UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
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þ
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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| For
the fiscal year ended December 31,
2009 |
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| OR |
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from ____________ to ____________
Commission
file number: 333-147247
| |
Options Media Group Holdings,
Inc. |
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| |
(Exact name of
registrant as specified in its charter) |
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Nevada
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26-0444290
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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123
NW 13th
Street, Suite 300, Boca Raton, Florida
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33432
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (561) 368-5067
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes o
No þ
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes þ
No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes o
No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
| Large accelerated
filer |
o |
Accelerated
filer |
o |
| Non-accelerated
filer (Do not check if a smaller reporting company) |
o |
Smaller reporting
company |
þ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o
No þ
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the closing price as of the last
business day of the registrant’s most recently completed second fiscal quarter
was approximately $60,311,059.
The
number of shares outstanding of the registrant’s common stock, as of March 30,
2010, was 222,996,640.
PART
I
Company
Overview
Options Media Group Holdings, Inc. is a
multi-channel marketing firm that historically has specialized in the
acquisition and retention of customers through direct and digital, and Internet
marketing programs. Options Media does business through its
wholly-owned subsidiaries: 1Touch Marketing, LLC, or 1 Touch, and Options
Acquisition Sub, Inc., or Acquisition Sub.
Recently Options Media has begun
focusing its efforts on cell phones and text messaging as users in the United
States have began using their phones to access the Internet and for other
purposes.
An important part of Options Media’s
cell and mobile phone strategy revolves around its proposed acquisition of an
exclusive sublicense of cell phone software that has a significant potential to
dramatically change the nature of Option Media’s business and improve its
financial condition.
The
PhoneGuard Transaction
On March 25, 2010, Options Media
entered into a letter of intent with Cellular Spyware, Inc. d/b/a PhoneGuard,
Inc., or PhoneGuard, to acquire an exclusive sublicense for the U.S. and Canada
to market PhoneGuard’s mobile anti-virus and safety products.
PhoneGuard is the exclusive licensee
for the software distributed by NetQin Mobile, Inc., a Chinese based company
which is a global leader in mobile security services according to Frost &
Sullivan.
Outside of the U.S., cell phone users
rely heavily on their cell phone for Internet access.
As the Smartphone becomes more
prevalent in the U.S., more users use the phones browser to access the Internet
rather than solely using computers. Smartphones include Apple’s
iPhone, Blackberry and phones using the Android operating
system. This increases the likelihood that hackers and others will
generate viruses aimed at the mobile phone market.
PhoneGuard launched the NetQin
anti-virus software in North America in November 2009 and has been primarily
engaged with leading wireless carriers and resellers with a view to having them
provide the anti-virus software, either as part of a monthly service package or
as an optional feature.
At the same time that access to the
Internet via Smartphone is accelerating, text messaging on all cell phones has
exploded. Youths primarily text rather than use email. At
the same time, states struggle with the costs stemming from motor vehicle
accidents caused by persons texting while driving.
This
explosion in text messaging has seen the following:
|
●
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The
Virginia Tech Transportation Institution, in a July 2009 report, estimates
that the risk of a crash or near crash is 23.2 times non-distracted
driving. The same study estimates that the rate is 2.8 times
for dialing a cell phone for cars and 5.9 times for
trucks.
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The
National Safety Council estimates that 1.6 million crashes annually
involve cell phone use with 200,000 due to text
messaging.
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A
national insurance study estimates 20% of drivers text; in the 18-24 year
old age group, the number is 66%.
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At
least 21 states have banned texting while
driving.
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In
October 2009, President Obama issued an executive order banning texting
while driving for federal
employees.
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During
the 2010 NCAA Men’s College Basketball tournament, AT&T wireless acted
as the official wireless carrier. It broadcast public service
commercials against texting and
driving.
|
Focusing
on this serious problem, PhoneGuard is introducing in mid-April a software
solution which will stop the ability to text when a car’s speed exceeds 10 miles
per hour. Options Media has reached a verbal agreement to acquire the
rights to this key technology.
The
letter of intent with PhoneGuard is subject to execution of a definitive
agreement and an Employment Agreement with its principal shareholder and
customary closing conditions.
The Options Media and 1 Touch database
has access to over 150-million opted-in consumer, 174-million postal database
and 21-million business records for prospect marketing via email, sms, and
postal channels with full demographic and lifestyle
selects.
The Options Media and
1 Touch web advertising network enables marketers to place banner advertising on
a network of targeted websites both nationally and internationally.
The Options Media and 1 Touch lead
generation division uses its own proprietary portal as well as a publisher
network to engage customers for marketing offers and supply these leads directly
to advertisers.
Services:
ESP
Services Our Email Service Provider, or ESP, provides a platform for
marketers to communicate with subscribers within their customer
database.
Options
Media provides three levels of ESP services:
|
Do-It-For
Me
Complete
ASP solution
|
Options
Media provides all the software, hardware, bandwidth, IP addresses, and
everything else you need to tap into top-of-the-line professional
e-marketing. With just a username and password customers can
upload and manage subscribers, review and upload campaign creatives, track
results and more.
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Guide
Me
Consultation
Services
|
No
matter where a customer is in the email marketing spectrum, Options Media
can provide professional insight with seasoned experts in marketing
insight, strategy guidance, best practices, content writing, creative
design and more.
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Do-It-Yourself
Stand-Alone
Software
|
If
a customer prefers to keep all of their marketing efforts in house,
Options Media can still help them with technology. Options
Media can install, set up, and maintain the software platform and then
help customers manage it as their company grows or their objectives
change. This is ideal for those customers with their own
hardware, bandwidth, IP addresses and
infrastructure.
|
::
Account Services
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Flexible
service packages (full service, self service & hybrid plans
available)
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Hosted
& non-hosted solutions
available
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Dedicated
account management team
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Training
& ongoing product education
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Deliverability
support & list hygiene
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Best
practice recommendations
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Integration
& API customization
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::
Data Management
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State
of the art data security
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Suppression
list management
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Global
bounce merge/purge
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::
Deliverability
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Automated
unsubscribe/bounce management
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Email
best practice implementation:
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::
SPF, Sender ID, DKIM
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Personalization
& dynamic content deployment
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::
Analytics
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Extensive
tracking & reporting
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::
Customizable Parameters
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Schedule
a one-time email drop, or schedule recurring targeted
messaging
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Customized
creative and design services
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Suppression
list management
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Global
bounce merge/purge
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Opt-in Email
Services
1 Touch offers full-service opt-in
email marketing from creative design to custom list creation to deployment and
tracking. To promote our list rental services, 1 Touch places its list
information on its own website as well as onto the three major list engines:
Nextmark, SRDS and MIN. To further enhance incoming interest in list
rentals, 1 Touch has contracted to become a Preferred Provider on Nextmark thus
ensuring priority placement in list search results.
1 Touch has received press coverage in
both DM News, a widely circulated print and online media company and Direct
Marketing Magazine in both e-newsletters and print editions.
SMS Mobile Marketing
Services
Options
Media offers three types of SMS Mobile Marketing:
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SMS
Mobile Marketing PUSH
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SMS
Mobile Marketing PULL
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SMS
Bluetooth Proximity Marketing
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SMS Mobile Marketing PUSH- This is a
message sent to a list similar to that of opt-in email. These
recipients have agreed to receive advertising on their cell phones for messages
of interest. The message is broadcast, or pushed out, to cell phone
numbers on our SMS database.
SMS Mobile Marketing PULL- This type of
messaging is initiated by the user in response to an advertising prompt to text
in a specific keyword a short code phone number. Most people will
recognize this type of messaging to be similar to that of the TV show “American
Idol” or similar shows where viewers text in to vote. Once a
respondent has texted in, they receive an auto-responder message with discount,
promotional or other information on their cell phones.
SMS
Bluetooth Proximity Marketing –This is a message sent directly to any Bluetooth
enabled device that comes within 300-feet of a special transmitter. A
text message, download, link to a website or multi-media file can be sent via
the Bluetooth message. This type of communication is ideal for
virtually any business because offers are sent to potential customers who are
within walking distance of their business location.
Web Advertising and Lead
Generation
Our Web
Advertising offers custom banner advertising programs on our network of national
and international sites. Our clients can select a wide range of
consumer segments to specifically target their message to interested
prospects. To generate these leads Options Media has created its own
portal in addition to working with web publishers.
Lead
generation programs are custom-created for each advertiser to accomplish their
specific prospecting goals. Leads are screened and only those
matching the set prospect criteria are sent to the advertiser.
Lead
generation programs focus on two industry sectors:
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Consumer
products & services
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Educational
products & services
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According
to a study done by the Barclays Capital U.S. Media and Internet team, they
estimate that, “for 2010 we believe online advertising growth will reaccelerate
to 12%, reaching $28.1 billion, [with] 12% growth in Display, and 6% in
Lead Generation and Email.”
Database
Options Media acquires new data through
direct acquisition and lead generation. In 2008, Options Media
acquired 1 Touch and combined databases which included all of the data acquired
by each company since their respective inceptions. Regularly, Options
Media acquires data from many sources though direct purchase and through
co-registration.
The primary goal of direct acquisition
is to obtain targeted data rather than general lists in order to strengthen and
augment targeting capabilities. As such, data acquisition partners
generally specialize in a given vertical or industry and these partners
collected consumer data through their own processes.
Co-registration is the process where
online parties visiting or registering to use a third party publisher’s website
are also invited to register for one of our clients’ offers. Offers
are placed on the path and external publishers send traffic to the
offers. As consumers convert on the offers, conversion information
and postal data is stored in the master database.
In order to ensure the accuracy,
integrity and ongoing relevance of the database, the data is augmented on a
continual basis. Data augmentation is facilitated though many
mechanisms but the primary methodology is email response feedback loops which
help determine what users are marketing consumer’s bulk email as
spam.
Hardware
and Software
With the email delivery platform, our
clients can create, send and track the email campaigns for their
subscribers. We provide online tracking and database management
software, email servers’ hardware, bandwidth, domains and IP addresses to our
clients so they can communicate with their clients and prospects through
emails. Each client has a username and password to be able to upload
and manage subscribers, review and upload campaign creative’s, schedule a series
of trigger based emails and pull detailed tracking reports and
analytics. We use hardware such as online servers and bandwidth owned
by various third-parties in both Florida and California.
Employees
As of December 31, 2009, we employed a
total of 33 employees all of which are full time employees. As of March 26,
2010, the Company employed a total of 35 employees all of which are full time
employees. None of our employees are represented by a labor union and we believe
that our relations with our employees are good.
Research
and Development
We have
had no research and development expenses to date.
Government
Regulation
CAN-SPAM ACT
The Controlling the Assault of
Non-Solicited Pornography and Marketing Act of 2003, or CAN-SPAM Act,
establishes requirements for commercial email and specifies penalties for
commercial email that violates the Act. In addition, the CAN-SPAM Act
gives consumers the right to require emailers to stop sending them commercial
email.
The CAN-SPAM Act covers email sent for
the primary purpose of advertising or promoting a commercial product, service,
or Internet website. The Federal Trade Commission, a federal consumer
protection agency, is primarily responsible for enforcing the CAN-SPAM Act, and
the Department of Justice, other federal agencies, State Attorneys General, and
Internet service providers also have authority to enforce certain of its
provisions.
The
CAN-SPAM Act’s main provisions include:
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Prohibiting
false or misleading email header
information;
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Prohibiting
the use of deceptive subject lines;
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Ensuring
that recipients may, for at least 30 days after an email is sent, opt out
of receiving future commercial email messages from the
sender;
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Requiring
that commercial email be identified as a solicitation or advertisement
unless the recipient affirmatively permitted the message;
and
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Requiring
that the sender include a valid postal address in the email
message.
|
The CAN-SPAM Act also prohibits
unlawful acquisition of email addresses, such as through directory harvesting
and transmission of commercial emails by unauthorized means, such as through
relaying messages with the intent to deceive recipients as to the origin of such
messages.
Violations of the CAN-SPAM Act’s
provisions can result in criminal and civil penalties, including statutory
penalties that can be based in part upon the number of emails sent, with
enhanced penalties for commercial emailers who harvest email addresses, use
dictionary attack patterns to generate email addresses, and/or relay emails
through a network without permission.
The CAN-SPAM Act acknowledges that the
Internet offers unique opportunities for the development and growth of
frictionless commerce, and the CAN-SPAM Act was passed, in part, to enhance the
likelihood that wanted commercial email messages would be received.
The CAN-SPAM Act preempts, or blocks,
most state restrictions specific to email, except for rules against falsity or
deception in commercial email, fraud and computer crime. The scope of
these exceptions, however, is not settled, and some states have adopted email
regulations that, if upheld, could impose liabilities and compliance burdens in
addition to those imposed by the CAN-SPAM Act.
Moreover, some foreign countries,
including the countries of the European Union, have regulated the distribution
of commercial email and the online collection and disclosure of personal
information. Foreign governments may attempt to apply their laws
extraterritorially or through treaties or other arrangements with U.S.
governmental entities.
Our clients may be subject to the
requirements of the CAN-SPAM Act, and/or other applicable state or foreign laws
and regulations affecting email marketing. If our clients’ email
campaigns are alleged to violate applicable email laws or regulations and we are
deemed to be responsible for such violations, or if we were deemed to be
directly subject to and in violation of these requirements, we could be exposed
to liability.
Our standard terms and conditions
require our clients to comply with laws and regulations applicable to their
email marketing campaigns and to implement any required regulatory
safeguards.
SMASH
Act of 2008
The Stop M-Spam Abuse as a Sales
Industry Habit Act of 2008 (H.R. 5769) would require the Federal Trade
Commission to “issue regulations to revise the Telemarketing Sales Rule to
explicitly prohibit as an abusive telemarketing act or practice, the sending of
any electronic commercial message containing an unsolicited advertisement to a
telephone number that is assigned to a commercial mobile service and listed on
the FTC’s do not call registry.” As of the date of this report, the
bill has not been passed into law and has been referred to the Subcommittee on
Commerce, Trade and Consumer Protection.
Corporate
History and Acquisitions
We were incorporated in the State of
Nevada on June 27, 2007 under the name Heavy Metal, Inc. On June 19,
2008, we changed our name to Options Media Group Holdings, Inc. On
June 23, 2008, we acquired Acquisition Sub., which contained the business of
Options Newsletter, Inc., or Options Newsletter. All of the
pre-merger assets and liabilities of Options Media were transferred to the prior
president of Options Media, in exchange for the cancellation of his ownership in
Options Media. As consideration for Acquisition Sub., we issued
12,500,000 shares of our common stock to Customer Acquisition Network Holdings,
Inc., now known as interCLICK, Inc., the former parent of Acquisition
Sub.
On September 19, 2008, we acquired 1
Touch for 10,000,000 shares of our common stock and $1,500,000. Additionally,
the former owners of 1 Touch acquired the right to receive a maximum earn-out
payment of 6,000,000 shares of Options Media common stock based on 1 Touch
achieving specific performance milestones. The specific milestones
were not reached in 2008 and 2009. Consequently, the former owners were not
issued any of these shares.
Competition
We face intense competition in the
Internet advertising market from other online advertising and direct marketing
networks in competing for client advertising budgets. We expect that
this competition will continue to intensify in the future as a result of
industry consolidation, the maturation of the industry and low barriers to
entry. We compete with a diverse and large pool of advertising,
media, and Internet companies.
Our ability to compete depends upon
several factors, including the following:
● The timing
and market acceptance of our new solutions and enhancements to existing
solutions developed by us;
● Our customer
service and support efforts;
● Our sales and
marketing efforts;
● The ease of
us, performance, price and reliability of solutions provided by us;
and
● Our ability
to remain price competitive.
Customers
Our
customers are primarily direct marketers, advertising agencies and brand
marketers. Our customers range from Fortune 500 companies, the
federal government, and small to mid size companies.
Sales
and Marketing
We acquire our clients principally
though the efforts of our dedicated in-house sales team and through the
sponsorship and attendance of various trade shows and conferences. In
addition, our general brand awareness, word of mouth client referrals, press and
general brand awareness initiative drive prospects to us.
Intellectual
Property
SMS
Platform
The
proprietary SMS platform communicates with cell phone users by sending targeted
messages using the SMS protocol. The platform also receives and processes
solicited and unsolicited responses from cell phone users. The SMS platform
consists of custom software to set up, track and fulfill SMS campaigns. It
includes a database component for individual users as well as an opt in mobile
opt-in subscriber file.
The SMS
platform allows Options Media clients to interact with their customers through
the use of keywords advertised on television, radio, print, and the web as well
as voting interaction. This offers tremendous creative opportunities for our
clients such as increased brand awareness, mobile coupons, new product
announcements, loyalty programs and event announcements.
Bluetooth
Proximity System
The
Bluetooth Proximity System is a custom hardware and custom software solution
that uses the Bluetooth protocol to communicate with cell phone users utilizing
the Bluetooth technology existing in the recipients cell phone. Bluetooth
proximity deployment boxes (which are part of the system) ask cell phone users
to opt-in when a compatible cell phone is detected in the local area. Upon
opt-in confirmation, it then delivers the customer’s marketing message(s) to the
cell phone. Data from multiple deployment boxes can be combined to provide the
customer with a complete analysis of their marketing effort (the
system).
Bluetooth
marketing enables our clients to deliver highly targeted messages to consumers
based on their proximity to the Bluetooth broadcasting box. This is a tremendous
advertising method because the mobile user does not incur any usage charges and
it has a very high degree of relevance, the consumer can immediately engage the
advertiser and is delivered to the consumer in a personal message.
Not applicable for smaller reporting
companies. However, our principal risk factors are described under
“Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations.”
ITEM
1B. UNRESOLVED STAFF COMMENTS.
Not
applicable.
ITEM
2. PROPERTIES.
Our corporate
headquarters, including our principal administrative, marketing, technical
support and research and development departments, are presently located in Boca
Raton, Florida in a leased office building of approximately 10,400 square
feet. The monthly cost of the lease is approximately $18,000 and
expires December 31, 2010.
ITEM
3. LEGAL PROCEEDINGS.
We are not currently subject to any legal proceedings. From time to
time, we have been party to litigation matters arising in connection with the
normal course of our business, none of which has or is expected to have a
material adverse effect on us.
ITEM
4. (REMOVED AND RESERVED).
PART
II
ITEM
5. STOCKHOLDER
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
Our
common stock is quoted on the Over-the-Counter Bulletin Board, or the Bulletin
Board, under the symbol “OPMG”. The last reported sale price of our
common stock as reported by the Bulletin Board on March 26, 2010 was $0.04 per
share. As of that date, there were 195 holders of
record. The following table provides the high and low bid price
information for our common stock for the periods indicated which reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
|
Year
|
|
Quarter Ended
|
|
Bid Prices
|
|
|
|
|
|
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High
|
|
|
Low
|
|
|
|
|
|
|
($)
|
|
|
($)
|
|
| |
|
|
|
|
|
|
|
|
|
2009
|
|
December
31
|
|
|
0.21
|
|
|
|
0.05
|
|
|
|
|
September
30
|
|
|
0.34
|
|
|
|
0.09
|
|
|
|
|
June
30
|
|
|
0.76
|
|
|
|
0.24
|
|
|
|
|
March
31
|
|
|
0.90
|
|
|
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
December
31
|
|
|
1.65
|
|
|
|
0.70
|
|
|
|
|
September
30(1)
|
|
|
1.85
|
|
|
|
1.35
|
|
(1) We began
trading on the Bulletin Board on July 11, 2008.
Dividend
Policy
We have
not paid any cash dividends on our common stock and do not plan to pay any such
dividends in the foreseeable future. We currently intend to use all available
funds to develop our business. We can give no assurances that we will
ever have excess funds available to pay dividends.
Recent
Sales of Unregistered Securities
In
addition to those unregistered securities previously disclosed in reports filed
with the Securities and Exchange Commission, or the SEC, we have sold securities
without registration under the Securities Act of 1933 in reliance upon the
exemption provided in Section 4(2) and Rule 506 thereunder, as
described below.
|
Name
of Class
|
Date
Sold
|
No. of
Securities
|
Reason
for Issuance
|
|
$0.50
Warrant holders
|
September
9, 2009 to October 9, 2009
|
1,167,500
3-year warrants exercisable at $0.06 per share
|
Reduced
exercise price of previously issued warrants
|
|
Warrant
holders
|
October
5, 2009 to December 21, 2009
|
4,984,167
shares of common stock
|
Exercise
of warrants
|
|
Note
holder
|
October
12, 2009
|
50,000
shares of common stock
|
Extension
of note
|
|
Investor
|
October
20, 2009
|
185,186
shares of common stock
|
Investment
|
|
Note
holder
|
October
23, 2009
|
500,000
shares of common stock
|
Extension
of note and waiver of accrued interest
|
|
Investor
|
November
19, 2009
|
645,064
shares of common stock
|
Anti-dilution
provision in agreement and shares issued for delayed
issuance
|
|
$0.50
Warrant holders
|
December
4, 2009 to December 7, 2009
|
2,912,667
3-year warrants exercisable at $0.035 per share
|
Reduced
exercise price of previously issued warrants
|
|
Investor
|
December
17, 2009
|
937,500
shares of common stock
|
Investment
and anti-dilution provision in agreement
|
|
Trade
creditor
|
December
22, 2009
|
250,000
shares of common stock
|
Payment
for services in lieu of cash
|
|
Note
holder
|
December
23, 2009
|
$50,000
note convertible at $0.035 per share
|
Extension
of promissory note
|
ITEM
6. SELECTED FINANCIAL DATA.
Not applicable to smaller reporting
companies.
ITEM
7.MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Options Media is an email
service provider, permission based email, SMS/text messaging marketing and
mobile social media marketing company. It is poised to concentrate on
the burgeoning text messaging business.
During 2009, we accomplished
significant milestones, including:
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In
2009, we raised $3,695,000 gross, providing us with the funds to payoff
debt.
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In
December 2009, we acquired a mobile mailing platform to more efficiently
manage and track mobile marketing
activities.
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In
December 2009, we began negotiations on acquiring a new email mailing
platform which was finalized in January 2010 which will allow us to more
efficiently manage and track our email
activities.
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Critical
Accounting Estimates
This
discussion and analysis of our financial condition presented in this section is
based upon our financial statements which have been prepared in accordance with
accounting principles generally accepted in the United States. The
preparation of our financial statements and related disclosures requires us to
make estimates, assumptions and judgments that affect the reported amount of
assets, liabilities, revenue, costs and expenses, and related
disclosures. We believe that the estimates, assumptions and judgments
involved in the accounting policies described below have the greatest potential
impact on our financial statements and, therefore, consider these to be our
critical accounting policies. On an ongoing basis, we evaluate our
estimates and judgments, including those related to accrued expenses, allowance
for accounts receivable, purchase price fair value allocation for business
combinations, estimates of depreciable lives and valuation of property and
equpiment, valuations of discounts on debt, valuation of beneficial
conversion features in convertible debt, valuation and amortization periods of
intangible assets, valuation of goodwill, valuation of stock based compensation
and the deferred tax valuation allowance. We based our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
Stock
Based Compensation
We
adopted ASC 718-20-10, Share
Based Payment (formerly SFAS No. 123R) establishes the financial
accounting and reporting standards for stock-based compensation
plans. As required by ASC 718-20-10, we recognize the cost resulting
from all stock-based payment transactions including shares issued under our
stock option plans in the financial statements. Stock based
compensation is measured at fair value at the time of the grant.
Valuation
of Long-Lived and Intangible Assets and Goodwill
Pursuant
to the ASC 350-10-05 Goodwill and Other Intangible Assets (formerly SFAS 142 and
144) and the Impairment or Disposal of Long-lived Assets, we assess the
impairment of identifiable intangibles, long-lived assets and goodwill annually
or whenever events or circumstances indicate that the carrying value of these
assets may not be recoverable. Factors we consider include and are not limited
to the following:
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Significant
changes in performance relative to expected operating
results
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Significant
changes in the use of the assets or the strategy of our overall
business
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Significant
industry or economic trends
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As
determined in accordance with the ASC, if the carrying amount of goodwill of a
reporting unit exceeds its fair value, the impairment loss is measured as the
amount by which the carrying amount exceeds the fair market value of the
assets. In accordance with the ASC, in determining if impairment
exists, we estimate the undiscounted cash flows to be generated from the use and
ultimate disposition of these assets. The impairment loss is measured
as the amount by which the carrying amount of the assets exceeds the fair market
value of the assets.
Revenue
Recognition
We
recognize revenue when the following criteria have been met: persuasive evidence
of an arrangement exists, the fees are fixed or determinable, no significant
company obligations remain, and collection of the related receivable is
reasonably assured.
We, in
accordance with ASC 605-45-05, (formerly Emerging Issues Task Force (“EITF”) Issue 99-19
“Reporting Revenue Gross as a Principal vs. Net as an Agent,”) report revenues
for transactions in which we are the primary obligor on a gross basis and
revenues in which we act as an agent on and earn a fixed percentage of the
sale on a net basis, net of related costs. Credits or refunds are
recognized when they are determinable and estimable.
The
following policies reflect specific criteria for our various revenue
streams:
Revenues
for sending direct emails of customer advertisements to our owned database of
email addresses are recognized at the time the customer’s advertisement is
emailed to recipients by us.
Revenues
from ESP activities which allow the customer to send the emails themselves, to
our database of email addresses include a monthly fee charged for the customer’s
right to send a fixed number of emails per month. ESP revenues are
generally collected upfront from customers for service periods of one to six
months. Thus, ESP revenues are deferred and recognized over the
respective service period. Overage charges apply if the customer
sends more emails in one month than is allowed per the
contract. Accordingly, overage charges are accrued in the month of
occurrence.
Revenue
from list management services, which principally includes email transmission
services of third party promotional and e-commerce offers to a licensed email
list, is recognized when Internet users visit and complete actions at an
advertiser’s website. Revenue consists of the gross value in accordance with
EITF 99-19 of billings to clients. We report these revenues gross
because we are responsible for fulfillment of the service, have substantial
latitude in setting price and assume the credit risk for the entire amount of
the sale, and are responsible for the payment of all obligations incurred with
advertiser email list owners. Cost of revenue from list management
services are cost incurred to the email list owners with whom we have licensed
such email list.
Revenue
from SMS is broken down into the three services offered. SMS Push is
recognized at the time the message is sent to the cell phone user, SMS Pull is
recognized as revenue when the cell phone user responds to the advertisement,
and SMS Bluetooth Proximity Marketing is recognized once a month as the client
leases the box and the delivery platform on a monthly basis.
New
Accounting Pronouncements
See Note
1 to our consolidated financial statements included in this report for
discussion of recent accounting pronouncements.
Results
of Operations
We commenced operations on June 23,
2008. Prior to June 23, 2008, we were in the development stage and
did not have any material assets or activities. In addition, we
acquired 1 Touch on September 19, 2008. As such, the results of
operations for 1 Touch are only included from that date onward.
Revenue:
Our revenue for the year ended December
31, 2009 increased to $7,430,760 from $3,370,790 for the period from June 23,
2008 (Inception) to December 31, 2008, an increase of 120%. The
increase is primarily attributable to including a full year of operations in
2009. Our revenue by product is shown in the table
below.
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Product
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Year
Ended December 31, 2009
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Period
From
June
23, 2008 to December 31, 2008
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Email
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43%
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30%
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Leads
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22%
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24%
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ESP
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22%
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23%
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List
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6%
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19%
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SMS
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4%
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0%
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Other
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3%
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4%
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In the
future, we expect our revenue to grow due to the continued growth in online
advertising and our continued efforts to acquire top products and
technology. However, we expect larger growth in the SMS product line
relative to our other products and services. We anticipate that the
lead products and list management will be a lesser percentage of total revenue
in the future. If we close the PhoneGuard transaction, we expect that
the mobile products we acquire will account for the majority of our
revenue.
Cost
of Revenue
The cost of revenue for the year ended
December 31, 2009 increased to $1,948,553 from $1,308,753 for the period from
June 23, 2008 (Inception) to December 31, 2008, an increase of approximately
50%. The cost of revenue for the year ended December 31, 2009
represents 26% of the revenue compared to 39% of revenue for the period from
June 23, 2008 (Inception) to December 31, 2008. The increase is
primarily attributable to including a full year of operations in
2009. The percentage reduction of 13% is attributable to the change
of product mix with email becoming a larger percentage with a higher profit
margin and list management a lesser percentage of the total
revenue. The cost of revenue include fees due to list owners for the
use of their data in list management advertising campaigns, outsourced leads,
and outsourced data and data services. The cost of revenue will
increase as our revenue grows.
Operating
Expenses:
Server hosting and technology services
consist of outsourced hosting, outsourced server costs, and other technology
costs required to operate our ESP and list management product
lines. This expense for the year ended December 31, 2009 increased to
$977,517 from $573,432 for the period from June 23, 2008 (Inception) to December
31, 2008, an increase of 70%. The increase is primarily attributable
to including a full year of operations in 2009. Servers hosting and
Technology expenses represented 47% of the ESP and List management revenue for
the year ended December 31, 2009 compared to 41% of the ESP and List management
revenue for the period from June 23, 2008 (Inception) to December 31,
2008. In the future, we anticipate that these costs as a percentage
of combined list management and ESP revenue may show slight improvements over
2009 levels as our revenue for List management decreases because the gross
margins on list management is substantially lower than ESP and SMS mobile
services.
Compensation
and related costs include salaries and payroll taxes. In addition, this expense
includes non-cash stock based compensation for director fees, expenses for
non-employee services employee restricted stock grants for services and the fair
value of options grants for employee services. This compensation
expense for the year ended December 31, 2009 increased to $4,576,577 from
$2,611,622 for the period from June 23, 2008 (Inception) to December 31, 2008,
an increase of 75%. The increase is primarily attributable to
including a full year of operations in 2009. The increase is also
attributed to the full year of amortization of the employees’ stock based
compensation and issuance of 19,900,000 employee stock options issued in
December 2009. The non-cash stock based compensation for the year
ended December 31, 2009 and December 31, 2008 were $817,356 and $1,114,840,
respectively. The stock compensation represents expenses for
directors’ fees of $515,258 for the year ended December 31, 2009 and $150,000
for the year ended December 31, 2008. The stock compensation
represents expenses for employees restricted stock grants for services
approximately $69,168 for the year ended December 31, 2009 and $32, 650 for the
year ended December 31, 2008 and the fair value of the Options Grants of
$232,930 for the year ended December 31, 2009. For the year ended 2010 the
Company will have an employee stock based compensation of approximately
$503,501. The stock based compensation will be fully amortized by December
2012.
Commission expense represents the
amounts we incurred for sales commissions on the sales we made. The
commission expense for the year ended December 31, 2009 increased to $899, 556
from $397,756 for the period from June 23, 2008 (Inception) to December 31, 2008
and increase of 125%. The increase is primarily attributable to including a full
year of operations in 2009. This increase is a direct result of the
increase in revenue.
Advertising
expense primarily consists of expenses related to attending trade shows which
include travel expenses and trade show fees. The Advertising expense
for the year ended December 31, 2009 increased to $108,311 from $84,419 for the
period from June 23, 2008 (Inception) to December 31, 2008 an increase of
28%. The increase is primarily attributable to including a full year
of operations in 2009.
Rent
expense for the year ended December 31, 2009 increased to $209,940 from $75,975
for the period from June 23, 2008 (Inception) to December 31, 2008, an increase
of 170%. At December 31, 2008, we consolidated our operations into
one facility in Boca Raton at a monthly rental cost of approximately $17,000;
the rent increased to approximately $18,000 a month beginning in January for
2010. The increase is primarily attributable to including a full year
of operations in 2009.
Bad debt expense is recorded when our
management reviews the accounts which are 30 days or more past due in order to
identify specific customers with known disputes or collectability
issues. Bad debt expense for the year ended December 31, 2009
increased to $486,491 from $136,451 an increase of 255%. The increase
is primarily attributable to including a full year of operations in
2009. The increase of this expense is also attributed to the increase
of revenue and accounts receivable, for the year 2009.
Loss on
disposal of assets for the year ended December 31, 2008, was $36,585. On
December 31, 2008, our headquarters were relocated from Hallandale, Florida to
Boca Raton, Florida. Leasehold improvements and certain furniture and
fixtures were disposed of. For the year ended December 31, 2009,
there were no asset disposals.
Other general and administrative
expenses consist primarily of consulting, investor relations and professional
services as well as insurance and the depreciation and amortization of
intangible assets. The general and administrative expenses for the
year ended December 31, 2009 increased to $2,887,148 from $1,764,113 for the
period from June 23, 2008 (Inception) to December 31, 2008 a 64%
increase. The other general and administrative expenses include
consulting, investor relations and professional services which increased to
approximately $1,600,000 for the year ended December 31, 2009 from approximately
$650,000 for the period June 23, 2008 (Inception) to December 31, 2008, an
increase of 145%. The increase is primarily attributable to including
a full year of operations in 2009.
Goodwill Impairment for the year ended
December 31, 2009 was $4,735,553. The Company performed its annual impairment
test of Goodwill as of December 31, 2009. As a result of the annual test, the
Company recorded a non-cash impairment of Goodwill of $4,735,553. There was no
goodwill impairment charge in 2008. See discussion in Note 6 to our
consolidated financial statements.
Other
income (expense) for the year ended December 31, 2009 was $20,154 which
mainly includes settlement income of $465,842 for settlements of past due
liabilities and ($449,892) of interest expense on notes and capital
leases. For the period from June 23, 2008 (Inception) to December 31,
2008 other income (expense) was ($32,179). This included $2,363 for
interest income and ($34,542) of interest expense on promissory notes and
capital leases.
We
recognized an income tax benefit of $213,597 for the year ended December 31,
2008 relating to the book-tax basis differences of certain acquired assets and
assumed liabilities of the 1 Touch’s business acquisition. No tax
benefit or expense was recorded for the year ended December 31,
2009.
The net loss for the year ended
December 31, 2009, was $9,378,732, and the net loss per share basic and diluted
was $0.15. The net loss for the year ended December 31, 2008, was
$3,436,898, and the net loss per share basic and diluted was $0.08.
Liquidity
and Capital Resources
In 2009,
we used $1,796,902 in cash for operations. The cash used consisted of
our net loss $9,378,732 offset by certain larger non-cash items including
impairment of goodwill of $4,735,553 stock options granted for services of
$730,132, amortization of intangibles of $563,993, and bad debt expense of
$486,493.
In 2009,
we were provided $2,993,518 of cash in financing activities including $170,733
received from the sale of common stock, $228,634 from the exercise of warrants
and $2,480,350 from the sale of Series B preferred stock.
In 2009,
our investing activities used net cash of $2,714 to purchase fixed
assets.
As of
December 31, 2009, we had $347,000 in outstanding notes payable. In
January 2010, three note holders converted $110,000 of their notes into Options
Media’s common stock and we re-paid the remaining $237,000. As of
March 26, 2010, we had approximately $790,000 in available cash, $637,440 in
accounts receivable and have no loans or notes payable.
To remain
operational through the next 12 months, we will need to improve our cash
flows. To accomplish this, our management has been focused on
shifting our business to higher margin products such as text messaging and email
platforms and looking to cut expenses. If we are unable to improve
our cash flow, we may need to raise additional funds through equity or debt
financings. If required, additional financing may not be available on
terms that are favorable to us, if at all. Any equity financing may
be very dilutive to our existing shareholders. If we are unsuccessful
in our attempts to increase cash flows to cover our expenditures or raise
additional funds in a financing, we may not be able to remain operational over
the next 12 months.
We invest
excess cash predominately in liquid marketable securities to support our growing
infrastructure needs for operational expansion. We expect to spend
$200,000 on capital expenditures in 2010.
Forward-Looking
Statements
The
statements in this report relating to our future liquidity, expectations
regarding revenue and cost of revenue, expectations regarding growth in the SMS
product line relative to our other services, expectations regarding our lead
products and list management service will have as a percentage of total revenue,
and expectations regarding closing the PhoneGuard transaction and its results on
our revenue are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Additionally, words such as
“expects,” “anticipates,” “intends,” “believes,” “will” and similar words are
used to identify forward-looking statements.
The
results anticipated by any or all of these forward-looking statements might not
occur. Important factors, uncertainties and risks that may cause
actual results to differ materially from these forward-looking statements are
contained in the Risk Factors that follow. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as the
result of new information, future events or otherwise. For more
information regarding some of the ongoing risks and uncertainties of our
business, see the Risk Factors and our other filings with the
SEC.
RISK
FACTORS
There
are numerous and varied risks, known and unknown, that may prevent us from
achieving our goals. If any of these risks actually occur, our
business, financial condition or results of operation may be materially
adversely affected. In such case, the trading price of our common
stock could decline and investors could lose all or part of their
investment.
Risk
Factors Relating to Our Company
Our
ability to continue as a going concern is in substantial doubt absent obtaining
adequate new debt or equity financing and achieving sufficient sales
levels.
We
incurred net losses of approximately $9.4 million in 2009. We
anticipate these losses will continue for the foreseeable future. We
have not reached a profitable level of operations and have a negative working
capital, all of which raise substantial doubt about our ability to continue as a
growing concern. Our continued existence is dependent upon generating
working capital. Because of our continuing losses, we have working
capital to permit us to remain in business only through the end of the year,
without improvements in our cash flow from operations or new
financing. Working capital limitations continue to impinge on our
day-to-day operations, thus contributing to continued operating
losses.
Because
we may need to raise additional capital, if we fail to do we may not be able to
remain operational.
We do not
have enough working capital to remain operational over the next 12
months. If we do not begin to quickly ramp up our revenues, we will
need to complete a debt or equity financing. Either type of financing
will be very dilutive to our existing shareholders. Because of the
continuing decline in the economy in the United States and overseas, the
substantial reduction in available credit and the severe decline in the stock
market and our stock price, we have been hampered in our ability to raise the
necessary working capital. If we do not raise the necessary working
capital, we may not be able to remain operational.
Because
of the severity of the global economic recession, our customers may delay in
paying us or not pay us at all and advertisers may reduce their advertising
budgets. This would have a material and adverse effect on our future
operating results and financial condition.
One of
the effects of the severe global economic recession is that businesses are
tending to maintain their cash resources and delay in paying their creditors
whenever possible. As a trade creditor, we lack leverage unlike
secured lenders and providers of essential services. If the economy
continues to deteriorate, we may find that publishers may delay in paying
us. Additionally, we may find that advertisers will reduce Internet
advertising which would reduce our future revenues. These events will
result in a number of adverse effects upon us including increasing our borrowing
costs, reducing our gross profit margins, and reducing our ability to grow our
business. These events would have a material and adverse effect upon
us.
If
we are unable to attract new customers and retain existing customers on a
cost-effective basis, our business and results of operations will be affected
adversely.
To continue to grow our business, we
will need to attract and retain new customers on a cost-effective basis, many of
whom have not previously used our marketing services. We rely on a
variety of methods to attract new customers, such as sponsoring industry trade
shows. In addition, we are committed to providing our customers with
a high level of support. As a result, we believe many of our new
customers are referred to us by existing customers. If we are unable
to use any of our current marketing initiatives or the costs of such initiatives
were to significantly increase or our efforts to satisfy our existing customers
are not successful, we may not be able to attract new customers or retain
existing customers on a cost-effective basis and, as a result, our revenue and
results of operations would be affected adversely.
In the event we are unable to
minimize our loss of existing customers or to grow our customer base by adding
new customers, our operating results will be adversely
affected.
Our growth strategy requires us to
minimize the loss of our existing customers and grow our customer base by adding
new customers. Customers cancel their accounts for many reasons,
including a perception that they do not use our product effectively, the service
is a poor value and they can manage their email campaigns without our
services. In some cases, we terminate an account because the customer
fails to comply with our standard terms and conditions. We must
continually add new customers to replace customers whose accounts are cancelled
or terminated, which may involve significantly higher marketing expenditures
than we currently anticipate. If too many of our customers cancel our
service, or if we are unable to attract new customers in numbers sufficient to
grow our business, our operating results would be adversely
affected.
As
we expand our customer base through our marketing efforts, our new customers may
use our services differently than our existing customers and, accordingly, our
business model may not be as efficient at attracting and retaining new
customers.
As we expand our customer base, our new
customers may use our services differently than our existing
customers. If our new customers are not as loyal as our existing
customers, our attrition rate will increase and our customer referrals will
decrease, which would have an adverse effect on our results of
operations. In addition, as we seek to expand our customer base, we
expect to increase our marketing budget in order to attract new customers, which
will increase our operating costs. There can be no assurance that
these marketing efforts will be successful.
If
we are unable to complete the PhoneGuard transaction, our future results of
operations may be adversely affected.
We believe completing the PhoneGuard
transaction will be transformational. We expect to close it in April
2010. If, we fail to complete the PhoneGuard transaction, our future
results of operations will be materially and adversely affected.
Our
customers’ use of our services to transmit negative messages or website links to
harmful applications could damage our reputation, and we may face liability for
unauthorized, inaccurate or fraudulent information distributed via our
services.
Our customers could use our marketing
services to transmit negative messages or website links to harmful applications,
reproduce and distribute copyrighted material without permission, or report
inaccurate or fraudulent data. Any such use of our services could
damage our reputation and we could face claims for damages, copyright or
trademark infringement, defamation, negligence or fraud. Moreover,
our customers’ promotion of their services and services through our email
marketing product may not comply with federal, state and foreign
laws. We cannot predict whether our role in facilitating these
activities would expose us to liability under these laws.
Even if claims asserted against us do
not result in liability, we may incur substantial costs in investigating and
defending such claims. If we are found liable for our customers’
activities, we could be required to pay fines or penalties, redesign business
methods or otherwise expend resources to remedy any damages caused by such
actions and to avoid future liability.
Our existing general liability
insurance may not cover all potential claims to which we are exposed or may not
be adequate to indemnify us for all liabilities that may be
imposed. Any imposition of liability that is not covered by insurance
or is in excess of insurance coverage would increase our operating losses and
reduce our net worth and working capital.
If we fail to enhance our existing
services or develop new services, our services may become obsolete or less
competitive and we could lose customers.
If we are unable to enhance our
existing services or develop new services that keep pace with rapid
technological developments and meet our customers’ needs, our business will be
harmed. Creating and designing such enhancements and new services
entail significant technical and business risks and require substantial
expenditures and lead-time, and there is no guarantee that such enhancements and
new services will be completed in a timely fashion. Nor is there any
guarantee that any new product offerings will gain widespread acceptance among
our marketing customers or by the broader market. For
example, our existing email marketing customers may not view any new product as
complementary to our email product offerings and therefore decide not to
purchase such product. If we cannot enhance our existing services or
develop new services or if we are not successful in selling such enhancements
and new services to our customers, we could lose customers or have difficulty
attracting new customers, which would adversely impact our financial
performance.
If there is new
tax treatment of companies engaged in Internet commerce, this may adversely
affect the commercial use of our marketing services and our financial
results.
Due to
the global nature of the Internet, it is possible that, governments of states or
foreign countries might attempt to tax our activities. As the
recession placed budgetary pressures on governments, it is possible that they
may seek to tax Internet activities. New or revised tax regulations
may subject us to additional sales, income and other taxes. We cannot
predict the effect of current attempts to impose taxes on commerce over the
Internet. New or revised taxes and, in particular, sales taxes, would
likely increase the cost of doing business online, reduce Internet sales and
decrease the attractiveness of advertising over the Internet. Any of
these events could have an adverse effect on our business and results of
operations.
If
we fail to prevent click fraud or if we choose to manage traffic quality in a
way that advertisers find unsatisfactory, our profitability might
decline.
A portion
of our revenue arises from advertisers that pay for advertising on a
price-per-click basis, meaning that the advertisers pay a fee every time a user
clicks on their advertising. This pricing model can be vulnerable to
so-called “click fraud,” which occurs when clicks are submitted on ads by a user
who is motivated by reasons other than genuine interest in the subject of the
ad. We are exposed to the risk of click fraud or other clicks or
conversions that advertisers may perceive as undesirable. If
fraudulent or other malicious activity is perpetrated by others and we are
unable to detect and prevent it, or if we choose to manage traffic quality in a
way that advertisers find unsatisfactory, the affected advertisers may
experience or perceive a reduced return on their investment in our advertising
and marketing programs which could lead the advertisers to become dissatisfied
and they might refuse to pay or demand refunds. This could damage our
reputation and lead to a loss of advertisers and revenue. Advertiser
dissatisfaction has led to litigation alleging click fraud and other types of
traffic quality-related claims and could potentially lead to further litigation
or government regulation of advertising. We may also issue refunds or
credits as a result of such activity. Any increase in costs due to
any such litigation, government regulation or legislation, refunds or credits
could negatively impact our profitability.
If we fail to retain our key
personnel, we may not be able to achieve our anticipated level of growth and our
business could suffer.
Our future depends, in part, on our
ability to attract and retain key personnel. Our future also depends
on the continued contributions of our executive officers and other key technical
personnel, each of whom would be difficult to replace. In particular,
Scott Frohman, Chief Executive Officer, Daniel Lansman, President, Dale Harrod,
Chief Technology Officer and Steve Stowell, Chief Financial Officer, are
critical to the management of our business and operations and the development of
our strategic direction. The loss of the services of
Messrs. Frohman, Lansman, Harrod, Stowell or other executive officers or
key personnel and the process to replace any of our key personnel would involve
significant time and expense and may significantly delay or prevent the
achievement of our business objectives.
Competition
for our employees is intense, and we may not be able to attract and retain the
highly skilled employees whom we need to support our business.
Competition for highly skilled
technical and marketing personnel is extremely intense, and we continue to face
difficulty identifying and hiring qualified personnel in many areas of our
business. We may not be able to hire and retain such personnel at
compensation levels consistent with our existing compensation and salary
structure. Many of the companies with which we compete for
experienced employees have greater resources than we have and may be able to
offer more attractive terms of employment. In particular, candidates
making employment decisions, particularly in high-technology industries, often
consider the value of any equity they may receive in connection with their
employment. Any significant volatility in the price of our stock may
adversely affect our ability to attract or retain highly skilled technical and
marketing personnel.
In addition, we invest significant time
and expense in training our employees, which increases their value to
competitors who may seek to recruit them. If we fail to retain our
employees, we could incur significant expenses in hiring and training their
replacements and the quality of our services and our ability to serve our
customers could diminish, resulting in a material adverse effect on our
business.
The
market in which we participate is competitive and, if we do not compete
effectively, our operating results could be harmed.
The market for our services is
competitive and rapidly changing, and the barriers to entry are relatively
low. With the introduction of new technologies and the influx of new
entrants to the market, we expect competition to persist and intensify in the
future, which could harm our ability to increase sales and maintain our
prices.
We compete with several companies in
each segment of our business. Our current and potential competitors
may have significantly more financial, technical, marketing and other resources
than we do and may be able to devote greater resources to the development,
promotion, sale and support of their products or services. Our
potential competitors may have more extensive customer bases and broader
customer relationships than we have. In addition, these companies may have
longer operating histories and greater name recognition than we
have. These competitors may be better able to respond quickly to new
technologies and to undertake more extensive marketing campaigns. If
we are unable to compete with such companies, the demand for our services could
substantially decline.
Because
the CAN-SPAM Act imposes certain obligations on the senders of commercial
emails, it could minimize the effectiveness of our email marketing product, and
establishes financial penalties for non-compliance, which could increase the
costs of our business.
The CAN-SPAM Act, which establishes
certain requirements for commercial email messages and specifies penalties for
the transmission of commercial email messages that are intended to deceive the
recipient as to source or content. In addition, some states have
passed laws regulating commercial email and text messaging practices that are
significantly more punitive and difficult to comply with than the CAN-SPAM Act,
particularly Utah and Michigan, which have enacted do-not-email registries and
text messaging listing minors who do not wish to receive unsolicited commercial
email and texts that markets certain covered content, such as tobacco, alcohol
and adult or other harmful products. Some portions of these state laws may not
be preempted by the CAN-SPAM Act. The ability of our customers’
constituents to opt out of receiving commercial emails and texts may minimize
the effectiveness of our email and text messaging marketing
products. Moreover, non-compliance with the CAN-SPAM Act carries
significant financial penalties. If we were found to be in violation
of the CAN-SPAM Act, applicable state laws not preempted by the CAN-SPAM Act, or
foreign laws regulating the distribution of commercial email, whether as a
result of violations by our customers or if we were deemed to be directly
subject to and in violation of these requirements, we could be required to pay
penalties, which would adversely affect our financial performance and
significantly harm our reputation and our business. We also may be
required to change one or more aspects of the way we operate our business, which
could impair our ability to attract and retain customers or increase our
operating costs.
Evolving
regulations concerning data privacy may restrict our customers’ ability to
solicit, collect, process and use data necessary to conduct email marketing
campaigns or to send surveys and analyze the results or may increase their
costs, which could harm our business.
Federal, state and foreign governments
have enacted, and may in the future enact, laws and regulations concerning the
solicitation, collection, processing or use of consumers’ personal
information. Such laws and regulations may require companies to
implement privacy and security policies, permit users to access, correct and
delete personal information stored or maintained by such companies, inform
individuals of security breaches that affect their personal information, and, in
some cases, obtain individuals’ consent to use personal information for certain
purposes. Other proposed legislation could, if enacted, prohibit the
use of certain technologies that track individuals’ activities on web pages or
that record when individuals click through to an Internet address contained in
an email message. Such laws and regulations could restrict our
customers’ ability to collect and use email addresses, page viewing data,
and personal information, which may reduce demand for our services.
As
Internet commerce develops, federal, state and foreign governments may draft and
propose new laws to regulate Internet commerce, which may negatively affect our
business.
As Internet commerce continues to
evolve, increasing regulation by federal, state or foreign governments becomes
more likely. Our business could be negatively impacted by the
application of existing laws and regulations or the enactment of new laws
applicable to email marketing. The cost to comply with such laws or
regulations could be significant and would increase our operating expenses, and
we may be unable to pass along those costs to our customers in the form of
increased subscription fees. In addition, federal, state and foreign
governmental or regulatory agencies may decide to impose taxes on services
provided over the Internet or via email. Such taxes could discourage
the use of the Internet and email as a means of commercial marketing, which
would adversely affect the viability of our services.
If
the delivery of our customers’ emails is limited or blocked, the fees we may be
able to charge for our email marketing product may not be accepted by the market
and customers may cancel their accounts.
Internet service providers, or ISPs,
can block emails from reaching their users. Recent releases of ISP
software and the implementation of stringent new policies by ISPs make it more
difficult to deliver our customers’ emails. If ISPs materially limit
or halt the delivery of our customers’ emails, or if we fail to deliver our
customers’ emails in a manner compatible with ISPs’ email handling or
authentication technologies, then the fees we charge for our email marketing
product may not be accepted by the market, and customers may cancel their
accounts.
If
our email activities are blacklisted by ISPs or others, our ability to conduct
business and future revenue and income will be adversely affected.
We depend on email to market to and
communicate with our customers, and our customers rely on email to communicate
with their constituents. Various private entities attempt to regulate
the use of email for commercial solicitation. These entities often
advocate standards of conduct or practice that significantly exceed current
legal requirements and classify certain email solicitations that comply with
current legal requirements as spam. Some of these entities maintain
“blacklists” of companies and individuals, and the websites, ISPs and Internet
protocol addresses associated with those entities or individuals that do not
adhere to those standards of conduct or practices for commercial email
solicitations that the blacklisting entity believes are
appropriate. If a company’s Internet protocol addresses are listed by
a blacklisting entity, emails sent from those addresses may be blocked if they
are sent to any Internet domain or Internet address that subscribes to the
blacklisting entity’s service or purchases its blacklist.
Some of our Internet protocol addresses
currently are listed with one or more blacklisting entities and, in the future,
our Internet protocol addresses may also be listed with these and other
blacklisting entities. There can be no guarantee that we will not
continue to be blacklisted or that we will be able to successfully remove
ourselves from those lists. Blacklisting of this type could interfere
with our ability to market our services and services and communicate with our
customers and could undermine the effectiveness of our customers’ email
marketing campaigns, all of which could have a material negative impact on our
business and results of operations.
If
we experience any significant disruption in service or in our computer systems
or in our customer support services, it could reduce the attractiveness of our
services and result in a loss of customers.
The satisfactory performance,
reliability and availability of our technology and our underlying network
infrastructure are critical to our operations, level of customer service,
reputation and ability to attract new customers and retain existing
customers. Our system hardware is co-located at third-party hosting
facilities throughout the United States. None of the operators of
these co-located facilities guarantees that our customers’ access to our
services will be uninterrupted, error-free or secure. Our operations
depend on the ability of the operators of these facilities to protect their and
our systems in their facilities against damage or interruption from natural
disasters, power or telecommunications failures, air quality, temperature,
humidity and other environmental concerns, computer viruses or other attempts to
harm our systems, criminal acts and similar events. In the event that our
arrangement with any of the operators of our co-located facilities is
terminated, or there is a lapse of service or damage to their facilities, we
could experience interruptions in our service as well as delays and additional
expense in arranging new facilities. In addition, our customer
support services, which are currently located only at our Florida office, would
experience interruptions as a result of any disruption of electrical, phone or
any other similar facility support services. Any interruptions or
delays in access to our services or customer support, whether as a result of
third-party error, our own error, natural disasters or security breaches,
whether accidental or willful, could harm our relationships with customers and
our reputation. Also, in the event of damage or interruption, our
insurance policies may not adequately compensate us for any losses that we may
incur. These factors could damage our brand and reputation, divert
our employees’ attention, reduce our revenue, subject us to liability and cause
customers to cancel their accounts, any of which could adversely affect our
business, financial condition and results of operations.
If
the security of our customers’ confidential information stored in our systems is
breached or otherwise subjected to unauthorized access, our reputation may be
harmed, we may be exposed to liability and we may lose the ability to offer our
customers a credit card payment option.
Our system stores our customers’
proprietary email distribution lists and other critical
data. Any accidental or willful security breaches or other
unauthorized access could expose us to liability for the loss of such
information, time-consuming and expensive litigation and other possible
liabilities as well as negative publicity. If security measures are
breached because of third-party action, employee error, malfeasance or
otherwise, or if design flaws in our software are exposed and exploited, and, as
a result, a third party obtains unauthorized access to any of our customers’
data, our relationships with our customers will be severely damaged, and we
could incur significant liability. Because techniques used to obtain
unauthorized access or to sabotage systems change frequently and generally are
not recognized until they are launched against a target, we and our third-party
hosting facilities may be unable to anticipate these techniques or to implement
adequate preventative measures. In addition, many states, including
Massachusetts, have enacted laws requiring companies to notify individuals of
data security breaches involving their personal data. These mandatory
disclosures regarding a security breach often lead to widespread negative
publicity, which may cause our customers to lose confidence in the effectiveness
of our data security measures. Any security breach, whether actual or
perceived, would harm our reputation, and we could lose customers.
If we fail to maintain compliance with
the data protection policy documentation standards adopted by the major credit
card issuers, we could lose our ability to offer our customers a credit card
payment option. Any loss of our ability to offer our customers a
credit card payment option would make our services less attractive to many
customers by negatively impacting our customer experience and significantly
increasing our administrative costs related to customer payment
processing.
If
we are unable to protect the confidentiality of our unpatented proprietary
information, processes and know-how and our trade secrets, the value of our
technology and services could be adversely affected.
We rely upon unpatented proprietary
technology, processes and know-how and trade secrets. Although we try
to protect this information in part by executing confidentiality agreements with
our employees, consultants and third parties, such agreements may offer only
limited protection and may be breached. Any unauthorized disclosure
or dissemination of our proprietary technology, processes and know-how or our
trade secrets, whether by breach of a confidentiality agreement or otherwise,
may cause irreparable harm to our business, and we may not have adequate
remedies for any such breach. In addition, our trade secrets may
otherwise be independently developed by our competitors or other third
parties. If we are unable to protect the confidentiality of our
proprietary information, processes and know-how or our trade secrets are
disclosed, the value of our technology and services could be adversely affected,
which could negatively impact our business, financial condition and results of
operations.
Our
use of open source software could impose limitations on our ability to
commercialize our services.
We incorporate open source software
into our services. Although we monitor our use of open source
software closely, the terms of many open source licenses to which we are subject
have not been interpreted by United States or foreign courts, and there is a
risk that such licenses could be construed in a manner that imposes
unanticipated conditions or restrictions on our ability to commercialize our
services. In such event or in the event there is a significant change
in the terms of open source licenses in general, we could be required to seek
licenses from third parties in order to continue offering our services, to
re-engineer our services or to discontinue sales of our services, or to release
our software code under the terms of an open source license, any of which could
materially adversely affect our business.
Given the nature of open source
software, there is also a risk that third parties may assert copyright and other
intellectual property infringement claims against us based on our use of certain
open source software programs. The risks associated with intellectual
property infringement claims are discussed immediately below.
If
a third party asserts that we are infringing its intellectual property, whether
successful or not, it could subject us to costly and time-consuming litigation
or require us to obtain expensive licenses, and our business may be adversely
affected.
The software and Internet industries
are characterized by the existence of a large number of patents, trademarks and
copyrights and by frequent litigation based on allegations of infringement or
other violations of intellectual property rights. Third parties may
assert patent and other intellectual property infringement claims against us in
the form of lawsuits, letters or other forms of communication. These claims,
whether or not successful, could:
|
|
●
|
Divert
management’s attention;
|
|
|
●
|
Result
in costly and time-consuming
litigation;
|
|
|
●
|
Require
us to enter into royalty or licensing agreements, which may not be
available on acceptable terms, or at
all;
|
|
|
|
In
the case of open source software-related claims, require us to release our
software code under the terms of an open source license;
or
|
|
|
|
Require
us to redesign our software and services to avoid
infringement.
|
As a
result, any third-party intellectual property claims against us could increase
our expenses and adversely affect our business. In addition, many of
our agreements with our channel partners require us to indemnify them for
third-party intellectual property infringement claims, which would increase the
cost to us resulting from an adverse ruling on any such claim. Even
if we have not infringed any third parties’ intellectual property rights, we
cannot be sure our legal defenses will be successful, and even if we are
successful in defending against such claims, our legal defense could require
significant financial resources and management time. Finally, if a
third party successfully asserts a claim that our services infringe their
proprietary rights, royalty or licensing agreements might not be available on
terms we find acceptable, or at all.
Risks
Related to Our Common Stock
Because
the market for our common stock is limited, persons who purchase our common
stock may not be able to resell their shares at or above the purchase price paid
by them.
Our
common stock trades on the Bulletin Board which is not a liquid
market. There is currently only a limited public market for our
common stock. We cannot assure you that an active public market for
our common stock will develop or be sustained in the future. If an
active market for our common stock does not develop or is not sustained, the
price may continue to decline.
Because
we are subject to the “penny stock” rules, brokers cannot generally solicit the
purchase of our common stock which adversely affects its liquidity and market
price.
The SEC
has adopted regulations which generally define “penny stock” to be an equity
security that has a market price of less than $5.00 per share, subject to
specific exemptions. The market price of our common stock on the
Bulletin Board has been substantially less than $5.00 per share and therefore we
are currently considered a “penny stock” according to SEC rules. This
designation requires any broker-dealer selling these securities to disclose
certain information concerning the transaction, obtain a written agreement from
the purchaser and determine that the purchaser is reasonably suitable to
purchase the securities. These rules limit the ability of
broker-dealers to solicit purchases of our common stock and therefore reduce the
liquidity of the public market for our shares.
Due
to factors beyond our control, our stock price may be volatile.
Any of
the following factors could affect the market price of our common
stock:
|
●
|
Our
failure to generate increasing revenues;
|
|
●
|
Short
selling activities;
|
|
●
|
Our
failure to become profitable;
|
|
●
|
Our
failure to raise working
capital;
|
|
●
|
Our
public disclosure of the terms of any financing which we consummate in the
future;
|
|
●
|
Actual
or anticipated variations in our quarterly results of
operations;
|
|
●
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Announcements
by us or our competitors of significant contracts, new services,
acquisitions, commercial relationships, joint ventures or capital
commitments;
|
|
●
|
The
loss of major customers or product or component
suppliers;
|
|
●
|
The
loss of significant business relationships;
|
|
●
|
Our
failure to meet financial analysts’ performance
expectations;
|
|
●
|
Changes
in earnings estimates and recommendations by financial analysts;
or
|
|
●
|
Changes
in market valuations of similar
companies.
|
In the
past, following periods of volatility in the market price of a company’s
securities, securities class action litigation has often been
instituted. A securities class action suit against us could result in
substantial costs and divert our management’s time and attention, which would
otherwise be used to benefit our business.
We
may issue preferred stock without the approval of our shareholders, which could
make it more difficult for a third party to acquire us and could depress our
stock price.
Our Board
may issue, without a vote of our shareholders, one or more additional series of
preferred stock that have more than one vote per share. This could
permit our Board to issue preferred stock to investors who support Options Media
and our management and give effective control of our business to Options Media
and our management. Additionally, issuance of preferred stock could
block an acquisition resulting in both a drop in our stock price and a decline
in interest of our common stock. This could make it more difficult
for shareholders to sell their common stock. This could also cause
the market price of our common stock shares to drop significantly, even if our
business is performing well.
An
investment in Options Media may be diluted in the future as a result of the
issuance of additional securities, the exercise of options or warrants or the
conversion of outstanding preferred stock.
In order
to raise additional capital to meet its working capital needs, Options Media
expects to issue additional shares of common stock or securities convertible,
exchangeable or exercisable into common stock from time to time, which could
result in substantial dilution to investors. Investors should
anticipate being substantially diluted based upon the current condition of the
capital and credit markets.
Because
we may not be able to attract the attention of major brokerage firms, it could
have a material impact upon the price of our common stock.
It is not likely that securities
analysts of major brokerage firms will provide research coverage for our common
stock since the firm itself cannot recommend the purchase of our common stock
under the penny stock rules referenced in an earlier risk factor. The
absence of such coverage limits the likelihood that an active market will
develop for our common stock. It may also make it more difficult for us to
attract new investors at times when we acquire additional capital.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCOURSES ABOUT MARKET
RISK.
Not
applicable to smaller reporting companies.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our financial statements are contained
in pages F-1 through F-33, which appear at the end of this report. We
have also included the audited financial statements of our predecessor company
for the period from January 1, 2008 to June 23, 2008.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM
9A. CONTROLS AND PROCEDURES.
Not
applicable.
ITEM
9A(T). CONTROLS AND PROCEDURES.
Disclosure
Controls
We
carried out an evaluation required by Rule 15d-15 of the Securities Exchange Act
of 1934, or the Exchange Act, under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in the Exchange Act Rule
15d-15(e)).
Disclosure
controls and procedures are designed with the objective of ensuring that (i)
information required to be disclosed in an issuer's reports filed under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC rules and forms and (ii) information is accumulated
and communicated to management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosures.
The
evaluation of our disclosure controls and procedures included a review of our
objectives and processes and effect on the information generated for use in this
report. This type of evaluation is done quarterly so that the
conclusions concerning the effectiveness of these controls can be reported in
our periodic reports filed with the SEC. We intend to maintain these
controls as processes that may be appropriately modified as circumstances
warrant.
Based on
their evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures (as defined in Rule
15d-15(e) of the Exchange Act) are effective in timely alerting them to material
information which is required to be included in our periodic reports filed with
the SEC as of the end of the period covering this report.
Management’s
Report on Internal Control Over Financial Reporting.
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
15d-15(f). Under the supervision and with the participation of our
management, including our Principal Executive Officer and Principal Financial
Officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting as of December 31, 2009 based on the criteria set
forth in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on our
evaluation under the criteria set forth in Internal Control — Integrated
Framework, our management concluded that our internal control over financial
reporting was effective as of December 31, 2009.
However,
a control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Management necessarily applied its judgment in assessing the
benefits of controls relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within the company have been detected. The design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of
how remote. Because of the inherent limitations in a control system,
misstatements due to error or fraud may occur and may not be
detected.
This
report does not include an attestation report of our independent registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our
independent registered public accounting firm pursuant to the temporary rules of
the SEC that permit us to provide only management’s report in this
report.
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting that
occurred during the fourth quarter of 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
ITEM
9B. OTHER INFORMATION.
None.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATION
GOVERNANCE.
The following is a list of our
directors and executive officers. All directors serve one-year terms
or until each of their successors are duly qualified and elected. The
officers are elected by the Board.
|
Name
|
|
Age
|
|
Position(s)
|
|
|
|
|
|
|
|
Scott
Frohman
|
|
42
|
|
Chairman
of the Board, Chief Executive Officer and Secretary
|
|
Daniel
Lansman
|
|
39
|
|
President
and Director
|
|
Steve
Stowell
|
|
59
|
|
Chief
Financial Officer and Treasurer
|
|
Dale
Harrod
|
|
44
|
|
Chief
Technology Officer
|
|
Hakan
Koyuncu
|
|
33
|
|
Director
|
Scott Frohman has served as
our Chief Executive Officer and Chairman of the Board since June 23,
2008 and served as our President until the appointment of Daniel Lansman on
September 19, 2008. Since July 2008, Mr. Frohman has served
as the Chairman of the Board of Money4Gold Holdings, Inc. From
February 2004 through December 2006, Mr. Frohman co-founded and
served as the Chief Executive Officer and a director of Health Benefits Direct
Corporation. From May 2003 through October 2003,
Mr. Frohman was a consultant for Verid Identification, where he supervised
a web-based identity verification process and implemented sales force and
marketing procedures. Mr. Frohman was selected to our Board for his
general business management with specific experience in marketing driven
companies. In addition, Mr. Frohman was selected for his proven track
record of success and his extensive experience managing the growth of young
companies. Finally, he was selected because he is our Chief Executive
Officer.
Daniel Lansman has served as
our President and a director since September 19, 2008. From 2003 through
September 2008, Mr. Lansman co-founded 1 Touch and has been a manager
since that date. Prior to 2003, Mr. Lansman was an Account
Executive at Equifax Marketing Services, an information and marketing services
company. Mr. Lansman was selected to our Board because it was a
condition of Options Media’s acquisition of 1 Touch.
Steve Stowell has served as
our Chief Financial Officer since September 18, 2008. From 2005 until
September 2008, Mr. Stowell served as the Chief Financial Officer for
Come and Stay, Inc., an international direct marketing and data services
business with operations in 13 countries. From 2003 until 2005,
Mr. Stowell was the Chief Financial Officer of Marlin Capital
Partners.
Dale Harrod has served as our
Chief Technology Officer since October 6, 2008. From 2007 until 2008,
Mr. Harrod served as the Director of Operations at Vayan Marketing, a
multi-channel marketing company. From 2005 until 2006, he served as
the Chief Technology Officer of Topdot Mortgage, a national mortgage
bank. From 2005 until 2006, he served as the Vice President of email
marketing at The Useful LLC, a performance-based interactive marketing
company.
Hakan Koyuncu has served as
our director since June 23, 2008. Mr. Koyuncu has served as President of
Money4Gold Holdings, Inc. since May 7, 2009 and previously served as its Chief
Executive Officer from July 23, 2008. Mr. Koyuncu heads Money4Gold’s
European operations and is based in its United Kingdom office. He has
served as a director of Money4Gold since July 23, 2008. In 2004,
Mr. Koyuncu co-founded Leadcreations, LLC and has been its Chief Executive
Officer since 2003. Leadcreations is an
Internet marketing and online lead generation company which provides services to
us. In 2004, Mr. Koyuncu founded Unitel Telecom, one of Turkey's
first independent telecommunications companies, which was acquired by another
telecom company within two years. Mr. Koyuncu was selected as a
director for his proven track record of success and his extensive experience
managing the growth of young companies from start-up through to
maturity. In addition, Mr. Koyuncu has extensive knowledge of the
Internet marketing industry.
There are
no family relationships among any of our directors or executive
officers.
Committees
of the Board
We expect
our Board, in the future, to appoint an audit committee, nominating committee
and compensation committee, and to adopt a charter relative to each such
committee. We intend to appoint such persons to committees of the
Board as are expected to be required to meet the corporate governance
requirements imposed by a national securities exchange, although we are not
required to comply with such requirement until we elect to seek listing on a
national securities exchange.
Code
of Ethics
Our Board has adopted a Code of Ethics
that applies to all of our employees, including our Chief Executive Officers and
Chief Financial Officer. Although not required, the Code of Ethics
also applies to our Board. The Code provides written standards that
we believe are reasonably designed to deter wrongdoing and promote honest and
ethical conduct, including the ethical handling of actual or apparent conflicts
of interest between personal and professional relationships, full, fair,
accurate, timely and understandable disclosure and compliance with laws, rules
and regulations, including insider trading, corporate opportunities and
whistle-blowing or the prompt reporting of illegal or unethical
behavior. We will provide a copy of the Code of Ethics to any person
without charge, upon request. The request for a copy can be made in
writing to Options Media Group Holdings, Inc., 123 NW 13th
Street, Suite 300, Boca Raton, Florida 33432, Attention: Marnie
Goldberg.
Shareholder
Communications
Although we do not have a formal policy
regarding communications with the Board, shareholders may communicate with the
Board by writing to us at Options Media Group Holdings, Inc., 123 NW 13th
Street, Suite 300, Boca Raton, Florida 33432, Attention: Marnie Goldberg or by
facsimile (561) 892-2618. Shareholders who would like their
submission directed to a member of the Board may so specify, and the
communication will be forwarded, as appropriate.
Director
Independence
Our Board
has determined that Hakan Koyuncu is independent in accordance with the NASDAQ
Stock Market rules.
Board
Structure
We have chosen to combine the Chief
Executive Officer and Board Chairman positions. We believe that this
Board leadership structure is the most appropriate for Options
Media. Because we are a small company and do not have significant
revenues, it is more efficient to have the leadership of the Board in the same
hands as the Chief Executive Officer of Options Media. The challenges
faced by us at this stage – obtaining financing and developing our business –
are most efficiently dealt with by one person who is familiar with both the
operational aspects as well as the strategic aspects of our
business.
Board
Assessment of Risk
Our risk
management function is overseen by our Board. Our management keeps
our Board apprised of material risks and provides our directors access to all
information necessary for them to understand and evaluate how these risks
interrelate, how they affect Options Media, and how management addresses those
risks. Mr. Frohman, as our Chairman and Chief Executive Officer, and
Mr. Stowell, our Chief Financial Officer, work closely together with the Board
once material risks are identified on how to best address such
risk. If the identified risk poses an actual or potential conflict
with management, our independent director may conduct the
assessment. Presently, the primary risks affecting Options Media are
the lack of working capital and the inability to generate sufficient revenues so
that we have positive cash flow from operations. The Board focuses on
these key risks at each meeting and actively interfaces with management on
seeking solutions.
Board
Diversity
While we
do not have a formal policy on diversity, our Board considers as one of the
factors the diversity of the composition of our Board and the skill set,
background, reputation, type and length of business experience of our Board
members as well as a particular nominee’s contributions to that
mix. Although there are many other factors, the Committee seeks to
attract individuals with knowledge of Internet marketing.
ITEM
11. EXECUTIVE COMPENSATION.
The
following table reflects the compensation paid to our Chief Executive Officer
and the two other executive officers serving at the end of the last fiscal year
whose compensation exceeded $100,000, who we refer to as our Named Executive
Officers.
2009
Summary Compensation Table
|
Name
and Principal Position
|
|
Year
|
|
Salary
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
Total
|
|
|
(a)
|
|
(b)
|
|
($)(c)
|
|
|
($)(e)(1)
|
|
|
($)(f)(1)
|
|
|
($)(j)
|
|
|
Scott
Frohman
|
|
2009
|
|
|
270,000 |
|
|
|
- |
|
|
|
377,740 |
(2) |
|
|
647,740 |
|
|
Chief
Executive Officer
|
|
2008
|
|
|
90,000 |
|
|
|
675,000 |
(3) |
|
|
- |
|
|
|
765,000 |
|
|
Daniel
Lansman
|
|
2009
|
|
|
240,000 |
|
|
|
- |
|
|
|
153,000 |
(4) |
|
|
393,000 |
|
|
President
|
|
2008
|
|
|
60,000 |
|
|
|
- |
|
|
|
- |
|
|
|
60,000 |
|
|
Steve
Stowell
|
|
2009
|
|
|
185,000 |
|
|
|
- |
|
|
|
20,400 |
(5) |
|
|
205,400 |
|
|
Chief
Financial Officer and Treasurer
|
|
2008
|
|
|
46,250 |
|
|
|
60,000 |
(6) |
|
|
- |
|
|
|
106,250 |
|
|
(1)
|
The amounts in these columns represent the fair value
of the award as of the grant date as computed in accordance with FASB ASC
Topic 718 and the recently revised SEC disclosure rules. These
rules also require prior years amounts to be recalculated in accordance
with the rule and therefore any number previously disclosed in our Form
10-K regarding our Named Executive Officers compensation on this table or
any other table may not reconcile. These amounts represent
awards that are paid in shares of common stock or options to purchase
shares of our common stock and do not reflect the actual amounts that may
be realized by the Named Executive
Officers.
|
|
(2)
|
Includes 6,000,000 stock options exercisable at
$0.035 per share vesting annually over three years with the first vesting
date being December 11, 2010. Also, includes 5,000,000 fully
vested stock options exercisable at $0.035 per
share.
|
|
(3)
|
The stock award represents 2,250,000 shares of common stock
and the option award represents 2,500,000 stock options exercisable at
$0.30 per share. Both of these awards were granted to Mr. Frohman under
his employment agreement.
|
|
(4)
|
Represents 4,500,000 stock options exercisable at
$0.035 per share vesting annually over three years with the first vesting
date being December 11, 2010.
|
|
(5)
|
Represents 600,000 stock options exercisable at
$0.035 per share vesting annually over three years with the first vesting
date being December 11, 2010.
|
|
(6)
|
Represents 200,000 shares of restricted common stock
granted pursuant to Mr. Stowell’s employment
agreement.
|
Employment
Agreements
Effective
June 23, 2008, we entered into an employment agreement with Scott Frohman,
our Chief Executive Officer. The current term of the agreement
expires on June 23, 2010 but will be automatically renewed for additional
one-year periods until either we or Mr. Frohman gives the other party
written notice of its intent not to renew at least 60 days prior to the end of
the then current term. Mr. Frohman’s base salary is $300,000 per
year. At signing, Mr. Frohman was granted 2,250,000 vested
shares of common stock and a 10-year option to purchase 2,500,000 shares of
common stock at an exercise price of $0.30 per share, vesting in 24 equal
monthly installments.
On September 19, 2008, we entered
into an employment agreement with Daniel Lansman, our President. The
current term of the agreements expires on September 30, 2010 but will be
automatically renewed for additional one-year periods unless either we or Mr.
Lansman gives the other party written notice of its intent not to renew at least
60 days prior to the end of the then current term. He will receive
(i) an annual base salary of $240,000, (ii) 5% commission from all revenues
received by Options Media from parties introduced to Options Media by him and
prior customers of 1 Touch and (iv) a performance bonus based on 1 Touch
achieving specific performance milestones related to revenues and
EBITDA. As of the date of this report, 1 Touch has not met these
performance milestones. Mr. Lansman shall be issued 1,000,000 shares
of our common stock if 1 Touch earns a minimum of $20,000,000 revenues and
EBITDA of $3,000,000 in 2010. If only a portion of either of the
milestones are met, then Mr. Lansman will be entitled to a reduced portion of
they earn-out.
Effective October 1, 2008, we
entered into an employment agreement with Steve Stowell, our Chief Financial
Officer. The current term of the agreement expires on
September 29, 2010 but will be automatically renewed for additional
one-year periods unless either we or Mr. Stowell gives the other party
written notice of its intent not to renew at least 30 days prior to the end of
the then current term. Pursuant to the agreement, we are paying him
an annual salary of $185,000, issued him 200,000 shares of restricted stock
vesting annually in three equal increments and paid him a signing bonus of
$19,000 upon commencement of employment with Option Media.
Effective
October 6, 2008, we entered into an employment agreement with Dale Harrod, our
Chief Information Officer. The current term of the agreement expires
on October 5, 2010, but will be automatically renewed for additional one-year
periods until either we or Mr. Harrod gives the other party written notice
of its intent not to renew at least 30 days prior to the end of the then current
term. Mr. Harrod’s base salary is $12,500 per
month. Mr. Harrod was issued 200,000 shares of common stock
vesting in three annual equal increments beginning October 6, 2009, subject to
continued employment. He was also granted a five-year option to
purchase 100,000 shares of common stock at an exercise price of $1.30 per
share. These options have fully vested.
Messrs. Frohman, Lansman, Stowell,
and Harrod are entitled to severance in the event that they are dismissed
without cause or they resign for Good Reason as defined in their Employment
Agreements, including upon a change of control. In any such events,
Messrs. Frohman and Lansman will receive 18 months of their then base
salary, Mr. Stowell will receive six months base salary, and Mr. Harrod
will receive six months base salary if terminated prior to two years and nine
months if terminated after one year of employment. Additionally, all
of their restricted stock and stock options will immediately vest, where
applicable.
Outstanding
Equity Awards at 2009 Fiscal Year End
Listed
below is information with respect to unexercised options, stock that has not
vested and equity incentive plan awards for each Named Executive Officer
outstanding as of December 31, 2009:
Outstanding
Equity Awards At 2009 Fiscal Year-End
|
Name
(a)
|
|
No. of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(b)
|
|
|
No.
of Securities Underlying Unexercised Options
(#)
Unexercisable
(c)
|
|
|
Option
Exercise
Price
($)(e)
|
|
Option
Expiration
Date
(f)
|
|
Equity
incentive plan awards: Number of unearned shares, units or other rights
that have not vested
(#)(i)
|
|
|
Equity
incentive plan awards: Market or payout value of unearned shares, units or
other rights that have not vested
($)(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott
Frohman
|
|
|
2,395,833 |
|
|
|
104,167 |
(1) |
|
|
0.30 |
|
6/23/18
|
|
|
|
|
|
|
|
|
|
|
5,000,000 |
|
|
|
0 |
(2) |
|
|
0.035 |
|
12/23/14
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
6,000,000 |
(3) |
|
|
0.035 |
|
12/11/14
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel
Lansman
|
|
|
0 |
|
|
|
4,500,000 |
(3) |
|
|
0.035 |
|
12/11/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
(4) |
|
|
70,000 |
(4) |
|
Steve
Stowell
|
|
|
0 |
|
|
|
600,000 |
(3) |
|
|
0.35 |
|
12/11/14
|
|
|
|
|
|
|
|
|
(1) Vesting
monthly over a 24 month period beginning on June 23, 2008.
(2) Fully
vested.
(3) Vesting
annually over three years with the first vesting date being December 11,
2010.
(4) Vesting
upon reaching certain milestones. See the summary of Mr. Lansman’s
employment agreement above. The market value is based upon the
closing price of $0.07 on December 31, 2009.
Director
Compensation
We do not pay cash compensation to our
directors for service on our Board.
2009
Director Compensation
|
Name
(a)
|
|
Option
Awards
($)(d)(1)
|
|
Total
($)(j)
|
|
Hakan Koyuncu (2)
|
|
17,000 |
|
17,000 |
| Ronald
Levine (3)
|
|
- |
|
- |
———————
|
(1)
|
The
amount in their column represents the fair value of the award as of the
grant date as computed in accordance with FASB ASC Topic 718 and the
recently revised SEC disclosure rules. These amounts represent
options to purchase shares of our common stock and do not reflect the
actual amounts that may be realized by the
director.
|
|
(2)
|
Mr.
Koyuncu received options to purchase 500,000 shares exercisable at $0.035
per share for service as a non-employee director. The options
vest annually every year over three years beginning December 11,
2011.
|
|
(3)
|
Resigned
on September 3, 2009.
|
Equity
Compensation Plan Information
The
following chart reflects the number of options granted and the weighted average
exercise price as of December 31, 2009.
|
Name
Of Plan
|
|
Number
of
Securities
to be
Issued
Upon
Exercise of
Outstanding
Options
|
|
Weighted
Average
Exercise
Price
Per
Share
of
Outstanding
Options
($)
|
|
Number
of
Securities
Available
for
Future
Issuance
Under
Equity
Compensation
Plans
|
|
|
Equity
compensation plans approved by security holders
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
Equity
compensation plans not approved by security
holders(1)
|
|
|
22,865,097 |
|
|
0.27 |
|
|
4,242,903 |
|
|
Total
|
|
|
22,865,097 |
|
|
|
|
|
4,242,903 |
|
(1) Includes
19,900,000 options exercisable at $0.05 per share granted outside of Options
Media’s 2008 Equity Incentive Plan, or the Plan, of which 16,700,000 were
granted to executive officers and 500,000 were granted to a
director. Also includes 2,965,097 options granted under the
Plan.
2008
Equity Incentive Plan
On June 23, 2008, our Board adopted the
Plan, under which we may issue up to 8,000,000 shares of restricted stock and
stock options to our directors, employees and consultants.
The Plan is to be administered by a
Committee of two or more independent directors, or in their absence by the
Board. The identification of individuals entitled to receive awards,
the terms of the awards, and the number of shares subject to individual awards,
are determined by our Board or the Committee, in their sole
discretion. The total number of shares with respect to which options
or stock awards may be granted under the Plan and the purchase price per share,
if applicable, shall be adjusted for any increase or decrease in the number of
issued shares resulting from a recapitalization, reorganization, merger,
consolidation, exchange of shares, stock dividend, stock split, reverse stock
split, or other subdivision or consolidation of shares.
The Plan provides for the grant of
non-qualified stock option and incentive stock options, or ISOs, as defined by
the Internal Revenue Code. For any ISOs granted, the exercise price
may not be less than 110% of the fair market value in the case of 10%
shareholders. Options granted under the Plan shall expire no later
than 10 years after the date of grant, except for ISOs granted to 10%
shareholders which must expire not later than five years from
grant. The option price may be paid in United States dollars by check
or other acceptable instrument including wire transfer or, at the discretion of
the Board or the Committee, by delivery of shares of our common stock having
fair market value equal as of the date of exercise to the cash exercise price,
or a combination thereof.
Our Board or the Committee may from
time to time alter, amend, suspend, or discontinue the Plan with respect to any
shares as to which awards of stock rights have not been
granted. However no rights granted with respect to any awards under
the Plan before the amendment or alteration shall not be impaired by any such
amendment, except with the written consent of the grantee.
Under the terms of the Plan, our Board
or the Committee may also grant awards which will be subject to vesting under
certain conditions. In the absence of a determination by the Board or
Committee, options shall vest and be exercisable at the end of one, two and
three years, except for ISOs, which are subject to a $100,000 per calendar year
limit on becoming first exercisable. The vesting may be
time-based or based upon meeting performance standards, or
both. Recipients of restricted stock awards will realize ordinary
income at the time of vesting equal to the fair market value of the
shares. We will realize a corresponding compensation
deduction. Upon the exercise of stock options other than ISOs, the
holder will have a basis in the shares acquired equal to any amount paid on
exercise plus the amount of any ordinary income recognized by the
holder. For ISOs which meet certain requirements, the exercise is not
taxable upon sale of the shares, the holder will have a capital gain or loss
equal to the sale proceeds minus his or her basis in the shares.
The
following chart reflects the number of stock options we have awarded under the
Plan to our executive officers and directors.
|
Name
|
|
Number
of
Options
|
|
|
Exercise
Price
per Share
($)
|
|
Expiration
Date
|
|
Scott
Frohman
|
|
|
2,500,000 |
|
|
|
0.30 |
|
June
23, 2018
|
|
Dale
Harrod
|
|
|
100,000 |
|
|
|
1.30 |
|
October
6, 2013
|
ITEM
12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
The
following table sets forth the number of shares of our common stock beneficially
owned as of March 26, 2010 by (i) those persons known by us to be owners of more
than 5% of our common stock, (ii) each director, (iii) our Named Executive
Officers, and (iv) all of our executive officers and directors as a
group:
|
Title
of Class
|
|
Name
and
Address
of Beneficial Owner
|
|
Amount
of Shares Beneficially Owned (1)
|
|
Percent
(1)
|
|
|
|
|
|
|
|
|
|
Directors
and Executive Officers:
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Common Stock
|
|
Scott
Frohman(2)(3)(4)
123
NW 13th
Street, Ste. 300
Boca
Raton, FL 33432
|
|
9,645,833
|
|
4.2%
|
|
Common
Stock
|
|
Daniel
Lansman(2)(3)(5)
123
NW 13th
Street, Ste. 300
Boca
Raton, FL 33432
|
|
4,750,000
|
|
2.1%
|
|
Common
Stock
|
|
Steve
Stowell (2)
123
NW 13th
Street, Ste. 300
Boca
Raton, FL 33432
|
|
200,000
|
|
*
|
|
Common
Stock
|
|
Hakan
Koyuncu(3)
123
NW 13th
Street, Ste. 300
Boca
Raton, FL 33432
|
|
200,000
|
|
*
|
|
|
|
All
executive officers and directors as a group (5 persons)
|
|
15,095,833
|
|