SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
NORPAC
TECHNOLOGIES, INC.
(Exact
name of registrant as specified in Charter)
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Nevada
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95-4705831
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(State
or other jurisdiction of
incorporation
or organization)
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(Commission
File No.)
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(IRS
Employee Identification No.)
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5047
Robert J Mathews Parkway, Suite 400
(Address
of Principal Executive Offices)
(916)
941-1403
(Issuer
Telephone number)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Forward-Looking
Statements
This
Form 8-K and other reports filed by the Registrant from time to time with the
Securities and Exchange Commission (collectively, the “Filings”) contain or may
contain forward-looking statements and information that are based upon beliefs
of, and information currently available to the Registrant’s management as well
as estimates and assumptions made by the Registrant’s management. When used in
the filings, the words “anticipate”, “believe”, “estimate”, “expect”, “future”,
“intend”, “plan” or the negative of these terms and similar expressions as they
relate to the Registrant or the Registrant’s management identify forward-looking
statements. Such statements reflect the current view of the Registrant with
respect to future events and are subject to risks, uncertainties, assumptions
and other factors (including the risks contained in the section of this report
entitled “Risk Factors”) relating to the Registrant’s industry, the Registrant’s
operations and results of operations and any businesses that may be acquired by
the Registrant. Should one or more of these risks or uncertainties materialize,
or should the underlying assumptions prove incorrect, actual results may differ
significantly from those anticipated, believed, estimated, expected, intended or
planned.
Although
the Registrant believes that the expectations reflected in the forward-looking
statements are reasonable, the Registrant cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, the
Registrant does not intend to update any of the forward-looking statements to
conform these statements to actual results. The following discussion should be
read in conjunction with the Registrant’s pro forma financial statements and the
related notes filed with this Form 8-K.
In
this report, when we use phrases such as "we," "our," "Company," "us," the
"Registrant," we are referring to Norpac Technologies, Inc. and CelLynx, Inc. as
a combined entity. Also, references to the “combined entity” refer to
Norpac and CelLynx as a combined entity.
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Item 1.01
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Entry
into a Material Definitive
Agreement
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On July
24, 2008, Norpac Technologies, Inc., a Nevada corporation (“Norpac” or the
“Company”), closed a reverse take-over transaction by which it acquired a
cellular amplifier business pursuant to a Share Exchange Agreement, as
amended (the “Exchange Agreement”), by and among the Company,
CelLynx, Inc., a California corporation (“CelLynx”), and
twenty-three (23) CelLynx shareholders who, immediately prior to the closing of
the transactions contemplated by the Exchange Agreement, collectively held 100%
of CelLynx’s issued and outstanding shares of capital stock (the “CelLynx
Owners”).
Prior to
the closing, on July 23, 2008, the Company entered into a Regulation S
Subscription Agreement (the “Subscription Agreement”) pursuant to which the
Company agreed to issue and sell 10,500,000 shares of its common stock and
warrants to purchase 10,500,000 shares of common stock at an exercise price of
$0.20 per share to non-U.S. persons (the “Investors”) for an aggregate purchase
price of $1,575,000 (the “Financing”).
Prior to
the closing, on July 22, 2008, CelLynx entered into a Master Global Marketing
and Distribution Agreement (the “Distribution Agreement”) with Dollardex Group
Corp., a company organized under the laws of Panama (“Dollardex”), whereby
Dollardex shall act as CelLynx’s exclusive distributor of CelLynx’s products and
related accessories in the following regions: Canada, South America, Europe,
Middle East, China, India, Australia, Africa and South East Asia.
Immediately
following the closing, on July 24, 2008, two of the new officers and directors,
one of the new employees and one of the new non-officer directors of Norpac
entered into a Lock-Up Agreement (the “Lock-Up Agreement”) whereby they agreed
not to transfer their Norpac shares for a period of 24 months following the
closing of the reverse take-over transaction.
As a
result of the closing of the reverse take-over transaction, the CelLynx Owners
became our controlling shareholders, CelLynx became our wholly-owned subsidiary,
and CelLynx’s business became our business.
The
following is a brief description of the terms and conditions of the Exchange
Agreement, Subscription Agreement and Distribution Agreement, and the
transactions contemplated thereunder that are material to the
Company.
Reverse
Take-over
Under the
Exchange Agreement, the Company was to acquire all of the equity interests of
CelLynx in exchange for issuing restricted common stock to the CelLynx Owners in
an aggregate amount equal to approximately 70% of the total issued and
outstanding shares of common stock immediately after the closing of the reverse
take-over, taking into account certain derivative shares held by certain CelLynx
Owners and a CelLynx noteholder, but exclusive of the shares issued in the
Financing and to certain CelLynx investors. As a result, the
CelLynx Owners were to receive 77,970,956 shares of the Company’s common stock
in exchange for 100% of CelLynx’s common stock. However, the
Company had only 41,402,110 authorized, unissued and unreserved shares of common
stock available, after taking into account the shares of common stock issued and
reserved in the Financing described below. Pursuant to the Exchange
Agreement, in the event that there were an insufficient number of authorized but
unissued and unreserved common stock to complete the transaction, the Company
was to issue all of the available authorized but unissued and unreserved common
stock to the CelLynx Owners in a pro rata manner and then establish a class of
Series A Convertible Preferred Stock (“Series A Preferred Stock”) and issue that
number of shares of Series A Preferred Stock such that the common stock
underlying the Series A Preferred Stock plus the common stock actually issued to
the CelLynx Owners would equal the total number of shares of common stock due to
the CelLynx Owners under the Exchange Agreement. As a result, the
Company issued to the CelLynx Owners an aggregate of 32,454,922 shares of common
stock and 45,516,034 shares of Series A Preferred Stock. The Series A
Preferred Stock automatically converts into common stock on a one-to-one ratio
upon the authorized capital stock of the Company being increased to include not
less than 150,000,000 shares of common stock.
The
Exchange Agreement also provided that all options, warrants and convertible
notes to purchase or acquire shares of CelLynx be converted into options,
warrants or convertible notes to purchase or acquire shares of the Company in
the same proportion at which the CelLynx shares were converted into Norpac
shares (the “Conversion Ratio”) under the Exchange Agreement. The
exercise or conversion price for such options, warrants or convertible notes
shall be the exercise price or conversion price of the CelLynx options, warrants
or convertible notes divided by the Conversion Ratio. As a result,
15,912,601 CelLynx options with an exercise price of $0.09 per share were
converted into 20,016,926 Norpac options at an exercise price of approximately
$0.0715 per share; 18,330,574 CelLynx options with an exercise price of $0.099
per share were converted into 23,058,565 Norpac options with an exercise price
of approximately $0.0787 per share, and, with the exception of the Palomar Note
described below, $40,000 of CelLynx convertible notes with a conversion price of
$0.01 per share were converted into $40,000 of Norpac convertible notes with a
conversion price of approximately $0.0079 per share, and $20,000 of CelLynx
convertible notes with a conversion price of $0.10 per share were converted into
$20,000 of Norpac convertible notes with a conversion price of approximately
$0.0795 per share. There were no CelLynx warrants issued and
outstanding at the time of the closing of the Exchange Agreement.
In
connection with the reverse take-over transaction, Palomar Ventures III, L.P.
(“Palomar”), holder of a certain amended and restated convertible promissory
note dated November 10, 2007 (the “Palomar Note”) executed by CelLynx in the
principal amount of $262,356.16, is entitled to convert the Palomar Note into
that number of shares of common stock of CelLynx such that immediately following
the closing of the reverse take-over transaction, the Palomar Note would be
convertible into 4.8% of the issued and outstanding common stock of Norpac,
exclusive of unvested options. As a result, the Palomar Note is
convertible into 6,340,029 shares of Norpac common stock.
As a
condition to closing the Exchange Agreement, John P. Thornton resigned as the
Company’s President, Chief Executive Officer, Chief Financial Officer, Secretary
and Treasurer, and the following officers were appointed:
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Daniel
R. Ash, President, Chief Executive Officer, Chief Operating Officer and
Secretary;
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Kevin
Pickard, Chief Financial Officer and Treasurer,
and
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Tareq
Risheq, Chief Strategy Officer.
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In
addition, Mr. Thornton agreed to resign as a director of the Company and Mr.
Ash, Mr. Risheq, Norman W. Collins, and Robert J. Legendre were appointed
directors of the Company. Mr. Ash’s appointment was effective
immediately. The appointment of the other directors will be effective
upon the Company’s compliance with the provisions of Section 14(f) of the
Securities Act of 1933, as amended, and Rule 14(f)-1 thereunder.
$1,575,000 Financing
Under the
Subscription Agreement, the Company issued 10,500,000 shares of its common stock
and warrants (the “Warrants”) to purchase 10,500,000 shares of common stock at
an exercise price of $0.20 per share to the Investors for an aggregate purchase
price of $1,575,000, or $0.15 per share, payable in cash and through the
cancellation of debt. The proceeds from the Financing were allocated
as follows: $100,000 to pay current obligations of Norpac, $225,000 as
cancellation of current debt of Norpac and the remaining $1,250,000 for working
capital. The Warrants expire on July 22, 2010 except in the event
that at any time CelLynx has manufactured 25 or more of its mobile or home
repeater units, then the Company may, at its option, accelerate the expiry of
the Warrants by giving notice (“Notice of Acceleration”) to the holder
thereof. If the holder does not exercise the Warrant within 30 days
of the giving of the Notice of Acceleration, the Warrants will expire and the
holder will have no further rights to acquire any shares of the Company under
the Warrants.
As a
result of the closing of the Exchange Agreement and Subscription Agreement, the
CelLynx Owners now own 40.3%, and the investors in the Financing own 13.0%, of
the issued and outstanding common stock of the Company, and the CelLynx Owners
own 100% of the issued and outstanding Preferred Stock, which are convertible
into 45,516,034 shares of common stock. At the closing of the
Exchange Agreement, the Company had a total of 80,552,812 shares of its common
stock issued and outstanding.
Dollardex
Distribution Agreement
Under the Distribution Agreement, Dollardex shall act
as CelLynx’s exclusive distributor of the CelLynx’s 5BARz™ products and related
accessories (the “Products”) in the following nine regions: Canada, South
America, Europe, Middle East, China, India, Australia, Africa, and South East
Asia (the “Territory”). The Distribution Agreement supersedes a prior
Joint Venture Agreement, as amended, dated January 3, 2008 entered into between
the parties.
In accordance with the terms of the
Distribution Agreement, Dollardex will sell and distribute the Products directly
to resellers (whether wholesales or retailers) or end users of the Products in
the Territory as well as sell and distribute the Products to its agents in the
Territory (the “Dealers”). The Dealers will be located and appointed
by Dollardex but their appointment will be subject to CelLynx’s
approval.
In
accordance with the terms of the Distribution Agreement, CelLynx also granted
Dollardex an exclusive non-transferrable license to use the tradenames,
trademark, logos, and designations in or associated with the Products during the
term of the Distribution Agreement in connection with the promotion and
distribution of the Products in the Territory. The Distribution Agreement is
otherwise subject to customary intellectual property protections, including,
without limitation, all of the processes, know-how, and related material
proprietary of CelLynx to manufacture the Products.
The term of the Distribution Agreement
is perpetual though the Distribution Agreement may be terminated, in the
event of, among other events, a material breach, upon a change of control
of Dollardex, or by mutual agreement of the parties. The Distribution
Agreement further provides that CelLynx shall have the exclusive right of first
refusal to acquire Dollardex in the event that Dollardex considers such
transaction. In addition, effective December 31, 2011, CelLynx shall have the
option to acquire Dollardex in accordance with a certain appraisal method as
further described in the Distribution Agreement.
In accordance with the terms of the
Distribution Agreement, CelLynx and Dollardex, prior to Dollardex entering into
a contractual relationship with a Dealer or commencing distribution of the
Product in a given Territory, will develop a business plan for deployment of the
distribution and marketing of the Products in the specific
Territory. CelLynx will have approval rights over the business plan
and Dollardex is obligated to conduct business and ensure that Dealers conduct
their business substantially in accordance with the terms of the business
plan.
As consideration for the rights granted
under the Distribution Agreement, Dollardex will provide funding to the Company
as follows: (i) $1,000,000 due and payable after the pilot production run for
the first commercial Product is completed (the “Initial Roll Out”); (ii)
$4,000,000 due and payable 90 days from the commencement of the Initial Roll
Out; and (iii) $5,000,000 due and payable 180 days from the commencement of the
Initial Roll Out. In addition, the parties agreed that the Company
will sell products to Dollardex at 10% over cost of goods sold and Dollardex
will pay the Company 50.1% of its Net Earning (as defined in the Distribution
Agreement) on a quarterly basis with payments to be made within 45 days
following the end of each quarter.
Lock-Up
Agreements
Under the Lock-Up Agreement, Robert J.
Legendre, Chairman of the Board of Directors of the
Company, Daniel R. Ash, Chief Executive Officer and a director of the
Company, Tareq Risheq, Chief Strategy Officer and a director of the Company, and
Anthony DeMarco, a senior employee of the Company, agreed not to transfer, sell,
assign, pledge, hypothecate, give, create a security interest in or lien on,
place in trust (voting trust or otherwise), or in any other way encumber or
dispose of, directly or indirectly and whether or not voluntarily, without
express prior written consent of the Company, any common stock or options to
purchase common stock of the Company for a period of 24 months.
The
descriptions of the Exchange Agreement, Subscription Agreement, Warrants,
Distribution Agreement, Palomar Note, and Lock-Up Agreement are qualified in
their entirety by the contents of such agreements, which are attached to this
report as Exhibits 2.1, 2.2, 2.3, 10.1, 10.2, 10.3, 10.4 and 10.8, respectively,
and are incorporated herein by reference.
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Item 2.01
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Completion
of Acquisition or Disposition of
Assets
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On July
24, 2008, Norpac acquired a cellular amplifier business in a reverse take-over
transaction following the completion of a $1,575,000 private placement of its
common stock and warrants to purchase common stock on July 23, 2008. Reference
is made to Item 1.01, which is incorporated herein, which summarizes the terms
of the reverse take-over transaction under the Exchange Agreement, and the terms
of the Financing under the Subscription Agreement.
From and
after the Closing Date of the Exchange Agreement, our primary operations consist
of the business and operations of CelLynx, which are conducted in the United
States. Therefore, we disclose information about the business, financial
condition, and management of CelLynx in this Form 8-K.
Effective
as of the Closing Date, the following persons were appointed as the Company’s
new executive officers:
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Name
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Officer
Position/s held:
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Daniel R.
Ash
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President,
Chief Executive Officer, Chief Operating Officer and
Secretary
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Kevin
Pickard
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Chief
Financial Officer and Treasurer
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Tareq
Risheq
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Chief
Strategy Officer
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Mr.
Daniel R. Ash was appointed as a member of the Company’s board of directors
concurrent with Closing. Effective as of Closing, John P. Thornton resigned as
Chief Executive Officer, President, Chief Financial Officer, Secretary and
Treasurer. In addition, upon the Company’s compliance with the provisions
of Section 14(f) of the Securities Act of 1933, as amended, and Rule 14(f)-1
thereunder, the appointments of Mr. Tareq Risheq, Mr. Norman W. Collins and Mr.
Robert J. Legendre as new members of the Company’s board of directors, and the
resignation of Mr. Thornton from the board of directors, will become
effective. The Company will file and mail the Information
Statement required under Rule 14f-1 to its shareholders shortly following
the filing of this Form 8-K. Additional information regarding the
above-mentioned directors and/or executive officers are set forth below under
the section titled “Management”.
DESCRIPTION
OF BUSINESS
Overview
CelLynx
is developing and plans to produce and market a next generation of cell phone
amplifiers (also known as repeaters or boosters) for the small office, home
office (“SOHO”) and vehicle. This next generation product, CelLynx
5BARz™, is the first single piece unit that strengthens weak cellular signals to
deliver higher quality signals for voice, data and video reception on cell
phones being used indoors or in vehicles. CelLynx plans to
develop its products for use in North America, Europe and Asia. The
CelLynx product line is intended to be manufactured by top tier contract
manufacturers located in South East Asia. These manufacturers
will allow CelLynx to capitalize on the full advantages of multiple
manufacturing locations with a trained and experienced technical work
force, state of the art facilities and knowledge of all aspects of
supply chain management, operational execution, global logistics and reverse
logistics. The marketing and sales functions will be handled in-house
incorporating a multi-channel strategy that includes distribution partners,
wireless service providers, retail outlets and international joint
ventures.
The
CelLynx Solution
Most SOHO
cellular amplifiers currently on the market require a receiving tower or
antenna, usually placed in an attic or on a rooftop, and a transmitting tower or
antenna to be placed at least 35 feet from the other antenna with each connected
to the amplifier by cable. CelLynx’s patent pending technology
eliminates the need to distance the receiving and transmitting towers, allowing
the two towers to be placed directly inside the amplifier, resulting in a more
affordable, one piece unit sometimes referred to as ‘plug & play’, i.e.
requiring no installation other than plugging the unit into a power
source.
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CelLynx has
recently completed a prototype of the SOHO unit which delivers 45 decibel
(dB) of gain in a Single Band PCS environment providing up to 1,500
square feet of indoor coverage. This unit measures 6.5 X 7.5 X
2.5 inches, weighs approximately one pound and does not require the
installation of antennas or cables in order to function. In
order to optimize marketability, CelLynx is developing an improved model
which it expects to operate in a dual band, PCS and Cellular, environment
delivering 65 dB of gain thereby allowing for coverage of 2,500 to 3,000
square feet. This dual band unit would work with all current
wireless carriers in the U.S. and Canada except Nextel, which
operates on its own frequency. The PCS network is generally used by the
older carriers such as AT&T at 850MHz while the newer carriers such as
T-Mobile operate on the Cellular network at 1900 MHz. Management is
confident that all of the critical functions required for this dual band
unit have been identified and that their engineering team has the
capability to accomplish development leading to
commercialization.
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We
believe the CelLynx product line, when commercialized, will also offer an
advantage over the Femtocell architecture being developed by wireless service
providers such as AT&T and Verizon. This Femtocell technology
requires a small cellular base station which connects to the service provider’s
network via a broadband such as DSL or cable. As such, Femtocell will
be carrier specific and subject to a monthly subscription
fee. CelLynx products, on the other hand, will be compatible with all
wireless carriers in the U.S. and Canada with the exception of
Nextel, will not require a broadband internet connection and will not entail a
monthly service fee.
CelLynx
has also developed a mobile unit particularly designed for use in
vehicles. This unit currently is an adaptation of the SOHO unit
described above. However, CelLynx is currently improving the mobility
of that model by developing an amplifier which will measure 3.5 X 5 inches
including one built in antenna and another antenna measuring 4 to 6 inches to be
connected to the amplifier by a micro-coax cable and attached to any of the
windows by suction cup or other portable means. The unit will produce
up to 45 dB of gain offering higher performance than the competition within the
interior of the vehicle cabin while minimizing the signal degrading effects of
cabling. The mobile unit will feature built in caller ID and Bluetooth speaker
phone for hands free driving and will operate in a dual band environment. It
will require no installation other than placing the antennae within the cabin of
the vehicle and inserting the cigarette lighter power adapter. Unlike the other
products on the market, the CelLynx product will not require the installation of
a roof top mounted antenna. As a result, management believes that
this consumer friendly product, will surpass the competition in market
acceptance thereby creating the potential for a mass market distribution
channel.
CelLynx
assembled a veteran engineering team with extensive cellular radio
frequency (RF) experience headquartered in Sacramento,
California. Within eight months, this team, with more than 80 years
of combined experience in building RF products, developed working prototypes of
an affordable consumer friendly single piece plug & play amplifier with a
minimum of 45dB of gain in both up and down paths. By late 2007, a
pre-production prototype had been developed. At that time, CelLynx entered into
a merger agreement with Norpac Technologies, Inc., a Nevada corporation trading
on the Over The Counter Bulletin Board (OTC BB).
Since the
signing of the merger agreement, CelLynx has continued the development of the
product while working toward the development of the dual band unit, improving
the design and is currently adapting the SOHO unit into a mobile amplifier for
vehicle use. Meanwhile management is focusing on the manufacturing
process and a sales and marketing plan to ensure the delivery of a quality low
cost product into the market place.
The
CelLynx Product Line
5Barz™
Home Unit
The 5Barz™ home unit is designed
to eliminate cell phone dead spots in an area similar to the size of a
single family home (2,000 to 3,000 square feet). Expected to retail
at about $299.00, the 5Barz™ home unit is lightweight, aesthetically pleasing
and designed to sit on a table near a window in the direction of the nearest
cell tower. There is an indicator light to determine the best
placement. This product requires no assembly: simply place the unit
on a table and plug in the power chord. Product introduction is
expected to occur near the end of 2008 for the North American
model. The European and Asian models are expected to be introduced
mid-year 2009.
5Barz™
Mobile Unit
The 5Barz™ mobile unit is designed to
eliminate cell phone dead spots while in a vehicle, moving or
stationary. Simply place the unit in a convenient location within the
vehicle, place the antenna close to the windshield on the dash board or attached
to the inside windshield with the supplied suction cup, and plug in the
cigarette lighter power adapter. The 5Barz™ mobile unit includes a
Blue Tooth speaker phone with caller ID to offer the user the convenience of
hands free phone conversation while driving, which is mandated by law in many
areas. This product is also expected to retail at about $299.00 and
to be introduced in North American near the end of 2008. The European
and Asian models are expected to be introduced mid-year 2009.
5Barz
Product Launch
The 5Barz
product launch schedule is coordinated with the marketing plan to first
introduce the 5Barz home unit and 5Barz mobile unit in the United States and
Canada, operating at the Cellular and PCS frequencies
(800/1900MHz). To allow for the marketing of the 5Barz products in
Europe and Asia, new models will be launched next that are designed to operate
at the ETSI defined frequencies for GSM (900/1800MHz). The
development requirement for the new models is primarily limited to the tuning of
the US based units for the change of frequency assignments, including
replacement of frequency sensitive components such as band pass filters and
antennas.
Industry
Overview
Given the
nature of the CelLynx product line, CelLynx is within the overall cellular
telephone market as well as two sub-segments of that market, i.e. the
in-building wireless systems marketplace and the vehicle amplifier
marketplace.
The
overall cellular telephone marketplace
Statistics
from the 3GSM World Congress in Barcelona, Spain this year indicate that the
number of worldwide mobile subscribers has surpassed the two billion mark and is
predicted to reach three billion by the end of this year and four billion by
2011. Demand for cellular applications beyond voice, such as video,
SMS, email and internet access have created a multi-billion dollar market for
accessorial cellular network products such as CelLynx amplifiers. “Certain user
segments have an almost insatiable appetite for connectivity and enhanced access
to critical productivity applications while at work, at home and on the move,”
according to Cliff Raskind, Strategy Analytics’ director of Wireless
Strategies. These early adopters are already driving the market for
products that will improve connectivity. Business users are twice as likely to
carry a mobile phone as a notebook when away from their desk and are keenly
interested in expanding email and internet access to the phone. This
increase in bandwidth demand on the cellular network decreases signal strength
and increases the need for CelLynx’s 5BARzÔ products.
In spite
of the overall proliferation of cell phones, the carriers themselves are
suffering from a high rate of customer defections sometimes referred to as
churn. According to CITA, The Wireless Association, 40% of those
customers switching networks are searching for a better signal. Considering that
it costs the average carrier almost $400 to acquire a new subscriber, this
global churn rate is the most serious problem affecting the cellular industry
and CelLynx is directly addressing this problem through improving indoor and
vehicle coverage while diminishing interference. It is also noteworthy that
according to First Research, a D & B Company providing Industry
Intelligence, 85% of the U.S. Wireless industry revenues are generated by the
four major wireless companies, AT&T, Verizon, Sprint and T-Mobile. In the US
market, CelLynx will concentrate on adapting its products to the frequencies
being used by those carriers, in particular the Dual Band
850/1900MHz. In the International market, CelLynx will focus on the
Dual Band 900/1800MHz being used in Europe, Africa, Asia, Australia, New Zealand
and most of South America.
CelLynx
believes that all of the above market conditions indicate the potential for the
success of The CelLynx product line within the general cell phone
market. The CelLynx products will seek to attract virtually all cell
phone users including those who will come by the product through their cellular
and Wi-MAX carriers, enterprise employers, government agencies or military
service organizations.
The
‘In Building’ wireless systems marketplace
According
to ABI Research, ‘In-building wireless systems, forecasted to exceed $15 billion
in revenues in 2013, are a key enabler for delivering on the potential of
cellular mobile services.’ Total Telecom, a
leading communications periodical, reports that the role of the traditional
office is no longer essential for day-to-day productivity as people increasingly
work wherever the technology is available, generally at home if not
in the office. The US Department of Labor reports that over 20
million workers work at home and this does not include those who work out of a
home office to conduct personal business or those who work at home to finish
uncompleted tasks from their regular employment or use their home office for
outside or after hours employment. More and more workers are adopting
the trend toward work-life balance that results in them spending more time at
home. These factors reinforce the need for improved signal in the Small Office
Home Office. That need is expected to be met by the CelLynx SOHO
unit.
The
‘In-Vehicle’ wireless systems marketplace
Three
trends are noteworthy when discussing this sub sector: the growth of
the number of motor vehicles on the road, the trend indicating the increased
number of mobile workers and the trend toward legislation requiring hands free
cell phone operation while driving.
According
to Plunkett Research, Ltd. there were 806 million automobiles and light trucks
on the roads of the world in 2007. That number is expected to
increase to one billion by the year 2020. Not so surprisingly, predictions by
Analyst House IDC indicate that the number of mobile workers is set to reach
one billion by 2011. It is reasonable to assume that as the number of
vehicles increase and the number of cell phones increase that the number of
drivers using cell phones will also increase.
The
National Council of Legislators estimate that 73 % of drivers use their cell
phones in the car. That being the case, twenty states and dozens of
municipalities have passed legislation requiring hands free cell
phones while driving. Anticipating the continuation of this legislative trend,
the CelLynx vehicular model is equipped with Bluetooth for hands free, safe
driving.
All of
the above trends suggest the need for quality voice, data and media solutions in
the mobile environment and that the market for user friendly amplifiers such as
CelLynx will follow these trends in both growth and application.
Sales
and Marketing Strategy
In the
US, CelLynx will deploy a multi-channel sales strategy seeking to
include: Distribution Partners such as Celluphone, QDI or Advantage; Stocking
Partners such as Tesco, Hutton & Brightstar; Cellular
Carriers such as AT&T & Verizon; Corporate Accounts such as Accenture,
IBM, Remax, Roadway & Hertz; Retail Outlets such as Radio Shack,
Comp USA & Best Buy and Web based direct sales.
CelLynx
will address the international market place through a Master Global Marketing,
Distribution and Service Agreement between CelLynx and Dollardex Group Corp.
(“DGC”). DGC intends to build an international marketing and
distribution dealer network through its existing relationships in its licensed
territories.
Operating
and Manufacturing Strategy
CelLynx’s management and
engineering teams have extensive experience working with top-tier off shore
manufacturers. In fact, this collective team has successfully
launched over 150 complex RF products in the past seven years using off shore
manufacturers.
Given their expertise in this area they
have become acutely aware of the advantages of partnering with a reputable
contract manufacturer (CM). In this case, CelLynx will immediately
leverage manufacturing practices at minimal cost. In fact, the team has
identified several CM candidates in South East Asia. Once a CM is selected
CelLynx will immediately benefit from multiple manufacturing locations with a
trained and experienced technical work force, state of the art facilities and
knowledge of all aspects of supply chain management, operational execution,
global logistics and reverse logistics.
An additional benefit to CelLynx is
that the CM to be selected will have facilities in California which will produce
the first 200 units in coordination with the Company’s engineering
team. Once the team has approved these pre-production units, the
manufacturing plan will be developed for one of the CM’s Southeast Asia
facilities. The 200 units scheduled for Fall availability will then
be used for UL testing and product demonstrations.
Competition
by Market Segment
The SOHO or residential wireless
amplifier competitors; Most of the companies in this industry do not
offer Plug & Play single unit solutions such as CelLynx. In fact,
companies such as Wilson, Wi-Ex and CellAntenna, offer two-piece, ‘cable
connected amplifier-to-antenna’ solutions requiring complex installation enabled
only by tech savvy users or professional installers and at considerably higher
prices than CelLynx.
The mobile vehicle market
competitors; A few companies such as Digital Antenna and Richardson (Call
Capture) are focused on the vehicle market and others such as Wilson are
entering that market. Again, however, these vehicle solutions require
complex installation including roof top mounting of antenna and, in some cases,
a direct connection between the cell phone and the roof top
antenna.
The Wireless enterprise solution
providers as competitors; While the equipment manufacturers in the
enterprise market such as Wilson, EMS Wireless and Radioframe Networks are
attempting to enter the the SOHO/residential market, their products are
engineered for commercial enterprises requiring complex installation
and as a result are expensive as compared to the CelLynx solution.
While
each of the above competitors has solutions for certain market segments such as
large buildings and warehouses, there is no dominant market leader in the SOHO
and Vehicle segments of the Market. CelLynx believes that the total indoor and
vehicle cell signal amplification market although now exceeding $300 million
annually could experience continued growth through the commercialization of
products such as those being offered by CelLynx. As compared to the current
products in the marketplace, CelLynx’s key sustainable competitive advantage is
in its patent pending technology providing for compact, plug & play,
consumer friendly and affordable product lines. An overview of the competition
is shown below.
Intellectual
Property
CelLynx
has trademark protection for the brand name “5Barz” and has applied for
trademark protection for its sales slogan, “Turning Weak Spots into Sweet
Spots.” CelLynx has the following patent applications
pending:
The
CelLynx Technology
The
plug-and-play aspects of the CelLynx cellular amplifier demanded complex
algorithms and intuitive interfaces. Further complicating the challenge, the
repeater required a full duplex linear amplifier providing up to 45db of gain in
both RX and TX paths and directional antennae with one inch of separation and
70db of isolation between them. It further required an active feed-forward
cancellation in both the RX and TX links with real time correction and an active
Automatic Gain Control for both links running in sync with the active
feed-forward cancellation. Typically, a repeater simply boosts off
the air cell phone signals so operating performance of a repeater can be related
to the amount of boost reliability delivered by the repeater.
System
gain is the measure of boost in decibels or dB. The major obstacles
to reliable gain in a repeater are isolation and linearity. Linearity
is a function of the amplification in the active portion of the repeater.
Generally, the amplifiers in a repeater are deigned to operate class A and the
usable output power is de-rated from the maximum output power by 10dB or 90%
below the saturated output of the amplifier. Isolation is the measure of
separation of the input from the output of the repeater. If the
separation is less than the system gain, the result will be similar to the
feedback screech heard when a microphone is placed too close to a loud
speaker. In practice, isolation has proven to be the Achilles heel of
repeaters because unlike linearity, improvements in isolation have proven to be
costly and unmanageable.
Traditionally
the low tech approaches to achieving the isolation necessary for adequate
repeater performance includes vertical and horizontal spacing of the two
antennae, as with a speaker and microphone. In most cases this
horizontal spacing requires approximately ten times the distance of vertical
spacing. CelLynx has used a high tech approach to deal with the
real world environment resulting in a superior product delivering high
performance. Not only did the team meet the challenge, but in the process they
developed a user friendly, affordable unit that is protected by five
pending patents.
Government
Regulation and Probability of Affecting Business
Our
products are subject to Federal Communications Commission (FCC) and Underwriter
Laboratories (UL) certifications. We will submit samples of our
products to both agencies according to our product development
process. We do not anticipate any difficulty in obtaining these
certifications for our products.
In
addition, because we plan to market and sell our products in other countries,
importation and exportation regulations may impact our activities. A breach of
these laws or regulations may result in the imposition of penalties or fines,
suspension or revocation of licenses. We are not currently involved in any such
judicial or administrative proceedings and believe that we are in compliance
with all applicable regulations. Although it is impossible to predict
with certainty the effect that additional importation and exportation
requirements and other regulations may have on future earnings and operations,
we are presently unaware of any future regulations that may have a material
effect on our financial position, but cannot rule out the
possibility.
Compliance
with Environmental Laws
CelLynx
is not required to comply with any environmental laws that are particular to the
cellular amplifier industry. However, it is company policy to be as
environmentally conscience in every aspect of our operations.
Employees
CelLynx
has approximately six (6) full-time employees. In addition, we have
hired several consultants to assist with development of our cellular amplifier
units. CelLynx is not affiliated with any union or collective
bargaining agreement. There have been
no adverse labor incidents or work stoppages in the history of CelLynx.
Management believes that its relationship with our employees is
good.
Corporate
Information
CelLynx’s
principal executive offices are located at 5047 Robert J Mathews Parkway, Suite
400, El Dorado Hills, California 95762. CelLynx’s main
telephone number is (916) 941-1403, and our website address is www.CelLynx.com. Information
provided on our website, however, is not part of this Current Report on Form 8-K
and is not incorporated herein.
RISK
FACTORS
You
should carefully consider the risks described below together with all of the
other information included in this report before making an investment decision
with regard to our securities. The statements contained in or
incorporated into this offering that are not historic facts are forward-looking
statements that are subject to risks and uncertainties that could cause actual
results to differ materially from those set forth in or implied by
forward-looking statements. If any of the following risks actually
occurs, our business, financial condition or results of operations could be
harmed. In that case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
Risks
Relating to Our Business
THERE
IS SUBSTANTIAL UNCERTAINTY AS TO WHETHER WE WILL CONTINUE
OPERATIONS. IF WE DISCONTINUE OPERATIONS, YOU WILL LOSE YOUR
INVESTMENT.
Our
auditors have discussed their uncertainty in their audit report dated July 24,
2008. This means that there is substantial doubt that we can continue as an
ongoing business for the next 12 months without obtaining additional
capital. The financial statements do not include any adjustments that might
result from the uncertainty about our ability to continue in business. As such,
unless we raise additional capital, we may have to cease operations, and you
could lose your entire investment.
WE
LACK AN OPERATING HISTORY AND HAVE LOSSES WHICH WE EXPECT TO CONTINUE INTO THE
FUTURE. THERE IS NO ASSURANCE OUR FUTURE OPERATIONS WILL RESULT IN PROFITABLE
REVENUES. IF WE CANNOT GENERATE SUFFICIENT REVENUES TO OPERATE PROFITABLY, WE
MAY SUSPEND OR CEASE OPERATIONS.
Our
operations to date have been limited to the development of our
product. Although we have produced a first edition prototype of our
5Barz™ amplifier, we have not marketed it to the public and therefore have not
realized any revenues. Since we have not begun to sell our products, we have no
operating history upon which an evaluation of our future success or failure can
be made. Our net loss since inception is $1,719,613. Our ability to achieve and
sustain revenue, and then profitability and positive cash flow is dependent
upon:
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our
ability to develop and commercialize products such as our SOHO amplifier
and Mobile amplifier and other complementary
products;
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entry
into manufacturing, distribution and marketing arrangements;
and
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our
ability to attract customers.
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We are a
start up company with limited assets and no previous operating history and are
at an infancy stage. As such, we face the risks and problems associated with any
business in its early stages with no operating history on which an evaluation of
its prospects can be made. Based upon current plans, we expect to incur
operating losses in future periods because we will be incurring expenses and not
generating revenues. We cannot guarantee that we will be successful in
generating revenues in the future. Failure to generate revenues of substance
will cause us to go out of business.
The
market for our type of cellular amplifier products is at an early stage. If we
are unable to develop demand for cellular amplifier products, we may not achieve
or sustain revenue growth. We cannot accurately predict the growth of the
markets for these products, the timing of product introductions or the timing of
commercial acceptance of these products.
Even if
our cellular amplifier products are ultimately widely adopted, widespread
adoption may take a long time to occur. The timing and amount of product sales
that we receive will depend on whether the products marketed achieve widespread
adoption and, if so, how rapidly that adoption occurs. We expect that we will
need to pursue extensive and expensive marketing and sales efforts to educate
prospective customers about the uses and benefits of our products.
WE
WILL NEED ADDITIONAL CAPITAL IN THE FUTURE AND IT MAY NOT BE AVAILABLE ON
ACCEPTABLE TERMS.
We will
need to raise additional funds in order to finance our operations while we
implement and execute our business plan, support expansion, develop new or
enhanced services and products, respond to competitive pressures, acquire
complementary businesses, or take advantage of unanticipated opportunities.
There can be no assurance that such additional capital will be available or on
terms acceptable to us. If future financing funds are not available on
acceptable terms, we may be forced to curtail or cease our operations. Even if
we are able to continue our operations, the failure to obtain financing could
have a substantial adverse effect on our business, results of operations and
financial results. Furthermore, sales of additional equity or convertible debt
securities would result in additional dilution to our stockholders.
WE
HAVE NOT YET OFFERED OUR PRODUCTS FOR SALE, THERE ARE NO ASSURANCES THAT WE WILL
EVER GENERATE SUBSTANTIVE REVENUES FROM THEIR SALE OR MAKE A
PROFIT.
Because
we are small and have limited capital, we must begin by producing only a small
number of products. We intend to market our products through distribution
partners, wireless service providers, retail outlets and international joint
ventures. However, we may not be able to attract enough customers to
operate profitably. If we are unable to produce or for some other
reason sell enough products to operate profitably, we may have to suspend
or cease operations.
WE
FACE COMPETITION FROM COMPANIES WITH SUBSTANTIALLY GREATER
RESOURCES.
We may
not be able to compete successfully against current and future competitors. Our
business is evolving and intensely competitive, and we expect competition to
intensify. We expect to compete across a number of markets with a variety of
competitors, many of which competitors are much larger than we are and have
substantially greater financial, distribution, and marketing resources than we
do.
Our
cellular amplifier sales business will face competition from the many companies
that already have versions of cellular amplifiers in chain stores, smaller
retailers and on Internet sites or shopping websites. Many of our competitors
who produce cellular amplifiers will have greater financial and other resources
than we do and will be able to promote their products to a greater extent than
we will. In addition, cellular services providers that offer competing products
may offer substantial promotional discounts to their customers as part of a
customer retention strategy.
These
competitors may have a competitive advantage in marketing to certain consumer
markets. All of these competitors also compete for distribution channels and for
suppliers and manufacturers. Increased competition from such companies could
have a material adverse effect on our business, results of operations, and
financial condition.
WE
WILL BE DEPENDENT OF THIRD PARTY MANUFACTURERS FOR THE MANUFACTURE AND SHIPMENT
OF OUR PRODUCTS.
We do not
and will not own or operate any manufacturing facilities and, therefore, will be
dependent on third parties for the manufacture of our products. We will rely on
contract manufacturers to produce most of our products. These contract
manufacturers may also produce products for some of our competitors. If any of
our contract manufacturers were unable or unwilling to produce and ship our
products in a timely manner or to produce sufficient quantities to support our
growth, if any, we would have to identify and qualify new contract
manufacturers. There can be no assurance that we would be able to identify and
qualify new contract manufacturers in a timely manner or that such manufacturers
would allocate sufficient capacity to us in order to meet our requirements,
which could adversely affect our ability to make timely deliveries of our
products. In addition, there can be no assurance that the capacity of the
contract manufacturers will be sufficient to fulfill our orders, and any supply
shortfall could materially and adversely affect our business, results of
operations, and financial condition. We expect to store our products in a
warehouse at the contact manufacturers' premises prior to shipment to
distributors. Shipments to and from the warehouses could be delayed for a
variety of reasons including weather conditions, strikes, and shipping delays.
Any significant delay in shipments of our products would have a material adverse
effect on our business, results of operations, and financial
condition.
To
successfully operate our business, we must receive timely delivery of
merchandise from our vendors and suppliers. As we grow, some of these vendors
may not have sufficient capital, resources or personnel to satisfy their
commitments to us. Any significant delay in the delivery of products by vendors
could have a material adverse effect on our business, results of operations, and
financial condition.
In
addition, the contract manufacturers will be contractually required to maintain
the quality of the products we sell and to comply with applicable laws and
regulations relating to the production of such products. There can be no
assurance that our contract manufacturers will always produce products that are
consistent with our standards. The failure of any contract manufacturer to
produce products that conform to our standards could materially adversely affect
our reputation and result in product recalls, product liability claims and
severe economic loss.
OUR
SALES AND OPERATING RESULTS MAY VARY WIDELY.
We expect
to experience fluctuations in our operating results as a result of a variety of
factors, including:
(i)
fluctuations in promotional, advertising, and marketing
expenditures;
(ii) the
introduction of new products or delays in such introductions;
(iii) the
introduction or announcement of new products by our competitors;
(iv)
customer acceptance of new products;
(v)
shipment delays;
(vi)
consumer perceptions of our products and operations;
(vii)
competitive pricing pressures;
(viii)
the adverse effect of our or our distributors' or suppliers' failure, and
allegations of their failure, to comply with applicable
regulations;
(ix) the
availability and cost of raw materials or components;
(x)
economic conditions in general and in the cellular industry in
particular;
(xi) the
negative effect of changes in or interpretations of regulations that may limit
or restrict the sale of certain of our products;
(xii) the
expansion of our operations into new markets; and
(xiii)
the introduction of our products into each such market.
Any of
these factors could have a material adverse effect on our business, results of
operations, and financial condition. We have no operating history, and therefore
it is difficult to predict our future sales or our ability to identify and adapt
our products successfully to meet changing consumer interest trends and other
elements that affect our results of operations.
WE MUST ACHIEVE
TRADE & CONSUMER ACCEPTANCE IN DISTRIBUTION CHANNELS.
Our
growth will depend in part on our ability to attract and maintain customers and
expand our channels of marketing and distribution (including without limitation
distribution partners, retailers, cellular service providers and international
joint ventures). These channels of marketing and distribution are expected to
present competitive challenges, risks and marketing and distribution costs. In
addition, our expansion in these channels of distribution will require us to
attract and retain consumers in broader demographic and geographic markets.
There can be no assurance that we will achieve successful distribution through
nationwide distribution channels and with consumers in other demographic and
geographic markets. The inability to obtain consumer acceptance in these markets
could have a material adverse effect on our business, results of operations, and
financial condition.
RELIANCE ON OUR SUPPLIERS MAKES US
VULNERABLE TO THE LOSS OF ONE OR MORE KEY SUPPLIERS OR THE DELIVERY CAPABILITIES
OF OUR SUPPLIERS.
We
typically rely on a limited number of key suppliers. Although we have developed
good long-term relationships with our suppliers and EMS (Electronics
Manufacturing Services) OEM third party alliance, there can be no assurance that
we will always be able to obtain components and have our products completed and
delivered to the market in a timely base. Such delay could make our products
become obsolete or unattractive with our customers and consequently, our results
of operations will be materially and adversely affected.
WE
ARE HIGHLY DEPENDENT ON SENIOR MANAGEMENT AND KEY SALES AND TECHNICAL
PERSONNEL.
We are
highly dependent on our senior management to manage our business and operations
and our key managerial, financial, sales, design, engineering, technical and
other personnel for the sale, development and production of our cellular
amplifiers. In particular, we rely substantially on our Chief Executive Officer,
Daniel R. Ash, our Chief Strategic Officer, Tareq Risheq, and our Chief
Technology Officer, Anthony DeMarco, to manage our operations. We do
not maintain key man life insurance on any of our senior management or key
personnel. The loss of any one of them would have a material adverse
effect on our business and operations. Competition for senior
management and sales and technical personnel is intense, and the pool of
suitable candidates is limited. We may be unable to locate a suitable
replacement for any senior management or key sales and technical personnel that
we lose. In addition, if any member of our senior management or key
sales and technical personnel joins a competitor or forms a competing company,
they may compete with us for customers, business partners and other key
professionals and staff members of our company. Although each of our
senior management and key sales and technical personnel has signed a
confidentiality and non-competition agreement in connection with his employment
with us, we cannot assure you that we will be able to successfully enforce these
provisions in the event of a dispute between us and any member of our senior
management or key research and development personnel. None of our key personnel
are party to any employment agreements with us, and management and other
employees may voluntarily terminate their employment at any time.
IF WE ARE UNABLE
TO ATTRACT AND RETAIN HIGHLY QUALIFIED PERSONNEL, THE QUALITY OF
OUR SERVICES MAY DECLINE, AND WE MAY NOT MEET OUR BUSINESS AND FINANCIAL
GOALS.
We
compete for qualified personnel with other cellular amplifier
companies. Intense competition for these personnel could cause our
compensation costs to increase significantly, which, in turn, could have a
material adverse effect on our results of operations. Our future success and
ability to grow our business will depend in part on the continued service of
these individuals and our ability to identify, hire and retain additional
qualified personnel. If we are unable to attract and retain qualified
employees, we may be unable to meet our business and financial
goals.
OUR
GROWTH STRATEGY MAY PROVE TO BE DISRUPTIVE AND DIVERT MANAGEMENT
RESOURCES.
Our
growth strategy may involve large transactions and present financial, managerial
and operational challenges, including diversion of management attention from
existing businesses, difficulty with integrating personnel and financial and
other systems, increased expenses, including compensation expenses resulting
from newly-hired employees, assumption of unknown liabilities and potential
disputes. We could also experience financial or other setbacks if any of our
growth strategies incur problems of which we are not presently aware. We may
require additional financing in the future.
WE
WILL NEED TO OBTAIN ADDITIONAL DEBT OR EQUITY TO FUND FUTURE CAPITAL
EXPENDITURES AND TO MEET WORKING CAPITAL REQUIREMENTS.
Additional
equity may result in dilution to the holders of our outstanding shares of
capital stock. Additional debt financing may include conditions that would
restrict our freedom to operate our business, such as conditions
that:
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limit
our ability to pay dividends or require us to seek consent for the payment
of dividends;
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increase
our vulnerability to general adverse economic and industry
conditions;
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require
us to dedicate a portion of our cash flow from operations to payments on
our debt, thereby reducing the availability of our cash flow to fund
capital expenditures, working capital and other general corporate
purposes; and
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limit
our flexibility in planning for, or reacting to, changes in our business
and our industry.
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We cannot
guarantee that we will be able to obtain any additional financing on terms that
are acceptable to us, or at all.
GEOGRAPHICAL BUSINESS EXPANSION
EFFORTS WE MAKE COULD RESULT IN DIFFICULTIES IN SUCCESSFULLY MANAGING
OUR BUSINESS AND CONSEQUENTLY HARM OUR FINANCIAL
CONDITION.
As part
of our business strategy, we may seek to expand by acquiring competing
businesses or customer contracts in our current or other geographic markets, or
we may open offices in the geographical markets we desire to operate within. We
may face challenges in managing expanding product and service offerings and in
integrating acquired businesses with our own. We cannot accurately predict the
timing, size and success of our expansion efforts and the associated capital
commitments that might be required. We expect to face competition for expansion
candidates, which may limit the number of expansion opportunities available to
us and may lead to higher expansion costs. There can be no assurance that we
will be able to identify, acquire or profitably manage additional
businesses/contracts or successfully integrate acquired businesses/contracts, if
any, into our company, without substantial costs, delays or other operational or
financial difficulties. In addition, expansion efforts involve a number of other
risks, including:
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Failure
of the expansion efforts to achieve expected
results;
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Diversion
of management’s attention and resources to expansion
efforts;
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Failure
to retain key customers or personnel of the acquired businesses;
and
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Risks
associated with unanticipated events, liabilities or
contingencies.
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OUR INABILITY TO OBTAIN CAPITAL, USE
INTERNALLY GENERATED CASH, OR USE SHARES OF OUR COMMON STOCK OR DEBT TO
FINANCE FUTURE EXPANSION EFFORTS COULD IMPAIR THE GROWTH AND EXPANSION OF
OUR BUSINESS.
Reliance
on internally generated cash or debt to finance our operations or complete
business expansion efforts could substantially limit our operational and
financial flexibility. The extent to which we will be able or willing to use
shares of common stock to consummate expansions will depend on our market value
from time to time and the willingness of potential sellers to accept it as full
or partial payment. Using shares of common stock for this purpose also may
result in significant dilution to our then existing stockholders. To the extent
that we are unable to use common stock to make future expansions, our ability to
grow through expansions may be limited by the extent to which we are able to
raise capital for this purpose through debt or equity financings. No assurance
can be given that we will be able to obtain the necessary capital to finance a
successful expansion program or our other cash needs. If we are unable to obtain
additional capital on acceptable terms, we may be required to reduce the scope
of any expansion. In addition to requiring funding for expansions, we may need
additional funds to implement our internal growth and operating strategies or to
finance other aspects of our operations. Our failure to (i) obtain additional
capital on acceptable terms, (ii) use internally generated cash or debt to
complete expansions because it significantly limits our operational or financial
flexibility, or (iii) use shares of common stock to make future expansions may
hinder our ability to actively pursue any expansion program we may decide to
implement.
WE MAY BE UNABLE
TO ATTAIN PROFITABILITY OR INCREASE NET SALES, EXPAND THE RANGE OF OUR
SERVICES OR ENTER NEW MARKETS.
Various
factors, including demand for our cellular amplifiers and our ability to expand
the range of our product and service offerings and to successfully enter new
markets, may affect our ability to maintain or increase the net sales of our
business or any subsequently acquired businesses. There can be no assurance that
we will be able to maintain or attain profitability and/or expand the sales of
our business or any subsequently acquired businesses.
WE
DO NOT ANTICIPATE HAVING LONG-TERM AGREEMENTS WITH OUR CUSTOMERS AND,
ACCORDINGLY, COULD LOSE CUSTOMERS WITHOUT WARNING.
We do not
anticipate that our products will be sold pursuant to long-term agreements with
customers, but instead on a purchase order basis. As a result, our
customers may cancel or reschedule purchase orders with us on relatively short
notice. Cancellations or rescheduling of customer orders could result in the
delay or loss of anticipated sales without allowing us sufficient time to
reduce, or delay the incurrence of, our corresponding inventory and operating
expenses. In addition, changes in forecasts or the timing of orders from these
or other customers would expose us to the risks of inventory shortages or excess
inventory. This, in turn, could cause our operating results to
fluctuate.
OUR
COMPETITIVE POSITION DEPENDS IN PART ON MAINTAINING INTELLECTUAL PROPERTY
PROTECTION.
Our
ability to compete and to achieve and maintain profitability depends in part on
our ability to protect our proprietary discoveries and technologies. We have
applied for trademark protection for the brand names “5Barz” and our sales
slogan “Turning Weak Spots into Sweet Spots.” We have also applied
for patent protection for our proprietary one-unit cellular
amplifier. We currently rely on a combination of copyrights,
trademarks, trade secret laws and confidentiality agreements to protect our
intellectual property rights. We also rely upon unpatented know-how and
continuing technological innovation to develop and maintain our competitive
position. From time to time, the United States Supreme Court, other
federal courts, the U.S. Congress or the U.S. Patent and Trademark Office may
change the standards of patentability, and any such changes could have a
negative impact on our business.
OUR
CELLULAR AMPLIFIERS ARE UNTESTED AND MAY NOT BE EFFECTIVE OR PATENTABLE OR MAY
ENCOUNTER OTHER UNEXPECTED PROBLEMS, WHICH COULD ADVERSELY AFFECT OUR BUSINESS
AND RESULTS OF OPERATIONS.
Our
cellular amplifier products are new and have not
been tested in installation settings for a sufficient period of time to prove
their long-term effectiveness and benefits. These products may not be effective
or other problems may occur that are unexpected and could have a material
adverse effect on our business or results of operations. While we have filed
patent applications for our cellular amplifier technology, patents may
not be issued on such technology, or we may not be able to realize the benefits
from any patents that are issued.
WE
MAY FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT COULD BE TIME-CONSUMING
AND COSTLY TO DEFEND AND COULD RESULT IN OUR LOSS OF SIGNIFICANT RIGHTS AND THE
ASSESSMENT OF DAMAGES.
If we
receive notice of claims of infringement, misappropriation or misuse of other
parties’ proprietary rights, some of these claims could lead to litigation. We
cannot assure you that we will prevail in these actions, or that other actions
alleging misappropriation or misuse by us of third-party trade secrets,
infringement by us of third-party patents and trademarks or the validity of our
patent or trademarks, will not be asserted or prosecuted against us. We may also
initiate claims to defend our intellectual property rights. Intellectual
property litigation, regardless of outcome, is expensive and time-consuming,
could divert management’s attention from our business and have a material
negative effect on our business, operating results or financial condition. If
there is a successful claim of infringement against us, we may be required to
pay substantial damages (including treble damages if we were to be found to have
willfully infringed a third party’s patent) to the party claiming infringement,
develop non-infringing technology, stop selling our products or using technology
that contains the allegedly infringing intellectual property or enter into
royalty or license agreements that may not be available on acceptable or
commercially practical terms, if at all. Our failure to develop non-infringing
technologies or license the proprietary rights on a timely basis could harm our
business. Parties making infringement claims on future issued patents may be
able to obtain an injunction that would prevent us from selling our products or
using technology that contains the allegedly infringing intellectual property,
which could harm our business.
PRODUCT
LIABILITY CLAIMS AGAINST US COULD RESULT IN ADVERSE PUBLICITY AND POTENTIALLY
SIGNIFICANT MONETARY DAMAGES.
As a
seller of consumer products, we face an inherent risk of exposure to product
liability claims in the event that our cellular amplifiers’ use results in
damages, injuries or fatalities. It is possible that our products could result
in damage, injury or fatality, whether by product malfunctions, defects,
improper installation or other causes. If such damages, injuries or fatalities
or claims of such were to occur, we could incur monetary damages, and our
business could be adversely affected by any resulting negative publicity. The
successful assertion of product liability claims against us also could result in
potentially significant monetary damages and, if our insurance protection is
inadequate to cover these claims, could require us to make significant payments
from our own resources.
UNEXPECTED
BUSINESS INTERRUPTIONS COULD ADVERSELY AFFECT OUR BUSINESS.
Our
operations are vulnerable to interruption by earthquake, fire, power failure and
power shortages, hardware and software failure, floods, computer viruses and
other events beyond our control. In addition, we do not carry business
interruption insurance to compensate us for losses that may occur as a result of
these kinds of events, and any such losses or damages incurred by us could
disrupt our production and other operations.
IF
WE FAIL TO DEVELOP AND MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS, WE MAY
NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS OR PREVENT
FRAUD. AS A RESULT, CURRENT AND POTENTIAL SHAREHOLDERS COULD LOSE
CONFIDENCE IN OUR FINANCIAL REPORTS, WHICH COULD HARM OUR BUSINESS AND THE
TRADING PRICE OF OUR COMMON STOCK.
Effective
internal controls are necessary for us to provide reliable financial reports and
effectively prevent fraud. Section 404 of the Sarbanes-Oxley Act of 2002
requires us to evaluate and report on our internal controls over financial
reporting and have our independent registered public accounting firm annually
attest to our evaluation, as well as issue their own opinion on our internal
controls over financial reporting. We plan to prepare for compliance with
Section 404 by strengthening, assessing and testing our system of internal
controls to provide the basis for our report. The process of strengthening our
internal controls and complying with Section 404 is expensive and time
consuming, and requires significant management attention, especially given that
we have not yet undertaken any efforts to comply with the requirements of
Section 404. We cannot be certain that the measures we will undertake will
ensure that we will maintain adequate controls over our financial processes and
reporting in the future. Furthermore, if we are able to rapidly grow our
business, the internal controls that we will need will become more complex, and
significantly more resources will be required to ensure our internal controls
remain effective. Failure to implement required controls, or difficulties
encountered in their implementation, could harm our operating results or cause
us to fail to meet our reporting obligations. If we or our auditors discover a
material weakness in our internal controls, the disclosure of that fact, even if
the weakness is quickly remedied, could diminish investors’ confidence in our
financial statements and harm our stock price. In addition, non-compliance with
Section 404 could subject us to a variety of administrative sanctions, including
the suspension of trading, ineligibility for listing on one of the NASDAQ Stock
Markets or national securities exchanges, and the inability of registered
broker-dealers to make a market in our common stock, which would further reduce
our stock price.
COSTS
INCURRED BECAUSE WE ARE A PUBLIC COMPANY MAY AFFECT OUR
PROFITABILITY.
As a
public company, we will incur significant legal, accounting and other expenses
that we did not incur as a private company. We are now subject to the SEC’s
rules and regulations relating to public disclosure. SEC disclosures generally
involve a substantial expenditure of financial resources. In addition, the
Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the
SEC, have required changes in corporate governance practices of public
companies. We expect that full compliance with these new rules and regulations
will significantly increase our legal and financial compliance costs and make
some activities more time-consuming and costly. For example, we will be required
to create additional board committees and adopt policies regarding internal
controls and disclosure controls and procedures. Such additional reporting and
compliance costs may negatively impact our financial results. To the extent our
earnings suffer as a result of the financial impact of our SEC reporting or
compliance costs, our ability to develop an active trading market for our
securities could be harmed.
As a
public company, we also expect that these new rules and regulations may make it
more difficult and expensive for us to obtain director and officer liability
insurance in the future, and we may be required to accept reduced policy limits
and coverage or incur substantially higher costs to obtain the same coverage. As
a result, it may be more difficult for us to attract and retain qualified
persons to serve on our board of directors or as executive
officers.
It may be
time-consuming, difficult and costly for us to develop and implement the
internal controls and reporting procedures required by the Sarbanes-Oxley Act,
when applicable to us. Some members of our management team have limited or
no experience operating a company whose securities are traded or listed on an
exchange, nor with SEC rules and requirements, including SEC reporting practices
and requirements that are applicable to a publicly-traded company. We may need
to recruit, hire, train and retain additional financial reporting, internal
controls and other personnel in order to develop and implement appropriate
internal controls and reporting procedures. If we are unable to comply with the
internal controls requirements of the Sarbanes-Oxley Act, when applicable, we
may not be able to obtain the independent accountant certifications that
may apply to us under the Sarbanes-Oxley Act.
Risk
Relating to an Investment in Our Securities
GENERALLY,
WE HAVE NOT PAID ANY CASH DIVIDENDS, AND NO CASH DIVIDENDS WILL BE PAID IN THE
FORESEEABLE FUTURE.
We do not
anticipate paying cash dividends on our common stock in the foreseeable future,
and we may not have sufficient funds legally available to pay dividends. Even if
funds are legally available for distribution, we may nevertheless decide not to
or may be unable to pay any dividends. We intend to retain all earnings for our
company’s operations. Accordingly, you may have to sell some or all of your
common stock in order to generate cash flow from your investment. You may not
receive a gain on your investment when you sell our common stock and may lose
some or all of the amount of your investment. Any determination to pay dividends
in the future on our common stock will be made at the discretion of our board of
directors and will depend on our results of operations, financial conditions,
contractual restrictions, restrictions imposed by applicable law, capital
requirements and other factors that our board of directors deems
relevant.
IF
YOU PURCHASE OUR COMMON STOCK, YOU MAY INCUR SUBSTANTIAL DILUTION.
The
issuance of additional shares of our capital stock or the exercise of stock
options or warrants could be substantially dilutive to your shares and may
negatively affect the market price of our common stock.
THE
APPLICATION OF THE “PENNY STOCK” RULES COULD ADVERSELY AFFECT THE MARKET PRICE
OF OUR COMMON STOCK AND INCREASE YOUR TRANSACTION COSTS TO SELL THOSE
SHARES.
Our
common stock may be subject to the “penny stock” rules adopted under Section
15(g) of the Securities Exchange Act of 1934. The penny stock rules apply to
companies which are not traded on a national securities exchange or quoted on
The NASDAQ Stock Market whose common stock trades at less than $5.00 per share
or that have tangible net worth of less than $5,000,000 ($2,000,000 if the
company has been operating for three or more years). The “penny stock” rules
impose additional sales practice requirements on broker-dealers who sell
securities to persons other than established customers and accredited investors
(generally those with assets in excess of US$1,000,000 or annual income
exceeding US$200,000 or US$300,000 together with their spouse). For transactions
covered by these rules, the broker-dealer must make a special suitability
determination for the purchase of securities and have received the purchaser’s
written consent to the transaction before the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the broker-dealer must
deliver, before the transaction, a disclosure schedule prescribed by the
Securities and Exchange Commission relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. These additional burdens
imposed on broker-dealers may restrict the ability or decrease the willingness
of broker-dealers to sell our common stock, and may result in decreased
liquidity for our common stock and increased transaction costs for sales and
purchases of our common stock as compared to other securities.
OUR
COMMON STOCK IS THINLY TRADED, AND YOU MAY BE UNABLE TO SELL AT OR NEAR “ASK”
PRICES OR AT ALL IF YOU NEED TO SELL YOUR SHARES TO RAISE MONEY OR OTHERWISE
DESIRE TO LIQUIDATE YOUR SHARES.
Although
our common stock is quoted on the Over-the-Counter Bulletin Board (“OTC”), we
cannot predict the extent to which an active public market for our common stock
will develop or be sustained. However, we do not rule out the possibility of
applying for listing on the NASDAQ Global Select Market, NASDAQ Global Market,
NASDAQ Capital Market (the “NASDAQ Markets”), or other exchanges. Our common
stock has historically been sporadically or “thinly-traded” on the OTC, meaning
that the number of persons interested in purchasing our common stock at or near
bid prices at any give time may be relatively small or nonexistent. This
situation is attributable to a number of factors, including the fact that we are
a small company that is relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community that generate or
influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-adverse and would be reluctant to follow an
unproven company such as ours or purchase or recommend the purchase of our
shares until such time as we become more seasoned and viable. As a consequence,
there may be periods of several days or more when trading activity in our shares
is minimal or non-existent, as compared to a seasoned issuer that has a large
and steady volume of trading activity that will generally support continuous
sales without an adverse effect on share price. We cannot give you any assurance
that a broader or more active public trading market for our common stock will
develop or be sustained, or that current trading levels will be
sustained.
The
market price of our common stock is particularly volatile given our status as a
relatively small company with a small and thinly traded “float” that could lead
to wide fluctuations in our share price. The price at which you purchase our
common stock may not be indicative of the price that will prevail in the trading
market. You may be unable to sell your common stock at or above your purchase
price if at all, which may result in substantial losses to you.
The
market for our common stock is characterized by significant price volatility
when compared to seasoned issuers, and we expect that our share price will
continue to be more volatile than a seasoned issuer for the indefinite future.
The volatility in our share price is attributable to a number of factors. As
noted above, our common stock is sporadically and/or thinly traded. As a
consequence of this lack of liquidity, the trading of relatively small
quantities of shares by our shareholders may disproportionately influence the
price of those shares in either direction. The price for our shares could, for
example, decline precipitously in the event a large number of our common shares
are sold on the market without commensurate demand, as compared to a seasoned
issuer which could better absorb those sales without adverse impact on its share
price. The following factors also may add to the volatility in the price of our
common stock: actual or anticipated variations in our quarterly or annual
operating results; adverse outcomes; additions to or departures of our key
personnel, as well as other items discussed under this “Risk Factors” section,
as well as elsewhere in this report. Many of these factors are beyond our
control and may decrease the market price of our common stock, regardless of our
operating performance. We cannot make any predictions or projections as to what
the prevailing market price for our common stock will be at any time, including
as to whether our common stock will sustain its current market prices, or as to
what effect the sale of shares or the availability of common shares for sale at
any time will have on the prevailing market price. However, we do not rule out
the possibility of applying for listing on the NASDAQ Markets or another
exchange.
Shareholders
should be aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include (1) control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer; (2)
manipulation of prices through pre-arranged matching of purchases and sales and
false and misleading press releases; (3) boiler room practices involving
high-pressure sales tactics and unrealistic price projections by inexperienced
sales persons; (4) excessive and undisclosed bid-ask differential and markups by
selling broker-dealers; and (5) the wholesale dumping of the same securities by
promoters and broker-dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices and with
consequent investor losses. Our management is aware of the abuses that have
occurred historically in the penny stock market. Although we do not expect to be
in a position to dictate the behavior of the market or of broker-dealers who
participate in the market, management will strive within the confines of
practical limitations to prevent the described patterns from being established
with respect to our securities. The occurrence of these patterns or practices
could increase the volatility of our share price.
VOLATILITY
IN OUR COMMON STOCK PRICE MAY SUBJECT US TO SECURITIES LITIGATION.
The
market for our common stock may be characterized by significant price volatility
when compared to seasoned issuers, and we expect our share price will be more
volatile than a seasoned issuer for the indefinite future. In the past,
plaintiffs have often initiated securities class action litigation against a
company following periods of volatility in the market price of its securities.
We may, in the future, be the target of similar
litigation. Securities litigation could result in substantial costs
and liabilities and could divert management’s attention and
resources.
LEGISLATIVE
ACTIONS, HIGHER INSURANCE COSTS AND POTENTIAL NEW ACCOUNTING PRONOUNCEMENTS MAY
IMPACT OUR FUTURE FINANCIAL POSITION AND RESULTS OF OPERATIONS.
There
have been regulatory changes, including the Sarbanes-Oxley Act of 2002, and
there may potentially be new accounting pronouncements or additional regulatory
rulings that will have an impact on our future financial position and results of
operations. The Sarbanes-Oxley Act of 2002 and other rule changes, as well as
proposed legislative initiatives following the Enron bankruptcy, are likely to
increase general and administrative costs and expenses. In addition, insurers
are likely to increase premiums as a result of high claims rates over the past
several years, which we expect will increase our premiums for insurance
policies. Further, there could be changes in certain accounting rules. These and
other potential changes could materially increase the expenses we report under
generally accepted accounting principles, and adversely affect our operating
results.
PAST
ACTIVITIES OF OUR COMPANY AND AFFILIATES MAY LEAD TO FUTURE LIABILITY FOR OUR
COMPANY.
Prior to
our acquisition of CelLynx in 2008, we were engaged in businesses unrelated to
our current operations. Although certain previously controlling
shareholders of our company are providing certain indemnifications against any
loss, liability, claim, damage or expense arising out of or based on any breach
of or inaccuracy in any of their representations and warranties made regarding
such acquisition, any liabilities relating to such prior business against which
we are not completely indemnified may have a material adverse effect on our
company.
WE
HAVE RAISED SUBSTANTIAL AMOUNTS OF CAPITAL IN A RECENT FINANCING, AND IF WE
INADVERTENTLY FAILED TO COMPLY WITH APPLICABLE SECURITIES LAWS, ENSUING
RESCISSION RIGHTS OR LAWSUITS WOULD SEVERELY DAMAGE OUR FINANCIAL
POSITION.
The
securities offered in our July 2008 private placement were not registered under
the Securities Act in reliance upon exemptions from such registration
requirements. Such exemptions are highly technical in nature, and if
we inadvertently failed to comply with the requirements or any of such exemptive
provisions, investors would have the right to rescind their purchase of our
securities or sue for damages. If one or more investors were to
successfully seek such rescission or prevail in any such suit, we would face
severe financial demands that could materially and adversely affect our
financial position. Financings that may be available to us under current market
conditions frequently involve sales at prices below the prices at which our
common stock currently is quoted on the OTCBB or exchange on which our common
stock may in the future be listed, as well as the issuance of warrants or
convertible securities at a discount to market price
FUTURE
SALES OF SHARES OF OUR COMMON STOCK MAY DECREASE THE PRICE FOR SUCH
SHARES.
Actual
sales, or the prospect of sales by our shareholders, may have a negative effect
on the market price of the shares of our common stock. We may also register
certain shares of our common stock that are subject to outstanding convertible
securities, if any, or reserved for issuance under our stock option plans, if
any. Once such shares are registered, they can be freely sold in the public
market upon exercise of the options. If any of our shareholders, either
individually or in the aggregate, cause a large number of securities to be sold
in the public market, or if the market perceives that these holders intend to
sell a large number of securities, such sales or anticipated sales could result
in a substantial reduction in the trading price of shares of our common stock
and could also impede our ability to raise future capital.
MERGERS
OF THE TYPE WE JUST COMPLETED WITH CELLYNX ARE OFTEN HEAVILY SCRUTINIZED BY THE
SECURITIES AND EXCHANGE COMMISSION, AND WE MAY ENCOUNTER DIFFICULTIES OR DELAYS
IN OBTAINING FUTURE REGULATORY APPROVALS.
Historically,
the Securities and Exchange Commission and NASDAQ have not generally favored
transactions in which a privately-held company merges into a largely inactive
company with publicly traded stock, and there is a significant risk that we may
encounter difficulties in obtaining the regulatory approvals necessary to
conduct future financing or acquisition transactions. On June 29, 2005, the SEC
adopted rules dealing with private company mergers into dormant or inactive
public companies. As a result, it is likely that we will be scrutinized
carefully by the SEC and possibly by the Financial Industry Regulatory Authority
or NASDAQ, which could result in difficulties or delays in achieving SEC
clearance of any future registration statements or other SEC filings that we may
pursue, in attracting FINRA-member broker-dealers to serve as market-makers in
our common stock, or in achieving admission to one of the NASDAQ stock markets
or any other national securities market. As a consequence, our financial
condition and the value and liquidity of your shares of our common stock may be
negatively impacted.
OUR
CORPORATE ACTIONS ARE SUBSTANTIALLY CONTROLLED BY OUR PRINCIPAL SHAREHOLDERS AND
AFFILIATED ENTITIES.
Our
principal shareholders own approximately 56,690,904 of our outstanding common
and preferred stock, representing approximately 45% of our voting
power. These shareholders, acting individually or as a group, could
exert substantial influence over matters such as electing directors, amending
our Articles of Incorporation or by-laws, and approving mergers or other
business combinations or transactions. In addition, because of the percentage of
ownership and voting concentration in these principal shareholders elections of
our board of directors will generally be within the control of these
shareholders. While all of our shareholders are entitled to vote on
matters submitted to our shareholders for approval, the concentration of shares
and voting control presently lies with these principal shareholders. As such, it
would be difficult for shareholders to propose and have approved proposals not
supported by these principal shareholders. There can be no assurances
that matters voted upon by our officers and directors in their capacity as
shareholders will be viewed favorably by all shareholders of our company. Our
principal shareholders and their affiliated entities stock ownership may
discourage a potential acquirer from seeking to acquire shares of our common
stock or otherwise attempting to obtain control of our company, which in turn
could reduce our stock price or prevent our stockholders from realizing a
premium over our stock price.
THE
ELIMINATION OF MONETARY LIABILITY AGAINST OUR DIRECTORS, OFFICERS AND EMPLOYEES
UNDER NEVADA LAW AND THE EXISTENCE OF INDEMNIFICATION RIGHTS TO OUR DIRECTORS,
OFFICERS AND EMPLOYEES MAY RESULT IN SUBSTANTIAL EXPENDITURES BY US AND MAY
DISCOURAGE LAWSUITS AGAINST OUR DIRECTORS, OFFICERS AND EMPLOYEES.
Our
bylaws contain specific provisions that eliminate the liability of our directors
for monetary damages to our company and shareholders, and we are prepared to
give such indemnification to our directors and officers to the extent provided
by Nevada law. The foregoing indemnification obligations could result in our
company incurring substantial expenditures to cover the cost of settlement or
damage awards against directors and officers, which we may be unable to recoup.
These provisions and resulting costs may also discourage our company from
bringing a lawsuit against our directors and officers for breach of their
fiduciary duties, and may similarly discourage the filing of derivative
litigation by shareholders against our directors and officers even though such
actions, if successful, might otherwise benefit our company and
shareholders.
THE
MARKET PRICE FOR OUR STOCK MAY BE VOLATILE.
The
market price for our stock may be volatile and subject to wide fluctuations in
response to factors including the following:
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|
●
|
actual
or anticipated fluctuations in our quarterly operating
results;
|
|
|
●
|
operating
results that fall below
expectations;
|
|
|
●
|
changes
in financial estimates by securities research
analysts;
|
|
|
●
|
changes
in the economic performance or market valuations of other cellular
technology companies;
|
|
|
●
|
announcements
by us or our competitors of new products, acquisitions, strategic
partnerships, joint ventures or capital
commitments;
|
|
|
●
|
announcements
or press releases relating to the wireless
telecommunications sector or to our business or
prospects;
|
|
|
●
|
technological
innovations or new products and services by us or our
competitors;
|
|
|
●
|
our
ability to execute our business
plan;
|
|
|
●
|
regulatory,
legislative or other developments affecting us or the cellular
technology industry generally;
|
|
|
●
|
the
number of freely-tradable “unrestricted” shares of our common stock
relative to the demand for our common
stock;
|
|
|
●
|
volume
and timing of customer orders;
|
|
|
●
|
economic
and other external factors;
|
|
|
●
|
addition
or departure of key personnel; and
|
|
|
●
|
intellectual
property litigation.
|
In
addition, the securities market has from time to time experienced significant
price and volume fluctuations that are not related to the operating performance
of particular companies. These fluctuations may include a so-called “bubble
market” in which investors temporarily raise the price of the stocks of
companies in certain industries, such as the renewable energy industry, to
unsustainable levels. These market fluctuations may also materially and
adversely affect the market price of our stock.
OUR ARTICLES OF INCORPORATION
AUTHORIZES OUR BOARD TO CREATE NEW SERIES OF PREFERRED STOCK WITHOUT FURTHER
APPROVAL BY OUR STOCKHOLDERS, WHICH COULD ADVERSELY AFFECT THE RIGHTS OF THE
HOLDERS OF OUR COMMON STOCK.
Our Board
of Directors has the authority to fix and determine the relative rights and
preferences of preferred stock. Our Board of Directors also has the authority to
issue preferred stock without further stockholder approval. As a result, our
Board of Directors could authorize the issuance of a series of preferred stock
that would grant to holders the preferred right to our assets upon liquidation,
the right to receive dividend payments before dividends are distributed to the
holders of common stock and the right to the redemption of the shares, together
with a premium, prior to the redemption of our common stock. In addition, our
Board of Directors could authorize the issuance of a series of preferred stock
that has greater voting power than our common stock or that is convertible into
our common stock, which could decrease the relative voting power of our common
stock or result in dilution to our existing stockholders.
SUMMARY
FINANCIAL DATA
The
following tables summarize consolidated financial data regarding the business of
the Company and should be read together with “Management’s Discussion and Analysis
or Plan of Operation” and the financial statements of the Company and the
related notes included with those financial statements. The summary
financial information as of March 31, 2008 and 2007, and for the year ended
September 30, 2007 and for the period October 11, 2005 (inception) to September
30, 2006 have been derived from CelLynx’s financial statements. All
monetary amounts are expressed in U.S. dollars unless otherwise
indicated.
| |
|
Year
Ended September 30,
|
|
|
|
|
|
Six Months Ended March 31,
|
|
|
|
|
| |
|
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
| |
|
(audited)
|
|
|
(audited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
Income
Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
Cost
of Revenue
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
Gross
profit
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
Total
Operating Expenses
|
|
|
335,868 |
|
|
|
690,946 |
|
|
|
722,052 |
|
|
|
331,133 |
|
|
|
1,748,866 |
|
|
Operating
Loss
|
|
|
(335,868 |
) |
|
|
(690,946 |
) |
|
|
(722,052 |
) |
|
|
(331,133 |
) |
|
|
(1,748,866 |
) |
|
Non-operating
incomes (expense)
|
|
|
(10,375 |
) |
|
|
277 |
|
|
|
(4,349 |
) |
|
|
(4,827 |
) |
|
|
(14,447 |
) |
|
Loss
before taxes
|
|
|
(346,243 |
) |
|
|
(690,669 |
) |
|
|
(726,401 |
) |
|
|
(335,960 |
) |
|
|
(1,763,313 |
) |
|
Net
loss
|
|
|
(346,243 |
) |
|
|
(690,669 |
) |
|
|
(726,401 |
) |
|
|
(335,960 |
) |
|
|
(1,763,313 |
) |
|
Weighted
average shares outstanding
|
|
|
47,443,771 |
|
|
|
35,534,446 |
|
|
|
55,971,315 |
|
|
|
40,585,399 |
|
|
|
44,499,913 |
|
|
Basic
and diluted earnings per share
|
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.04 |
) |
|
|
As of March 31,
|
|
As of September,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
Cash
|
|
$ |
91,531 |
|
|
$ |
2,371 |
|
|
$ |
152,167 |
|
|
Working
Capital
|
|
|
(614,550 |
) |
|
|
(297,390 |
) |
|
|
119,786 |
|
|
Total
Assets
|
|
|
143,734 |
|
|
|
31,532 |
|
|
|
168,128 |
|
|
Total
Liabilities
|
|
|
770,478 |
|
|
|
352,161 |
|
|
|
282,381 |
|
|
Total
Shareholders’ Deficit
|
|
|
(626,744 |
) |
|
|
(320,629 |
) |
|
|
(114,253 |
) |
Footnotes
The
reverse take-over transaction under the Exchange Agreement is deemed to be a
reverse acquisition, where the Company (the legal acquirer) is considered the
accounting acquiree and CelLynx (the legal acquiree) is considered the
accounting acquirer. The unaudited pro forma financial Statements for the
exchange transaction are attached hereto as Exhibit 99.2.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
You
should read the following discussion of our financial condition and results of
operations together with the audited financial statements and the notes to the
audited financial statements included in this current report on Form 8-K. This
discussion contains forward-looking statements that reflect our plans, estimates
and beliefs. Our actual results may differ materially from those anticipated in
these forward-looking statements.
Overview
On July
24, 2008, the Company acquired all of the outstanding shares of CelLynx in
exchange for the issuance by the Company of 32,454,922 restricted shares of our
common stock to the CelLynx Owners, which represented approximately 40.3% of the
then-issued and outstanding common stock of the Company (including the shares
issued in the Financing), and 45,516,034 restricted shares of Preferred Stock of
the Company, which automatically convert into 45,516,034 shares of common stock
of the Company upon the filing of a Certificate of Amendment to the Company’s
Articles of Incorporation increasing the number of authorized common stock to at
least 150,000,000 shares. As a result of this reverse take-over transaction,
CelLynx became the Company’s wholly owned subsidiary, and the Company acquired
the business and operations of CelLynx. See Item 1.01 of this Form
8-K for additional details regarding the reverse take-over
transaction.
Concurrently
with the closing of the share exchange transaction, on July 24, 2008 we raised
$1,575,000 in a private placement by issuing 10,500,000 shares of our common
stock and warrants to purchase 10,500,000 shares of our common stock at an
exercise price of $0.20 per share to investors. See Item 1.01
of this Form 8-K for additional details regarding this equity
financing.
We have not generated any revenue since
the commencement of our operations on October 11, 2005.
Critical
Accounting Policies and Estimates
Our
management’s discussion and analysis of our financial condition and results of
operations are based on our combined financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires
us to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements as well as the reported net sales and expenses
during the reporting periods. On an ongoing basis, we evaluate our estimates and
assumptions. We base our estimates on historical experience and on various other
factors that we believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.
While our
significant accounting policies are more fully described in Note 2 to our
financial statements attached hereto as Exhibit 99.1, we believe that the
following accounting policies are the most critical to aid you in fully
understanding and evaluating this management discussion and
analysis:
Fair Value of Financial
Instruments
On
January 1, 2008, we adopted SFAS No. 157, Fair Value Measurements. SFAS No. 157
defines fair value, establishes a three-level valuation hierarchy for
disclosures of fair value measurement and enhances disclosures requirements for
fair value measures. The carrying amounts reported in the balance sheets for
receivables and current liabilities each qualify as financial instruments and
are a reasonable estimate of fair value because of the short period of time
between the origination of such instruments and their expected realization and
their current market rate of interest. The three levels are defined as
follows:
|
|
·
|
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active
markets.
|
|
|
·
|
Level
2 inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial
instrument.
|
|
|
·
|
Level
3 inputs to the valuation methodology are unobservable and significant to
the fair value measurement.
|
The
Company analyzes all financial instruments with features of both liabilities and
equity under SFAS 150, “Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity,” SFAS No 133, “Accounting for
Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock.”
The
Company’s share-based compensation liability is carried at fair value totaling
$296,267 (unaudited), as of March 31, 2008. The Company used Level 2 inputs for
its valuation methodology for the share-based compensation liability, and the
fair values is determined by using the Black Scholes option pricing model based
on various assumptions.
The
Company recognized a $1,851 (unaudited) gain, on the change in the share-based
compensation liability for the six months ended March 31, 2008, and compensation
expense of $208,500 (unaudited) for the six month ended March 31,
2008.
The
Company did not identify any other non-recurring assets and liabilities that are
required to be presented on the balance sheet at fair value in accordance with
SFAS No. 157.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures 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.
Income
Taxes
Income
taxes are provided based upon the liability method of accounting in accordance
with SFAS No. 109, “Accounting for Income Taxes”. Deferred income
taxes are recognized for the tax effect of temporary differences between the
basis of assets and liabilities for financial statement and income tax
purposes. Pursuant to SFAS No. 109, we are required to compute
deferred income tax assets for net operating losses carried forward. The
potential benefits of net operating losses have not been recognized in these
financial statements because the Company cannot be assured it is more likely
than not it will utilize the net operating losses carried forward in future
years.
We
adopted FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes”,
during 2007. A tax position is recognized as a benefit only if it is “more
likely than not” that the tax position would be sustained in a tax examination,
with a tax examination being presumed to occur. The amount recognized is the
largest amount of tax benefit that is greater than 50% likely of being realized
on examination. For tax positions not meeting the “more likely than not” test,
no tax benefit is recorded. The adoption had no affect on our financial
statements.
Stock-Based
Compensation
We
account for our stock-based compensation for employees in accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 123R, "Share-Based
Payment, an Amendment of Financial Accounting Standards Board (“FASB”) Statement
No. 123." We recognize in the statement of operations the grant-date fair value
of stock options and other equity-based compensation issued to employees and
non-employees. We use the Black-Scholes option pricing model to value
the options issued.
Shares Issued for
Services
From time
to time, we issued stock for services. Since we were a private
company, we used the most recent stock issuance price to determine the value of
the services performed.
Patents and
Trademarks
Acquired
patents and trademarks are capitalized at their acquisition cost or fair value.
The legal costs, patent registration fees and models and drawings required for
filing patent applications are capitalized if they relate to commercially viable
technologies. Commercially viable technologies are those technologies that are
projected to generate future positive cash flows in the near term. Legal costs
associated with applications that are not determined to be commercially viable
are expensed as incurred. All research and development costs incurred in
developing the patentable idea are expensed as incurred. Legal fees from the
costs incurred in successful defense to the extent of an evident increase in the
value of the patents are capitalized.
Capitalized
cost for pending patents are amortized on a straight-line basis over the
remaining twenty year legal life of each patent after the costs have been
incurred. Once each patent or trademark is issued, capitalized costs are
amortized on a straight-line basis over a period not to exceed 20 years and 10
years, respectively.
Plan
of Operations
Overview
CelLynx
is an early stage developer of patent pending technology that allows for
the production of the next generation of cell phone amplifiers (also known as
repeaters or boosters) for the small office, home office (SOHO) and
vehicle. This next generation product, CelLynx 5BARz, is a single
piece unit that strengthens weak cellular signals to deliver higher quality
signals for voice, data and video reception on cell phones being used indoors or
in vehicles. CelLynx has recently completed a prototype SOHO unit
which delivers 45 decibel (dB) of gain in a Single Band PCS environment
providing up to 1,500 square feet of indoor coverage. This unit
measures 6.5 X 7.5 X 2.5 inches, weighs approximately one pound and does not
require the installation of antennas or cables in order to
function. Most SOHO cellular amplifiers currently on the market
require a receiving tower or antenna, usually placed in an attic or on a
rooftop, and a transmitting tower or antenna to be placed at least 35 feet from
the other antenna with each connected to the amplifier by
cable. CelLynx’s patent pending technology eliminates the need to
distance the receiving and transmitting towers, allowing the two towers to be
placed directly inside the amplifier, resulting in a more affordable, one piece
unit sometimes referred to as ‘plug & play’, i.e. requiring no installation
other than plugging the unit into a power source. In order to optimize
marketability, CelLynx is developing an improved model which it expects to
operate in a dual band, PCS and Cellular, environment delivering 65 dB of gain
thereby allowing for coverage of 2,500 to 3,000 square feet. This dual
band unit would work with all current wireless carriers except Nextel which
operates on its own frequency. The PCS network is generally used by the older
carriers such as AT&T at 850MHz while the newer carriers such as T-Mobile
operate on the Cellular network at 1900 MHz. Management is confident that
all of the critical functions required for this dual band unit have been
identified and that their engineering team has the capability to accomplish
development leading to commercialization.
CelLynx
has also developed a mobile unit particularly designed for use in
vehicles. This unit currently is an adaptation of the SOHO unit
described above. However, CelLynx is currently improving the mobility
of that model by developing a single piece amplifier which will measure 3.5 X 5
inches including one built in antenna and another antenna measuring 4 to 6
inches to be attached to any of the windows by suction cup or other portable
means. The unit will produce up to 45 dB of gain offering higher
performance within the interior of the vehicle cabin while reducing the signal
degrading effects of cabling. The mobile unit will feature built in caller ID
and Bluetooth speaker phone for hands free driving and will operate in a dual
band environment. It will require no installation other than placing the
antennae within the cabin of the vehicle and inserting the cigarette lighter
power adapter. Unlike the other products on the market, the CelLynx product will
not require the installation of a roof top, garage mounted,
antenna. As a result, management believes that this consumer friendly
product will surpass the competition in market acceptance thereby creating the
potential for a mass market distribution channel.
The
CelLynx product line is expected to be manufactured by top tier contract
manufacturers located in South East Asia. These manufacturers
allow CelLynx to capitalize on the full advantages of multiple manufacturing
locations with a trained and experienced technical work force, state
of the art facilities and knowledge of all aspects of supply chain management,
operational execution, global logistics and reverse logistics. The marketing and
sales functions will be handled in house incorporating a multi-channel strategy
that includes distribution partners, wireless service providers, retail outlets
and international joint ventures.
Material
Impact of Known Events on Liquidity
There are no known events that are
expected to have a material impact on our short-term or long-term
liquidity.
Capital
Resources
We have
financed our operations primarily through proceeds from the issuance of common
stock. From January to June 2008, we received approximately $750,000
in equity financing. In July 2008, we also received proceeds of $1,575,000 from
a private placement financing transaction. We believe that our
current cash, anticipated cash flow from operations, and net proceeds from the
private placement financing will be sufficient to meet our anticipated cash
needs, including our cash needs for working capital and capital expenditures for
at least the next six months. We will need to raise additional
capital in order to remain operational beyond this point. We believe
we will raise an additional $2,100,000 by the Investors exercising the warrants
they were issued in the private placement financing transaction referenced
above, however, the Investors are under no obligation to exercise their warrants
and there can be no assurances that they will exercise their
warrants. We also believe we will receive an additional $10,000,000
from the Distribution Agreement we entered into with Dollardex, however, this
funding is contingent on our meeting certain milestones and there can be no
assurances that we will meet those milestones. If we receive these
funds, we believe we will have sufficient capital to meet our needs for the
foreseeable future. If these funds do not materialize, we will need
to seek additional financing elsewhere. In addition, we may require
additional cash due to changes in business conditions or other future
developments, including any investments or acquisitions we may decide to pursue.
To the extent it becomes necessary to raise additional cash in the future, we
may seek to raise it through the sale of debt or equity securities, funding from
joint-venture or strategic partners, debt financing or loans, issuance of common
stock or a combination of the foregoing. We currently do not have any binding
commitments for, or readily available sources of, additional financing. We
cannot provide any assurances that we will be able to secure the additional cash
or working capital we may require to continue our operations, either now or in
the future.
Contractual
Obligations and Off-Balance Sheet Arrangements
Contractual
Obligations
We have
certain fixed contractual obligations and commitments that include future
estimated payments. Changes in our business needs, cancellation provisions,
changing interest rates, and other factors may result in actual payments
differing from the estimates. We cannot provide certainty regarding the timing
and amounts of payments. We have presented below a summary of the most
significant assumptions used in our determination of amounts presented in the
tables, in order to assist in the review of this information within the context
of our financial position, results of operations, and cash flows.
The
following tables summarize our contractual obligations as of March 31, 2008, and
the effect these obligations are expected to have on our liquidity and cash
flows in future periods.
|
Contractual
Obligation
|
|
Total
|
|
|
Less
than 1 year
|
|
|
1-3
years
|
|
|
Note
payable
|
|
$ |
250,000 |
|
|
$ |
250,000 |
|
|
$ |
- |
|
|
Stockholder
notes
|
|
|
60,000 |
|
|
|
- |
|
|
|
60,000 |
|
|
Operating
lease
|
|
|
21,980 |
|
|
|
21,980 |
|
|
|
- |
|
|
Total
Contractual Obligations
|
|
$ |
331,980 |
|
|
$ |
271,980 |
|
|
$ |
60,000 |
|
Off-Balance
Sheet Arrangements
We have
not entered into any other financial guarantees or other commitments to
guarantee the payment obligations of any third parties. We have not entered into
any derivative contracts that are indexed to our shares and classified as
stockholder’s equity or that are not reflected in our financial
statements. Furthermore, we do not have any retained or contingent
interest in assets transferred to an unconsolidated entity that serves as
credit, liquidity or market risk support to such entity. We do not have any
variable interest in any unconsolidated entity that provides financing,
liquidity, market risk or credit support to us or engages in leasing, hedging or
research and development services with us.
DESCRIPTION
OF PROPERTY
We lease
office space in El Dorado Hills, California at 5047 Robert J Mathews Parkway,
Suite 400, El Dorado Hills, California 95762. The facility is our primary
operating offices and headquarters. The facility is approximately 1,570 square
feet. The lease has a one-year term that expires February 21, 2009 and the
monthly base rent is $2,198. We believe that the foregoing facility
is sufficient for our operational needs.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security
Ownership Prior to Change of Control
The
following table sets forth information regarding the beneficial ownership of our
common stock as of July 24, 2008, for each of the following persons, prior to
the transactions contemplated by the Exchange Agreement:
|
|
•
|
each
of our directors and named officers prior to the Closing of the Exchange
Agreement;
|
|
|
•
|
all
of the directors and executive officers as a group prior to the Closing of
the Exchange Agreement; and
|
|
|
•
|
each
person who is known by us to own beneficially five percent or more of our
common stock prior to the change of control
transaction.
|
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. Unless otherwise indicated in the table, the persons and
entities named in the table have sole voting and sole investment power with
respect to the shares set forth opposite the shareholder’s name.
|
|
|
|
Number
of Shares of Common Stock Beneficially Owned
(1)
|
|
Percent
of Shares of Common Stock Beneficially Owned
|
|
John
P. Thornton (2)
President,
Chief Executive Office, Chief Financial Officer, Secretary, Treasurer and
Director
|
|
|
3,000,000
|
|
8.0%
|
|
All
Executive Officers and Directors as a Group (1 person)
|
|
|
3,000,000
|
|
8.0%
|
|
|
|
|
|
|
|
|
5%
Holders
|
|
|
|
|
|
|
John
P. Thornton (2)
|
|
|
3,000,000
|
|
8.0%
|
|
|
Under
Rule 13d-3, a beneficial owner of a security includes any person who,
directly or indirectly, through any contract, arrangement, understanding,
relationship, or otherwise has or shares: (i) voting power, which includes
the power to vote, or to direct the voting of shares; and (ii) investment
power, which includes the power to dispose or direct the disposition of
shares. Certain shares may be deemed to be beneficially owned by more than
one person (if, for example, persons share the power to vote or the power
to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire the
shares (for example, upon exercise of an option) within 60 days of the
date as of which the information is provided. In computing the percentage
ownership of any person, the amount of shares outstanding is deemed to
include the amount of shares beneficially owned by such person (and only
such person) by reason of these acquisition rights. As a result, the
percentage of outstanding shares of any person as shown in this table does
not necessarily reflect the person's actual ownership or voting power with
respect to the number of shares of common stock actually outstanding on
July 24, 2008. As of July 24, 2008, there were 37,597,890 common shares
issued and outstanding prior to the closing of the Exchange
Agreement.
|
|
(2)
|
This
shareholder’s address is 12500 Brunswick Place, Richmond, BC V7E
6J3.
|
Security
Ownership After Change of Control
The
following table sets forth information regarding the beneficial ownership of our
common stock as of July 24, 2008, for each of the following persons, after
giving effect to the transaction under the Exchange Agreement:
|
|
•
|
Each
of our directors and each of the named executive officers in the
“Management—Executive Compensation” section of this
report;
|
|
|
•
|
all
directors (including directors whose appointments become effective after
compliance with Rule 14f-1 of the Exchange Act), and named executive
officers as a group; and
|
|
|
•
|
each
person who is known by us to own beneficially five percent or more of our
common stock after the change of control
transaction.
|
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. Unless otherwise indicated in the table, the persons and
entities named in the table have sole voting and sole investment power with
respect to the shares set forth opposite the shareholder’s name. Unless
otherwise indicated, the address of each beneficial owner listed below is 27795
Country Lane, Laguna Niguel, California 92677. The percentage of
class beneficially owned set forth below is based on 126,068,846 shares
outstanding as of July 24, 2008, which includes 80,552,812 shares of common
stock and 45,516,034 shares of Series A Preferred Stock that automatically
convert into 45,516,034 shares of common stock upon the authorized common stock
of the Company being increased to include not less than 150,000,000 shares of
common stock.
|
Name
and Position
|
|
Number
of Shares of Common Stock Beneficially Owned
(1)
|
|
Percent
of Shares of Common Stock Beneficially Owned (2)
|
|
|
Daniel
R. Ash, President, Chief Executive Officer, Chief Operating Officer,
Secretary and Director (3)
|
|
31,264,882
|
|
24.2%
|
|
|
Tareq
Risheq, Chief Strategy Officer and Director (4)
|
|
31,264,882
|
|
24.2%
|
|
|
Kevin
Pickard, Chief Financial Officer and Treasurer (5)
|
|
382,970
|
|
*
|
|
|
Robert
J. Legendre, Chairman of the Board
|
|
--
|
|
*
|
|
|
Norman
W. Collins, Director
|
|
125,793
|
|
*
|
|
|
All
Executive Officers and Directors as
a Group (5 persons)
|
|
63,038,527
|
|
47.8%
|
|
|
(1)
|
Under
Rule 13d-3, a beneficial owner of a security includes any person who,
directly or indirectly, through any contract, arrangement, understanding,
relationship, or otherwise has or shares: (i) voting power, which includes
the power to vote, or to direct the voting of shares; and (ii) investment
power, which includes the power to dispose or direct the disposition of
shares. Certain shares may be deemed to be beneficially owned by more than
one person (if, for example, persons share the power to vote or the power
to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire the
shares (for example, upon exercise of an option) within 60 days of the
date as of which the information is provided. In computing the percentage
ownership of any person, the amount of shares outstanding is deemed to
include the amount of shares beneficially owned by such person (and only
such person) by reason of these acquisition rights. As a result, the
percentage of outstanding shares of any person as shown in this table does
not necessarily reflect the person's actual ownership or voting power with
respect to the number of shares of common stock actually
outstanding.
|
|
(2)
|
Percentage
based upon 126,068,846 issued and outstanding shares of the Company’s
capital stock, which include 32,454,922 shares of our common stock and
45,516,034 shares of our Series A Preferred Stock that were issued
pursuant to the share exchange transaction that closed on July 24, 2008,
and 10,500,000 shares of common stock issued in connection with the
closing of the Financing that closed on July 23, 2008. The
Series A Preferred Stock automatically convert into 45,516,034 shares of
common stock upon the authorized common stock of the Company being
increased to include not less than 150,000,000 shares of common stock.
Percentage totals may vary slightly due to
rounding.
|
|
|
|
|
(3)
|
Includes
10,672,726 shares of common stock, 17,672,726 shares of Series A Preferred
Stock, options to purchase 277,779 shares of common stock at an exercise
price of $0.0787 per share, a $20,000 note convertible into 2,515,858
shares of common stock at a conversion price of $0.0079 per share and a
$10,000 note convertible into 125,793 shares of common stock at a
conversion price of $0.0795 per share.
|
|
|
|
|
(4)
|
Includes
10,672,726 shares of common stock, 17,672,726 shares of Series A Preferred
Stock, options to purchase 277,779 shares of common stock at an exercise
price of $0.0787 per share, a $20,000 note convertible into 2,515,858
shares of common stock at a conversion price of $0.0079 per share and a
$10,000 note convertible into 125,793 shares of common stock at a
conversion price of $0.0795 per share.
|
|
|
|
|
(5)
|
Includes
191,484 shares of common stock and 191,486 shares of Series A Preferred
Stock.
|
DIRECTORS
AND EXECUTIVE OFFICERS
Appointment
of New Directors and Officers
In
connection with the exchange transaction, Daniel R. Ash was appointed as a
member of our board of directors. In addition, John P. Thornton
agreed to resign as a member of our board of directors, and we agreed to appoint
three (3) new directors to our board of directors to become effective 10
calendar days after the date we file with the Securities and Exchange Commission
and transmit to holders of record of our securities the information required by
Rule 14f-1 of the Securities Exchange Act of 1934, or on such earlier or later
date as the Securities and Exchange Commission shall authorize pursuant to Rule
14f-1.
Furthermore,
concurrent with the closing of the exchange transaction, John P. Thornton
resigned as our Chief Executive Officer, President, Chief Financial Officer,
Secretary and Treasurer. Immediately following the resignation of Mr.
Thornton, we appointed three (3) new executive officers. Descriptions
of our newly appointed directors and officers can be found below in the section
titled “Current Management.”
Current
Management
The
following table sets forth the names and ages of our directors, executive
officers and significant employees as of the date of this Current Report on Form
8-K:
|
|
|
Age
|
|
Position
|
|
Daniel
R. Ash
|
|
47
|
|
President,
Chief Executive Officer, Chief Operating Officer, Secretary and
Director
|
|
Tareq
Risheq
|
|
43
|
|
Chief
Strategy Officer and Director
|
|
Kevin
Pickard
|
|
44
|
|
Chief
Financial Officer and Treasurer
|
|
Robert
J. Legendre
|
|
51
|
|
Chairman
of the Board
|
|
Norman
W. Collins
|
|
69
|
|
Director
|
Daniel
R. Ash – President, Chief Executive Officer, Chief Operating Officer, Secretary
and Director
Daniel R.
Ash currently serves as a Director, President and Chief Executive
Officer. Since July of 2006 he has devoted his full time efforts to
the development of CelLynx and its products. Mr. Ash has more than 20 years
experience in the wireless industry with senior management roles in new product
development, engineering, off-shore manufacturing and global
operations.
Prior to
founding CelLynx, from 1999 to 2006 Mr. Ash held senior positions at Powerwave
Technologies, a manufacturer of RF amplifiers and antennae, and was instrumental
in its growth from $200M to more than $800M annual revenues. From 1991 to 1999,
Mr. Ash held senior positions with Hewlett Packard and was responsible for the
transfer of RF cell phone amplifier modules to high volume production in
Malaysia ramping production to over one million amplifiers per
month.
Early in
his career, Mr. Ash worked in the electronic defense industry for Teledyne
Microwave and Narda Microwave. He worked on several missile projects and was
considered by many to be one of the industry experts in millimeter wave
electronics.
Tareq
Risheq – Chief Strategy Officer and Director
Tareq
Risheq currently serves as Director and Chief Strategy Officer. He
has over 20 years experience in the Consumer Electronics and Information
Technology industries. Mr. Risheq, founded Simpliciti Corporation,
where, from 2002 to 2004, he took a PDA product from concept to volume
manufacturing and nationwide distribution to major
retailers. Simpliciti was featured in the Wall Street Journal as well
as most of the other national media outlets. Mr. Risheq also
established a direct sales organization in Saudi Arabia and grew that firm to
$30M in revenues within three years. He holds a Bachelor of
Science degree in Business/Management from Bradley University.
Kevin
Pickard – Chief Financial Officer and Treasurer
Since 1998, Mr. Pickard has
been a principal officer and owner of Pickard & Green CPAs (formerly Pickard
& Company, CPA’s, P.C.), an accounting firm formed by Mr. Pickard that
specializes in providing SEC accounting and other management consulting services
for small to medium sized companies, including preparing required SEC filings
for public companies, due diligence on potential acquisitions, preparing
projections and business plans, assisting with restructuring of companies, and
positioning companies for initial public offerings. Mr. Pickard also currently
serves as the interim President for Universal Guardian Holding, Inc., a company
that trades on the Pink Sheets, and as interim CFO for Signalife, Inc., a
company that trades on the American Stock Exchange. Mr. Pickard
was a Partner with Singer Lewak Greenbaum & Goldstein, LLP, from 1996
to 1998, where he co-managed the firm’s securities practice group.
Mr. Pickard also spent over nine years with Coopers & Lybrand, L.L.P.
(currently PricewaterhouseCoopers, LLP), where he focused on the auditing
companies in the insurance, high-tech and manufacturing
industries. Mr. Pickard holds Bachelors of Science and Masters
degrees in Accounting from Brigham Young University.
Robert
J. Legendre – Chairman of the Board
Robert J. Legendre brings 25 years of
global experience in all aspects of operations management including supply chain
management, global operations, captive and contracted offshore manufacturing,
NPI management, research & development, engineering development, and sales
& marketing. Mr. Legendre held several senior level positions including Sr.
Vice President of Global Operations and President of Asia & America's
Strategic Business Unit for Powerwave Technologies. He has also held Sr.
Management positions in operations and supply chain with Infocus Corporation,
Pemstar Corporation and Western Digital, where he managed operations and supply
chain in many global locations including Puerto Rico, Singapore and Malaysia.
Mr. Legendre has a Bachelor of Science degree in Business from LaSalle
University.
Norman
W. Collins - Director
Norman W.
Collins, Sr. is an independent Director who was appointed upon the completion of
the merger between CelLynx, Inc. and Norpac. Since June of 2003, Mr.
Collins has been Director and President of Collins & Associates, a Delaware
corporation providing consulting services to corporations as well as legal
services in the form of Mediation and Arbitration of corporate
disputes. He is admitted to the Tennessee Bar and is a Certified
Mediator and Arbitrator in Georgia and a Certified Mediator in North Carolina
and the District of Columbia. Between 2003 and 2007 Mr. Collins also
served as the Executive Director of the Living Memorial Tree Foundation, a New
York non-profit organization dedicated to the creation of a memorial to the
victims of 9/11. Since May of 2006, Mr. Collins has also served as Director and
CEO of Upgrade International, a Washington technology
corporation. Prior positions include Director and CEO of several
non-reporting companies either in the development stage or with revenues
exceeding $30 Million.
Mr.
Collins holds a Bachelor of Science degree in Business Administration from Trine
University and a Juris Doctor degree from Michigan State University, College of
Law.
Family
Relationships
There are
no family relationships among the directors and executive officers.
Involvement in Certain Legal
Proceedings
Except as
provided below, none of our directors or executive officers has, during the past
five years:
|
|
(a)
|
Had
any bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the time of
the bankruptcy or within two years prior to that
time;
|
|
|
(b)
|
Been
convicted in a criminal proceeding or subject to a pending criminal
proceeding;
|
|
|
(c)
|
Been
subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities, futures, commodities or
banking activities; and
|
|
|
(d)
|
Been
found by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended, or
vacated.
|
In
January 2008, Mr. Pickard became interim President of Universal Guardian
Holding, Inc. (“UGH”) to assist the Board of Directors in disposing of UGH’s
assets to repay UGH’s bondholders. UGH was not successful in selling
its assets and on June 23, 2008, the Board of Directors elected to voluntarily
file for Chapter 7 bankruptcy protection.
Board
of Directors
Our board
of directors is currently composed of four (4) members. All members of our board
of directors serve in this capacity until their terms expire or until their
successors are duly elected and qualified. Our bylaws provide that the
authorized number of directors will be not less than one nor more than
twelve.
Board
Committees; Director Independence
As of
this date, our board of directors has not appointed an audit committee or
compensation committee, and none of our current directors qualifies as an “audit
committee financial expert;” however, we are not currently required to have such
committees. The functions ordinarily handled by these committees are
currently handled by our entire board of directors. Our board of directors
intends, however, to review our governance structure and institute board
committees as necessary and advisable in the future to facilitate the management
of our business.
Our board
of directors consists of one independent director and three non-independent
directors. We have determined independence in accordance with definitions and
criteria applicable under the NASDAQ rules.
Compensation
Committee Interlocks and Insider Participation
No
interlocking relationship exists between our board of directors and the board of
directors or compensation committee of any other company, nor has any
interlocking relationship existed in the past.
EXECUTIVE
COMPENSATION
Executive
Compensation
The
following summary compensation table reflects all compensation for fiscal years
2006 and 2007 received by our predecessor’s principal executive officer and two
most highly compensated executive officers whose salary exceeded
$100,000.
Summary
Compensation Table – Predecesso
|
Name
and
Principal
Position
|
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
|
John
P. Thornton
President,
CEO, CFO,
Secretary and
Treasurer
|
|
|
2007
|
|
12,000
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
12,000
|
|
|
|
|
|
2006
|
|
2,500
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce
Leitch,
Former
President, Former
Secretary, Former
Treasurer, Former
CEO, Former
CFO, and Former
Director(1)(2)
|
|
|
2006
|
|
30,000
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
30,000
|
|
|
(1)
|
Mr.
Leitch acted as a management consultant to our company and had been paid
under the arrangement the sum of $8,500 per month until September 30,
2002. Since January 1, 2003 Mr. Leitch had received $5,000 per month for
his management consulting services provided to us until his resignation as
an officer and director on June 7, 2006.
|
|
|
|
|
|
|
|
|
|
|
(2)
|
We
issued to Mr. Leitch a Convertible Note in the principal amount of $96,490
in settlement of amounts owed to Mr. Leitch for accrued but unpaid
consultant fees. Mr. Leitch subsequently converted $20,000 of the
principal amount of the Convertible Note on April 23, 2004 in exchange for
1,008,901 shares of our common stock, including accrued interest payable
on the Convertible Note. On May 26, 2005, Mr. Leitch converted the
remaining $76,490 of the Convertible Notes held by him in exchange for
4,471,837 shares of common stock, including all accrued interest
payable.
|
|
|
|
The
following summary compensation table reflects all compensation for fiscal years
2006 and 2007 received by CelLynx’s principal executive officer and two most
highly compensated executive officers whose salary exceeded
$100,000.
Summary
Compensation Table – CelLynx
|
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
(
$)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
Non-qualified
Deferred
Compensation
Earnings
($)
|
|
All
Other
Comp-ensation
(
$)
|
|
Total
($)
|
|
Daniel
R. Ash, President, Chief Executive Officer, Chief Operating Officer
Secretary and Director
|
|
2007
|
|
|
30,000
|
|
--
|
|
|
63,333
|
(1)
|
--
|
|
|
--
|
|
--
|
|
|
--
|
|
93,333
|
|
|
|
2006
|
|
|
--
|
|
--
|
|
|
105,000
|
(1)
|
--
|
|
|
--
|
|
--
|
|
|
--
|
|
105,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tareq
Risheq, Chief Strategy Officer and Director
|
|
2007
|
|
|
30,000
|
|
--
|
|
|
63,333
|
(1)
|
--
|
|
|
--
|
|
--
|
|
|
--
|
|
93,333
|
|
|
|
2006
|
|
|
--
|
|
--
|
|
|
120,000
|
(1)
|
--
|
|
|
--
|
|
--
|
|
|
--
|
|
120,000
|
|
(1)
|
|
The
value of the stock award was determined based on the fair market value of
the services performed.
|
Outstanding
Equity Awards
There
were no unexercised options, stock that has not vested or equity incentive plan
awards for any of our named executive officers outstanding as of the end of our
last completed fiscal year.
On
October 1, 2007, CelLynx’s Chief Executive Officer, Daniel R. Ash, and its Chief
Strategy Officer, Tareq Risheq, were each granted options to purchase 3,647,247
shares of CelLynx’s common stock at an exercise price of $0.099 per
share. Each option vests 33.3% after one year, with the remaining
66.7% to vest evenly over the remaining months. Upon the closing of
the Exchange Agreement, these options were exchanged for options to purchase
4,587,979 shares of Norpac’s common stock at an exercise price of $0.0787 per
share.
On April
21, 2008, Mr. Ash and Mr. Risheq were each granted options to purchase 277,779
shares of CelLynx’s common stock at an exercise price of $0.099 per share, which
fully vest after 90 days. Upon the closing of the Exchange Agreement,
these options were exchanged for options to purchase 349,426 shares of Nopac’s
common stock at an exercise price of $0.0787 per share.
On May
20, 2008, Mr. Ash was granted an option to purchase 6,737,478 shares of
CelLynx’s common stock an exercise price of $0.099 per share, and Mr. Risheq was
granted an option to purchase 3,743,044 shares of CelLynx’s common stock an
exercise price of $0.099 per shares. Each option vests 33.3% after
one year, with the remaining 66.7% to vest evenly over the remaining
months. Upon the closing of the Exchange Agreement, Mr. Ash’s option
was exchanged for an option to purchase 8,475,270 shares of Norpac’s common
stock at an exercise price of $0.0787 per share, and Mr. Risheq’s option was
exchanged for an option to purchase 4,708,484 shares of Norpac’s common stock at
an exercise price of $0.0787 per share.
Retirement
Plans
We
currently have no plans that provide for the payment of retirement benefits, or
benefits that will be paid primarily following retirement, including but not
limited to tax-qualified defined benefit plans, supplemental executive
retirement plans, tax-qualified defined contribution plans and nonqualified
defined contribution plans.
Potential
Payments upon Termination or Change-in-Control
Except as
described below under “Employment Agreements,” we currently have no contract,
agreement, plan or arrangement, whether written or unwritten, that provides for
payments to a named executive officer at, following, or in connection with any
termination, including without limitation resignation, severance, retirement or
a constructive termination of a named executive officer, or a change in control
of the registrant or a change in the named executive officer’s responsibilities,
with respect to each named executive officer.
Employment
Agreements
On
October 1, 2007, the Board of Directors of CelLynx approved the following
compensation packages for Daniel R. Ash and Tareq Risheq:
| |
Annual
Base Salary:
|
$200,000 |
| |
|
|
|
|
Bonus
Plan:
|
Participation
in the CelLynx Bonus Plan can amount up to 30% of the annual base salary,
but is conditioned upon achievement of the goals and objectives of the
then current plan, including those related to overall company
performance.
|
|
|
Fringe
Benefits:
|
Fifteen
paid vacation days per year. Ten paid holidays per
year. Health insurance with hospital
coverage.
|
|
|
Stock
Options:
|
3%
of the current outstanding common stock based the fair market value on the
date of hire of $0.10 per share. The options vest over three
years with 33.3% vesting after the first year and monthly vesting
thereafter of 1/24th
of the remaining 66.6%.
|
|
|
Severance:
|
If
employment is terminated without cause, Mr. Ash and Mr. Tareq will receive
six months pay.
|
|
|
Acquisition:
|
If
CelLynx is acquired, all outstanding stock options will become fully
vested.
|
The Board
of Directors of CelLynx amended this compensation package on May 20, 2008 to
provide for an annual salary of $170,000 for Mr. Ash and $108,000 for Mr.
Risheq.
On July
22, 2008, CelLynx entered into a consulting agreement (the “Consulting
Agreement”) with Kevin Pickard whereby Mr. Pickard agreed to serve as the
Company’s interim Chief Financial Officer for a period beginning on the date of
the Consulting Agreement and ending on the earlier of (i) the date that the
Company retains a permanent Chief Financial Officer, (ii) the 90th day
after the closing of the reverse take-over transaction contemplated by the
Exchange Agreement, or (iii) the date which the Company notifies Mr. Pickard
that he has been terminated in writing, and which notification may occur at any
time for any reason. As an inducement to enter into the Consulting
Agreement, CelLynx granted Mr. Pickard 100,000 shares of CelLynx common stock
and $5,000 in cash. The CelLynx common stock were converted into
62,896 shares of Norpac common stock and 62,897 shares of Norpac Series A
Preferred Stock upon the closing of the reverse take-over
transaction.
Director
Compensation
On July 15, 2008, CelLynx entered into
an agreement with Mr. Norman W. Collins that granted Mr. Collins a stock option
to purchase 610,000 shares of CelLynx’s common stock at an exercise price of
$0.09 per share that vests over a four year period so long as Mr. Collins
remains a director of CelLynx. Upon the closing of the Exchange
Agreement, this option was exchanged for an option to purchase 767,337 shares of
Norpac’s common stock at an exercise price of $0.0715 per share.
Other
than as described above, we do not pay any compensation to members of our board
of directors for their service on the board. However, we intend to review and
consider future proposals regarding board compensation.
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
AND
DIRECTOR INDEPENDENCE
Share
Exchange Agreement
On July
24, 2008, in a reverse take-over transaction, we acquired a cellular amplifier
business based in California by executing the Exchange Agreement by and among
the Company, CelLynx, and the CelLynx Owners.
Under the
Exchange Agreement, on the Closing Date, we acquired all of the issued and
outstanding shares of CelLynx through the issuance of 32,454,922 restricted
shares of our common stock and 45,516,034 restricted shares of our Series A
Preferred Stock to the CelLynx Owners. Immediately prior to the exchange
transaction, we had 37,597,890 shares of common stock issued and outstanding and
no shares of Series A Preferred Stock issued and outstanding. Immediately after
the issuance of the shares to the CelLynx Owners, we had 80,552,812 shares of
common stock issued and outstanding (including the shares issued in the
Financing) and 45,516,034 shares of Series A Preferred Stock issued and
outstanding. As a result of this exchange transaction, the CelLynx Owners became
our controlling shareholders and CelLynx became our wholly owned subsidiary. In
connection with CelLynx becoming our wholly owned subsidiary, we acquired the
business and operations of CelLynx, which has become our principal
business.
Related
Party Transactions of CelLynx
On October 1, 2007, CelLynx granted to
Robert J. Legendre, CelLynx’s current Chairman of the Board, options to purchase
9,725,991 shares of CelLynx’s common stock at an exercise price of $0.09 per
share in exchange for executive management services rendered as a
consultant. Upon the closing of the Exchange Agreement, this option
was exchanged for an option to purchase 12,234,608 shares of Norpac’s common
stock at an exercise price of $0.0715 per share.
On March 27, 2007, CelLynx entered into
a two-year convertible promissory note with Daniel R. Ash, CelLynx’s current
Chief Executive Officer and a director, and Tareq Risheq, CelLynx’s current
Chief Strategy Officer and a director, in the amount of $20,000 each in exchange
for cash leant to CelLynx. The unpaid principal balance accrues
interest at a rate of 4% per annum, computed on the basis of the actual number
of days elapsed and a year of 365 days. The note and accrued interest
is convertible into CelLynx common stock at a conversion rate of $0.01 per
share. Upon the closing of the Exchange Agreement, these notes were
exchanged for notes of Norpac at a conversion rate $0.0079 per
share.
On
October 25, 2007, CelLynx entered into a two-year convertible promissory note
with Mssrs. Ash and Risheq in the amount of $10,000 each in exchange for cash
leant to CelLynx. The unpaid principal balance accrues interest at a
rate of 4% per annum, computed on the basis of the actual number of days elapsed
and a year of 365 days. The note and accrued interest is convertible
into CelLynx common stock at a conversion rate of $0.10 per
share. Upon the closing of the Exchange Agreement, these notes were
exchanged for notes of Norpac at a conversion rate $0.0795 per
share.
On
February 12, 2008, CelLynx entered into a Stock Purchase Agreement with Norman
Collins, currently a director of CelLynx, under which CelLynx issued an
aggregate of 1,111,111 shares of common stock in exchange for an investment of
$100,000. Pursuant to the Stock Purchase Agreement, 100,000 shares
were delivered to Mr. Collins and 1,011,111 shares were held in escrow and
automatically cancelled upon the closing of the Exchange
Agreement. The remaining 100,000 shares were converted into 125,793
shares of Norpac.
Other
than the transactions described above, there were no transactions or proposed
transactions since the beginning of CelLynx’s last fiscal year, in which CelLynx
was or is to be a participant and the amount involved exceeds the lesser of
$120,000 or one percent of the average of CelLynx’s total assets at year-end for
the last three completed fiscal years, and in which any related person had or
will have a direct or indirect material interest.
Related
Party Transactions of Norpac
There
were no transactions since the beginning of Norpac’s last fiscal year, or any
proposed transactions, in which Norpac was or is to be a participant and the
amount involved exceeds the lesser of $120,000 or one percent of the average of
Nopac’s total assets at year-end for the last three completed fiscal years, and
in which any related person had or will have a direct or indirect material
interest.
Director
Independence
For our
description of director independence, see “Board of Directors” under the section
entitled “Directors and Executive Officers” above.
LEGAL
PROCEEDINGS
We are
not currently involved in any material legal proceedings, nor have we been
involved in any such proceedings that have had or may have a significant effect
on the Company. We are not aware of any other material legal proceedings pending
against us.
MARKET
PRICE OF AND DIVIDENDS ON COMMON EQUITY
AND
RELATED SHAREHOLDER MATTERS
Market
Information
In April,
2005, our shares of common stock commenced trading on the Over-The-Counter
Bulletin Board (the “OTCBB”) under the symbol “NRPT.” The high and the low bid
prices for our shares for the last two fiscal years as reported by the OTCBB
were:
|
QUARTER
|
HIGH ($)
|
LOW
($)
|
|
1st
Quarter 2007
|
$0.25
|
$0.25
|
|
2nd
Quarter 2007
|
$0.62
|
$0.25
|
|
3rd
Quarter 2007
|
$0.65
|
$0.28
|
|
4th
Quarter 2007
|
$0.31
|
$0.11
|
|
1st
Quarter 2008
|
$0.19
|
$0.12
|
|
2nd
Quarter 2008
|
$0.23
|
$0.12
|
|
3rd
Quarter 2008
|
$0.35
|
$0.18
|
|
4th
Quarter 2008
|
$0.28
|
$0.18
|
The
trades reflect inter-dealer prices, without retail mark-up, markdown or
commission and may not represent actual transactions.
Holders
As of
July 24, 2008, there were approximately 206 shareholders of record of our common
stock based upon the shareholder list provided by our transfer agent. Our
transfer agent is Signature Stock Transfer located at 2632 Coachlight Court,
Plano, Texas 75093, and their telephone number is (972) 612-4120.
Dividends
We have
not declared any dividends on our common stock since our inception. Our current
policy is to retain any earnings in order to finance the expansion of our
operations. Our board of directors will determine future declaration and payment
of dividends, if any, in light of the then-current conditions they deem relevant
and in accordance with applicable corporate law. There are no dividend
restrictions that limit our ability to pay dividends on our common stock in our
Articles of Incorporation or Bylaws. Chapter 78 of the Nevada Revised Statutes
(the “NRS”), does provide certain limitations on our ability to declare
dividends. Section 78.288 of Chapter 78 of the NRS prohibits us from declaring
dividends where, after giving effect to the distribution of the
dividend:
|
(a)
|
we
would not be able to pay our debts as they become due in the usual course
of business; or
|
|
|
|
|
(b)
|
except
as may be allowed by our Articles of Incorporation, our total assets would
be less than the sum of our total liabilities plus the amount that would
be needed, if we were to be dissolved at the time of the distribution, to
satisfy the preferential rights upon dissolution of stockholders who may
have preferential rights and whose preferential rights are superior to
those receiving the distribution.
|
We have
not declared any dividends and we do not plan to declare any dividends in the
foreseeable future.
RECENT
SALES OF UNREGISTERED SECURITIES
Reference
is made to Item 3.02 of this Current Report on Form 8-K for a description
of recent sales of unregistered securities, which is hereby incorporated by
reference.
DESCRIPTION
OF SECURITIES
The
following information describes our capital stock and provisions of our articles
of incorporation and our bylaws, all as in effect upon the closing of the
exchange transaction. This description is only a summary. You should also refer
to our articles of incorporation, bylaws and articles of amendment which have
been incorporated by reference or filed with the Securities and Exchange
Commission as exhibits to this Current Report on Form 8-K.
General
Our
authorized capital stock consists of 100,000,000 shares of common stock at a par
value of $0.001 per share and 50,000,000 shares of Series A Convertible
Preferred stock at a par value of $0.001 per share.
Common
Stock
Holders
of common stock are entitled to one vote per share on all matters submitted to a
vote of the stockholders, including the election of directors. Except as
otherwise required by law, the holders of our common stock will possess all
voting power. Generally, all matters to be voted on by stockholders must be
approved by a majority of the votes entitled to be cast by all shares of our
common stock that are present in person or represented by proxy. Holders of our
common stock representing fifty percent (50%) of our capital stock issued,
outstanding and entitled to vote, represented in person or by proxy, are
necessary to constitute a quorum at any meeting of our stockholders. A vote by
the holders of a majority of our outstanding shares is required to effectuate
certain fundamental corporate changes such as liquidation, merger or an
amendment to our Articles of Incorporation. Our Articles of Incorporation do not
provide for cumulative voting in the election of directors.
The
holders of shares of our common stock will be entitled to such cash dividends as
may be declared from time to time by our board of directors from funds available
therefore.
Upon
liquidation, dissolution or winding up, the holders of shares of our common
stock will be entitled to receive pro rata all assets available for distribution
to such holders.
In the
event of any merger or consolidation with or into another company in connection
with which shares of our common stock are converted into or exchangeable for
shares of stock, other securities or property (including cash), all holders of
our common stock will be entitled to receive the same kind and amount of shares
of stock and other securities and property (including cash).
Holders
of our common stock have no pre-emptive rights and no conversion rights, and
there are no redemption provisions applicable to our common stock.
Series
A Preferred Stock
The following is a summary of the
preferences and rights contained in the Certificate of Designation (the “Series
A Certificate”) of the Series A Convertible Preferred Stock (“Series A
Preferred”) and is qualified in its entirety by reference to the Series A
Certificate, which is attached as Exhibit 3.3 to this
report.
Voting
Rights
Except as
otherwise provided in the Series A Certificate or by law, each holder of shares
of Series A Preferred shall be shall be entitled to the number of votes equal to
the number of shares of Common Stock into which such shares of Series A
Preferred will be converted (with any fractional share determined on an
aggregate conversion basis being rounded to the nearest whole share), at each
meeting of the stockholders of the Company (and for purposes of written actions
of stockholders in lieu of meetings) with respect to any and all matters
presented to the stockholders of the Company for their action or consideration,
and shall be entitled to notice of any shareholders’ meeting in accordance with
the bylaws of the Company, and shall be entitled to vote, together with holders
of Common Stock as a single class, with respect to any matter upon which holders
of Common Stock have the right to vote.
In
addition to any other vote or consent required by the Series A Certificate or by
law, the vote or written consent of the holders of at least a majority in
interest of the outstanding Series A Preferred voting as a separate class shall
be necessary for any amendment, alteration, or repeal of any provision of the
Company’s Articles of Incorporation (including the Series A Certificate), that
alters or changes the voting powers, preferences, or other special rights or
privileges, or restrictions of the Series A Preferred so as to affect them
adversely.
Conversion
Rights
Mandatory
Conversion
Upon the
authorized capital of the Company being increased to include not less than one
hundred and fifty million (150,000,000) shares of Common Stock (the “Conversion
Event”), each share of Series A Preferred issued and outstanding shall
automatically convert into the number of shares of Common Stock determined by
dividing (i) the Conversion Value per share by (ii) the Conversion Price per
share (each as defined below).
Conversion
Value. The Conversion Value for each share of Series A
Preferred shall be equal to $1.00.
Conversion
Price. The Series A Conversion Price for each share of Series
A Preferred shall be equal to $1.00, subject to adjustment as provided in this
Section 2.
Adjustment
for Stock Splits and Combinations
If the
Company shall at any time or from time to time after the date that the first
share of Series A Preferred is issued (the “Original Issue Date”) effect a
subdivision of the outstanding Common Stock without a corresponding subdivision
of the Preferred Stock, the Series A Preferred Conversion Price in effect
immediately before that subdivision shall be proportionately
decreased. Conversely, if the Company shall at any time or from time
to time after the Original Issue Date combine the outstanding shares of Common
Stock into a smaller number of shares without a corresponding combination of the
Preferred Stock, the Series A Preferred Conversion Price in effect immediately
before the combination shall be proportionately increased.
Adjustment
for Common Stock Dividends and Distributions
If the
Company at any time or from time to time after the Original Issue Date makes, or
fixes a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, in each such event the Series A Preferred Conversion Price that is then
in effect shall be decreased as of the time of such issuance or, in the event
such record date is fixed, as of the close of business on such record date, by
multiplying the Series A Preferred Conversion Price then in effect by a fraction
(i) the numerator of which is the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (ii) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Series A Preferred Conversion Price shall be recomputed
accordingly as of the close of business on such record date and thereafter the
Series A Preferred Conversion Price shall be adjusted pursuant to this section
to reflect the actual payment of such dividend or distribution.
Adjustment
for Reclassification, Exchange or Substitution
If the
Common Stock issuable upon the conversion of the Series A Preferred Stock shall
be changed into the same or a different number of shares of any class or classes
of stock, whether by capital reorganization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend provided
for above, or a reorganization, merger, consolidation, or sale of assets
provided for below), then and in each such event the holder of each such share
of Series A Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of
Series A Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
Adjustment
for Merger or Reorganization
In case
of any consolidation or merger of the Company with or into another corporation,
each share of Series A Preferred Stock shall thereafter be convertible into the
kind and amount of shares of stock or other securities or property to which a
holder of the number of shares of Common Stock of the Company deliverable upon
conversion of such Series A Preferred Stock would have been entitled upon such
consolidation or merger.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Nevada
Law
Nevada
law generally permits us to indemnify our directors, officers and employees.
Pursuant to the provisions of Nevada Revised Statutes 78.7502, a corporation may
indemnify its directors, officers and employees as follows:
(a) A
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any action, except an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation, against expenses, actually and reasonably incurred by him in
connection with the action, suit or proceeding if he: (a) is not liable for
breach of his fiduciary duties as a director or officer pursuant to Nevada
Revised Statutes 78.138; or (b) acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
(b) A
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any action by or in the right of the corporation to procure a
judgment in its favor, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation against expenses actually and reasonably incurred by
him in connection with the defense or settlement of the action or suit if he:
(a) is not liable for breach of his fiduciary duties pursuant to Nevada Revised
Statutes 78.138; or (b) acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which such
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
(c) To
the extent that a director, officer, employee or agent of a corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding, or in defense of any claim, issue or matter therein, the corporation
shall indemnify him against expenses, including attorneys’ fees, actually and
reasonably incurred by him in connection with the defense.
Our
predecessor has adopted the following indemnification provisions in its articles
of incorporation for its officers and directors:
“No director or officer of the
corporation shall be personally liable to the Corporation or any of its
stockholders for damages for breach of fiduciary duty as a director or officer
involving any act or omission of any such director or officer; provided,
however, that the forgoing provision shall not eliminate or limit the liability
of a director or officer (i) for acts or omissions which involve intentional
misconduct, fraud, or a knowing violation of the law, or (ii) the payment of
dividends in violations of Section 78.300 of the Nevada Revised Statutes. Any
repeal or modification of this Article by the stockholders of the Corporation
shall be prospective only, and shall not adversely affect any limitation on the
personal liability of a director or officer of the Corporation for acts or
omission prior to such repeal or modification.”
Our
predecessor has adopted the following indemnification provisions in its bylaws
for its officers and directors:
(b)
Employees and Other Agents.
The Corporation shall have power to indemnify its employees and other
agents as set forth in the Nevada General Corporation Law.
(c)
Expense. The Corporation
shall advance to any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director or officer, of the Corporation, or is or was
serving at the request of the Corporation as a director or executive officer of
another corporation, partnership, joint venture, trust or other enterprise,
prior to the final disposition of the proceeding, promptly following request
therefor, all expenses incurred by any director or officer in connection with
such proceeding upon receipt of an undertaking by or on behalf of such person to
repay said mounts if it should be determined ultimately that such person is not
entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding
the foregoing, unless otherwise determined pursuant to paragraph (e) of this
Bylaw, no advance shall be made by the Corporation to an officer of the
Corporation (except by reason of the fact that such officer is or was a director
of the Corporation in which event this paragraph shall not apply) in any action,
suit or proceeding, whether civil, criminal, administrative or investigative, if
a determination is reasonably and promptly made (i) by the Board of Directors by
a majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the Corporation.
(d)
Enforcement. Without the
necessity of entering into an express contract, all rights to indemnification
and advances to directors and officers under this Bylaw shall be deemed to be
contractual rights and be effective to the same extent and as if provided for in
a contract between the Corporation and the director or officer. Any right to
indemnification or advances granted by this Bylaw to a director or officer shall
be enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
Corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standard of conduct that make it permissible under the
Nevada General Corporation Law for the Corporation to indemnify the claimant for
the amount claimed. In connection with any claim by an officer of the
Corporation (except in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such officer is or
was a director of the Corporation) for advances, the Corporation shall be
entitled to raise a defense as to any such action clear and convincing evidence
that such person acted in bad faith or in a manner that such person did not
believe to be in or not opposed in the best interests of the Corporation, or
with respect to any criminal action or proceeding that such person acted without
reasonable cause to believe that his conduct was lawful. Neither the failure of
the Corporation (including its Board of Directors, independent legal counsel or
its stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Nevada
General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the conduct, shall be a defense to the action
or create a presumption that claimant has not met the applicable standard of
conduct. In any suit brought by a director or officer to enforce a right to
indemnification or to an advancement of expenses hereunder, the burden of
proving that the director or officer is not entitled to be indemnified, or to
such advancement of expenses, under this Article XI or otherwise shall be on the
Corporation.
(e)
Non-Exclusivity of Rights.
The rights conferred on any person by this Bylaw shall not be exclusive
of any other right which such person may have or hereafter acquire under any
statute, provision of the Articles of Incorporation, Bylaws, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding office. The
Corporation is specifically authorized to enter into individual contracts with
any or all of its directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the Nevada
General Corporation Law.
(f)
Survival of Rights. The
rights conferred on any person by this Bylaw shall continue as to a person who
has ceased to be a director, officer, employee or other agent and shall inure to
the benefit of the heirs, executors and administrators of such a
person.
(g)
Insurance. To the
fullest extent permitted by the Nevada General Corporation Law, the Corporation,
upon approval by the Board of Directors, may purchase insurance on behalf of any
person required or permitted to be indemnified pursuant to this
Bylaw.
(h)
Amendments. Any repeal
or modification of this Bylaw shall only be prospective and shall not affect the
rights under this Bylaw in effect at the time of the alleged occurrence of any
action or omission to act that is the cause of any proceeding against any agent
of the Corporation.
(i)
Saving Clause. If this
Bylaw or any portion hereof shall be invalidated on any ground by any court of
competent jurisdiction, then the Corporation shall nevertheless indemnify each
director and officer to the full extent not prohibited by any applicable portion
of this Bylaw that shall not have been invalidated, or by any other applicable
law.
(j)
Certain Definitions. For
the purposes of this Bylaw, the following definitions shall apply:
(i)
The term "proceeding" shall be broadly construed and shall include, without
limitation, the investigation, preparation, prosecution, defense, settlement,
arbitration and appeal of, and the giving of testimony in, any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative.
(ii)
The term "expenses" shall be broadly construed and shall include, without
limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in
settlement or judgment and any other costs and expenses of any nature or kind
incurred in connection with any proceeding.
(iii)
The term the "Corporation" shall include, in addition to the resulting
Corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent or another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Bylaw with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(iv) References to a
"director," "executive officer," "officer," "employee," or "agent" of the
Corporation shall include, without limitation, situations where such person is
serving at the request of the Corporation as, respectively, a director,
executive officer, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
(v)
References to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Bylaw.”
Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as
amended (the “Securities Act”) may be permitted to directors, officers or
persons controlling the company pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There
have been no changes in or disagreements with the CelLynx’s independent
auditors. CelLynx engaged its independent auditors, Moore Stephens Wurth Frazer
and Torbet, LLP on June 16, 2008.
|
Item 3.02
|
Unregistered
Sales of Equity Securities
|
On July
23, 2008, and also as more fully described in Items 1.01 and 2.01 above,
pursuant to the Subscription Agreement, we issued 10,500,000 shares of our
common stock and warrants to purchase 10,500,000 shares of our common stock at
an exercise price of $0.20 per share to the Investors in connection with the
closing of the Financing. The issuance of the common stock to the
Investors pursuant to the Subscription Agreement was exempt from registration
under the Securities Act pursuant to Section 4(2) and Regulation S
thereof. We made this determination based on the representations of
the Investors, which included, in pertinent part, that such persons were
“Non-U.S. Persons” within the meaning Regulation S promulgated under the
Securities Act, that such persons were not in the U.S. at the time of the offer
to purchase the securities was received, that such persons will not engage in
hedging transactions with regard to the securities unless in compliance with the
Securities Act, that such persons were acquiring our common stock for investment
purposes for their own respective accounts and not as nominees or agents and not
with a view to the resale or distribution thereof, and that each member
understood that the shares of our common stock may not be sold or otherwise
disposed of without registration under the Securities Act or an applicable
exemption therefrom.
On July
24, 2008, and also as more fully described in Items 1.01 and 2.01 above, in
connection with the Exchange Agreement, we issued 32,454,922 shares of our
common stock and 45,516,034 shares of our Series A Preferred Stock to the
CelLynx Owners in exchange for 100% of the capital stock of
CelLynx. Reference is made to the disclosures set forth in Items 1.01
and 2.01 of this Current Report on Form 8-K, which disclosures are incorporated
herein by reference. The issuance of the common stock to the CelLynx Owners
pursuant to the Exchange Agreement was exempt from registration under the
Securities Act pursuant to Section 4(2) and Regulation D thereof. We
made this determination based on the representations of the CelLynx Owners which
included, in pertinent part, that such shareholders were "accredited investors"
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act, and that such shareholders were acquiring our common stock for investment
purposes for their own respective accounts and not as nominees or agents and not
with a view to the resale or distribution thereof, and that each member
understood that the shares of our common stock may not be sold or otherwise
disposed of without registration under the Securities Act or an applicable
exemption therefrom.
|
Item 5.01
|
Changes
in Control of Registrant.
|
As more
fully described in Items 1.01 and 2.01 above, on July 24, 2008, in a reverse
take-over transaction, we acquired a cellular amplifier business based in
California by executing the Exchange Agreement by and among the
Company, CelLynx and the CelLynx Owners. Under the Exchange
Agreement, on the Closing Date, we acquired all of the issued and outstanding
shares of CelLynx through the issuance of 32,454,922 restricted shares of our
common stock and 45,516,034 shares of our Series A Preferred Stock to the
CelLynx Owners. Immediately prior to the exchange transaction, we had 37,597,590
shares of common stock issued and outstanding and no shares of Series A
Preferred Stock issued and outstanding. Immediately after the issuance of the
shares to the CelLynx Owners, we had 80,552,812 shares of common stock issued
and outstanding (including the shares issued in the Financing) and 45,516,034
shares of Series A Preferred Stock issued and outstanding. The Series A
Preferred Stock will automatically convert into common stock on a one-to-one
ratio upon the authorized capital of the Company being increased to include not
less than 150,000,000 shares of common stock. As a result of this
exchange transaction, the CelLynx Owners became our controlling shareholders,
and CelLynx became our wholly owned subsidiary.
In
connection with this change in control, and as explained more fully in Item 5.02
below, effective July 24, 2008, John P. Thornton resigned as our Chief Executive
Officer, Chief Financial Officer, President,
Secretary and Treasurer. Further, effective July 24, 2008, we appointed the
following new executive officers:
|
Name
|
|
Age
|
|
Positions
held:
|
|
|
|
|
|
|
|
Daniel
R. Ash
|
|
47
|
|
President,
Chief Executive Officer, Chief Operating Officer and
Secretary
|
|
Tareq
Risheq
|
|
43
|
|
Chief
Strategy Officer and Director
|
|
Kevin
Pickard
|
|
44
|
|
Chief
Financial Officer and Treasurer
|
In
addition, and as explained more fully in Item 5.02 below, John P. Thornton
agreed to resign as a member of our board of directors, and the following new
directors were appointed to our board of directors:
|
Name
|
|
Age
|
|
Positions
Held:
|
|
Daniel
R. Ash
|
|
47
|
|
President,
Chief Executive Officer and Chairman of the Board
|
|
Tareq
Risheq
|
|
43
|
|
Chief
Strategy Officer and Director
|
|
Robert
J. Legendre
|
|
51
|
|
Chairman
of the Board
|
|
Norman
W. Collins
|
|
69
|
|
Director
|
Item 5.02 Departure
of Directors or Certain Officers; Election of Directors; Appointment of Certain
Officers; Compensatory Arrangements of Certain Officers.
As more
fully described in Items 1.01, 2.01 and 5.01 above, on July 24, 2008, in a
reverse take-over transaction, we acquired a cellular amplifier business based
in California by executing the Exchange Agreement by and among the
Company, CelLynx and the CelLynx Owners. Reference is made to the
disclosures set forth under Items 1.01, 2.01 and 5.01 of this Current Report on
Form 8-K, which disclosures are incorporated herein by reference.
|
(a)
|
Resignation
of Directors
|
In
connection with the exchange transaction, on July 24, 2008, John P. Thornton
(the “Resigning Director”) agreed to resign as a member of our board of
directors that would become effective after compliance with Rule 14f-1 of the
Exchange Act. There were no disagreements between the Resigning
Director and any of our officers or directors.
|
(b)
|
Resignation of
Officers
|
Effective
July 24, 2008, John P. Thornton resigned as our Chief Executive Officer,
President, Chief Financial Officer, Secretary and Treasurer.
|
(c)
|
Appointment
of Officers
|
Effective
July 24, 2008, the following persons were appointed as our newly appointed
executive officers (individually, a “New Officer” and collectively, the “New
Officers”):
|
Name
|
|
Age
|
|
Positions
held:
|
|
|
|
|
|
|
|
Daniel
R. Ash
|
|
47
|
|
President,
Chief Executive Officer, Chief Operating Officer, Secretary and
Director
|
|
Tareq
Risheq
|
|
43
|
|
Chief
Strategy Officer and Director
|
|
Kevin
Pickard
|
|
44
|
|
Chief
Financial Officer and Treasurer
|
There are
no family relationships among any of our officers or directors. We
have entered into a consulting agreement with Kevin Pickard as described in Item
2.01. We do not currently have any written employment agreements with
Daniel R. Ash or Tareq Risheq, however, the board of directors approved a
compensation package for each them as described in Item 2.01. Other than as
described in Item 2.01, there are no transactions, since the beginning of our
last fiscal year, or any currently proposed transaction, in which the Company
was or is to be a participant and the amount involved exceeds the lesser of
$120,000 or one percent of the average of the Company’s total assets at year-end
for the last three completed fiscal years, and in which any of the New Officers
had or will have a direct or indirect material interest. Other than the exchange
transaction, there is no material plan, contract or arrangement (whether or not
written) to which any of the New Officers is a party or in which any New Officer
participates that is entered into or material amendment in connection with our
appointment of the New Officers, or any grant or award to any New Officer or
modification thereto, under any such plan, contract or arrangement in connection
with our appointment of the New Officers.
Descriptions
of our newly appointed directors and officers can be found in Item 2.01
above, in the section titled “DIRECTORS & EXECUTIVE OFFICERS – Current
Management.”
|
(d)
|
Appointment
of Directors
|
In
connection with the exchange transaction and effective as of July 24, 2008, the
following persons were appointed as new members of our board of directors
(individually, a “New Director” and collectively, the “New
Directors”):
|
Name
|
|
Age
|
|
Positions
Held:
|
|
Daniel
R. Ash
|
|
47
|
|
President,
Chief Executive Officer, Chief Operating Officer, Secretary and
Director
|
|
Tareq
Risheq*
|
|
43
|
|
Chief
Strategy Officer and Director
|
|
Robert
J. Legendre*
|
|
51
|
|
Chairman
of the Board
|
|
Norman
W. Collins*
|
|
69
|
|
Director
|
__________
*
Appointment to become effective after compliance with Rule 14f-1 of the Exchange
Act.
There are
no family relationships among any of our officers or directors. None of the New
Directors has been named or, at the time of this Current Report, is expected to
be named to any committee of the board of directors. Other than an agreement
with Norman W. Collins as described in Item 2.01, we do not have any
compensation agreements with the New Directors. Other than as described in Item
2.01, there are no transactions, since the beginning of our last fiscal year, or
any currently proposed transaction, in which the Company was or is to be a
participant and the amount involved exceeds the lesser of $120,000 or one
percent of the average of the Company’s total assets at year-end for the last
three completed fiscal years, and in which any of the New Directors had or will
have a direct or indirect material interest. Other than the exchange
transaction, there is no material plan, contract or arrangement (whether or not
written) to which any of the New Directors is a party or in which any New
Director participates that is entered into or material amendment in connection
with our appointment of the New Directors, or any grant or award to any New
Director or modification thereto, under any such plan, contract or arrangement
in connection with our appointment of the New Directors.
Descriptions
of our newly appointed directors and officers can be found in Item 2.01
above, in the section titled “DIRECTORS & EXECUTIVE OFFICERS – Current
Management.”
|
Item 5.06
|
Change
in Shell Company Status.
|
Reference
is made to the reverse take-over transaction under the Exchange Agreement and
the Financing pursuant to the Subscription Agreement, as described in Item 1.01,
which is incorporated herein by reference. From and after the closing of the
transactions under these agreements, our primary operations consist of the
business and operations of CelLynx, which are conducted in the United
States. Therefore, we are disclosing information about CelLynx’s
business, financial condition, and management in this Form 8-K.
|
Item 9.01
|
Financial
Statement and Exhibits.
|
Reference
is made to the reverse take-over transaction under the Exchange Agreement, as
described in Item 1.01, which is incorporated herein by reference. As
a result of the closing of the reverse take-over transaction, our primary
operations consist of the business and operations of CelLynx, which are
conducted in the United States. In the reverse take-over transaction,
the Company is the accounting acquiree, and CelLynx is the accounting
acquirer. Accordingly, we are presenting the financial statements of
CelLynx.
|
(a)
|
Financial
Statements of the Business
Acquired
|
|
(b)
|
Pro
Forma Financial Information
|
The
unaudited pro forma combined financial statements are presented to illustrate
the estimated effects of our acquisition of CelLynx and the exchange transaction
on our historical financial position and our results of operations. We have
derived our historical financial data for the nine months ended March 31, 2008
from our unaudited financial statements contained on Form 10-Q as filed with the
Securities and Exchange Commission. We have derived CelLynx’s
historical financial statements as of March 31, 2008 from the CelLynx’s
unaudited financial statements for the six months ended March 31, 2008 contained
elsewhere in this Form 8-K. In accordance with Statement of Financial
Accounting Standards No. 141, "Business Combinations" (SFAS 141), and the
assumptions and adjustments described in the accompanying notes to the unaudited
pro forma combined condensed financial statements, CelLynx is considered the
accounting acquirer. Because CelLynx’s owners as a group retained or received
the larger portion of the voting rights in the combined entity and CelLynx’s
senior management represents a majority of the senior management of the combined
entity, CelLynx was considered the acquiror for accounting purposes and will
account for the exchange transaction as a reverse acquisition. The acquisition
has been accounted for as a reorganization of entities and the financial
statements have been prepared as if the reorganization had occurred
retroactively. Our fiscal year will end on September 30.
The
exchange transaction was completed on July 24, 2008. The unaudited pro forma
combined statements of operations for the six months ended March 31, 2008 assume
that the exchange transaction, cancellation of shares, distribution of certain
assets and payment of liabilities were consummated on March 31,
2008. The unaudited pro forma combined balance sheet as of March 31,
2008 assumes the exchange transaction and issuance of shares were consummated on
that date. The information presented in the unaudited pro forma combined
financial statements does not purport to represent what our financial position
or results of operations would have been had the exchange transaction and
issuance of shares occurred as of the dates indicated, nor is it indicative of
our future financial position or results of operations for any period. You
should not rely on this information as being indicative of the historical
results that would have been achieved had the companies always been combined or
the future results that the combined company will experience after the exchange
transaction and cancellation of shares.
The pro
forma adjustments are based upon available information and certain assumptions
that we believe are reasonable under the circumstances. These unaudited pro
forma consolidated financial statements should be read in conjunction with the
accompanying notes and assumptions and the historical financial statements and
related notes of us and CelLynx.
(d)
Exhibits
INDEX TO
EXHIBITS
|
Exhibit
Number
|
|
Description
|
|
2.1
|
|
|
|
|
|
|
|
2.2
|
|
|
|
|
|
|
|
2.3
|
|
Waiver
of Conditions Precedent *
|
|
|
|
|
|
3.1
|
|
Articles
of Incorporation of Norpac Technologies, Inc. (3)
|
|
|
|
|
|
3.2
|
|
Articles
of Merger of Norpac Technologies, Inc. (4)
|
|
|
|
|
|
3.2
|
|
Bylaws
of Norpac Technologies, Inc. (4)
|
|
|
|
|
|
3.3
|
|
Certificate
of Designation of Norpac Technologies, Inc. (5)
|
|
|
|
|
|
10.1
|
|
|
|
|
|
|
|
10.2
|
|
|
|
|
|
|
|
10.3
|
|
Master
Global Marketing and Distribution Agreement between CelLynx and Dollardex
Group Corp. dated July 22, 2008 *
|
|
|
|
|
|
10.4
|
|
Palomar
Ventures III, LP Amended and Restated Subordinated Convertible Promissory
Note dated November 10, 2007 *
|
|
|
|
|
|
10.5
|
|
|
|
|
|
|
|
10.6
|
|
CelLynx
2007 Stock Incentive Plan *
|
|
|
|
|
|
10.7
|
|
Amendment
No. 1 to CelLynx 2007 Stock Incentive Plan
*
|
|
|
|
|
|
10.8
|
|
|
|
|
|
|
|
10.9
|
|
|
|
|
|
|
|
10.10
|
|
|
|
|
|
|
|
10.11
|
|
Convertible
Promissory Note between CelLynx and Daniel Ash dated March 27, 2007
*
|
|
|
|
|
|
10.12
|
|
Convertible
Promissory Note between CelLynx and Tareq Risheq dated March 27, 2007
*
|
|
|
|
|
|
10.13
|
|
Convertible
Promissory Note between CelLynx and Daniel Ash dated October 25, 2007
*
|
|
|
|
|
|
10.14
|
|
Convertible
Promissory Note between CelLynx and Tareq Risheq dated October 25, 2007
*
|
|
|
|
|
|
10.15
|
|
Incentive
Stock Option Agreement between CelLynx and Daniel Ash dated October 1,
2007 *
|
|
|
|
|
|
10.16
|
|
Incentive
Stock Option Agreement between CelLynx and Tareq Risheq dated October 1,
2007 *
|
|
|
|
|
|
10.17
|
|
Incentive
Stock Option Agreement between CelLynx and Robert Legendre dated October
1, 2007 *
|
|
|
|
|
|
10.18
|
|
Non-Qualified
Stock Option Agreement between CelLynx and Daniel Ash dated October 1,
2007 *
|
|
|
|
|
|
10.19
|
|
Non-Qualified
Option Agreement between CelLynx and Tareq Risheq dated October 1, 2007
*
|
|
|
|
|
|
10.20
|
|
Non-Qualified
Stock Option Agreement between CelLynx and Robert Legendre dated October
1, 2007 *
|
|
|
|
|
|
10.21
|
|
Non-Qualified
Stock Option Agreement between CelLynx and Daniel Ash dated April 21, 2008
*
|
|
|
|
|
|
10.22
|
|
Non-Qualified
Option Agreement between CelLynx and Tareq Risheq dated April 21, 2008
*
|
|
|
|
|
|
10.23
|
|
Non-Qualified
Stock Option Agreement between CelLynx and Daniel Ash dated May 20, 2008
*
|
|
|
|
|
|
10.24
|
|
Non-Qualified
Option Agreement between CelLynx and Tareq Risheq dated May 20, 2008
*
|
|
|
|
|
|
10.25
|
|
Non-Qualified
Option Agreement between CelLynx and Norman Collins dated July 20, 2008
*
|
|
|
|
|
|
10.26
|
|
Stock
Purchase Agreement between CelLynx and Norman Collins dated February 12,
2008 *
|
|
|
|
|
|
17.1
|
|
Letter
of Resignation from John P. Thornton to the Board of Directors
*
|
|
|
|
|
|
21.1
|
|
|
|
|
|
|
|
23.1
|
|
Consent
Letter of Moore Stephens Wurth Frazer and Torbet, LLP *
|
|
|
|
|
|
99.1
|
|
Audited
financial statements of CelLynx for the years ended September 30, 2007 and
2006, and unaudited financial statements for the six months ended March
31, 2008, and accompanying notes to consolidated financial statements
*
|
|
|
|
|
|
99.2
|
|
Unaudited
pro forma combined financial statements of the combined entity as of, and
for the year ended, September 30, 2007, and accompanying notes to
unaudited pro forma combined financial statements
*
|
|
(3)
|
Filed
as an exhibit to our Registration Statement on Form 10SB originally filed
on August 26, 1999, as amended, an incorporated herein by
reference.
|
|
(4)
|
Filed
as an exhibit to our Quarterly Report on Form 10-QSB for the fiscal period
ended September 30, 2003, and incorporated herein by
reference.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
|
|
|
|
|
|
NORPAC
TECHNOLOGIES, INC.
|
|
|
|
|
|
|
By:
|
/s/
Daniel R. Ash
|
|
|
Daniel
R. Ash
|
|
|
Chief
Executive Officer
|
