WEBSAFETY, INC.
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2012 and 2011
(Unaudited)
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
For the nine months
|
|
|
For the nine months
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
September 30, 2012
|
|
|
September 30, 2011
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
$
|
(1,174,985)
|
|
|
$
|
(1,869,592)
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
|
44,061
|
|
|
|
44,061
|
|
Amortization of beneficial conversion
|
|
|
|
500,258
|
|
|
|
228,772
|
|
Stock compensation expense
|
|
|
|
463,583
|
|
|
|
621,110
|
|
Stock issued for services - non-cash
|
|
|
|
101,000
|
|
|
|
168,751
|
|
Gain on adjustment of Loss Contingency
|
|
|
|
(325,000)
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in deposit
|
|
|
|
-
|
|
|
|
(17,423)
|
|
|
Increase (decrease) in accounts payable
|
|
|
|
(136,420)
|
|
|
|
45,428
|
|
|
Decrease in Loss Contingency
|
|
|
|
(75,000)
|
|
|
|
-
|
|
|
Decrease in deferred revenue
|
|
|
|
-
|
|
|
|
(3,587)
|
|
|
Increase (decrease) in accrued expense
|
|
|
|
(30,386)
|
|
|
|
(8,791)
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
|
(632,889)
|
|
|
|
(791,271)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash overdraft
|
|
|
|
(700)
|
|
|
|
55,620
|
|
Decrease in liability to issue shares
|
|
|
|
(25,000)
|
|
|
|
(53,000)
|
|
Proceeds from borrowing
|
|
|
|
437,287
|
|
|
|
137,786
|
|
Proceeds of advances from shareholders
|
|
|
|
274,171
|
|
|
|
179,697
|
|
Proceeds from sale of common stock
|
|
|
|
-
|
|
|
|
420,000
|
|
Subscription receivable
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
|
685,758
|
|
|
|
765,103
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH
|
|
|
|
52,869
|
|
|
|
(26,168)
|
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
|
-
|
|
|
|
26,168
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
|
$
|
52,869
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Income tax paid
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for services
|
|
|
$
|
|
|
|
$
|
168,751
|
|
Conversion of notes to common stock
|
|
|
$
|
514,400
|
|
|
$
|
217,500
|
The accompanying notes are an integral part of these financial statements.
F-3
WEBSAFETY, INC.
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
For the year ended December 31, 2011 and the nine months ended September 30, 2012
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Preferred Stock, $0.001 Par Value
|
|
Common Stock, $0.001 Par Value
|
|
Additional
|
|
|
|
|
Total
|
|
|
Number of
|
|
|
|
|
Number of
|
|
|
|
|
Paid-in
|
|
Deficit
|
|
Stockholders'
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Accumulated
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2010
|
|
2,863,335
|
|
$
|
2,863
|
|
70,313,828
|
|
$
|
70,314
|
|
$
|
7,104,986
|
|
$
|
(8,015,930)
|
|
$
|
(837,767)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 4, 2011 six issuances at $0.10
|
|
|
|
|
|
|
|
1,025,000
|
|
|
1,025
|
|
|
101,475
|
|
|
-
|
|
|
102,500
|
April 27, 2011 two issuances at $0.10
|
|
|
|
|
|
|
|
475,000
|
|
|
475
|
|
|
47,025
|
|
|
-
|
|
|
47,500
|
May 24, 2011 seven issuances at $0.10
|
|
|
|
|
|
|
|
2,700,000
|
|
|
2,700
|
|
|
267,300
|
|
|
-
|
|
|
270,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of common stock for services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 13, 2011 one issuance at $0.25
|
|
|
|
|
|
|
|
40,000
|
|
|
40
|
|
|
9,960
|
|
|
-
|
|
|
10,000
|
January 31, 2011 one issuance at $0.25
|
|
|
|
|
|
|
|
200,000
|
|
|
200
|
|
|
49,800
|
|
|
-
|
|
|
50,000
|
February 11, 2011 one issuance at $0.25
|
|
|
|
|
|
|
|
200,000
|
|
|
200
|
|
|
49,800
|
|
|
-
|
|
|
50,000
|
March 1, 2011 one issuance at $0.25
|
|
|
|
|
|
|
|
40,000
|
|
|
40
|
|
|
9,960
|
|
|
-
|
|
|
10,000
|
April 27, 2011 one issuance at $0.13
|
|
|
|
|
|
|
|
15,000
|
|
|
15
|
|
|
1,985
|
|
|
-
|
|
|
2,000
|
May 24, 2011 four issuances at $0.10
|
|
|
|
|
|
|
|
242,500
|
|
|
243
|
|
|
24,007
|
|
|
-
|
|
|
24,250
|
August 4, 2011 one issuance at $0.04
|
|
|
|
|
|
|
|
250,000
|
|
|
250
|
|
|
9,750
|
|
|
-
|
|
|
10,000
|
August 4, 2011 one issuance at $0.03
|
|
|
|
|
|
|
|
416,666
|
|
|
417
|
|
|
12,083
|
|
|
-
|
|
|
12,500
|
August 10, 2011 one issuance at $0.03
|
|
|
|
|
|
|
|
1,193,734
|
|
|
1,194
|
|
|
23,806
|
|
|
-
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of notes to common stock
|
|
|
|
|
|
|
10,253,210
|
|
|
10,253
|
|
|
217,247
|
|
|
|
|
|
227,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock to adjust issue price (note6)
|
|
|
|
|
|
|
325,000
|
|
|
325
|
|
|
(325)
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
902,820
|
|
|
|
|
|
902,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial Conversion Feature of promissory notes
|
|
|
|
|
|
|
|
|
|
|
|
|
985,110
|
|
|
|
|
|
985,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,662,668)
|
|
|
(3,662,668)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
2,863,335
|
|
|
2,863
|
|
87,689,938
|
|
|
87,691
|
|
|
9,816,789
|
|
|
(11,678,598)
|
|
|
(1,771,255)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of common stock for services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 20, 2012 one issuance at $0.01
|
|
|
|
|
|
|
|
2,500,000
|
|
|
2,500
|
|
|
22,500
|
|
|
-
|
|
|
25,000
|
April 1, 2012 one issuance at $0.005
|
|
|
|
|
|
|
|
6,000,000
|
|
|
6,000
|
|
|
24,000
|
|
|
-
|
|
|
30,000
|
June 1, 2012 one issuance at $0.015
|
|
|
|
|
|
|
|
3,000,000
|
|
|
3,000
|
|
|
42,000
|
|
|
-
|
|
|
45,000
|
June 1, 2012 one issuance at $0.016
|
|
|
|
|
|
|
|
62,500
|
|
|
63
|
|
|
937
|
|
|
-
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of notes to common stock
|
|
|
|
|
|
|
227,610,376
|
|
|
227,610
|
|
|
286,790
|
|
|
-
|
|
|
514,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
463,583
|
|
|
-
|
|
|
463,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial Conversion Feature of promissory notes
|
|
|
|
|
|
|
|
|
|
|
|
|
562,125
|
|
|
-
|
|
|
562,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares converted into common shares at the conversion rate of 1:1.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(800,000)
|
|
|
(800)
|
|
1,000,000
|
|
|
1,000
|
|
|
(200)
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the nine months ended September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,174,985)
|
|
|
(1,174,985)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2012
|
|
2,063,335
|
|
$
|
2,063
|
|
327,862,814
|
|
$
|
327,864
|
|
$
|
11,218,524
|
|
$
|
(12,853,583)
|
|
$
|
(1,305,132)
|
The accompanying notes are an integral part of these financial statements.
F-4
|
WEBSAFETY, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2012
(Unaudited)
|
Note 1. Basis of Presentation
The accompanying financial statements have been prepared by Websafety, Inc. (the Company) without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at September 30, 2012, and for all periods presented herein, have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these interim financial statements be read in conjunction with the financial statements and notes thereto included in the Companys December 31, 2011 audited financial statements. The results of operations for the nine months ended September 30, 2012 are not necessarily indicative of the operating results that can be anticipated for a complete operating period.
Note 2. Significant Accounting Policies
Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred cumulative net losses of approximately $12,853,583 from the period of July 3, 2006 (Inception) through September 30, 2012 and has used significant cash in support of its operating activities raising substantial doubt about the Companys ability to continue as a going concern. The Company in 2012 has raised additional capital and will seek additional sources of capital through the issuance of debt or equity financing, but there can be no assurance the Company will be successful in accomplishing its objectives.
The ability of the Company to continue as a going concern is dependent on additional sources of capital and the success of the Companys plan. The financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Use of estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company is subject to uncertainty of future events, economic, environmental and political factors and changes in the Company's business environment; therefore, actual results could differ from these estimates. Accordingly, accounting estimates used in the preparation of the Company's financial statements will change as new events occur; more experience is acquired, as additional information is obtained and as the Company's operating environment changes. Changes are made in estimates as circumstances warrant. Such changes in estimates and refinement of estimation methodologies are reflected in the financial statements.
Earnings per Share
Basic earnings per common share is computed by dividing net earnings by the weighted average number of common shares outstanding during each period presented. Diluted earnings per common share give the effect to the assumed exercise of stock options when dilutive. In a loss year, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive. At September 30, 2012, there were 1,990,000 stock options.
F-5
|
WEBSAFETY, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2012
(Unaudited)
|
Beneficial Conversion Feature
Costs incurred with parties who are providing financing, which include the intrinsic value of beneficial conversion features associated with the underlying debt, are reflected as a debt discount. These discounts are generally amortized over the life of the related debt. In certain circumstances, the intrinsic value of the beneficial conversion feature may be greater than the proceeds associated to the convertible instrument. In such situations, the amount of the discount assigned to the beneficial conversion feature is limited to the amount of the proceeds allocated to the convertible instrument.
Fair value of financial instruments
The fair value of the Companys financial instruments is determined by using available market information and appropriate valuation methodologies in accordance with FASB ASC 820. The Companys principal financial instruments are cash, accounts receivable and accounts payable. At September 30, 2012, cash, accounts receivable, and accounts payable, due to their short maturities, and liquidity, are carried at amounts which reasonably approximate fair value.
Stock Based Compensation
We account for employee share-based awards in accordance with FASB ASC 718. FASB ASC 718 requires recognition in the financial statements of the cost of employee services received in exchange for an award of equity instruments over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). FASB ASC 718 also requires measurement of the cost of employee services received in exchange for an equity award based upon the grant-date fair value of the award.
We account for non-employee share-based awards in accordance with FASB ASC 505-50.
The Companys accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC 505-50. Accordingly, the measurement date for the fair value of the equity instruments issued is determined at earliest of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendors performance is complete. In the case of equity instruments, issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.
In accordance with ASC 505-50, each transaction involving the issuance of stock in exchange for goods or services is analyzed to determine whether the value of the stock given as consideration on the value of the goods on services received are the more representation of the value of the underlying transactions.
Comprehensive Income
The Company has no components of income that would require classification as other comprehensive income.
Note 3. Concentration of Credit Risk
For the nine months ended September 30, 2012 and 2011 the Company had $0 and $9,046 in net revenues, respectively. A concentration of credit risk exists due to the fact that the Company has a limited number of both customers and vendors. If a number of customers or vendors decided to take their business elsewhere, the Companys losses could increase significantly. As of September 30, 2012, no credit has been extended to on account customers.
F-6
|
WEBSAFETY, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2012
(Unaudited)
|
Note 4. Property and Equipment
Property and equipment consist of the following at September 30, 2012 and December 31, 2011:
|
|
| |
|
2012
|
|
2011
|
Property and Equipment
|
|
|
|
Equipment
|
$ 16,689
|
|
$ 16,689
|
Software
|
167,670
|
|
167,910
|
Total property and equipment before accumulated depreciation
|
184,359
|
|
184,599
|
|
|
|
|
Less accumulated depreciation
|
(173,541)
|
|
(129,722)
|
Total property and equipment
|
$ 10,818
|
|
$54,877
|
Depreciation expense for the nine months ended September 30, 2012 and 2011 totaled $44,061 and $44,061, respectively.
The Company has incurred website development costs as part of web site application and infrastructure development activities. Specifically, activities include coordination of design, engineering, initial integration and design modifications, script writing, web site designs and revisions, application side designs, pre-video production build/test flash prototype for oversize video browser scaling, eCommerce engine, etc. All of these development costs were capitalized in accordance with FASB ASC 350-50.
Note 5. Loan Payable
The components of notes as of December 31, 2011 and the related activity during the nine months ended September 30, 2012 are as follows:
·
$42,500 loan received February 9, 2011, due November 11, 2011 including interest at 8%. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company
s common stock at a price equal to 61% of the market price. As of September 30, 2012, this note was converted to common stock.
·
$53,000 loan received April 21, 2011, due January 25, 2012 including interest at 8%. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company
s common stock at a price equal to 61% of the market price. As of September 30, 2012, this note was converted to common stock.
·
$37,500 loan received May 23, 2011, due February 27, 2012 including interest at 8%. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Companys common stock at a price equal to 61% of the market price. As of September 30, 2012, this note was converted to common stock.
·
$50,000 loan received June 23, 2011, due December 22, 2011 including interest at 8%. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company
s common stock at a price equal to 61% of the market price. As of September 30, 2012, this note was converted to common stock.
F-7
|
WEBSAFETY, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2012
(Unaudited)
|
·
$31,000 loan received January 1, 2012, due June 1, 2012. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Companys common stock at a price equal to $.005 per share. As of September 30, 2012, this note has been converted to common stock.
·
$20,000 loan received February 24, 2012, due on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company
s common stock at a price equal to $.005 per share. As of September 30, 2012, no portion of this note has been converted to common stock.
·
$13,000 loan received February 27, 2012, due on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company
s common stock at a price equal to $.005 per share. As of September 30, 2012, no portion of this note has been converted to common stock.
·
$6,157 loan received April 9, 2012, due August 31, 2012. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Companys common stock at a price equal to $.005 per share. As of September 30, 2012, this note was converted to common stock.
·
$16,771 loan received April 9, 2012, due August 31, 2012. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company
s common stock at a price equal to $.005 per share. As of September 30, 2012, this note was converted to common stock.
·
$7,524 loan received April 9, 2012, due August 31, 2012. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company
s common stock at a price equal to $.005 per share. As of September 30, 2012, this note was converted to common stock.
·
$63,054 loan received April 9, 2012, due August 31, 2012. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company
s common stock at a price equal to $.005 per share. As of September 30, 2012, no portion of this note was converted to common stock.
·
$18,000 loan received April 9, 2012, due August 31, 2012. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Companys common stock at a price equal to $.005 per share. As of September 30, 2012, this note was converted to common stock.
·
$3,309 loan received June 1, 2012, due on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company
s common stock at a price equal to $.005 per share. As of September 30, 2012, this note was converted to common stock.
·
$55,000 loan received June 1, 2012, due on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company
s common stock at a price equal to $.005 per share. As of September 30, 2012, this note was converted to common stock.
·
$18,800 loan received June 6, 2012, due on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company
s common stock at a price equal to $.005 per share. As of September 30, 2012, no portion of this note was converted to common stock.
·
$18,000 loan received June 7, 2012, due on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Companys common stock at a price equal to $.005 per share. As of September 30, 2012, no portion of this note was converted to common stock.
F-8
|
WEBSAFETY, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2012
(Unaudited)
|
·
$18,309 loan received June 14, 2012, due on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company
s common stock at a price equal to $.005 per share. As of September 30, 2012, this note was converted to common stock.
·
$16,691 loan received June 14, 2012, due on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company
s common stock at a price equal to $.005 per share. As of September 30, 2012, this note was converted to common stock.
·
$1,277 loan received June 30, 2012, due on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company
s common stock at a price equal to $.005 per share. As of September 30, 2012, no portion of this note was converted to common stock.
·
$4,395 loan received June 30, 2012, due on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Companys common stock at a price equal to $.005 per share. As of September 30, 2012, no portion of this note was converted to common stock.
·
$63,000 loan received July 5, 2012, due April 10, 2013, including interest at 8%. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company
s common stock at a price equal to 61% of the market price. As of September 30, 2012, no portion of this note was converted to common stock.
·
$63,000 loan received September 19, 2012, due June 21, 2013, including interest at 8%. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Companys common stock at a price equal to 58% of the market price. As of September 30, 2012, no portion of this note was converted to common stock.
Each loan above has a right to convert to common stock. During the nine months ended September 30, 2012, a total of $345,761 of the above mentioned notes were converted into shares of common stock.
Based on the intrinsic value of the conversion feature, the Company determined that there was a beneficial conversion feature associated with each. As a result of the beneficial conversion feature exceeding the proceeds received from the promissory notes, management discounted the notes 100% and will amortize this discount over the life of the note. During the nine months ended September 30, 2012 and 2011, amortization of the beneficial conversion feature was $500,258 and $228,772, respectively. As of September 30, 2012, the total unamortized discount on notes was $93,026.
Note 6. Stock Issuances for Services
During the three month period ended September 30, 2012, we had no common stock issuances.
Note 7. Related Party Transactions
Consulting, Legal and Administrative Services-
These services consist of management oversight of the operations of the Company; review of financial operations, capital raising and meetings with investors, potential investors, preparation of the Companys SEC reports and documents for the Companys operations.
In the aggregate, during the nine months ended September 30, 2012, the Company owed to related parties $926,049 for consulting, legal and accrued interest as reflected below.
F-9
|
WEBSAFETY, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2012
(Unaudited)
|
|
|
|
| |
|
Consulting,
legal and
administrative
|
Loan
|
Accrued Interest
|
Total
|
Rowland W. Day II
|
$581,531
|
$283,312
|
$31,206
|
$896,049
|
Bryan Fowler
|
|
$30,000
|
|
$30,000
|
|
$581,531
|
$313,312
|
$31,206
|
$926,049
|
Rowland W. Day II is our CEO, CFO and Chairman of the Board. Bryan Fowler is our technology consultant and shareholder.
The components of notes as of December 31, 2011 and the related activity during the nine months ended September 30, 2012 are as follows:
On October 4, 2011, the Company entered into a convertible promissory note in the amount of $516,134 including interest of 5% due to Rowland W. Day II on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Companys common stock at a price equal to $0.005 per share. As of September 30, 2012, $150,000 of the above note has been converted to common stock.
On October 4, 2011, the Company entered into a convertible promissory note in the amount of $229,401 including interest of 5% due to Rowland W. Day II on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Companys common stock at a price equal to $0.005 per share. As of September 30, 2012, no portion of this note was converted to shares of common stock.
On December 31, 2011, the Company entered into a convertible promissory note in the amount of $15,952 including interest of 5% due to Rowland W. Day II on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Companys common stock at a price equal to $0.005 per share. As of September 30, 2012, no portion of this note was converted to shares of common stock.
On December 31, 2011, the Company entered into a convertible promissory note in the amount of $7,250 including interest of 5% due to Rowland W. Day II on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Companys common stock at a price equal to $0.005 per share. As of September 30, 2012, no portion of this note was converted to shares of common stock.
On March 31, 2012, the Company entered into a convertible promissory note in the amount of $12,467 including interest of 5% due to Rowland W. Day II on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Companys common stock at a price equal to $0.005 per share. As of September 30, 2012, no portion of this note was converted to shares of common stock.
On March 31, 2012, the Company entered into a convertible promissory note in the amount of $62,250 including interest of 5% due to Rowland W. Day II on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Companys common stock at a price equal to $0.005 per share. As of September 30, 2012, no portion of this note was converted to shares of common stock.
On June 30, 2012, the Company entered into a convertible promissory note in the amount of $83,125 including interest of 5% due to Rowland W. Day II on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Companys common stock at a price equal to $0.005 per share. As of September 30, 2012, no portion of this note was converted to shares of common stock.
F-10
|
WEBSAFETY, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2012
(Unaudited)
|
On June 30, 2012, the Company entered into a convertible promissory note in the amount of $14,693 including interest of 5% due to Rowland W. Day II on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Companys common stock at a price equal to $0.005 per share. As of September 30, 2012, no portion of this note was converted to shares of common stock.
On September 30, 2012, the Company entered into a convertible promissory note in the amount of $16,132 including interest of 5% due to Rowland W. Day II on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Companys common stock at a price equal to $0.005 per share. As of September 30, 2012, no portion of this note was converted to shares of common stock.
On September 30, 2012, the Company entered into a convertible promissory note in the amount of $57,437 including interest of 5% due to Rowland W. Day II on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Companys common stock at a price equal to $0.005 per share. As of September 30, 2012, no portion of this note was converted to shares of common stock.
On December 31, 2011, the Company entered into a convertible promissory note in the amount of $23,373, due to Bryan Fowler due March 31, 2012. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Companys common stock at a price equal to $0.005 per share. As of September 30, 2012, the note has been converted to shares of common stock.
On April 1, 2012, the Company entered into a convertible promissory note in the amount of $30,000, due to Bryan Fowler due August 31, 2012. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Companys common stock at a price equal to $0.005 per share. As of September 30, 2012, no portion of this note was converted to shares of common stock.
Each loan above has a right to convert to common stock. During the nine months ended September 30, 2012, a total of $173,373 of the above mentioned notes were converted into shares of common stock.
Note 8. Facilities
The Companys corporate headquarters have been moved to 1 Hampshire Court, Newport Beach, California 92660 which is the office of our CEO and Chairman of the Board Rowland W. Day II. We are not being charged any rent at this time.
Note 9. Recent Pronouncements
Management does not believe that any recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
Note 10. Stock Based Compensation
In November 2009, the Board of Directors and Shareholders adopted the 2008 Stock Option Plan providing for the issuance of up to 10,000,000 shares to Company officers, directors, employees and to independent contractors who provide services to the Company.
F-11
|
WEBSAFETY, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2012
(Unaudited)
|
Options granted under the 2008 Stock Option Plan vest as determined by the Board of Directors and terminate after the earliest of the following events: expiration of the option as provided in the option agreement, 90 days subsequent to the date of termination of the employee, or ten years from the date of grant (five years from the date of grant for incentive options granted to an employee who owns more than 10% of the total combined voting power of all classes stock at the date of grant). In some instances, granted stock options are immediately exercisable into restricted shares of common stock, which vest in accordance with the original terms of the related options. The Company recognizes compensation expense ratably over the requisite service period.
The option price of each share of common stock shall be determined by the Board of Directors or compensation committee (when one is established), provided that with respect to incentive stock options, the option price per share shall in all cases be equal to or greater than 100% of the fair value of a share of common stock on the date of the grant, except an incentive option granted under the 2008 Stock Option Plan to a shareholder that owns more than 10% of the total combined voting power of all classes of stock, shall have an exercise price of not less than 110% of the fair value of a share of common stock on the date of grant. No participant may be granted incentive stock options, which would result in shares with an aggregate fair value of more than $10,000,000 first becoming exercisable in one calendar year.
In September 2009, 700,000 stock options with an exercise prices ranging from of $0.10 to $0.35 were granted to officers of the Company which vest as follows: 20% at the conclusion of each 12 month period from the 5 year term. These options carry a grant expiration date of 5 years after issuance. In January 2010, 1,400,000 stock options with exercise prices of $0.025 were granted to an officer and a board member of the Company which vest monthly over a 36 month term. These options carry a grant expiration date of 3 years after issuance. In February 2011, 2,000,000 stock options with exercise price of $.10 were granted to an officer of the Company, which vest monthly over a 12 month term. These options carry a grant expiration date of 1 year after issuance. In February 2011, 330,000 stock options with exercise price of $0.10 were granted to employees of the Company which vest monthly over a 48 month term. These options carry a grant expiration date of 4 years after issuance. As of September 30, 2012 and December 31, 2011, approximately 1,846,108 and 3,034,798 stock options had vested.
For the nine months ended September 30, 2012 and 2011, the Company recorded compensation costs for options and shares granted under the plan amounting to $463,583 and $621,110, respectively. A deduction is not allowed for income tax purposes until nonqualified options are exercised. The amount of this deduction will be the difference between the fair value of the Companys common stock and the exercise price at the date of exercise. The tax effect of the income tax deduction in excess of the financial statement expense, if any, will be recorded as an increase to additional paid-in capital. No tax deduction is allowed for incentive stock options. Accordingly no deferred tax asset is recorded for GAAP expense related to these options.
Management has valued the options at their date of grant utilizing the Black Scholes Merton option pricing model. The fair value of the underlying shares was determined based on the closing price of the Companys publicly-traded shares as of date of the grant. Further, the expected volatility was calculated using the historical volatility of the Companys stock.
The risk-free interest rate is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options depending on the date of the grant and expected life of the options. The expected life of options used was based on the contractual life of the option granted. The Company determined the expected dividend rate based on the assumption and expectation that earnings generated from operations are not expected to be adequate to allow for the payment of dividends in the near future.
F-12
|
WEBSAFETY, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2012
(Unaudited)
|
The following table summarizes the status of the Company aggregate stock options granted under the incentive stock option plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Number
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
Average
|
|
|
Aggregate
|
|
Subject to Exercise
|
|
Options
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of January 1, 2011
|
|
|
2,100,000
|
|
|
$
|
.06
|
|
|
5.00
|
|
|
$
|
1,515,000
|
|
Granted - 2011
|
|
|
2,330,000
|
|
|
$
|
.10
|
|
|
|
1.28
|
|
|
|
429,420
|
|
Forfeited - 2011
|
|
|
(440,000)
|
|
|
$
|
.01
|
|
|
|
5.00
|
|
|
|
(24,056)
|
|
Exercised - 2011
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of December 31, 2011
|
|
|
3,990,000
|
|
|
$
|
.08
|
|
|
|
3.04
|
|
|
$
|
1,920,364
|
|
Granted - 2012
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Forfeited - 2012
|
|
|
(2,000,000)
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Exercised - 2012
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of September 30, 2012
|
|
|
1,990,000
|
|
|
$
|
.08
|
|
|
|
3.04
|
|
|
$
|
1,720,465
|
|
Exercisable as of September 30, 2012
|
|
|
1,846,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarized the status of the Company aggregate non-vested shares granted under the 2008 Stock Option Plan for the nine months ended September 30, 2012.
|
|
|
| |
|
|
Number of
Non-
vested
Shares
Subject to
Options
|
|
Non-vested as of December 31, 2011
|
|
|
955,202
|
|
Non-vested granted - period ended September 30, 2012
|
|
|
|
|
Vested - period ended September 30, 2012
|
|
|
(811,310)
|
|
Forfeited - period ended September 30, 2012
|
|
|
-
|
|
Non-vested as of September 30, 2012
|
|
|
143,892
|
|
As of September 30, 2012, the unrecognized compensation cost related to non-vested share based compensation arrangements granted under the plan that was approximately $245,493. These costs will be recognized on a straight line basis over the remaining vesting life which currently extends to January 08, 2015.
Note 11. Legal Proceedings
The Company vacated their rental facility in September 2011 and was in default under the lease. As result of falling into default pursuant to the terms of the lease agreement, the Company has expensed the security deposit of $19,756.
F-13
|
WEBSAFETY, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2012
(Unaudited)
|
The landlord filed a lawsuit against the Company on November 8, 2011 for the unpaid and future lease payments of approximately $400,000. On June 7, 2012 the Company and the Landlord reached an agreement in the amount of $75,000. Three shareholders paid the $75,000 in the exchange for convertible promissory notes. The Company had previously recorded under Accrued Loss Contingency; $400,000 related to the unpaid and future lease payments
, in accordance with FASB ASC 145, $325,000 of the related liability has been reversed through the same line item in the statement of activities as used when the cost was recognized initially.
$41,623 of rent payable, previously recorded in Accounts Payable, was written off to Loss Contingency item in the statement of operations as this was forgiven in this agreement.
On August 28, 2012, Keith Miller a part time employee of the Company at the time of his departure sued the Company, its officers and directors for fraud. Mr. Miller was previously the Interim Chief Technology Officer of the Company.
Mr. Miller alleges that he was induced to work by promises made by the Companys representatives and he was not paid for his services.
The Company is defending this lawsuit and preparing a cross-complaint against Mr. Miller for his retention of Company property that he has refused to return.
F-14