market they service, and each has their own requirements for active content. In
developing active content for digital signage, DataCall identified three factors that had
to be addressed - reliability, objectivity and ease of implementation. To address the
reliability requirement, DataCall opted to license information from the leaders that
create news, weather, sports and financial data rather than scrapping
information from the Internet (which can be illegal) or pulling RSS feeds (which may come
and go at the providers whim). Licensing data from these providers also satisfied
the second requirement, objectivity. The Internet is as littered of slanted opinions and
hidden agendas as there are users of the Internet, So arbitrarily allowing these
news sources to go unchecked into DataCalls active content was
completely unacceptable. Finally, the third requirement, ease of implementation, was
address by both DataCalls licensing of data and the method by which it was
disseminated to their partners.
DataCall understood that digital signage and Kiosk implementers had
larger issues to tackle than the multitude of licenses that would need to be managed and
the varying formats of the source data to be dealt with if active content was obtained
from multiple vendors. DataCall offers a one stop shop for all of their active
content requirements covered by a single license. Ease of implementation also would
require that the multiple formats of all DataCalls data providers be distilled into
a single format. Because active content may be displayed in a multitude of ways (banners,
tickers, scrolls or artistically integrated with the overall presentation), DataCall
produced a set of common data layouts in the industry-standard XML (extensible markup
language) format. Many partners find these formats to be easily integrated into their
products, but in several cases, DataCall has produced customized data formats to the exact
requirements of their partners. This customization ensures the highest level of reliable
and ease of integration possible.
Market demand, opportunity and technology converge at a single point in
time, and DataCall is there. Digital signage platforms are evolving to meet mass market
requirements, costs for hardware and software are falling to the point of becoming
commodities and the markets for digital signage are clarifying through historical trial
We currently offer our Direct Lynk Messenger service to customers
through the Internet. The Direct Lynk Messenger Service is a Digital Signage product and
real-time information service which provides a wide range of up-to-date information for
display. The Direct Lynk Messenger service is able to work concurrently with customers'
existing digital signage systems.
Digital Signage is still a relatively new and exciting method
advertisers can use to promote, inform, educate, and entertain clients and customers about
their businesses and products. Through Digital Signage, companies and businesses can use a
single television or a series of networked flat LCD or Plasma screens to market their
services and products on site to their clients and customers in real time. Additionally,
because Digital Signage advertising takes place in real time, businesses can change their
marketing efforts at a moments notice. We believe this real time advertising better allows
companies to tailor their advertising to individual customers, and thereby advertise and
sell inventory which appeals to those individual customers, thereby increasing sales and
revenues. Benefits to Digital Signage compared to regular print or video advertising
include, being able to immediately change a digitally displayed image or advertisement
depending on the businesss current clients and customers, and not getting locked
into print advertising days or months in advance, which may become stale or obsolete prior
to the advertising date of such print advertising.
Data Call specializes in allowing its clients to create their own
Digital Signage dynamic content feeds delivered,via the Internet, to digital display
devices (plasma, LCD, Jumbotron, Kiosks etc.) at their establishments. The only
requirements our clients must have are 1) a supported third party digital signage or Kiosk
solution, or similar device, which receives the data from our servers via the Internet,
and displays the content on digital displays and 2) an Internet connection. The Direct
Lynk System is supported by various third party systems, varying in cost from $350 to
$5,000, such as those marketed by 3M Digital Signage, BroadSign, ChyTV, Hughes, Key West
Technologies, Coolsign, Scala, and Cisco amongst others.
The Direct Lynk System allows customers to select from the
pre-determined data and information services described below,. The client may choose which
individual locations and which displays they would like to receive our feeds based on how
their digital signage network is configured.
The current types of data and information, for which a client is able
to subscribe to through the Direct Lynk System include:
||Headline News top world and
national news headlines;
||Business News top business
||Financial Highlights world-based
||Entertainment News top
||Health/Science News top
||Quirky News Bits latest off-beat
||Sports Headlines top sports
||Latest Sports Lines - latest sports
odds for NFL, NBA, NHL, NCAA Football and NCAA Basketball;
||National Football League latest
game schedule, and in-game updates;
||National Basketball Association -
latest game schedule, and in-game updates;
||Major League Baseball - latest game
schedule, and in-game updates;
||National Hockey League - latest
game schedule, and in-game updates;
||NCAA Football - latest game
schedule, and in-game updates;
||NCAA Men's Basketball - latest game
schedule, and in-game updates;
||Professional Golf Association top
10 leaders continuously updated throughout the four-day tournament;
||NASCAR top 10 race positions
updated every 20 laps throughout the race;
||Major league soccer;
||Animated Doppler Radar and Forest
||Listings of the day's horoscopes;
||Listings of the birthdays of famous
persons born on each day;
||Listings of historical events which
occurred on each day in history; and
||Localized Traffic and Weather
In addition to the above information categories and the
client-generated messages, we may, at our discretion, include a Public Service
Announcement, third-party advertisement (for additional revenue streams) and/or a Data
Call tag line to our streaming text advertising in the future.
On September 6, 2006, we entered into a two-year renewable services
agreement with 3M Digital Signature, pursuant to which we agreed to supply 3M the use of
our Direct Lynk Messenger technology. Pursuant to the agreement, all materials made
available to us by 3M in connection with the services we will provide will remain the
property of 3M. This contract has since been renewed for the years 2010 and 2011.
In September 2007, we entered into a three-year auto renew agreement
with a platform developer, Leightronix, a company which manufactures head end hardware and
software for use on PEG channels, which allows us to transfer our Direct Lynk System feeds
to head ends equipped with the Leightronix product through Leightronix servers.
In March 2008 we entered into an annual agreement with various annual
purchase orders through out 2009 and 2010 to provide our Direct Lynk System feeds to York
Telecoms network of digital signage through out digital signage deployements within
the Social Security Administrtion offices across the U.S.
Dependence On One Or A Few Customers
At December 31, 2010 we had over 1,000 customers who pay to subscribe
to our Direct Lynk System, We also have several companies which are testing the Direct
Lynk System, and expect that several of them may become future customers. We are dependent
upon three major customers, which include: Leightronix, Inc., Zero in Media, LLC and York
Telecom. During 2010, our three largest customers accounted for over 50% of our revenues.
At December 31, 2010, we had 5 full time employees. Depending upon our
level of our growth, we expect that we will be required to hire additional personnel in
the areas of sales and marketing, software design, research and development, etc.
Estimate Of The Amount Spent On Research And Development Activities
Since our inception in April 2002, the majority of our expenditures
have been on research and development of our Direct Lynk Messenger System, including
software and hardware development and testing. The amount spent on this research and
development since inception through December 31, 2010 is approximately $2,000,000.
ITEM 1A. RISK
FACTORS RELATED TO OUR BUSINESS.
Investing in our common stock will provide an investor with an equity
ownership interest. Shareholders will be subject to risks inherent in our business. The
performance of our shares will reflect the performance of our business relative to, among
other things, general economic and industry conditions, market conditions and competition.
The value of the investment may increase or decrease and could result in a loss. An
investor should carefully consider the following factors as well as other information
contained in this annual report on Form 10-K.
This annual report on Form 10-K also contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in the forward-looking statements as a result of many
factors, including the risk factors described below and the other factors described
elsewhere in this Form 10-K.
We require additional financing to continue our business plan
Additional financing is expected to be required in 2011, but there can
be no assurance that such financing will be available at terms and conditions acceptable
to the Company. Further, there can be no assurance that unforeseen events, such
as the length of time necessary to generate increasing market acceptance of our Direct
Lynk System, or any unexpected material increased development costs, or the general
economy in the markets where we offer our Direct Lynk System, may result in an inability
to secure necessary additional financing at satisfactory terms and conditions, if at all.
Since inception, we have been dependent upon financing raised through the sale of
restricted shares of our common stock to support our operations. We expect that we will be
required to raise additional funding through the issuance of restricted shares of our
common stock, but there can be no assurance that we will be able to raise sufficient
capital in a timely manner to continue our business plan at anticipated levels of growth.
We do not have any commitments or identified sources of additional
capital from third parties or from our officers, directors or principal shareholders.
There is no assurance that additional financing will be available on favorable terms in
the future, if at all or that our Direct Lynk System will generate sufficient revenues in
order for us to continue to grow our operations. If we are unable to raise additional
financing in a timely manner, it would have a material adverse effect upon our ability to
fully implement our business plan and/or to continue with our current level of operations.
We face minimal competition
We face minimal competition in our efforts to market our Direct Lynk
System. Many of our competitors are as well-established as Data Call and may possess far
greater financial, technical, human and other resources than does the Company. We must
compete against many companies in fragmented, highly competitive markets. Our Direct Lynk
System competes principally on the basis of the following factors: product quality and
ability to custom design content to a customers specifications; and price.
Competitive pressures, and other factors could cause us additional difficulties in
acquiring a sufficient number of customers and generating a level of subscription sales to
grow and become profitable, of which there can be no assurance.
Lack of patent and proprietary information protection
We have no patents, patent applications, trademarks, trademark
applications or licenses covering our Direct Lynk System. We may choose to file patent
applications in the future, if our management believes it is in our best interests. In the
event that our Direct Lynk System infringes the patent or proprietary rights of others, we
may be required to modify our process or obtain a license. There can be no assurance that
we would be able to do so in a timely manner, upon acceptable terms and conditions or at
all. The failure to do so would have a material adverse effect on our business. In
addition, there can be no assurance that we will have the financial or other resources
necessary to prosecute or defend a patent infringement or proprietary rights action.
Moreover, if any of our products infringe patents or proprietary rights of others, we
could, under certain circumstances, become liable for damages, which could have a material
adverse effect on our operations and financial condition.
We rely on key management personnel
We are highly dependent upon the services and efforts of key management
personnel including: Timothy Vance, our Chief Executive Officer, Chief Operating Officer
and Director; and James Tevis our Chief Technology Officer. Our ability to operate and
implement our business plan is heavily dependent upon the continued service of Messrs.
Vance and Tevis, as well as our ability to attract, retain and motivate other qualified
personnel. Messrs. Vance and Tevis entered into three-year employment contracts on October
1, 2005, which expired October 1, 2008. We are currently in the process of negotiating new
employment agreements with Vance and Tevis. The loss of Messrs. Vance or Tevis, or our
inability to hire and retain qualified sales and marketing, software engineers and
management personnel would have a material adverse effect on our business and operations
and would likely result in a decrease in the value of our securities.
We are highly dependent upon our ability to successfully market Direct
Lynk System to subscribers
We are dependent on the abilities of our sales and marketing
department, which currently consists of 4 persons, to continue to generate subscriptions
for our Direct Lynk System and to broaden our customer base. While the number of paying
subscribers for our Direct Lynk System increased at December 31, 2010 compared to December
31, 2009, there can be no assurance that our sales and marketing department will be able
to continue to achieve market acceptance for our Direct Lynk System and increase our
customer base to a level that will permit profitable operations. If our sales and
marketing department is unable to continue to generate new customers and attract trial
customers to test our Direct Lynk System and experience what we believe are our advantages
and learn of their potential uses, we may not be able to generate sufficient revenues to
continue with planned research and development on new products and improve our current
Potential future government regulation of the Internet may adversely
affect our business
We are dependent upon the Internet in connection with our business
operations and the delivery of content for our Direct Lynk System. The United States
Federal Communications Commission (the "FCC") does not currently regulate
companies that provide services over the Internet, as it does common carriers or
tele-communications service providers. Notwithstanding the current state of the FCC's
rules and regulations, the potential jurisdiction of the FCC over the Internet is broad
and if the FCC should determine in the future to regulate the Internet, our operations, as
well as those of other Internet service providers, could be adversely. Compliance with
future government regulation of the Internet could result in increased costs and because
of our limited resources, it would have a material adverse effect on our business
operations and operating results and financial condition.
We are dependent on the security of the Internet to serve our
customers; any security breaches or other Internet difficulties could adversely affect our
Because we offer the majority of our services through our Internet
website (www.datacalltech.com), the secure transmission of confidential information over
public networks is a critical element of our operations. A party who is able to circumvent
security measures ( hacker) could misappropriate proprietary information or cause
interruptions in our operations. If we are unable to prevent unauthorized access to our
users' information and transactions, our customer relationships could be irreparably
harmed. Although we currently have in place security measures that we feel are adequate to
protect our business and those of our customers, these measures may not prevent future
security breaches. Additionally, heavy stress placed on our systems could cause our
systems to fail or cause our systems to operate at speeds unacceptable to our users, in
which event we could lose customers and experience a material impact on our financial
We must rely on other companies to maintain the Internet infrastructure
if we hope to be successful
Our future success depends, in large part, on other companies
maintaining the Internet system infrastructure, including maintaining a reliable network
backbone that provides adequate speed, data capacity and security. If the Internet
continues to experience anticipated significant growth in the number of users, frequency
of use and amount of data transmitted, as well as the number of malicious viruses and
worms introduced onto the Internet by hackers and others, the infrastructure of the
Internet may be unable to support the demands placed on it at any particular time or from
time-to-time. Because we rely heavily on the Internet and our limited capital, any
disruption of the Internet could adversely affect us to a greater degree than our
competitors and other users of the Internet.
Our website and systems are hosted by a third party and we are
vulnerable to disruptions or other events that are beyond our control
Our website and systems are hosted by a third party. We are dependent
on our systems ability to stream information over the Internet to customers. If our
systems fail or become unavailable, it would harm our reputation, result in a loss of
current and potential future customers and could cause us to breach existing agreements.
Our success depends, in part, on the performance, reliability and availability of our
services, which in turn are dependent on our third-party provider. Our systems and
operations could be damaged or interrupted by fire, flood, power loss, telecommunications
failure, Internet breakdown, break-in, earthquake and similar events. We would face
significant damage as a result of these events. For these reasons, we may be unable to
develop or successfully manage the infrastructure necessary to meet current or future
demands for reliability and scalability of our systems, which would have a negative impact
on our business and financial conditions.
Our software could contain bugs or be compromised by viruses which
could cause interruption of our services and negatively affect our ability to continue to
develop our reputation
Our Direct Lynk System uses sophisticated software which could be found
to contain bugs or could be compromised by viruses. While we have not experienced any
material bugs or viruses to date, if such event could occur, such event(s) could be costly
for us to identify and repair, and until such bugs or viruses, if any, are fixed, they
could cause interruptions in our service, which could cause our reputation to decline
and/or cause us to lose clients.
Our auditors have expressed a concern about our ability to continue as
a going concern
Our auditors, in our audited financial statements expressed a concern
about our ability to continue as a going concern. We had negative working capital of
$204,001 and an accumulated deficit of $8,893,404 as of December 31, 2010, and have
generated limited revenues to date. These factors raise substantial doubt as to whether we
will be able to continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of liabilities that might be
necessary should we be unable to continue as a going concern.
RISK FACTORS RELATED TO MARKET OF OUR COMMON STOCK
Market prices of our equity securities can fluctuate significantly
The market prices of our common stock may change significantly in
response to various factors and events beyond our control, including the following:
- the other risk factors described in this Form 10-K;
- changing demand for our products and services and ability to develop and generate
- any delay in our ability to generate operating revenue or net income;
- general conditions in markets we operate in;
- general conditions in the securities markets;
- issuance of a significant number of shares, whether for compensation under employee
stock options, conversion of debt, potential acquisitions, additional financing or
There is only a limited trading market for our common stock
Our Common Stock is subject to quotation on the NASD Bulletin Board.
There has only been limited trading activity in our common stock. There can be no
assurance that a more active trading market will commence in our securities as a result of
the increasing operations of Data Call. Further, in the event that an active trading
market commences, there can be no assurance as to the level of any market price of our
shares of common stock, whether any trading market will provide liquidity to investors, or
whether any trading market will be sustained.
State blue sky registration; potential limitations on resale of our
Our common stock, the class of the Companys securities that is
registered under the Exchange Act, has not been registered for resale under the Securities
Act of 1933 or the "blue sky" laws of any state. The holders of such shares and
persons who desire to purchase them in any trading market that might develop in the
future, should be aware that there may be significant state blue-sky law restrictions upon
the ability of investors to resell our securities. Accordingly, investors should consider
the secondary market for the Company's securities to be a limited one.
It is the intention of the management to seek coverage and
publication of information regarding the Company in an accepted publication which permits
a manual exemption. This manual exemption permits a security to be distributed in a
particular state without being registered if the Company issuing the security has a
listing for that security in a securities manual recognized by the state. However, it is
not enough for the security to be listed in a recognized manual. The listing entry must
contain (1) the names of issuers, officers, and directors, (2) an issuer's balance sheet,
and (3) a profit and loss statement for either the fiscal year preceding the balance sheet
or for the most recent fiscal year of operations. Furthermore, the manual exemption is a
nonissuer exemption restricted to secondary trading transactions, making it unavailable
for issuers selling newly issued securities.
Most of the accepted manuals are those published in Standard and
Poor's, Moody's Investor Service, Fitch's Investment Service, and Best's Insurance
Reports, and many states expressly recognize these manuals. A smaller number of states
declare that they "recognize securities manuals" but do not specify the
recognized manuals. The following states do not have any provisions and therefore do not
expressly recognize the manual exemption: Alabama, Georgia, Illinois, Kentucky, Louisiana,
Montana, South Dakota, Tennessee, Vermont and Wisconsin.
Dividends unlikely on our common stock
We do not expect to pay dividends for the foreseeable future. The
payment of dividends, if any, will be contingent upon our future revenues and earnings,
capital requirements and general financial condition. The payment of any dividends will be
within the discretion of our board of directors. It is our intention to retain all
earnings for use in our business operations and accordingly, we do not anticipate that the
Company will declare any dividends in the foreseeable future.
Compliance with Penny Stock Rules
Our securities will initially be considered a "penny stock"
as defined in the Exchange Act and the rules thereunder, since the price of our shares of
common stock is less than $5. Unless our common stock is otherwise excluded from the
definition of "penny stock," the penny stock rules apply with respect to that
particular security. The penny stock rules require a broker-dealer prior to a transaction
in penny stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document prepared by the SEC that provides information about penny stocks and
the nature and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its sales person in the transaction, and monthly
account statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules require that the broker-dealer, not otherwise
exempt from such rules, must make a special written determination that the penny stock is
suitable for the purchaser and receive the purchaser's written agreement to the
transaction. These disclosure rules have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny stock
rules. So long as the common stock is subject to the penny stock rules, it may become more
difficult to sell such securities. Such requirements, if applicable, could additionally
limit the level of trading activity for our common stock and could make it more difficult
for investors to sell our common stock.
Shares eligible for future sale
As of December 31, 2010, the Registrant had 99,382,100 shares of common
stock issued and outstanding of which 34,755,350 shares are "restricted" as that
term is defined under the Securities Act, and in the future may be sold in compliance with
Rule 144 under the Securities Act. Rule 144 generally provides that a person holding
restricted securities for a period of six months may sell every three months in brokerage
transactions and/or market-maker transactions an amount equal to the greater of one (1%)
percent of (a) the Company's issued and outstanding common stock or (b) the average weekly
trading volume of the common stock during the four calendar weeks prior to such sale. Rule
144 also permits, under certain circumstances, the sale of shares without any quantity
limitation by a person who has not been an affiliate of the Company during the three
months preceding the sale and who has satisfied a two-year holding period. However, all of
the current shareholders of the Company owning 5% or more of the issued and outstanding
common stock are subject to Rule 144 limitations on selling.
The Nevada Revised Statutes and our articles of incorporation authorize
to issue additional shares of common stock and shares of preferred stock, which preferred
stock having such rights, preferences and privileges as our board of directors shall
Pursuant to our Articles of Incorporation, as amended and restated, we
have authorized capital stock of 200,000,000 shares of common stock and 10,000,000 shares
of preferred stock. As of the December 31, 2010, we have 99,382,100 shares of common stock
issued and outstanding and no shares of preferred stock issued and outstanding. Our Board
of Directors has the ability, without shareholder approval, to issue a significant number
of additional shares of common stock without shareholder approval, which if issued would
cause substantial dilution to our then common shareholders. Additionally, shares of
preferred stock may be issued by our Board of Directors at their sole discretion and
without shareholder approval, in such classes and series, having such rights, including
voting rights and super-majority voting rights, and such preferences and relative,
participating, optional or other special rights, powers and privileges as determined by
our Board of Directors from time-to-time. If shares of preferred stock are issued by our
Board of Directors having super-majority voting rights, or having conversion rights to
convert their preferred stock into a number of shares of common stock at a ratio of
greater that one-for-one, holders of our common stock would be subject to dilution that
may be significant.
Our officers and directors do not own a majority of our issued and
outstanding shares of common stock and as a result we could experience a change in control
Our current officers and directors can vote an amount of common stock
equal to approximately twenty-five percent of our outstanding common stock. As a result,
our officers and directors do not have majority voting control over us and our
shareholders who are not officers and directors may be able to obtain a sufficient number
of votes to choose who serves as our members of our Board of Directors. As a result, the
current composition of our Board of Directors may change in the future, which could in
turn have an effect on those individuals who currently serve in management positions with
us. In such event, our new management could affect a change in our business focus and/or
curtail or abandon our business operations, which in turn could cause the value of our
securities to decline.
UNRESOLVED STAFF COMMENTS.
ITEM 2. DESCRIPTION OF
Effective October 1, 2010, we entered into a one-year lease for our
principal offices consisting of approximately 2,240 square feet located at 600 Kenrick,
Suite B-12, Houston, Texas 77060, with The Khoshbin L.P., an unaffiliated
third-party. The lease provides for a monthly rental of $1,164.
ITEM 3. LEGAL PROCEEDINGS.
ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS.