seawright_sb2a2-101207.htm
AS
FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17,
2007
REGISTRATION
NO. 333-145864
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
___________________
Amendment
No. 1 to
FORM
SB-2/A
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES
ACT OF 1933
SEAWRIGHT
HOLDINGS, INC.
(Name
of
small business issuer in its charter)
Delaware
(State
of other jurisdiction
of
incorporation)
|
2086
(Primary
Standard
Industrial
Classification
Code Number)
|
54-1965220
(IRS
Employer
Identification
Number)
|
600
Cameron Street
Alexandria,
Virginia 22314
(703)
340-1629
(Address
and telephone number of principal executive offices)
600
Cameron Street
Alexandria,
Virginia 22314
(703)
340-1629
(Address
of principal place of business or intended principal place of
business)
Joel
P.
Sens, Chief Executive Officer
600
Cameron Street
Alexandria,
Virginia 22314
(703)
340-1629
(Name,
address and telephone number of agent for service)
Copies
of
communications to:
Charles
A. Sweet, Esq.
Mark
J.
Fiekers, Esq.
McKee
Nelson LLP
1919
M
Street, NW
Washington,
DC 20036
(202)
775-1880
Approximate
date of proposed sale to the public: as soon as practicable after the effective
date of this Registration Statement.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check
the
following box. x
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
CALCULATION
OF REGISTRATION FEE
Title
of each class of securities to be registered
|
|
Amount
to be
registered(1)
|
|
Proposed
Maximum
offering
price per security(2)
|
|
Proposed
Maximum Amount of Aggregate offering price
|
|
Amount
of Registration Fee (3)
|
|
Common
stock, no par value per share(4)
|
|
|
2,000,000
|
|
$
|
0.60
|
|
$
|
1,200,000.00
|
|
$
|
36.84
|
|
Common
stock, no par value per share(5)
|
|
|
1,076,350
|
|
$
|
0.60
|
|
$
|
645,810.00
|
|
$
|
19.82
|
|
Common
stock, no par value per share(6)
|
|
|
17,050
|
|
$
|
0.60
|
|
$
|
10,230.00
|
|
$
|
0.31
|
|
________________
(1)
|
Pursuant
to Rule 416(a) of the Securities Act of 1933, as amended, this
registration statement shall be deemed to cover additional securities
that
may be offered or issued to prevent dilution resulting from stock
splits,
stock dividends or similar transactions.
|
(2)
|
Estimated
solely for the purpose of computing the amount of the registration
fee
pursuant to Rule 457(c). For the purposes of this table, we have
used the
average of the closing bid and ask prices of the common stock as
traded in
the over the counter market and reported on the OTC Electronic
Bulletin
Board on August 27, 2007.
|
(3)
|
The
registration fee was paid in connection
with the original filing on September 4, 2007. The number of shares
registered has been reduced, resulting in a reduction of the aggregate
fee
payable from $69.87 to $56.97, the $12.90 difference will remain
available
for offset against filing fees for subsequent registration statements
pursuant to Rule 457(p).
|
(4)
|
Shares
of common stock to be offered in connection with an equity line
of credit
arrangement.
|
(5)
|
Shares
of common stock being registered for resale that are owned by certain
selling shareholders named in the prospectus.
|
(6)
|
Represents
shares of common stock being registered for resale that have been
or may
be acquired upon the exercise of common stock purchase warrants
at an
exercise price of $0.85/share issued to certain selling stockholders
named
in the prospectus.
|
The
registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a),
may determine.
PROSPECTUS
SEAWRIGHT
HOLDINGS, INC.
This
prospectus relates to the sale of up to 3,093,400 shares of our common
stock by our stockholders. We are not selling any securities in this offering
and therefore will not receive any proceeds from this offering. We will,
however, receive proceeds from the sale of securities under an investment
agreement that we have entered into with one of the selling stockholders,
Dutchess Private Equities Fund, L.P., which permits us to “put” up to $5,000,000
in shares of our common stock to Dutchess Private Equities Fund, L.P.
(We
have
already “put” 1,000,000 shares of our common stock, worth $1,121,335, to
Dutchess pursuant to a registration statement on From SB-2 that was declared
effective by the Securities and Exchange Commission on November 20, 2006.)
Additionally, we may receive funds from the exercise of warrants held by
certain
selling stockholders. All costs associated with this registration will be
borne
by us.
The
shares of common stock are being offered for sale by the selling stockholders
at
prices established on the Over-the-Counter Bulletin Board or in negotiated
transactions during the term of this offering. Our common stock is quoted on
the
Over-the-Counter Bulletin Board under the symbol “SWRI.OB”. On August
27, 2007, the last reported sale price of our common stock was $0.60 per
share.
Dutchess
Private Equities Fund, L.P. and Jones, Byrd and Attkisson, Inc. are
“underwriters” within the meaning of the Securities Act of 1933, as amended, in
connection with the resale of common stock under the investment agreement.
Dutchess will pay us 95% of the lowest closing best bid price of the common
stock during the five trading days immediately following the date of our notice
to them of our election to put shares pursuant to the investment
agreement.
__________________________________
THIS
INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SECURITIES ONLY
IF YOU CAN AFFORD A COMPLETE LOSS. SEE “RISK FACTORS” BEGINNING ON PAGE
9.
__________________________________
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
THE
DATE
OF THIS PROSPECTUS IS OCTOBER 17, 2007
SUMMARY
|
|
|
5
|
|
RISK
FACTORS
|
|
|
9
|
|
USE
OF PROCEEDS
|
|
|
15
|
|
DETERMINATION
OF OFFERING PRICE
|
|
|
16
|
|
INVESTMENT
AGREEMENT WITH DUTCHESS
|
|
|
16
|
|
DILUTION
|
|
|
18
|
|
SELLING
SECURITY HOLDERS
|
|
|
19
|
|
PLAN
OF DISTRIBUTION
|
|
|
23
|
|
CAPITALIZATION
|
|
|
24
|
|
DIVIDEND
POLICY
|
|
|
24
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
|
|
|
24
|
|
DESCRIPTION
OF BUSINESS
|
|
|
31
|
|
DESCRIPTION
OF PROPERTY
|
|
|
36
|
|
MANAGEMENT
|
|
|
37
|
|
EXECUTIVE
COMPENSATION
|
|
|
38
|
|
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
|
|
|
39
|
|
MARKET
FOR OUR COMMON STOCK
|
|
|
40
|
|
REPORTS
TO SECURITY HOLDERS
|
|
|
41
|
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
|
|
41
|
|
DESCRIPTION
OF SECURITIES
|
|
|
42
|
|
LEGAL
PROCEEDINGS
|
|
|
43
|
|
LEGAL
MATTERS
|
|
|
43
|
|
EXPERTS
|
|
|
43
|
|
ADDITIONAL
INFORMATION
|
|
|
43
|
|
FINANCIAL
STATEMENTS
|
|
|
F-1
|
|
The
following summary is qualified in its entirety by the more detailed information
and financial statements, including the notes thereto, appearing elsewhere
in
this prospectus. Because it is a summary, it does not contain all of the
information you should consider before making an investment decision. References
in this prospectus to “we,” “us,” and “our” refer to Seawright Holdings, Inc.
and its direct and indirect subsidiaries. References to “Seawright Holdings”
refer to Seawright Holdings, Inc. and its subsidiaries.
Seawright
Holdings, Inc.
Seawright
Holdings, Inc. was incorporated in the State of Delaware in October 1999 under
the name Pre-Settlement Funding Corporation. In September 2003 we changed our
name to Seawright Holdings, Inc. to re-focus our business plan and enter the
business of producing and selling spring water.
Our
principal executive offices are located at 600 Cameron Street, Alexandria,
Virginia 22314. Our telephone number is (703) 340-1629.
The
Offering
On
September 12, 2005, we entered into an investment agreement with Dutchess
Private Equities Fund, L.P., or Dutchess, that provides us with an Equity Line
of Credit. The investment agreement provides that, following notice to Dutchess,
we may require Dutchess to purchase, or put, up to $5,000,000 in shares of
our
common stock for a purchase price equal to 95% of the lowest closing best bid
price of our common stock on the Over-the-Counter Bulletin Board, or the OTCBB,
during the five trading days following that put notice. We may, at our election,
require Dutchess to purchase an amount equal to no more than either (a) 200%
of
the average daily volume of our common stock for the 10 trading days prior
to
the put notice date, multiplied by the average of the three daily closing bid
prices immediately preceding the put notice date or (b) $100,000; provided
that
in no event will the amount Dutchess is required to purchase exceed $1,000,000
with respect to any single put. We are obligated to register for resale the
shares of common stock issuable pursuant to the investment agreement pursuant
to
a registration rights agreement dated as of September 12, 2005, between Dutchess
and us. On November 20, 2006, a registration statement on Form SB-2 pertaining
to the Company’s common stock was declared effective by the Securities and
Exchange Commission. Pursuant to that registration statement, we registered
the
resale of 1,000,000 shares of common stock that were “put” to Dutchess under the
investment agreement. Accordingly, we are now registering the resale
of additional shares under the investment agreement that we may, at our
election, require Dutchess to purchase.
In
addition to the shares issued pursuant to the investment agreement, shares
will
also be offered by our current stockholders. The majority of our selling
stockholders acquired their securities through a private offering we closed
in
February 2005. This offering, sold to 78 accredited investors, consisted of
999
units at a price of $3,000 per unit. Each unit consisted of the
following:
|
· |
2,500
shares of our common stock;
|
|
· |
$1,500
of 11% convertible promissory notes, Series A, maturing on September
1,
2009, and convertible into shares of common stock at an exercise
price of
$0.85 per share any time after six months from the date of issuance;
and
|
|
· |
A
warrant to purchase 300 shares of our common stock that is exercisable
for
a period of five years from issuance at $0.85 per share.
|
During
the second quarter of 2007 most of the convertible promissory notes issued
through the private offering were converted into shares of the Company’s common
stock except for a remaining balance of $32,436. Additionally, 276,350 of the
shares of common stock registered hereunder were issued to the selling
stockholder upon exercise of the warrants issued pursuant to our private
offering. Also included in this registration statement are shares of our common
stock that may be acquired upon the exercise of the warrants issued pursuant
to
the private offering.
One additional
selling shareholders purchased 300,000 shares from the Company in a private
transaction on August 31, 2007 at a purchase price of $0.40 per
share.
Our
selling stockholders include Joel Sens, our president and chief executive
officer.
The
selling stockholders consist of:
Stockholder
|
|
#
of Shares
|
|
Dutchess
Private Equities Fund, L.P.
|
|
|
2,000,000
|
(1)
|
Joel
Sens
|
|
|
500,000
|
(2)
|
K&C
Investments |
|
|
300,000 |
|
RBC
Dain Rauscher Cust William Dunn IRA
|
|
|
17,600
|
|
RBC
Dain Rauscher Cust Eugenia Medlock IRA
|
|
|
17,000
|
|
RBC
Dain Rauscher Cust James T. Lewis IRA
|
|
|
15,700
|
|
IFS
Holdings, Inc.
|
|
|
13,400
|
(3)
|
RBC
Dain Rauscher Cust Cynthia Lee McDonald IRA
|
|
|
13,000
|
|
RBC
Dain Rauscher Cust Barry Dunn SEP/IRA
|
|
|
11,900
|
|
Matthew
K. Becksteadd TTEE Matthew K. Beckstead Revocable Trust
|
|
|
10,000
|
|
John
R. Velky
|
|
|
10,000
|
|
RBC
Dain Rauscher Cust Nancy Kines IRA
|
|
|
9,700
|
|
RBC
Dain Rauscher Cust Louis Mulherin Jr. IRA
|
|
|
9,000
|
|
RBC
Dain Rauscher Cust Horace G. Blalock IRA
|
|
|
8,600
|
|
Jana
S. Pine
|
|
|
7,700
|
|
RBC
Dain Rauscher Cust Kenneth D. Simpson IRA
|
|
|
7,500
|
|
RBC
Dain Rauscher Cust Henry Alperin IRA
|
|
|
7,000
|
|
Echols
J. Martin DMD PSP
|
|
|
7,000
|
|
RBC
Dain Rauscher Cust Caroline T. Richardson IRA
|
|
|
6,400
|
|
RBC
Dain Rauscher Cust Charles Daniel IRA
|
|
|
6,200
|
|
RBC
Dain Rauscher Cust Robert Edmond IRA
|
|
|
5,400
|
|
RBC
Dain Rauscher Cust Jackie Brooks Roth IRA
|
|
|
5,300
|
|
RBC
Dain Rauscher Cust John R. Velky IRA
|
|
|
5,200
|
|
Henry
Alperin
|
|
|
5,100
|
|
Kimberly
S. Sligh
|
|
|
4,800
|
|
Thomas
D. Thompson
|
|
|
4,000
|
|
RBC
Dain Rauscher Cust J. Lavern McCullough IRA
|
|
|
3,700
|
|
RBC
Dain Rauscher Cust Ted A. Poor IRA
|
|
|
3,200
|
|
Carolyn
H. Byrd
|
|
|
3,200
|
|
RBC
Dain Rauscher Cust William A. Smith IRA
|
|
|
3,100
|
|
RBC
Dain Rauscher Cust Robert J. Ferrara IRA
|
|
|
3,000
|
|
RBC
Dain Rauscher Cust Pamela K. Richardson Roth IRA
|
|
|
3,000
|
|
RBC
Dain Rauscher Cust Geraldine N. Videtto IRA
|
|
|
3,000
|
|
RBC
Dain Rauscher Cust Jack T. Williams IRA
|
|
|
3,000
|
|
Robert
C. Wilson
|
|
|
3,000
|
|
RBC
Dain Rauscher Cust Burgess M. Allen Jr. Roth IRA
|
|
|
2,600
|
|
RBC
Dain Rauscher Cust Sonan L. Ashley Roth IRA
|
|
|
2,500
|
|
Valerie
Biskey
|
|
|
2,500
|
|
Robert
L.Bower
|
|
|
2,500
|
|
RBC
Dain Rauscher Cust Nancy Locklear IRA
|
|
|
2,500
|
|
M.
Dixon McKay
|
|
|
2,500
|
|
RBC
Dain Rauscher Cust Hilton E. Vaughn Sr. IRA
|
|
|
2,500
|
|
Tammy
Corley
|
|
|
2,150
|
|
William
D. Corley
|
|
|
2,150
|
(4)
|
RBC
Dain Rauscher Cust A. Louis Hook Jr. IRA
|
|
|
2,000
|
|
RBC
Dain Rauscher Cust Dorth G. Falls IRA
|
|
|
1,800
|
|
RBC
Dain Rauscher Cust Robert F. Heishman IRA
|
|
|
1,800
|
|
RBC
Dain Rauscher Cust Patsy A. Fisher Roth IRA
|
|
|
1,700
|
|
RBC
Dain Rauscher Cust Phillip R. Mason IRA
|
|
|
1,700
|
|
RBC
Dain Rauscher Cust Joseph H. May IRA
|
|
|
1,700
|
|
RBC
Dain Rauscher Cust Kenneth J. Remington IRA
|
|
|
1,600
|
|
Robert
L. Abshire
|
|
|
1,500
|
|
RBC
Dain Rauscher Cust Barbara Sue Bramlett IRA
|
|
|
1,500
|
|
Furman
Terry Richardson
|
|
|
1,500
|
|
Stuart
R. Wilson
|
|
|
1,500
|
|
Waymon
E. Ragan and Lorena B. Ragan Jt. Ten./WROS
|
|
|
1,500
|
(5)
|
RBC
Dain Rauscher Cust Joanne I. Leonard IRA
|
|
|
1,100
|
|
Bryan
Coats
|
|
|
1,000
|
|
RBC
Dain Rauscher Cust Faye S. Jennings IRA
|
|
|
1,000
|
|
James
R. Kelley
|
|
|
1,000
|
|
Alice
McCoy
|
|
|
1,000
|
|
RBC
Dain Rauscher Cust Thomas D. Thompson IRA
|
|
|
1,000
|
|
Ken
Wilson
|
|
|
1,000
|
|
RBC
Dain Rauscher Cust Lawrence E. Mobley III SEP/IRA
|
|
|
900
|
|
A
Boardman Co LLC
|
|
|
900
|
|
Michael
C Rogers & Pam K. Roger Jt. Ten.
|
|
|
900
|
|
RBC
Dain Rauscher Cust Ken Wilson Roth IRA
|
|
|
800
|
|
RBC
Dain Rauscher Cust Verda Elrod Roth IRA
|
|
|
600
|
|
Gerry
Rhodes
|
|
|
600
|
|
RBC
Dain Rauscher Cust Phoebe Tuten IRA
|
|
|
600
|
|
Mark
D. Anderson
|
|
|
500
|
|
RBC
Dain Rauscher Cust Milton O. Dickson Sr. Roth IRA
|
|
|
500
|
|
Kevin
Fogarty & Michelle Fogarty Jt. Ten.
|
|
|
500
|
|
Randall
Redmond
|
|
|
500
|
|
George
M. Willson & Crystal J. Willson
|
|
|
400
|
|
RBC
Dain Rauscher Cust Franklin D. Hart Jr. Roth IRA
|
|
|
300
|
|
RBC
Dain Rauscher Cust Wanda Hart Roth IRA
|
|
|
300
|
|
Elisabeth
T. Keller
|
|
|
300
|
|
T.
Barrett Trotter
|
|
|
300
|
|
_______________
(1)
|
Consists
of 2,000,000 of the shares that may be issued pursuant to the Equity
Line
of Credit.
|
(2)
|
Consists
of 500,000 shares of common stock.
|
(3)
|
Consists
of 13,400 shares that may be acquired at $0.85 per share upon exercise
of
warrants.
|
(4)
|
Consists
of 2,150 shares that may be acquired at $0.85 per share upon exercise
of
warrants.
|
(5)
|
Consists
of 1,500 shares that may be acquired at $0.85 per share upon exercise
of
warrants.
|
Our
Capital Structure and Shares Eligible for Future Sale
The
following tables outline our capital stock as of September 30,
2007:
Common
Stock Outstanding:
|
|
Before
the offering
|
|
|
14,792,896
shares
|
(1)
|
After
the offering
|
|
|
16,809,946
shares
|
(2)
|
________________
|
·
|
No
conversion of promissory notes outstanding as of September 30,
2007:
|
Promissory
Note Holder
|
|
Exercise
Price
|
|
#
of Common
Stock
Shares
|
|
Beverly
Sanders III
|
|
$
|
0.85
|
|
|
5,294
|
|
Beverly
Sanders JR
|
|
$
|
0.85
|
|
|
26,471
|
|
Myrtle
Sanders
|
|
$
|
0.85
|
|
|
5,294
|
|
|
·
|
No
conversion of options outstanding as of September 30,
2007:
|
Option
Holder
|
|
Option
Price
|
|
#
of Common
Stock
Shares
|
|
Joel
Sens
|
|
$
|
0.50
|
|
|
400,000
|
|
Joel
Sens
|
|
$
|
1.00
|
|
|
300,000
|
|
Joel
Sens
|
|
$
|
1.75
|
|
|
300,000
|
|
Joel
Sens
|
|
$
|
2.00
|
|
|
500,000
|
|
|
·
|
No
conversion of warrants outstanding as of September 30,
2007:
|
Warrant
Holder
|
|
Exercise
Price
|
|
#
of Common
Stock
Shares
|
|
Ron
Attkisson
|
|
$
|
0.85
|
|
|
300,000
|
|
IFS
Holdings, Inc.
|
|
$
|
0.85
|
|
|
13,400
|
|
William
D. Corley
|
|
$
|
0.85
|
|
|
2,150
|
|
Waymon
E. Ragan and Lorena B. Ragan Jt. Ten./WROS
|
|
$
|
0.85
|
|
|
1,500
|
|
Beverly
Sanders III
|
|
$
|
0.85
|
|
|
900
|
|
Beverly
Sanders JR, IRA
|
|
$
|
0.85
|
|
|
4,500
|
|
Myrtle
Sanders
|
|
$
|
0.85
|
|
|
900
|
|
(2)
|
For
the purpose of determining the number of shares subject to registration
with the SEC, we have assumed that we will issue not more than 2,000,000
shares pursuant to the exercise of our put rights under the investment
agreement, although the number of shares that we will actually issue
pursuant to that put right may be more than or less than 2,000,000,
depending on the trading price of our common stock and the number
of times
we draw down on the Equity Line of Credit. If we were to exercise
the put
right that would result in our issuance of more than 2,000,000 shares,
we
would be required to file a subsequent registration statement with
the SEC
and for that registration statement to be deemed effective prior
to the
issuance of any such additional
shares.
|
In addition, in calculating the number of shares of common stock outstanding
after the offering, we have further assumed that all options and warrants as
to
which the underlying shares of common stock are registered hereby have been
converted.
Use
of Proceeds
We
will
not receive any proceeds from the sale by the selling stockholders of our common
stock. We will receive proceeds from the investment agreement. We may also
receive proceeds from the exercise of warrants or options under certain
circumstances. See “Use of Proceeds” below.
Symbol
for Our Common Stock
Our
common stock trades on the OTCBB under the symbol “SWRI.OB”.
An
investment in our common stock involves a high degree of risk. You should
carefully consider the following risk factors, other information included in
this prospectus and information in our periodic reports filed with the SEC.
If
any of the following risks actually occur, our business, financial condition
or
results of operations could be materially and adversely affected and you may
lose some or all of your investment.
Special
Note Regarding Forward-Looking Statements
This
prospectus contains certain forward-looking statements based on our current
expectations, assumptions, estimates and projections about our business and
our
industry. We generally use words such as “believe,” “may,” “could,” “will,”
“intend,” “expect,” “anticipate,” “plan,” and similar expressions to identify
forward-looking statements. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from those
expressed or implied by the statements, including, but not limited
to:
|
· |
market
acceptance of our products;
|
|
· |
our
ability to provide for our obligations;
|
|
· |
our
ability to attract customers at a steady rate and maintain customer
satisfaction;
|
|
· |
the
amount and timing of operating costs and capital expenditures relating
to
the initial conduct and expansion of our business, operations and
infrastructure and the implementation of marketing programs, key
agreements and strategic alliances;
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|
· |
our
ability to obtain additional financing needed for any future acquisitions
of assets or companies;
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· |
our
ability to meet competitive challenges and technological changes;
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|
· |
general
economic conditions specific to the beverage market and specifically
the
spring water industry; and
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· |
other
risks detailed in our periodic report filings with the SEC or specifically
listed in the risk factors below.
|
Risks
Related To Our Business
We
have had losses since our inception, expect losses to continue in
the
future and may never become profitable
|
|
We
have historically generated substantial losses, which, if continued,
could
make it difficult to fund our operations or successfully execute
our
business plan, and could adversely affect our stock price. For the
period
from inception through June 30, 2007, we have accumulated losses
totaling
$5,900,003. We experienced net losses of $1,439,840 for the three
months
ended June 30, 2007, $423,429 for the three months ended June 30,
2006,
$1,785,386 for the year ended December 31, 2006 and $1,116,048 for
the
year ended December 31, 2005. We experienced negative cash flow from
operations of $1,284,813 for the six months ended June 30,
2007, negative cash flow from operations of $423,890 for the six
months ended June 30, 2006, negative cash flow from operations of
$918,939 for the year ended December 31, 2006, and positive cash
flow from
operations of $410,297 for
the year ended December 31, 2005. We anticipate that we will generate
net
losses in the near term and we may not be able to achieve or maintain
profitability or positive cash flow at any time in the
future.
|
We
have a limited operating history and may never achieve or sustain
profitable operations
|
|
We
have only been operating for a short time and have not yet achieved
significant sales or made a profit from operations. We have generated
limited revenues from our current products of $7,912 from inception
through June 30, 2007.
In
addition, we have a limited history of competing in the intensely
competitive bottled water industry. Our products may not be successfully
commercialized or marketed. As a result, we may never achieve or
sustain
profitable operations.
We
will also be incurring costs to develop, introduce and enhance our
spring
water operations and products, to develop and market an interactive
website, to establish marketing relationships, to acquire and develop
products that will complement each other, and to build an administrative
organization. To the extent that such expenses are not followed by
commensurate revenue, our business, results of operations and financial
condition will be materially and adversely affected.
|
Quarterly
results may fluctuate significantly due to a variety of
factors
|
|
Our
quarterly operating results may fluctuate significantly in the future
as a
result of a variety of factors, most of which are outside our control,
including:
· the
level of public acceptance of our spring water operations and
business;
· the
demand for spring water services and related products;
· seasonal
trends in demand;
· the
amount and timing of capital expenditures and other costs relating
to the
initial conduct of our business and the expansion of our operations;
· the
introduction of new services and products by us or our competitors;
· price
competition or pricing changes in the industry;
· technical
difficulties; and
· general
economic conditions as well as economic conditions specific to the
beverage industry.
Our
quarterly results may also be significantly affected by the impact
of the
accounting treatment of acquisitions, financing transactions or other
matters. Particularly at our early stage of development, such accounting
treatment can have a material impact on our results for any quarter.
Due
to the foregoing factors, among others, it is likely that our operating
results will fall below our expectations or our investors’ expectations in
some future quarter.
|
Our
accountants have indicated that if we do not generate enough cash
from
operations to sustain our business we may have to liquidate assets
or
curtail our operations
|
|
The
accompanying financial statements have been prepared assuming we
will
continue as a going concern. Since inception, we have accumulated
substantial losses. Conditions exist that raise substantial doubt
about
our ability to continue as a going concern unless we are able to
generate
sufficient cash flows to meet our obligations and sustain our operations.
|
We
may be subject to product liability claims and our insurance may
not be
adequate to cover such claims
|
|
The
marketing and selling of our products will expose us to product liability
risk. Any future claim against us for product liability could materially
and adversely affect our business, financial condition, and results
of
operations and result in negative publicity. Even if we are not found
liable, the costs of defending a lawsuit can be high.
We
currently carry insurance for this type of liability, which provides
coverage in the amount of $1,000,000. However, we may experience
legal
claims outside of our insurance coverage or in excess of our insurance
coverage.
|
We
are subject to substantial competition and so may not have the ability
or
the capital to compete effectively
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|
The
industry in which we expect our products to be sold is highly competitive.
We may not have the ability or the capital to compete effectively
in this
environment.
The
significant competition in our industry could harm our ability to
win
business and increase the price pressure on our products. We face
strong
competition from a wide variety of firms, including large, multinational
firms with far greater resources than we possess.
Many
of our competitors have considerably greater financial, marketing
and
technological resources than we do, which may make it difficult to
sell
our products. Many of our competitors also have longer operating
histories
and presence in key markets, greater name recognition, larger customer
bases and significantly greater financial, sales and marketing,
manufacturing, distribution, technical and other resources. As a
result,
these competitors may also be able to devote greater resources to
the
promotion and sale of their products.
|
We
must comply with environmental regulations or we may have to pay
expensive
penalties or clean up costs
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We
are subject to federal, state and local laws, and regulations regarding
protection of the environment, including air, water, and soil. We
do not
maintain insurance for pollutant cleanup and removal. If we are found
responsible for any hazardous contamination, we may have to pay expensive
fines or penalties or perform costly clean-up. Even if we are charged and
later found not responsible for such contamination or clean up, the
cost
of defending the charges could be high.
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If
we do not comply with government regulations, we may be unable to
ship our
products or have to pay expensive fines or penalties
|
|
We
are subject to regulation by state and federal governments and
governmental agencies. If we fail to obtain regulatory approvals
or suffer
delays in obtaining regulatory approvals, we may not be able to market
our
products and services and generate product and service revenues.
Although
we do not anticipate problems satisfying any of the regulations involved,
we cannot foresee the possibility of new regulations that could adversely
affect our business.
|
If
land we recently acquired is not favorably re-zoned, we may be unable
to
lease the land for commercial purposes
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|
In
May of 2005 and in April of 2006, respectively, we completed the
purchase
of two parcels of land located in Staunton, Virginia. We are considering
leasing both of these properties for commercial purposes. Currently,
both
properties are not zoned for commercial use. We expect both sites
will be
re-zoned to commercial use from general agricultural use based upon
our
review of the master zoning plan of the city of Staunton, Virginia.
If the
sites are not re-zoned, we will not be able to lease the properties
for
commercial purposes and we will have to consider alternative uses
or
selling the properties. If we sell the properties, we may have to
sell
them at a loss.
|
Insiders
can exert significant control over our policies and
affairs
|
|
As
of June 30, 2007, our chief executive officer and principal
stockholder, Joel Sens, beneficially owned approximately 37% of our
outstanding common stock on a fully-diluted basis. As a result, Mr.
Sens
effectively controls all of our affairs and policies, including matters
requiring stockholder approval, such as amendments to our certificate
of
incorporation, fundamental corporate transactions including mergers,
acquisitions and the sale of the company, and other matters involving
the
direction of our business and affairs. Although you may vote your
shares,
you will have limited influence on our business and
management.
|
We
currently have one employee and we may not be able to execute our
business
plan without his services
|
|
Mr.
Sens is presently our sole employee and is employed without any formal
contract establishing terms of employment or compensation. We are
therefore dependent upon Mr. Sens, who works for us as an at will
employee, with respect to our operations and management. If Mr. Sens
is
unable to devote substantial time and attention to our operations
for
whatever reason or decides to change his employment, our business
will be
materially and adversely affected.
We
believe that, as our activities increase and change in character,
additional, experienced personnel will be required to implement our
business plan. Competition for such personnel is intense and we may
not be
able to attract and retain such personnel.
|
We
may not be able to successfully manage growth of our
business
|
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Our
future success will be highly dependent upon our ability to successfully
manage the anticipated expansion of our operations. Our ability to
manage
and support growth effectively will be substantially dependent on
our
ability to implement adequate financial and management controls,
reporting
systems and other procedures, and attract and retain sufficient numbers
of
qualified technical, sales, marketing, financial, accounting,
administrative and management personnel.
Our
future success also depends upon our ability to address potential
market
opportunities while managing expenses to match our ability to finance
our
operations. This need to manage our expenses will place a significant
strain on our management and operational resources. If we are unable
to
manage our expenses effectively, our business, results of operations
and
financial condition will be materially and adversely
affected.
|
Risks
associated with acquisitions
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|
Although
we do not presently intend to do so, as part of our business strategy
in
the future, we could acquire assets and businesses relating to or
complementary to our operations. Any acquisitions by us would involve
risks commonly encountered in acquisitions of assets or companies.
These
risks would include, among other things, the following:
· we
could be exposed to unknown liabilities of the acquired companies;
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|
|
· we
could incur acquisition costs and expenses higher than
anticipated;
· fluctuations
in our quarterly and annual operating results could occur due to
the costs
and expenses of acquiring and integrating new businesses or technologies;
· we
could experience difficulties and expenses in assimilating the operations
and personnel of any acquired businesses;
· our
ongoing business could be disrupted and our management’s time and
attention diverted; and
· we
could be unable to integrate with any acquired businesses
successfully.
|
Risks
Related to this Offering and Our Stock
“Penny
Stock” rules may make buying or selling our securities
difficult
|
|
Trading
in our securities is subject to the SEC’s “penny stock” rules and it is
anticipated that trading in our securities will continue to be subject
to
the penny stock rules for the foreseeable future. The SEC has adopted
regulations that generally define a penny stock to be any equity
security
that has a market price of less than $5.00 per share, subject to
certain
exceptions. These rules require that any broker-dealer who recommends
our
securities to persons other than prior customers and accredited investors
must, prior to the sale, make a special written suitability determination
for the purchaser and receive the purchaser’s written agreement to execute
the transaction. Unless an exception is available, the regulations
require
the delivery, prior to any transaction involving a penny stock, of
a
disclosure schedule explaining the penny stock market and the risks
associated with trading in the penny stock market. In addition,
broker-dealers must disclose commissions payable to both the broker-dealer
and the registered representative and current quotations for the
securities they offer. The additional burdens imposed upon broker-dealers
by such requirements may discourage broker-dealers from recommending
transactions in our securities, which could severely limit the liquidity
of our securities and consequently adversely affect the market price
for
our securities.
|
Existing
stockholders may experience significant dilution from the sale of
securities pursuant to the investment agreement with Dutchess and
the sale
of securities by the selling stockholders
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The
sale of shares pursuant to the investment agreement with Dutchess
will
have a dilutive impact on our stockholders. As a result, our net
income
per share, if any, could decrease in future periods, and the market
price
of our common stock could decline. In addition, the lower our stock
price
at the time we exercise our put rights, the more shares we will have
to
issue to Dutchess to draw down on the full Equity Line of Credit
with
Dutchess. If our stock price decreases, then our existing stockholders
would experience greater dilution.
In
addition, through our prior private placement that closed in February
2005, we sold warrants and convertible promissory notes that are
convertible into our common stock. We have also issued options convertible
into our common stock to certain of the selling stockholders. Some
of
these securities are still outstanding and any exercise of them will
have
a dilutive impact on our
stockholders.
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Finally,
if cash generated by our operations is
insufficient to satisfy our liquidity requirements, we may be required
to
sell additional equity or debt securities. The sale of additional
equity
or convertible debt securities would result in additional dilution
to our
stockholders.
|
Because
Dutchess will pay less than the then-prevailing market price of our
common
stock and the other selling stockholders listed in this prospectus
may pay
less than the then-prevailing market price of our common stock our
stock
price may decline
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The
common stock to be issued under our agreement with Dutchess will
be
purchased at a 5% discount to the lowest closing best bid price for
the
five trading days immediately following our notice to Dutchess of
our
election to exercise our put right. The other selling stockholders
may
exercise their conversion rights of the warrants at $0.85 per share,
which
may be less than the then-prevailing market price of our common stock.
These discounted sales could cause the price of our common stock
to
decline, and you may not be able to sell our stock for more than
you paid
for it.
|
Our
securities have been thinly traded on the OTCBB, which may not provide
liquidity for our investors
|
|
Our
securities are quoted on the OTCBB. The OTCBB is an inter-dealer,
over-the-counter market that provides significantly less liquidity
than
the NASDAQ Stock Market or other national or regional exchanges.
Securities traded on the OTCBB are usually thinly traded, highly
volatile,
have fewer market makers and are not followed by analysts. The SEC’s order
handling rules, which apply to NASDAQ-listed securities, do not apply
to
securities quoted on the OTCBB. Quotes for stocks included on the
OTCBB
are not listed in newspapers. Therefore, prices for securities traded
solely on the OTCBB may be difficult to obtain and holders of our
securities may be unable to resell their securities at or near their
original acquisition price, or at any price.
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Investors
must contact a broker-dealer to trade OTCBB securities. As a result,
you
may not be able to buy or sell our securities at the times you
wish
|
|
Even
though our securities are quoted on the OTCBB, the OTCBB may not
permit
our investors to sell securities when and in the manner that they
wish.
Because there are no automated systems for negotiating trades on
the
OTCBB, trades are conducted via telephone. In times of heavy market
volume, the limitations of this process may result in a significant
increase in the time it takes to execute investor orders. Therefore,
when
investors place an order to buy or sell a specific number of shares
at the
current market price it is possible for the price of a stock to go
up or
down significantly during the lapse of time between placing a market
order
and its execution.
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We
may not be able to access sufficient funds under the Equity Line
of Credit
with Dutchess when needed
|
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We
will depend on external financing to fund our planned initial operations
and expansion. We expect that these financing needs will be substantially
met by our agreement with Dutchess. However, due to the terms of
the
investment agreement, this financing may not be available in sufficient
amounts or at all when needed. As a result, we may not be able to
grow our
business as planned.
|
We
do not intend to pay dividends in the foreseeable future; therefore,
you
may never see a return on your investment
|
|
We
do not anticipate the payment of cash dividends on our common stock
in the
foreseeable future. We anticipate that any profits from our operations
will be devoted to future operations. Any decision to pay dividends
will
depend upon our profitability at the time, cash available and other
factors. Therefore, you may never see a return on your investment.
Investors who anticipate a need for immediate income from their investment
should not purchase the securities offered in this
prospectus.
|
Our
stock price is volatile and you may not be able to sell your shares
for
more than what you paid
|
|
Our
stock price has been subject to significant volatility, and you may
not be
able to sell shares of common stock at or above the price you paid
for
them. The trading price of our common stock has been subject to wide
fluctuations in the past. During the three-month period ended June
30,
2007, our common stock traded at prices as low as $0.96 per share
and as
high as $2.45 per share. During our fiscal year ending 2006, our
common
stock traded at prices as low as $0.40 per share and as high as $1.50
per
share. During our fiscal year ending December 31, 2005, our common
stock
traded at prices as low as $0.40 per share and as high as $1.05 per
share.
Prior to January 9, 2004, there was no public trading market for
our
securities.
The
market price of the common stock could continue to fluctuate in the
future
in response to various factors, including, but not limited
to:
· quarterly
variations in operating results;
· our
ability to control costs and improve cash flow;
· announcements
of technological innovations or new products by us or by our
competitors;
· changes
in investor perceptions; and
· new
products or product enhancements by us or our
competitors.
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|
|
The
stock market in general has continued to experience volatility which
may
further affect our stock price. As such, you may not be able to resell
your shares of common stock at or above the price you paid for
them.
|
This
prospectus relates to shares of our common stock that may be offered and sold
from time to time by certain selling stockholders. We will not receive proceeds
from the sale of shares of common stock in this offering. However, we will
receive the proceeds from the sale of shares of common stock to Dutchess under
the investment agreement. The purchase price of the shares purchased under
the
investment agreement will be equal to 95% of the lowest closing best bid price
of our common stock on the OTCBB for the five trading days immediately following
the date of our notice of election to exercise our put.
For
illustrative purposes, we have set forth below a chart detailing the proceeds
that we expect to receive pursuant to the investment agreement. We intend to
use
the net proceeds from the investment agreement for working capital purposes
in
the ordinary course of business and for general corporate purposes.
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|
Proceeds
if
100% Sold
|
|
Proceeds
if
50% Sold
|
|
Gross
proceeds
|
|
$
|
1,200,000
|
|
$
|
600,000
|
|
Estimated
professional fees and SEC filing fees of offering
|
|
$
|
100,000
|
|
$
|
100,000
|
|
1%
Placement Fee
|
|
$
|
12,000
|
|
$
|
6,000
|
|
Net
proceeds
|
|
$
|
1,088,000
|
|
$
|
494,000
|
|
Additionally,
we may receive proceeds from the exercise of warrants exercisable for
17,050 shares of our common stock at $0.85 per share. Warrants exercisable
for
299,700 shares of common stock were issued in the year ended December 31, 2004
and the remaining warrants were issued in January 2005. The warrants expire
five
years from the date of issue. As of June 30, 2007, 276,350 shares were issued
upon the exercise of the warrants.
We
cannot
accurately predict when or whether we will receive proceeds pursuant to the
warrants or options because we do not know when the holders will choose to
exercise the warrants or options. If the holders choose to exercise their
warrants or options, we cannot predict whether any of those holders will opt
for
a cashless exercise. It is also possible that the warrants or certain of the
options will expire without being exercised. If we receive proceeds from the
warrants or options, we intend to use the proceeds for the purposes listed
in
the above chart.
The
sale
of shares pursuant to the investment agreement with Dutchess will have a
dilutive impact on our shareholders. As a result, the market price of our shares
of common stock could decline. In addition, the lower the stock price at the
time we exercise our “put” rights, the more shares we will have to issue to
Dutchess to draw down on the full Equity Line. If our stock price decreases,
then our existing shareholders would experience greater dilution. See “Risk
Factors - Risks Related to this Offering and Our Stock - Existing stockholders
may experience significant dilution from the sale of securities pursuant to
the
investment agreement with Dutchess and the sale of securities by the selling
stockholders.”
The
shares of common stock are being offered for sale by the selling stockholders
at
prices established on the OTCBB or in negotiated transactions during the term of
this offering. These prices will fluctuate based on the demand for the
shares.
The
following is a summary of the material terms of the investment agreement. This
summary is not complete and is qualified in its entirety by reference to the
investment agreement. You should read carefully the investment agreement in
its
entirety as it is the legal document that governs the Equity Line of
Credit.
Overview
On
September 12, 2005, we entered into an investment agreement with Dutchess in
order to provide us with a possible source of funding. The investment agreement
establishes what is sometimes referred to as an Equity Line of
Credit.
Under
the
investment agreement, Dutchess has agreed to provide us with up to $5,000,000
of
funding during the 36-month period following the date the registration
statement, of which this prospectus is a part, is declared effective. During
this 36 month period, we may request a draw down under the Equity Line of Credit
by which we would sell shares of our common stock to Dutchess, which is
obligated to purchase the shares under the investment agreement. We are under
no
obligation to draw down under the Equity Line of Credit.
On
November 20, 2006, a registration statement on Form SB-2 pertaining to the
Company’s common stock was declared effective by the Securities and Exchange
Commission. Pursuant to such registration statement, we registered 1,000,000
shares of common stock that were “put” to Dutchess under the investment
agreement. The value of the 1,000,000 shares “put” to Dutchess was $1,121,335.
Accordingly, we are now registering an additional 2,000,000 shares under the
investment agreement that we may, at our election, require Dutchess to
purchase.
Calculation
of Draw Down Amount, Purchase Price and Number of Shares
Sold
We
may
exercise our right to draw down our Equity Line of Credit by sending a written
put notice to Dutchess stating the dollar amount we wish to draw down. The
put
notice date is generally considered to be the trading day following the day
on
which Dutchess receives the notice.
We
may,
at our election, require Dutchess to purchase an amount equal to no more than
either (a) 200% of the average daily volume of our common stock for the 10
trading days prior to the put notice date, multiplied by the average of the
three daily closing bid prices immediately preceding the put notice date or
(b)
$100,000; provided that we may not request more than $1,000,000 in any single
put notice.
On
the
trading day following the put notice date, a pricing period of five trading
days
will begin. The purchase price for the common stock identified in the put notice
will be equal to 95% of the lowest closing best bid price of our common stock
during the pricing period.
We
may
submit additional put notices after each closing date but only if the shares
sold during the prior pricing period have been paid for and issued.
Payment
for Shares Issued
The
shares purchased during the pricing period will be issued and paid for no later
than the seventh trading day following the date of the drawdown
notice.
Right
of First Refusal
With
certain exceptions, the investment agreement provides that the Company shall
not
directly or indirectly offer, sell, grant any option to purchase, or otherwise
dispose of any of its common stock at a price that is less than the market
price
of the common stock within one year of the issuance of such security without
the
permission of Dutchess, which will not be unreasonably withheld. The Company
may
participate in such a transaction if it delivers a written notice to Dutchess
describing the transaction and the amount and use of the proceeds intended
to be
raised. Dutchess may provide financing similar to the terms set forth in the
notice. However, if Dutchess does not provide notice of its intent to provide
such financing then the Company may proceed with its financing plans based
on
the terms of the initial notice to Dutchess.
Right
to Cover
If
shares
subject to a put notice become restricted and Dutchess is required to purchase
Company stock in an open market transaction to make a delivery, then the
investment agreement requires the Company to pay to Dutchess an amount equal
to
the value of Dutchess’ open market purchase price over the proceeds received
from the sale of Company’s stock in that transaction.
Closing
Conditions
We
can
only put shares to Dutchess under the investment agreement when we meet certain
conditions, including, but not limited to, the following:
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· |
delivery
of the certificates being purchased by Dutchess;
|
|
· |
a
registration statement has been declared effective and remains effective
for the resale of the common stock subject to the Equity Line of
Credit;
|
|
· |
the
registration statement, as required to be filed under the registration
rights agreement, and any amendments do not contain any untrue statements
of a material fact or omit to state any material fact;
|
|
· |
we
have complied with our obligations under the investment agreement
and the
registration rights agreement;
|
|
· |
no
injunction has been issued and remains in force, or action commenced
by a
governmental authority which has not been stayed or abandoned, prohibiting
the consummation of any of the transactions contemplated by the investment
agreement; and
|
|
· |
the
issuance of the common stock will not violate any shareholder approval
requirements of any exchange or market where our securities are
traded.
|
Suspension
of the Investment Agreement
The
investment agreement will be suspended upon any of the following events, and
will remain suspended until the event is rectified:
|
· |
the
trading of our common stock is suspended by the SEC, the OTCBB or
the
National Association of Securities Dealers, or NASD, for a period
of two
consecutive trading days; or
|
|
· |
our
common stock is de-listed from the OTCBB.
|
Indemnification
Pursuant
to the investment agreement, Dutchess is entitled to customary indemnification
from us for any losses or liabilities it suffers based upon (1) any
misrepresentation or breach of any representation or warranty, (2) any breach
of
any covenant, agreement or obligation or (3) any cause of action, suit or claim,
arising out of or resulting from the performance of the investment agreement
or
any other document contemplated by the investment agreement.
Placement
Agent
Pursuant
to the investment agreement, the Company has agreed to pay Jones, Byrd and
Attkisson, as the placement agent, one percent (1%) of the value of the shares
that the Company intends to sell to Dutchess on each closing date.
Short
Selling
Pursuant
to the investment agreement, Dutchess has agreed to comply with Section 9 of
the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules
promulgated thereunder not to short the Company’s stock, either directly or
indirectly.
Termination
The
investment agreement will terminate when either of the following events
occur:
|
· |
Dutchess
has purchased an aggregate of $5,000,000 of our common stock;
or
|
|
· |
thirty-six
months after the SEC declares the registration statement, of which
this
prospectus is a part, effective.
|
Our
net
tangible book value as of June 30, 2007 was $379,589 or $.028 per share of
Common Stock. Net tangible book value per share is determined by dividing our
tangible book value (total tangible assets less total liabilities) by the number
of outstanding shares of our Common Stock. Since this offering is being made
solely be the selling stockholders and none of the proceeds will be paid to
us,
our net tangible book value will be unaffected by this offering. Our net
tangible book value, however, will be impacted by the Common Stock to be issued
under the investment agreement. The following example shows the dilution to
new
investors if (1) 50% of the stock issued under the investment agreement is
sold;
and (2) 100% of the stock intended to be sold under the investment agreement
is
sold.
|
|
Minimum
|
|
Maximum
|
|
|
|
Offering
|
|
Offering
|
|
Public
Offering Price Per Share
|
|
$
|
0.60
|
|
$
|
0.60
|
|
Net
Tangible Book Value Prior to This Offering
|
|
$
|
0.03
|
|
$
|
0.03
|
|
Net
Tangible Book Value After Offering
|
|
$
|
0.05
|
|
$
|
0.08
|
|
Dilution
per share to new investors
|
|
$
|
0.55
|
|
$
|
0.52
|
|
The
following table sets forth the name of the selling stockholders, the number
of
shares owned, the number of shares registered by this prospectus, the number
of
outstanding shares that the selling stockholders will own after the sale
of the
registered shares and the percentage of outstanding shares that the selling
stockholders will own after the sale of the registered shares, assuming all
of the shares are sold. The information provided in the table and discussions
below has been obtained from the selling stockholders. The selling stockholders
may have sold, transferred or otherwise disposed of, or may sell, transfer
or
otherwise dispose of, at any time or from time to time since the date on
which
they provided the information regarding the shares beneficially owned, all
or a
portion of the shares of common stock beneficially owned in transactions
exempt
from the registration requirements of the Securities Act of 1933, or the
Securities Act. As used in this prospectus, “selling stockholder” includes
donees, pledgees, transferees or other successors in interest selling shares
received from the named selling stockholder as a gift, pledge, distribution
or
other non-sale related transfer (excluding donees, pledgees, transferees
or
other successors-in-interest of Dutchess).
Beneficial
ownership is determined in accordance with Rule 13d-3(d) promulgated by
the SEC
under the Securities Exchange Act of 1934, or the Exchange Act. Unless
otherwise
noted, each person or group identified possesses sole voting and investment
power with respect to the shares, subject to community property laws where
applicable.
Stockholder |
|
Number
of
Shares
Beneficially
Owned
Before
the
Offering
|
|
Number
of
Shares
Being
Offered
|
|
Number
of
Shares
Beneficially
Owned
After
The
Offering
(1)
|
|
Percentage
of
Class
to be
Owned
After
The
Offering
|
Dutchess
Private Equities Fund, L.P.
|
|
2,000,000
|
|
2,000,000
|
(2)
|
0
|
|
0%
|
Joel
Sens
|
|
4,921,414
|
(3)
|
500,000
|
|
4,421,414
|
|
26.3%
|
K&C
Investments
|
|
|
|
|
(4)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust William Dunn IRA
|
|
17,600
|
|
17,600
|
(5)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Eugenia Medlock IRA
|
|
17,000
|
|
17,000
|
(6)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust James T. Lewis IRA
|
|
15,700
|
|
15,700
|
(7)
|
0
|
|
0%
|
IFS
Holdings, Inc.
|
|
13,400
|
|
13,400
|
(8)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Cynthia Lee McDonald IRA
|
|
13,000
|
|
13,000
|
(9)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Barry Dunn SEP/IRA
|
|
11,900
|
|
11,900
|
(10)
|
0
|
|
0%
|
Matthew
K. Beckstead TTEE Matthew K. Beckstead Revocable Trust
|
|
10,000
|
|
10,000
|
(11)
|
0
|
|
0%
|
John
R. Velky
|
|
10,000
|
|
10,000
|
(11)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Nancy Kines IRA
|
|
9,700
|
|
9,700
|
(12)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Louis Mulherin Jr. IRA
|
|
9,000
|
|
9,000
|
(13)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Horace G. Blalock IRA
|
|
8,600
|
|
8,600
|
(14)
|
0
|
|
0%
|
Jana
S. Pine
|
|
7,700
|
|
7,700
|
(15)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Kenneth D. Simpson IRA
|
|
7,500
|
|
7,500
|
(16)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Henry Alperin IRA
|
|
7,000
|
|
7,000
|
(17)
|
0
|
|
0%
|
Echols
J. Martin DMD PSP
|
|
7,000
|
|
7,000
|
(17)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Caroline T. Richardson IRA
|
|
6,400
|
|
6,400
|
(18)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Charles Daniel IRA
|
|
6,200
|
|
6,200
|
(19)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Robert Edmond IRA
|
|
5,400
|
|
5,400
|
(20)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Jackie Brooks Roth IRA
|
|
5,300
|
|
5,300
|
(21)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust John R. Velky IRA
|
|
5,200
|
|
5,200
|
(22)
|
0
|
|
0%
|
Henry
Alperin
|
|
5,100
|
|
5,100
|
(23)
|
0
|
|
0%
|
Kimberly
S. Sligh
|
|
4,800
|
|
4,800
|
(24)
|
0
|
|
0%
|
Thomas
D. Thompson
|
|
4,000
|
|
4,000
|
(25)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust J. Lavern McCullough IRA
|
|
3,700
|
|
3,700
|
(26)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Ted A. Poor IRA
|
|
3,200
|
|
3,200
|
(27)
|
0
|
|
0%
|
Carolyn
H. Byrd
|
|
3,200
|
|
3,200
|
(27)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust William A. Smith IRA
|
|
3,100
|
|
3,100
|
(28)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Robert J. Ferrara IRA
|
|
3,000
|
|
3,000
|
(29)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Pamela K. Richardson Roth IRA
|
|
3,000
|
|
3,000
|
(29)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Geraldine N. Videtto IRA
|
|
3,000
|
|
3,000
|
(29)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Jack T. Williams IRA
|
|
3,000
|
|
3,000
|
(29)
|
0
|
|
0%
|
Robert
C. Wilson
|
|
3,000
|
|
3,000
|
(29)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Burgess M. Allen Jr. Roth IRA
|
|
2,600
|
|
2,600
|
(30)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Sonan L. Ashley Roth IRA
|
|
2,500
|
|
2,500
|
(31)
|
0
|
|
0%
|
Valerie
Biskey
|
|
2,500
|
|
2,500
|
(31)
|
0
|
|
0%
|
Robert
L. Bower
|
|
2,500
|
|
2,500
|
(31)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Nancy Locklear IRA
|
|
2,500
|
|
2,500
|
(31)
|
0
|
|
0%
|
M.
Dixon McKay
|
|
2,500
|
|
2,500
|
(31)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Hilton E. Vaughn Sr. IRA
|
|
2,500
|
|
2,500
|
(31)
|
0
|
|
0%
|
Tammy
Corley
|
|
2,150
|
|
2,150
|
(32)
|
0
|
|
0%
|
William
D. Corley
|
|
2,150
|
|
2,150
|
(33)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust A. Louis Hook Jr. IRA
|
|
2,000
|
|
2,000
|
(34)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Dorth G. Falls IRA
|
|
1,800
|
|
1,800
|
(35)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Robert F. Heishman IRA
|
|
1,800
|
|
1,800
|
(35)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Patsy A. Fisher Roth IRA
|
|
1,700
|
|
1,700
|
(36)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Phillip R. Mason IRA
|
|
1,700
|
|
1,700
|
(36)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Joseph H. May IRA
|
|
1,700
|
|
1,700
|
(36)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Kenneth J. Remington IRA
|
|
1,600
|
|
1,600
|
(37)
|
0
|
|
0%
|
Robert
L. Abshire
|
|
1,500
|
|
1,500
|
(38)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Barbara Sue Bramlett IRA
|
|
1,500
|
|
1,500
|
(38)
|
0
|
|
0%
|
Furman
Terry Richardson
|
|
1,500
|
|
1,500
|
(38)
|
0
|
|
0%
|
Stuart
R. Wilson
|
|
1,500
|
|
1,500
|
(38)
|
0
|
|
0%
|
Waymon
E. Ragan and Lorena B. Ragan Jt. Ten./WROS
|
|
1,500
|
|
1,500
|
(39)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Joanne I. Leonard IRA
|
|
1,100
|
|
1,100
|
(40)
|
0
|
|
0%
|
Bryan
Coats
|
|
1,000
|
|
1,000
|
(41)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Faye S. Jennings IRA
|
|
1,000
|
|
1,000
|
(41)
|
0
|
|
0%
|
James
R. Kelley
|
|
1,000
|
|
1,000
|
(41)
|
0
|
|
0%
|
Alice
McCoy
|
|
1,000
|
|
1,000
|
(41)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Thomas D. Thompson IRA
|
|
1,000
|
|
1,000
|
(41)
|
0
|
|
0%
|
Ken
Wilson
|
|
1,000
|
|
1,000
|
(41)
|
0
|
|
0%
|
A
Boardman Co LLC
|
|
900
|
|
900
|
(42)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Lawrence E. Mobley III SEP/IRA
|
|
900
|
|
900
|
(43)
|
0
|
|
0%
|
Michael
C. Rogers & Pam K. Roger Jt. Ten.
|
|
900
|
|
900
|
(44)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Ken Wilson Roth IRA
|
|
800
|
|
800
|
(45)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Verda Elrod Roth IRA
|
|
600
|
|
600
|
(46)
|
0
|
|
0%
|
Gerry
Rhodes
|
|
600
|
|
600
|
(46)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Phoebe Tuten IRA
|
|
600
|
|
600
|
(46)
|
0
|
|
0%
|
Mark
D. Anderson
|
|
500
|
|
500
|
(47)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Milton O. Dickson Sr. Roth IRA
|
|
500
|
|
500
|
(47)
|
0
|
|
0%
|
Kevin
Fogarty & Michelle Fogarty Jt. Ten.
|
|
500
|
|
500
|
(47)
|
0
|
|
0%
|
Randall
Redmond
|
|
500
|
|
500
|
(47)
|
0
|
|
0%
|
George
M. Willson & Crystal J. Willson
|
|
400
|
|
400
|
(48)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Franklin D. Hart Jr. Roth IRA
|
|
300
|
|
300
|
(49)
|
0
|
|
0%
|
RBC
Dain Rauscher Cust Wanda Hart Roth IRA
|
|
300
|
|
300
|
(49)
|
0
|
|
0%
|
Elisabeth
T. Keller
|
|
300
|
|
300
|
(49)
|
0
|
|
0%
|
T.
Barrett Trotter
|
|
300
|
|
300
|
(49)
|
0
|
|
0%
|
Total
number of shares offered for resale
|
|
|
|
3,703,400
|
|
|
|
|
________________
(1)
|
The
numbers assume that the selling stockholders have sold all
of the shares
offered hereby prior to completion of this offering.
|
(2)
|
Represents
shares we may issue to Dutchess pursuant to the Equity Line
of Credit.
Since we are not obligated to use the Equity Line of Credit
and the amount
of shares that we may issue pursuant to the Equity Line of
Credit is
partly based on the future market price of our common stock,
we cannot
predict with accuracy the actual number of shares we may
issue to
Dutchess.
|
|
Michael
Novielli and Douglas Leighton are the Managing Members of
Dutchess Capital
Management, which is the general partner of Dutchess and,
accordingly, may
be deemed to share voting and dispositive power over securities held
for the account of Dutchess.
|
(3)
|
Consists
of 3,350,4144 shares of common stock,
400,000 shares that may be acquired at $0.50 per share upon the
exercise
of options, 300,000 shares that may be acquired at $1.00 per
share upon
the exercise of options, 300,000 shares that may be acquired
at $1.75 per
share upon the exercise of options and 500,000 shares that may
be acquired
at $2.00 per share upon the exercise of options.
|
(4)
|
Consists
of 300,000 shares of common stock.
David
Thomas is the owner of K&C Investments,
and, accordingly may be deemed to possess voting and investment
power over
shares held by K&C Investments.
|
(5)
|
Consists
of 17,600 shares of common stock.
|
(6)
|
Consists
of 17,000 shares of common stock.
|
(7)
|
Consists
of 15,700 shares of common stock.
|
(8)
|
Includes
13,400 shares that may be acquired at $0.85 per share upon exercise
of
warrants.
Ron
Attkisson and John Pope Jones are the controlling shareholders
of IFS
Holdings, Inc., and, accordingly, they may be deemed to share
voting and
investment power over shares held by IFS Holdings, Inc.
In
addition, IFS Holdings, Inc. owns 99% of Jones, Byrd and Attkisson.
IFS
Holdings, Inc. may be deemed to be an affiliate of the broker
dealer
Jones, Byrd and Attkisson. Accordingly, IFS Holdings, Inc. has
informed
the Company that: (1) IFS Holdings, Inc. acquired the Company's
securities
in the ordinary course of business; and (2) IFS Holdings, Inc.
did not
have any agreement or understanding, directly or indirectly,
at the time
of purchase
with any person to distribute the securities.
|
(9)
|
Consists
of 13,000 shares of common stock.
|
(10)
|
Consists
of 11,900 shares of common stock.
|
(11)
|
Consists
of 10,000 shares of common stock.
|
(12)
|
Consists
of 9,700 shares of common stock.
|
(13)
|
Consists
of 9,000 shares of common stock.
|
(14)
|
Consists
of 8,600 shares of common stock.
|
(15)
|
Consists
of 7,700 shares of common stock.
|
(16)
|
Consists
of 7,500 shares of common stock.
|
(17)
|
Consists
of 7,000 shares of common stock.
|
(18)
|
Consists
of 6,400 shares of common stock.
|
(19)
|
Consists
of 6,200 shares of common stock.
|
(20)
|
Consists
of 5,400 shares of common stock.
|
(21)
|
Consists
of 5,300 shares of common stock..
|
(22)
|
Consists
of 5,200 shares of common stock.
|
(23)
|
Consists
of 5,100 shares of common stock.
|
(24)
|
Consists
of 4,800 shares of common stock.
|
(25)
|
Consists
of 4,000 shares of common stock.
|
(26)
|
Consists
of 3,700 shares of common stock.
|
(27)
|
Consists
of 3,200 shares of
common stock.
|
(28)
|
Consists
of 3,100 shares of
common stock.
|
(29)
|
Consists
of 3,000 shares of
common stock.
|
(30)
|
Consists
of 2,600 shares of
common stock.
|
(31)
|
Consists
of 2,500 shares of
common stock.
|
(32)
|
Consists
of 2,150 shares of
common stock.
|
(33)
|
Includes
2,150 shares that may be acquired at $0.85 per share upon exercise
of
warrants.
|
(34)
|
Consists
of 2,000 shares of
common stock.
|
(35)
|
Consists
of 1,800 shares of
common stock.
|
(36)
|
Consists
of 1,700 shares of
common stock.
|
(37)
|
Consists
of 1,600 shares of common stock.
|
(38)
|
Consists
of 1,500 shares of
common stock.
|
(39)
|
Includes
1,500 shares that may be acquired at $0.85 per share upon exercise
of
warrants.
|
(40)
|
Consists
of 1,100 shares of
common stock.
|
(41)
|
Consists
of 1,000 shares of common stock.
|
(42)
|
Consists
of 900 shares of common stock.
John
Dickey Boardman, Jr. is the Managing Member of A. Boardman Co.
LLC, and, accordingly, may be deemed to possess voting and investment
power over shares held by A. Boardman Co. LLC.
|
(43)
|
Consists
of 900 shares of common stock.
|
(44)
|
Consists
of 900 shares of common stock.
|
(45)
|
Consists
of 800 shares of common stock.
|
(46)
|
Consists
of 600 shares of common stock.
|
(47)
|
Consists
of 500 shares of common stock.
|
(48)
|
Consists
of 400 shares of common stock.
|
(49)
|
Consists
of 300 shares of common stock.
|
Relationship
between Certain Selling Stockholders and Seawright
Holdings
The
following selling stockholders have, or have had within the last three years,
a
material relationship with Seawright Holdings. Joel Sens is our chief executive
officer, president, secretary and treasurer and is also one of our directors.
IFS Holdings, Inc. is controlled by stockholders Ronald Attkisson and John
Pope
Jones. In addition, IFS Holdings, Inc. owns 99% of Jones, Byrd and Attkisson,
our placement agent with respect to the securities to be issued to Dutchess
under the Equity Line of Credit and an underwriter of this offering. Ron
Attkisson was one of our directors until he resigned effective February 28,
2007, however Mr. Attkisson remains a director of Jones, Byrd and
Attkisson.
The
selling stockholders will act independently of us in making decisions with
respect to the timing, manner and size of each sale. The selling stockholders
may sell the shares from time to time in transactions on the OTCBB or on any
national securities exchange or U.S. inter-dealer system of a registered
national securities association on which our common stock may be listed or
quoted at the time of sale, or in private transactions and transactions
otherwise than on these exchanges or systems or in the over-the-counter market.
These transactions may occur at prices related to prevailing market prices,
in
negotiated transactions or in a combination of such methods of sale, or any
other method permitted by law.
The
selling stockholders may effect such transactions by offering and selling the
shares directly to or through securities broker-dealers, and such broker-dealers
may receive compensation in the form of discounts, concessions or commissions
from the selling stockholders and/or the purchasers of the shares for whom
such
broker-dealers may act as agent or to whom the selling stockholders may sell
as
principal, or both, which compensation as to a particular broker-dealer might
be
in excess of customary commissions.
Dutchess,
Jones, Byrd and Attkisson and any other broker-dealers who act in connection
with the sale of the shares pursuant to the Equity Line of Credit are
“underwriters” within the meaning of the Securities Act, and any discounts,
concessions or commissions received by them and profit on any resale of the
shares as principal may be deemed to be underwriting discounts, concessions
and
commissions under the Securities Act. Additionally, the other selling
stockholders listed in this document may be deemed “underwriters.”
On
or
prior to the effectiveness of the registration statement to which this
prospectus is a part, we will advise the selling stockholders that the
anti-manipulation rules under the Exchange Act may apply to sales of shares
in
the market and to the activities of the selling security owners and any of
their
affiliates. We have informed the selling stockholders that they may
not:
|
· |
engage
in any stabilization activity in connection with any of the
shares;
|
|
· |
bid
for or purchase any of the shares or any rights to acquire the
shares;
|
|
· |
attempt
to induce any person to purchase any of the shares or rights to acquire
the shares other than as permitted under the Exchange Act; or
|
|
· |
effect
any sale or distribution of the shares until after the prospectus
shall
have been appropriately amended or supplemented, if required, to
describe
the terms of the sale or
distribution.
|
The
selling stockholders and the other persons participating in the distribution
of
the shares offered under this prospectus will be subject to the Exchange Act,
including Regulation M thereunder. We have advised the selling stockholders
that
the anti-manipulation rules of Regulation M under the Exchange Act may apply
to
sales of shares in the market and to the activities of the selling stockholders
and their affiliates. In addition, we will make copies of this prospectus
available to the selling stockholders and we have informed them of the need
for
delivery of copies of this prospectus to purchasers at or prior to the time
of
any sale of the shares offered hereby. We have informed the selling stockholders
that they must effect all sales of shares in broker’s transactions, through
broker-dealers acting as agents, in transactions directly with market makers,
or
in privately negotiated transactions where no broker or other third party,
other
than the purchaser, is involved.
The
selling stockholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act. Any commissions paid
or
any discounts or concessions allowed to any broker-dealers, and any profits
received on the resale of shares, may be deemed to be underwriting discounts
and
commissions under the Securities Act if the broker-dealers purchase shares
as
principal.
In
the
absence of the registration statement to which this prospectus is a part,
certain of the selling stockholders would be able to sell their shares only
pursuant to the limitations of Rule 144 promulgated under the Securities
Act.
We
engaged Jones, Byrd and Attkisson as our placement agent with respect to the
securities to be issued to Dutchess under the Equity Line of Credit. To our
knowledge, Jones, Byrd and Attkisson has no affiliation or business relationship
with Dutchess. Under a placement agent agreement, we agreed to pay Jones, Byrd
and Attkisson 1% of the gross proceeds from each put. The placement agent
agreement terminates when the investment agreement terminates pursuant to its
terms. Ronald Attkisson, one of the principals of Jones, Byrd and Attkisson,
is
formerly a director of Seawright Holdings.
The
following table sets forth our cash and capitalization as of June 30, 2007.
You should read the following table in conjunction with the section captioned
“Management’s Discussion and Analysis and Plan of Operation” and our audited
consolidated financial statements and unaudited interim consolidated financial
statements and the notes thereto included elsewhere in this
prospectus.
As
of June 30, 2007
|
|
|
|
|
|
Actual(1)
|
|
Cash
and cash equivalents
|
|
$
|
475
|
|
Short-Term
Liabilities(2)
|
|
$
|
1,024,772
|
|
Long-Term
Liabilities(3)
|
|
$
|
554,893
|
|
Stockholders
Equity (Deficiency)
|
|
$
|
403,026
|
|
Total
Capitalization(4)
|
|
$
|
1,982,691 |
|
________________
(1)
|
Certain
of the shares that are part of this offering have not yet been issued
by
us and are not reflected in this table.
|
(2)
|
Short-term
liabilities consist of current amounts due under notes payable as
well as
interest payable on long-term debt.
|
(3)
|
Long-term
liabilities consist of notes payable to various individuals and other
long-term liabilities.
|
(4)
|
Total
capitalization is stated by not including cash and cash
equivalents.
|
We
do not
pay dividends on our common stock and we do not anticipate paying dividends
on
our common stock in the foreseeable future. We intend to retain our future
earnings, if any, to finance the growth of our business.
The
following discussion contains forward-looking statements that are subject to
significant risks and uncertainties about us, our current and planned products,
our current and proposed marketing and sales, and our projected results of
operations. There are several important factors that could cause actual results
to differ materially from historical results and percentages and results
anticipated by the forward-looking statements. We have sought to identify the
most significant risks to our business, but we cannot predict whether or to
what
extent any of these risks may be realized nor can there be any assurance that
we
have identified all possible risks that might arise. See “Risk Factors” in this
prospectus. Investors should carefully consider all of these risks before making
an investment decision with respect to our stock. The following discussion
and
analysis should be read in conjunction with our financial statements and notes
thereto. This discussion should not be construed to imply that the results
discussed herein will necessarily continue into the future, or that any
conclusion reached herein will necessarily be indicative of actual operating
results in the future. Such discussion represents only the best present
assessment from our management.
Plan
of Operation
In
2003,
we purchased property containing a spring located in Mt. Sidney, Virginia in
the
Shenandoah Valley with the intention of developing a spring water distribution
business. The spring has a flow in excess of 1,000,000 gallons of water daily.
We
have
chosen to develop and acquire packaging for selling our water under the brand
names Seawright Springs and Quibell. We have developed two proprietary
Polyethylene Terephthalate, or PET, bottles in a 16.9 ounce size and a 33.8
ounce size. In addition, in June 2005 we acquired from Quibell, glass bottle
designs for various sized bottles (including 237 ml, 385 ml, 750 ml and 1 liter
sizes) as well as labels for various sized sparkling water bottles, spring
water
bottles and tea bottles (including 237 ml, 385 ml, 750 ml, 1 liter, 1.5 liter
and 16.9 ounce bottles).
We
are
positioning our water in an effort to compete in the luxury brand category
of
the water market. We expect to offer a non-sparkling brand and to begin selling
bottled water under the “Seawright Springs” brand name in the second quarter of
2006. We will also continue to seek opportunities to sell our daily supply
of
water to other bottlers.
In
May of
2005 and April of 2006, respectively, we purchased of two parcels of land
located approximately 10 miles south of the Mt. Sidney property. We are
considering leasing these properties for commercial purposes. See “Description
of Property” below.
The
further development of this business will require, among other things, further
capital expenditure on plant and equipment, developing marketing materials,
renting additional office space, and interviewing and hiring administrative,
marketing and maintenance personnel. While we have raised the capital necessary
to meet our working capital and financing needs in the past, the funds raised
the investment agreement related to this offering are required in order for
us
to meet our current and projected cash flow deficits from operations and
development.
For
the
period from our inception through June 30, 2007, we have:
|
· |
formed
our company and established our initial structure;
|
|
· |
sought
and pursued investment opportunities;
|
|
· |
reviewed
and analyzed the potential market for natural spring water;
|
|
· |
purchased
the Mt. Sidney property and procured the necessary financing to cover
the
initial purchase costs from an offering of preferred stock;
|
|
· |
purchased
two properties near the Mt. Sidney property which we are considering
leasing for commercial purposes;
|
|
· |
purchased
trademarks and other intellectual property relating to the creation
and
bottling of flavored and non-flavored bottled water;
|
|
· |
performed
required testing of water quality at spring site;
|
|
· |
began
developing a new web site as part of our marketing strategy;
and
|
|
· |
made
improvements to the spring site and water collection
facilities.
|
Product
Research and Development
We
do not
anticipate performing research and development for any products during the
next
twelve months.
Acquisition
or Disposition of Plant and Equipment
We
do not
anticipate the sale of any significant property, plant or equipment during
the
next twelve months. We have made improvements to plant and equipment at the
spring site, and we have spent approximately $250,000 to complete the renovation
of our spring catchment, which protects the water spring from outside elements.
Number
of Employees
As
of
June 30, 2007, we had one employee, our chief executive officer and president,
Joel Sens. We anticipate that the number of employees may increase in the
future. However, given our ability to contract out much of our required
services, it is not anticipated, based on the current business plan, that new
employees will be hired in the next twelve months. No formal contract for the
compensation of Mr. Sens exists as of June 30, 2007, but we may enter into
an
employment contract with him within the next twelve months.
Comparison
of Financial Results
Three
Months Ended June 30, 2007, versus Three Months Ended June 30,
2006
Revenues.
In the
three months ended June 30, 2007, $1,775 of revenue was generated from the
Mt.
Sidney spring from on site sales as compared to $1,010 of revenue for the
quarter ended June 30, 2006. We expect to increase our sales in future quarters
and will remain a development stage company until revenues increase
significantly.
Costs
and Expenses.
In the
quarter ended June 30, 2007 operating expenses were $975,050. These expenses
were related to the establishment of our spring water business, which includes
expenses for consulting and engineering services, testing and spring
maintenance, and to the administration and overhead of our business, which
includes accounting, legal and office expenses. This compared with operating
expenses in the quarter ended June 30, 2006 of $333,684. The increase in
expenses is due to the increased expenditures on the spring site operations
principally related to consulting and engineering.
We
have
incurred interest expenses of $386,595 and $90,755 for the quarters ended June
30, 2007 and 2006, respectively.
In
the
three and six-month periods ended June 30, 2007, on trading securities, we
recorded a gain of $456 and a net loss of $248, respectively.
As
of
June 30, 2007, the President of our company advance capital of $156,158 for
general working capital purposes.
Liquidity
and Capital Resources.
As of
June 30, 2007, we had a working capital deficit of $1,231,801, an available
cash
balance of $475, a marketable securities balance of $22,505 and cash in excess
of available funds, accounts payable and accrued liabilities balance, including
accrued interest on the convertible notes, of $170,909.
In
August
2004 we issued a private placement memorandum to offer up to 1,000 units of
equity/notes payable instruments. Each unit consisted of 2,500 shares of our
common stock, $1,500 of convertible promissory notes, and a warrant to purchase
300 shares of our common stock at $0.85 per share. The convertible promissory
notes accrue interest at 11% per annum, and are payable and due in September
2009. The note holders have the option to convert any unpaid note principal
and
accrued interest to our common stock at a rate of $0.85 per share anytime after
six months from the issuance date of the note. During the second quarter of
2007
most of the convertible notes payable were converted into shares of the
Company’s common stock, except for the remaining balance of $32,436. The
noteholders agreed to a conversion rate of one share of common stock for each
$0.60 of principal and unpaid interest accrued through the closing date plus
an
additional six months of interest at the rate of 11% per annum. The private
placement was closed in February of 2005. Over the course of our private
placement, we received total proceeds of $2,665,116, net of placement costs
and
fees, and issued to investors $1,498,500 of convertible promissory notes,
2,497,500 shares of common stock and 999 warrants, none of which have been
converted to common stock. Part of the proceeds of the private placement were
used to pay off the remaining debt on the Mt. Sidney property.
The
purchase of one of the two Staunton, Virginia properties mentioned above was
closed on May 24, 2005. The purchase price for that parcel was $725,000, of
which $225,000 was paid in cash. We are financing the remaining $500,000 of
the
purchase price over three years through a bank loan. We also completed the
purchase of the second Staunton, Virginia property on April 10, 2006. The
purchase price for the second property was $240,000, less a previously made
$10,000 refundable deposit. We paid $90,000 of the remaining purchase price
at
settlement and we have financed the remaining $140,000.
Our
accounts payable and accrued liabilities of $170,909 is composed predominantly
of liabilities to our consultants and vendors associated with the Mt. Sidney
spring, our accountants and lawyers and accrued interest on our convertible
notes payable.
In
order
to provide funding for operations and capital expenditures, on September 12,
2005, we entered into an investment agreement with Dutchess Private Equities
Fund, LP. The investment agreement establishes what is sometimes referred to
as
an “equity line of credit.” Under the investment agreement, Dutchess has agreed
to provide us with up to $5,000,000 during the 36-month period following the
date a registration statement of our common stock is declared effective by
the
Securities and Exchange Commission. During this 36-month period, we may request
a draw down under the equity line of credit by which we would sell shares of
our
common stock to Dutchess, which is obligated to purchase the shares under the
investment agreement, subject to certain conditions set forth therein. We may,
at our election, require Dutchess to purchase an amount equal to no more than
either (a) 200% of the average daily volume of our common stock for the 10
trading days prior to the put notice date, multiplied by the average of the
three daily closing bid prices immediately preceding the put notice date or
(b)
$100,000; provided that we may not request more than $1,000,000 in any single
put notice. On the trading day following the put notice date, a pricing period
of five trading days will begin. The purchase price for the common stock
identified in the put notice will be equal to 95% of the lowest closing best
bid
price of our common stock during the pricing period. We are under no obligation
to draw down under the equity line of credit.
On
November 20, 2006, a registration statement on Form SB-2 pertaining to the
Company’s common stock was declared effective by the Securities and Exchange
Commission. The registration statement related to the sale of shares of the
Company’s common stock by our stockholders. The Securities and Exchange
Commission limited the amount of shares of the Company’s common stock that the
Company could register pursuant to the investment agreement under the November
20, 2006 registration statement to 1,000,000 shares of the Company’s common
stock. Accordingly, the Company may obtain additional financing by registering
more common stock under the investment agreement.
During
December 2006, the Company entered into a promissory note with a face amount
of
$780,000. Under the terms of the note, the Company received $650,000 less
closing costs of $50,075, creating a calculated effective interest rate of
35%.
As a further incentive, we agreed to issue 250,000 shares of common stock to
Dutchess. The fair value of the shares, $127,500, was accounted for as a
deferred financing cost and is being amortized over the life of the note. As
detailed in the agreement, the Company shall make payments to the holder in
the
amount of the greater of (a) 100% of each Put (as defined in the investment
agreement) given to the investor from the Company or (b) made in 12 monthly
increments of $65,000. The agreement is collateralized by signed put notices
under the investment agreement, as well as a lien on the Company’s goods,
inventory, general intangibles, and all associated documents and chattel paper.
Moreover, Joel Sens, the President and Chief Executive Officer of the Company,
has pledged certain personal property. As of June 30, 2007 the promissory note
has been fully paid of and converted into common stock.
On
June
20, 2007, the Company executed a promissory note with Dutchess for $200,000
at
an interest rate of 12%. The Company shall make payments to the holder in the
amount of the greater of (a) $200,000 divided by the number of months remaining
from June 20, 2007 to December 20, 2007, or (b) 100% of the amount of money
realized upon each sale of the Company’s stock sold to Dutchess by the Company
pursuant to the investment agreement. The note is secured by a lien on all
of
the Company’s assets and has been guaranteed by Joel Sens, the President and
Chief Executive Officer of the Company.
Years
Ended December 31, 2006 and 2005
Revenues.
During
the year ended December 31, 2006 and 2005, we generated $3,304 and $2,524 in
revenue, respectively, from continuing operations. Prior to 2005, the Company
had generated no revenue from continuing operations.
Costs
and Expenses.
We
incurred operating expenses of $1,393,009 during the year ended December 31,
2006 as compared to $946,457 of expenses during the year ended December 31,
2005. Expenses for the year ended December 31, 2006 are composed principally
of
salary, legal and accounting fees, financing expense on our funding instruments,
and consulting fees associated with the acquisition of land.
During
the year ended December 31, 2006 and 2005, we incurred realized net losses
of
$1,570 and $54,592, respectively, from our trading of marketable securities.
Liquidity
and Capital Resources.
As of
December 31, 2006, we had a working capital deficit of $1,355,680 an available
cash balance of $2,986, a marketable securities balance of $17,993 and an
accounts payable and accrued liabilities balance, including accrued interest
on
the convertible notes, of $452,418.
Years
Ended December 31, 2005 and 2004
Revenues.
During
the year ended December 31, 2005, we generated $2,524 in revenues from
continuing operations. Prior to 2005, the Company had generated no revenue
from
continuing operations.
Costs
and Expenses.
We
incurred operating expenses of $946,457 during the year ended December 31,
2005
as compared to $198,506 of expenses during the year ended December 31, 2004.
Expenses for the year ended December 31, 2005 are composed principally of
salary, legal and accounting fees, financing expense on our funding instruments,
and consulting fees associated with the acquisition of land. Our other expenses
increased by $39,172 from 2004 to 2005 primarily due to interest expense
attributable to our private placement.
During
the year ended December 31, 2005, we incurred a loss of $54,592 from our trading
of marketable securities. During the year ended December 31, 2004, we recorded
gain of $93,518.
Liquidity
and Capital Resources.
As of
December 31, 2005, we had a working capital deficit of $85,809, an available
cash balance of $130,857, a marketable securities balance of $138,910 and an
accounts payable and accrued liabilities balance, including accrued interest
on
the notes, of $120,445.
Years
Ended December 31, 2004 and 2003
Revenues.
The
Company had generated no revenue from continuing operations in either 2004
or
2003.
Costs
and Expenses.
We
incurred operating expenses of $198,506 during the year ended December 31,
2004
as compared to $224,604 of expenses in during the year ended December 31, 2003.
Expenses for the year ended December 31, 2004 are composed principally of
salary, legal and accounting fees, financing expense on our funding instruments,
and consulting fees associated with the acquisition of land. Our interest
expense increased by $107,861 from 2003 to 2004 primarily due to interest
expense attributable to our private placement.
During
the year ended December 31, 2004, we recorded a gain of $93,518 from our trading
of marketable securities. During the year ended December 31, 2003, we recorded
no gain or loss on the trading of marketable securities.
Liquidity
and Capital Resources.
As of
December 31, 2004, we had working capital of $1,537,251, an available cash
balance of $190,419, a marketable securities balance of $1,556,405 and an
accounts payable and accrued liabilities balance, including interest on notes,
of $75,273. As of December 31, 2003, we had a working capital deficit of
$710,171, an overdraft on our cash balance account of $24,688 and an accounts
payable and accrued liabilities balance, including accrued interest on the
notes, of approximately $148,547.
Acquisition
of Land and Spring
For
a
full description of the October 2003 acquisition of our Mt. Sidney property
and
the May 2005 and April 2006 acquisition of two additional properties 10 miles
south of the Mt. Sidney property, see “Description of Property”
below.
Future
Funding Requirements and Going Concern
While
we
have raised the capital necessary to meet our working capital and financing
needs in the past, additional financing is required in order to meet our current
and projected cash flow deficits from operations and development. Within the
next year, funds will be needed to meet our obligations related to the financing
of the purchases of the Staunton, Virginia properties and to fund improvements
to our spring site and to fund our initial operations.
We
intend
to generate these funds primarily from our Equity Line of Credit. We believe
that proceeds from the Equity Line of Credit will allow us to cover our capital
and operating expenses over the next year.
If
during
that period or thereafter, we are not successful in generating sufficient
liquidity from operations or in raising sufficient capital resources on terms
acceptable to us, this could have a material adverse effect on our business,
results of operations, liquidity and financial condition.
Our
independent certified public accountants have stated in their report included
herein that we have incurred operating losses since our inception and that
this
factor raises substantial doubt about our ability to continue as a going
concern.
Off-Balance
Sheet Arrangements
We
have
not had, and at June 30, 2007 do not have, any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources
that
is material to investors.
Critical
Accounting Policies
The
preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires us to
make estimates and judgments that affect our reported assets, liabilities,
revenues, and expenses, and the disclosure of contingent assets and liabilities.
We base our estimates and judgments on historical experience and on various
other assumptions we believe to be reasonable under the circumstances. Future
events, however, may differ markedly from our current expectations and
assumptions. While there are a number of significant accounting policies
affecting our consolidated financial statements; we believe the following
critical accounting policies involve the most complex, difficult and subjective
estimates and judgments:
|
·
|
stock-based
compensation; and
|
|
|
|
|
·
|
revenue
recognition.
|
Stock-Based
Compensation
On
January 1, 2006, the Company adopted the provisions of Statement of Financial
Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment,” which
requires the measurement and recognition of compensation expense for all
stock-based awards made to employees based on estimated fair values.
SFAS No. 123(R) supersedes previous accounting under Accounting
Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
Employees” for periods beginning in fiscal 2006. In March 2005, the SEC issued
Staff Accounting Bulletin (“SAB”) No. 107, providing supplemental
implementation guidance for SFAS 123(R). The Company has applied the
provisions of SAB No. 107 in its adoption of
SFAS No. 123(R).
SFAS No. 123(R)
requires companies to estimate the fair value of stock-based awards on the
date
of grant using an option pricing model. The value of the portion of the award
that is ultimately expected to vest is recognized as expense over the requisite
service periods. The Company adopted SFAS No. 123(R) using the
modified prospective application, which requires the application of the standard
starting from January 1, 2006, the first day of the Company’s year. The
Company’s consolidated financial statements for the year ended December 31,
2006, reflect the impact of SFAS No. 123(R).
Prior
to
the adoption of SFAS No. 123(R), the Company accounted for stock-based
awards to employees using the intrinsic value method in accordance with APB
No. 25, as allowed under SFAS No. 123, “Accounting for
Stock-Based Compensation.” Under the intrinsic value method, no stock-based
compensation expense for employee stock options had been recognized in the
Company’s consolidated statements of operations because the exercise price of
the Company’s stock options granted to employees equaled the fair market value
of the underlying stock at the date of grant. In accordance with the modified
prospective transition method the Company used in adopting
SFAS No. 123(R), the Company’s results of operations prior to fiscal
2006 have not been restated to reflect, and do not include, the impact of
SFAS No. 123(R).
Stock-based
compensation expense recognized during a period is based on the value of the
portion of stock-based awards that is ultimately expected to vest during the
period.
Stock-based
compensation expense is measured using a multiple point Black-Scholes option
pricing model that takes into account highly subjective and complex assumptions.
The expected life of options granted is derived from the vesting period of
the
award, as well as historical exercise behavior, and represents the period of
time that options granted are expected to be outstanding. Expected volatilities
are based on a blend of historical volatility and implied volatility derived
from publicly traded options to purchase the Company’s common stock, which the
Company believes is more reflective of the market conditions and a better
indicator of expected volatility than solely using historical volatility. The
risk-free interest rate is the implied yield currently available on
U.S. Treasury zero-coupon issues with a remaining term equal to the
expected life of the option. There were no employee options granted during
2006
or 2005, and all employee options granted prior to 2005 had fully vested by
January 1, 2005.
Stock-based
compensation expense related to 75,000 stock options issued to consultants
for
services rendered as recognized under SFAS No. 123(R) totaled $38,490
for the year ended December 31, 2006. As of December 31, 2006, all stock options
outstanding issued to consultants were fully vested.
Revenue
Recognition
For
revenue from product sales, the Company recognizes revenue in accordance with
Staff Accounting Bulletin No. 104, Revenue
Recognition
(“SAB104”), which superseded Staff Accounting Bulletin No. 101,
Revenue
Recognition in Financial Statements
(“SAB101”). SAB 101 requires that four basic criteria must be met before revenue
can be recognized: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred; (3) the selling price is fixed and determinable; and
(4)
collectibility is reasonably assured. Determination of criteria (3) and (4)
are
based on management’s judgments regarding the fixed nature of the selling prices
of the products delivered and the collectibility of those amounts. Provisions
for discounts and rebates to customers, estimated returns and allowances, and
other adjustments are provided for in the same period the related sales are
recorded. The Company defers any revenue for which the product has not been
delivered or is subject to refund until such time that the Company and the
customer jointly determine that the product has been delivered or no refund
will
be required. SAB 104 incorporates Emerging Issues Task Force 00-21 (“EITF
00-21”), Multiple-Deliverable
Revenue Arrangements. EITF
00-21 addresses accounting for arrangements that may involve the delivery or
performance of multiple products, services and/or rights to use
assets.
Recent
Accounting Pronouncements
On
February 16, 2006 the FASB issued SFAS 155, “Accounting for Certain Hybrid
Instruments,” which amends SFAS 133, “Accounting for Derivative Instruments and
Hedging Activities,” and SFAS 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities.” SFAS 155 allows financial
instruments that have embedded derivatives to be accounted for as a whole
(eliminating the need to bifurcate the derivative from its host) if the holder
elects to account for the whole instrument on a fair value basis. SFAS 155
also
clarifies and amends certain other provisions of SFAS 133 and SFAS 140. This
statement is effective for all financial instruments acquired or issued in
fiscal years beginning after September 15, 2006. The Company does not
expect its adoption of this new standard to have a material impact on its
financial position, results of operations or cash flows.
In
July
2006, the FASB issued FASB Interpretation No. 48 (FIN 48), “Accounting for
Uncertainty in Income Taxes—an interpretation of FASB Statement 109”, which
provides guidance on the measurement, recognition, and disclosure of tax
positions taken or expected to be taken in a tax return. The interpretation
also
provides guidance on derecognition, classification, interest and penalties,
and
disclosure. FIN 48 prescribes that a tax position should only be recognized
if
it is more-likely-than-not that the position will be sustained upon examination
by the appropriate taxing authority. A tax position that meets this threshold
is
measured as the largest amount of benefit that is greater than 50 percent likely
of being realized upon ultimate settlement. The cumulative effect of applying
FIN 48 is to be reported as an adjustment to the beginning balance of retained
earnings in the period of adoption. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The company is assessing the impact, if
any, that the adoption may have on its financial statements.
In
March
2006, the FASB issued FASB Statement No. 156, Accounting for Servicing of
Financial Assets - an amendment to FASB Statement No. 140. Statement 156
requires that an entity recognize a servicing asset or servicing liability
each
time it undertakes an obligation to service a financial asset by entering into
a
service contract under certain situations. The new standard is effective for
fiscal years beginning after September 15, 2006. The Company does not
expect its adoption of this new standard to have a material impact on its
financial position, results of operations or cash flows.
In
September 2006, the FASB issued SFAS 157, Fair
Value Measurements,
which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (“GAAP”), and expands disclosures about
fair value measurements. The Company will be required to adopt SFAS 157
effective for the fiscal year beginning January 1, 2008. The requirements
of SFAS 157 will be applied prospectively except for certain derivative
instruments that would be adjusted through the opening balance of retained
earnings in the period of adoption. The Company is currently evaluating the
impact of the adoption of SFAS 157 on the Company’s consolidated financial
statements and the management believes that the adoption of SFAS 157 will not
have a significant impact on its consolidated results of operations or financial
position.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
158, Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans - an
amendment of FASB Statements No. 87, 88, 106, and 132R
(‘SFAS
158’). SFAS 158 changes current practice by requiring employers to
recognize the overfunded or underfunded positions of defined benefit
postretirement plans, including pension plans, on the balance sheet. The
funded status is defined as the difference between the projected benefit
obligation and the fair value of plan assets. SFAS 158 also requires
employers to recognize the change in funded status in other comprehensive income
(a component of shareholders’ equity). SFAS 158 does not change the
requirements for the measurement and recognition of pension expense in the
statement of income. SFAS 158 is effective for fiscal years ending after
December 15, 2006. The Company does not anticipate any material impact to
its financial condition or results of operations as a result of the adoption
of
SFAS 158.
In
September 2006, the Securities and Exchange Commission (the “SEC”) released
Staff Accounting Bulletin No. 108 (“SAB 108”), which provides detail in the
quantification and correction of financial statement misstatements. SAB 108
specifies that companies should apply a combination of the “rollover” and “iron
curtain” methodologies when making determinations of materiality. The rollover
method quantifies a misstatement based on the amount of the error originating
in
the current year income statement. The iron curtain approach quantifies
misstatements based on the effects of correcting the misstatement existing
in
the balance sheet at the end of the current year, regardless of the year(s)
of
origination. SAB 108 instructs companies to quantify the misstatement under
both
methodologies and, if either method results in the determination of a material
error, the Company must adjust its financial statements to correct the error.
SAB 108 also reminds preparers that a change from an accounting principle that
is not generally accepted to a principle that is generally accepted is a
correction of an error. The Bulletin is effective for annual financial
statements covering the first fiscal year ending after November 15, 2006.
The adoption of this Bulletin did not have a material effect on the Company’s
financial condition or results of operations.
In
September 2006, the FASB ratified the consensus reached by the EITF on Issue
No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit
Aspects of Endorsement Split-Dollar Life Insurance Arrangements.” EITF 06-4
requires the recognition of a liability and related compensation costs for
endorsement split-dollar life insurance policies that provide a benefit to
an
employee that extends to postretirement periods as defined in SFAS No. 106,
“ Employers’ Accounting for Postretirement Benefits Other Than Pensions.” The
EITF reached a consensus that “Company Owned Life Insurance” policies purchased
for this purpose do not effectively settle the entity’s obligation to the
employee in this regard, and thus the entity must record compensation cost
and a
related liability. Entities should recognize the effects of applying this Issue
through either, (a) a change in accounting principle through a
cumulative-effect adjustment to retained earnings or to other components of
equity or net assets in the balance sheet as of the beginning of the year of
adoption, or (b) a change in accounting principle through retrospective
application to all prior periods. This Issue is effective for fiscal years
beginning after December 15, 2007. The Company is assessing the impact, if
any, that adoption may have on its financial statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS
159
permits entities to choose to measure many financial instruments, and certain
other items, at fair value. SFAS
159
applies to reporting periods beginning after November 15, 2007. The adoption
of
SFAS 159 is not expected to have a material impact on the Company’s financial
condition or results of operations.
Trends,
Risks and Uncertainties
We
have
sought to identify what we believe to be the most significant risks to our
business in “Risk Factors” above, but cannot predict whether or to what extent
any of such risks may be realized nor can there be any assurances that we have
identified all possible risks that might arise. Investors should carefully
consider all of these risk factors before making an investment decision with
respect to our stock.
Introduction
We
incorporated under the laws of the State of Delaware on October 14, 1999,
originally under the name Pre-Settlement Funding Corporation. In September
2003,
we changed our name to Seawright Holdings, Inc. Seawright Springs, LLC is a
wholly owned subsidiary of Seawright Holdings, Inc. and holds title to the
Mt.
Sidney property described below.
Discontinued
Operations
As
a
result of our acquisition of real property and improvements in October 2003,
we
restructured our operations to focus on the development of a spring water
distribution business. This restructuring included discontinuing our previous
practice of financing plaintiffs who are involved in personal injury
claims.
Overview
Business
and Basis of Presentation
From
our
inception through the date of this prospectus, we have recognized limited
revenues and incurred significant operating expenses. Consequently, our
operations are subject to all risks inherent in the establishment of a new
business enterprise. For the period from inception through June 30, 2007, we
have accumulated losses of $5,900,003.
In
October 2003, we acquired property that generates natural spring water. Through
the acquisition of this property, we intend to enter the business of producing
and selling spring water in Mt. Sidney, Virginia, which is located in the
Shenandoah Valley. The property has a natural flow of spring water in excess
of
1,000,000 gallons of water daily.
The
main
focus of our current operations is the establishment of a business that produces
and sells spring water from our Mt. Sidney property, although we may pursue
other business opportunities that we deem appropriate.
In
May
2005 and April 2006, respectively, we acquired two parcels of land located
approximately 10 miles south of our Mt. Sidney property. We are considering
leasing these properties for commercial purposes. See “Description of Property”
below.
Business
Strategy
Our
strategy is to focus on selling natural spring water under the “Seawright
Springs” label while aggressively pursuing the bulk sale of natural spring water
produced on our Mt. Sidney property.
In
addition to our own brand, we expect to also continue to seek opportunities
to
sell our daily supply of water to other bottlers. We may enter into co-packing
arrangements, where other bottlers bottle our water under our name, or private
labeling agreements, where our water is bottled under another company’s name.
Selling our water under private labeling agreements will allow us to sell our
water without incurring the high costs of advertising required to establish
brand recognition and market identity.
We
currently do not have our own bottling and packaging facilities and we intend
to
have outside providers bottle and package our brand of water.
We
have
installed an updated bulk water loading facility at the Mt. Sidney spring site.
Now, private labeled bottlers will be able to load water at our spring site
and
transport it to their bottling and packaging facilities.
Bottled
Water Market Overview
Demand
for bottled water has grown significantly in recent years, and in particular
demand for products that contain spring water. In 2005, total U.S. bottled
water
volume surpassed 7.5 billion gallons, which was a 10.7% advance over 2004's
volume level and bottled water remains the fastest growing major beverage
segment. In 2005, bottled water category continues as the second largest
commercial beverage in the United States.
U.S.
BOTTLED WATER MARKET
Volume
and Producer Revenues
2001-2005
|
|
Millions
of
|
|
Annual
|
|
Millions
of
|
|
Annual
|
|
Year
|
|
Gallons
|
|
%
Change
|
|
Dollars
|
|
%
Change
|
|
2001
|
|
|
5,185.2
|
|
|
9.7
|
%
|
$
|
6,880.6
|
|
|
12.6
|
%
|
2002
|
|
|
5,795.7
|
|
|
11.8
|
%
|
$
|
7,901.4
|
|
|
14.8
|
%
|
2003
|
|
|
6,269.8
|
|
|
8.2
|
%
|
$
|
8,526.4
|
|
|
7.9
|
%
|
2004
|
|
|
6,806.7
|
|
|
8.6
|
%
|
$
|
9,169.4
|
|
|
7.5
|
%
|
2005
|
|
|
7,537.1
|
|
|
10.7
|
%
|
$
|
10,012.5
|
|
|
9.2
|
%
|
Source:
Beverage Marketing Corporation
During
the five-year period from 2001 to 2005, bottled water volume increased by an
average growth rate of 9.8%, which growth rate exceeded the growth rates of
all
other beverage categories.
Per
capita consumption of bottled water has been growing by at least one gallon
annually. In 2005, the per capita consumption of water in the United States
increased 9.6% from 2004’s rate, which means annual bottled water consumption by
U.S. residents is second only to carbonated soft drinks.
U.S.
BOTTLED WATER MARKET
Per
Capita Consumption
2001
- 2005
|
|
Gallons
|
|
Annual
|
|
Year
|
|
Per
Capita
|
|
%
Change
|
|
2001
|
|
|
18.8
|
|
|
8.7
|
%
|
2002
|
|
|
20.9
|
|
|
10.7
|
%
|
2003
|
|
|
22.4
|
|
|
7.3
|
%
|
2004
|
|
|
24.0
|
|
|
7.6
|
%
|
2005
|
|
|
26.1
|
|
|
9.6
|
%
|
Source:
Beverage Marketing Corporation
The
bottled water market comprises three major segments: still or non-sparkling,
sparkling, and imported water, which includes both non-sparkling and sparkling
segments. Our spring water may be used in both sparkling and non-sparkling
applications.
Similarly,
the Beverage Marketing Corporation categorizes water into three main
categories.
*
Non-sparkling or still water, which contains no carbonation and is consumed
as
an "alternative to tap water."
*
Sparkling water, which contains either natural or artificial carbonation and
is
positioned to compete in the broad "refreshment beverage" field.
*
Imported water, which includes both sparkling and non-sparkling water produced
and bottled outside the U.S., and which is targeted to "image-conscious
consumers."
U.S.
BOTTLED WATER MARKET
Volume
& Growth by Segment
2001
- 2005
|
|
Non-Sparkling
|
|
Domestic
Sparkling
|
|
Imports
|
|
Total
|
|
Year
|
|
Volume*
|
|
Change
|
|
Volume*
|
|
Change
|
|
Volume*
|
|
Change
|
|
Volume*
|
|
Change
|
|
2001
|
|
|
4,917.3
|
|
|
10.7
|
%
|
|
144.0
|
|
|
-0.1
|
%
|
|
123.9
|
|
|
-10.1
|
%
|
|
5,185.2
|
|
|
9.7
|
%
|
2002
|
|
|
5,487.5
|
|
|
11.6
|
%
|
|
149.5
|
|
|
3.8
|
%
|
|
158.7
|
|
|
28.1
|
%
|
|
5,795.7
|
|
|
11.8
|
%
|
2003
|
|
|
5,923.9
|
|
|
8.0
|
%
|
|
152.6
|
|
|
2.1
|
%
|
|
193.3
|
|
|
21.8
|
%
|
|
6,269.8
|
|
|
8.2
|
%
|
2004
|
|
|
6,411.3
|
|
|
8.2
|
%
|
|
166.8
|
|
|
9.3
|
%
|
|
228.6
|
|
|
18.3
|
%
|
|
6,806.7
|
|
|
8.6
|
%
|
2005
|
|
|
7,169.5
|
|
|
11.8
|
%
|
|
185.0
|
|
|
10.9
|
%
|
|
182.7
|
|
|
-20.1
|
%
|
|
7,537.1
|
|
|
10.7
|
%
|
*
Millions of gallons
|
|
Source:
Beverage Marketing
Corporation
|
Non-sparkling
water (still water) remains the largest segment of bottled water, with 11.8%
and
8.2% growth in that area in 2005 and 2004, respectively.
The
bottled still water business, which will represent our most significant product
area, has been consistently growing at rates between 8.0% and 11.8% per annum
since 2001 according to the Beverage Marketing Corporation. Still water now
comprises over 95% of all of the bottled water gallonage sold in the United
States.
Geographic
Markets and Distribution Channels
Bottled
water is sold through various channels, including:
|
·
|
Home
Delivery (1 to 5 gallon bottles)
|
|
|
|
|
·
|
Commercial
and Office Delivery (1 to 5 gallon bottles)
|
|
|
|
|
·
|
Off
Premise Retail (supermarkets, convenience store, and drug
store)
|
|
·
|
On-Premise
Retail (restaurants)
|
|
|
|
|
·
|
Vending
Machines
|
|
|
|
|
· |
Institutional
Usage (hospitals, schools) |
|
|
|
|
· |
Bulk
Sales (Domestic and International sales of potable
water)
|
Bottled
Water Classifications and Definitions
The
Company’s water qualifies as natural spring water and is a mineral water
containing 300 parts per million (ppm) total dissolved solids (TDS). The various
classifications of water are contained in the paragraphs that
follow.
Bottled
water or drinking water is water that is intended for human consumption and
that
is sealed in bottles or other containers with no added ingredients except that
it may optionally contain safe and suitable anti-microbial agents. Fluoride
may
be optionally added within the limitations established by the U.S. Food and
Drug
Administration ("FDA"). Firms may manufacture non-standardized bottled water
products with ingredients such as minerals for flavor. The common or usual
name
of the resultant product must reflect these additions. Bottled water or drinking
water may be used as an ingredient in beverages (e.g., diluted juices or
flavored bottled waters). It does not include those food ingredients that are
declared in ingredient labeling as "water", "carbonated water," "disinfected
water," "filtered water," "seltzer water," "soda water," "sparkling water,"
and
"tonic water."
Natural
water is bottled spring, mineral, artesian, or well water which is derived
from
an underground formation or water from surface water that only requires minimal
processing. Natural water is not derived from a municipal system or public
water
supply, and is unmodified except for limited treatment (e.g., filtration,
ozonation or equivalent disinfection process).
Spring
water is water derived from an underground formation from which water flows
naturally to the surface of the earth. Spring water must comply with the FDA
standard of identity. Spring water must be collected only at the spring or
through a borehole tapping the underground formation feeding the spring. There
must be a natural force causing the water to flow to the surface through a
natural orifice. The location of the spring must be identified and such
identification must be maintained in a company's records. Spring water collected
with the use of an external force must be from the same underground striation
as
the spring, as shown by a measurable hydraulic connection using a
hydro-geologically valid method between the bore hole and the natural spring,
and must have all the physical properties, before treatment, and be of the
same
composition and quality, as the water that flows naturally to the surface of
the
earth. If spring water is collected with the use of an external force, water
must continue to flow naturally to the surface of the earth through the spring's
natural orifice.
Mineral
water is water containing not less than 250 parts per million (ppm) total
dissolved solids (TDS), coming from a source tapped at one or more boreholes
or
springs, originating from a geologically and physically protected underground
water source. Mineral water shall be distinguished from other types of water
by
its constant level and relative proportions of minerals and trace elements
at
the point of emergence from the source, due account being taken of the cycles
of
natural fluctuations. No minerals may be added to this water.
Sparkling
bottled water is bottled water that, after treatment and possible replacement
of
carbon dioxide, contains the same amount of carbon dioxide that it had at the
emergence from the source. Manufacturers may add carbonation to previously
non-carbonated bottled water products and label such water appropriately (e.g.,
sparkling spring water).
Well
water or "Artesian" water is bottled water from a well tapping a confined
aquifer in which the water level stands at some height above the top of the
aquifer. Artesian water may be collected with the assistance of external force
to enhance the natural underground pressure.
Ground
water is water from a subsurface saturated zone that is under a pressure equal
to or greater than atmospheric pressure. Ground water must not be under the
direct influence of surface water.
Purified
water is bottled water produced by distillation, de-ionization, reverse osmosis,
or other suitable process and that meets the definition of purified
water.
Government
Regulation of Bottled Water
Prior
to
1996, bottled water was regulated in the same fashion as municipal water.
Municipal water is regulated not as a food by the FDA, but as a commodity by
the
Environmental Protection Agency ("EPA") pursuant to the Safe Drinking Water
Act
of 1974 ("SDWA"), which only provided for certain mineral/chemical content
requirements so as to ensure water safety, not product definition.
In
1996,
the United States enacted statutes and regulations to regulate bottled water
as
a food. Accordingly, the Company's water must meet FDA standards for
manufacturing practices and chemical and biological purity. Furthermore, these
standards undergo a continuous process of revision. The labels affixed to
bottles and other packaging of the water is subject to FDA restrictions on
health and nutritional claims for foods.
As
of
1996, bottled water is fully regulated as a food by the FDA under the Federal
Food, Drug, and Cosmetic Act, which defines food as "articles used for food
or
drink for man or other animals." This includes packaged (bottled) water sold
in
containers at retail outlets as well as containers distributed to the home
and
office market. This legislation was designed to ensure that bottled water
companies clearly and accurately define the type of water that was being bottled
and sold to the public. The FDA adopted the basic mineral/chemical guidelines
employed by the EPA, while making some aspects more stringent.
In
addition, all drinking water must meet EPA standards established under the
SDWA
for mineral and chemical concentration. The 1986 amendments to the SDWA mandated
the establishment of new drinking water quality and treatment regulations.
Most
municipalities meet or exceed EPA drinking water regulations, many of that
reflect recent public awareness of the issue of contaminated water-For example,
EPA standards for lead in drinking water did not exist prior to 1986, when
50
ppb (parts per billion) was established. This standard was lowered to 15 ppb
in
1991, because after five years the government still found 130 million people
exposed to unacceptable lead levels.
The
United States government also enacted Safe Drinking Water Reauthorization Act
of
1996. This law requires all local water utilities to issue annual reports to
their consumers disclosing all chemicals and bacteria in their
water.
Bottled
water is also subject to state and local regulation. Bottled water must
originate from an "approved source" in accordance with standards prescribed
by
the state health department in each of the states in which our products will
be
sold. The source must be inspected and the water sampled, analyzed and found
to
be of safe and wholesome quality. There are annual "compliance monitoring tests"
of both the source and the bottled water. The health departments of the
individual states also govern water purity and safety, labeling of bottled
water
products and manufacturing practices of producers. Our Mt. Sidney property
has
been inspected and approved by the Virginia Department of Agriculture as a
source of spring water. We are also required to make certain disclosures and
disclaimers on our labels.
Compliance
with these various regulations has not had, and we do not expect such compliance
to have, any material adverse effect on our capital expenditures, net income
or
competitive position.
Competition
The
beverage industry, and in particular the bottled water industry, is extremely
competitive and seasonal. The leaders in the U.S. bottled water business, based
on total estimated sales (at wholesale), according to the Beverage Marketing
Corporation, are Aquafina, Dasani, Poland Spring, Arrowhead, Sparkletts, Deer
Park and Crystal Geyser. Depending upon the method of entry and plan of action
a
particular company chooses to employ, it can be very costly to penetrate this
market and expand. Our initial focus on the bulk sale of spring water is a
relatively low cost plan of action.
Marketing
Objectives and Advertising Strategy
Our
initial marketing strategy is targeted primarily to build awareness of our
natural spring water among private label bottlers and to develop our own labeled
product for sale. We have recently acquired, and are presently developing,
packaging for selling our water under the name “Seawright Springs” and are
positioning our water in an effort to compete in the luxury brand category
of
the water market. See “Management’s Discussion and Analysis and Plan of
Operation—Plan of Operation” in this prospectus.
Intellectual
Property
In
June
2005, we purchased intellectual property from Quibell Partners, L.L.C. relating
to the creation and bottling of flavored and non-flavored bottled water,
including, but not limited to, the following:
|
· |
certain
trademarks, service marks, trade names, service names and
logos;
|
|
· |
various
glass bottle designs;
|
|
· |
bottle
label designs and artwork for water bottle carrypacks;
|
|
· |
formulas
for flavored sparkling water and for teas; and
|
|
· |
web
site coding.
|
We
expect
that this acquisition will assist us in establishing and growing market share
in
the bottled water and tea market. We also own the domain name www.seawrightsprings.com.
Research
and Development
We
did
not incur any research and development expenses in the last two
years.
Employees
As
of
June 30, 2007, Mr. Sens served as our sole employee as well as in the capacity
as our sole officer - chief executive officer, president, secretary and
treasurer. We anticipate that the number of employees will increase in the
future. No formal contract for the compensation of Mr. Sens existed as of June
30, 2007, but it is anticipated that Mr. Sens will receive an annual salary
of
$180,000 for the year ending December 31, 2007.
Our
principal executive offices are located at 600 Cameron Street, Alexandria,
Virginia 22314. We lease these facilities on a month-to-month basis at a cost
of
$192 per month. We believe these facilities are suitable for our current
needs.
In
October 2003, we acquired land and a spring located in Mt. Sidney, Virginia
for
$1,000,000 and a $50,000 assignment fee. Stafford Street Capital LLC, a business
entirely owned by our principal stockholder, our chief executive officer and
director, Joel Sens, contracted to purchase the property in June 2003 and
assigned all its interests in the contract in October 2003 to Seawright Springs
LLC, our wholly owned subsidiary. At the closing of the property acquisition,
$300,000 was paid in cash, and $700,000 became subject to a promissory note
carrying an interest rate of 6% per annum. The note was paid off early, in
the
first quarter of 2005. On June 8, 2006, we obtained a $350,000 interest-only
mortgage loan on the Mt. Sidney property. The loan matures in six months, bears
interest at a fixed rate of 15.00% per annum, requires monthly installments
of
interest throughout its term with a balloon payment, equal to the principal
balance of the loan, due on December 8, 2006. We have an option to extend the
loan by a period of six months by payment of a fee equal to 3.00% of the
principal balance of the loan. On October 5, 2006, we executed a Modification
Agreement to Mt. Sidney mortgage in order to increase the outstanding principal
balance of the existing mortgage loan by $165,000, to the aggregate principal
sum of $515,000. On February 1, 2007 we executed an additional Modification
Agreement to Mt. Sidney mortgage in order to increase the outstanding principal
balance of the existing mortgage loan by $130,000, to the aggregate principal
sum of $645,000.
The
Mt.
Sidney property is insured under a general liability policy in the amount of
$1,000,000.
In
December 2004, we entered into agreements to acquire two parcels of land located
approximately 10 miles south of our Mt. Sidney property. The properties are
located in the city of Staunton, Virginia. We closed the purchase of the larger
parcel, which is a 33.52 acre site, on May 24, 2005. The purchase price for
that
parcel was $725,000, of which $225,000 was paid in cash at closing. The
remaining $500,000 of the purchase price was secured by a note on which we
were
obligated to pay interest at a rate of 8% per annum, payable semiannually,
the
first payment of interest was due and paid on November 11, 2005. During June
2006, we obtained a 9.375%, $525,000 loan to refinance the aforementioned loan
which is secured by the property. Under the terms of the new agreement, 35
regular installments of $4,592 each and one balloon payment equal to the
remaining principal balance of the loan, accrued interest and other applicable
fees, costs and charges is due in June, 2009. The 33.52 acre property is insured
under a general liability policy in the amount of $1,000,000.
We
closed
the purchase of the smaller parcel, which is a 3.46 acre site, on April 10,
2006. We paid a refundable $10,000 deposit on this acre site in April 2005
and
made a $90,000 payment at closing. The remaining $140,000 will initially be
owner-financed. The 3.46 acre property is insured under a general liability
policy in the amount of $1,000,000.
Although
no assurances can be given, both sites are expected to be re-zoned to commercial
use from general agriculture use according to the master zoning plan of the
city
of Staunton, Virginia. In the future, we may lease these properties for
commercial purposes.
Directors,
Executive Officers, Promoters and Control Persons
The
names, ages, and respective positions of our directors, executive officers,
and
key employees are set forth below. There are no other promoters or control
persons. The directors named below will serve until our next annual stockholders
meeting or until their successors are duly elected and have qualified. Directors
are elected for a one-year term at the annual stockholders’ meeting. Officers
hold their positions at the will of the board of directors, absent any
employment agreement.
Name
|
|
Age
|
|
Position(s)
|
Joel
P. Sens
|
|
42
|
|
Chief
Executive Officer, President, Treasurer, Secretary and
Director
|
|
|
|
|
|
Jeffrey
Sens
|
|
42
|
|
Director
|
Biographies
of Executive Officers and Directors
Joel
Sens, Chief Executive Officer, President, Treasurer and
Secretary/Director
Mr.
Joel
Sens is the current chief executive officer, president, treasurer and secretary
and has served in those positions since 2004. Mr. Sens has also been a director
since our inception. Mr. Sens is an entrepreneur who was a founder of Next
Generation Media Corp., a publicly held media holding company, in March 1997.
From January 1994 through March 1997, Mr. Sens acted as a consultant
specializing in barter transactions and engaged in financial transactions
involving the purchase and sale of newspaper companies, radio stations, and
barter companies.
Jeffrey
Sens, Director
Mr.
Jeffrey Sens previously served as a director from October 1999 to 2004 and
became a director again in January 2005. He currently holds a senior operations
position in the FedEx Ground Division of FedEx Corp, which he has held since
2001. From 1997 to 2001, Jeffrey Sens was vice president of Operations for
Top
Driver Inc., a national driver training products and services company that
partners with Ford Motor Company. Prior to joining Top Driver Inc., Jeffrey
Sens
held a variety of senior operations management positions with prominent consumer
product companies such as Sara Lee Corp. (1995-1997) and President International
Corp. (1992-1995). Jeffrey Sens has a Bachelor of Science in Industrial
Engineering from the University of Toledo and an MBA from Clemson University.
Jeffrey Sens is the brother of Joel Sens.
Committees
of the Board of Directors
We
presently do not have any active committees.
Compensation
of Directors
Each
director is compensated at an annual rate of $7,500, paid quarterly, and is
reimbursed for reasonable travel and other out-of-pocket expenses incurred
in
attending meetings of the board.
Limitations
on Officer and Director Liability
Section
145 of the Delaware General Corporation Law authorizes a corporation to
indemnify directors, officers, employees or agents of the corporation if the
person acted in good faith and in a manner he reasonably believed to be in
or
not opposed to the best interest of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe his conduct was
unlawful, as determined in accordance with the Delaware General Corporation
Law.
Section 145 of the Delaware General Corporation Law further provides that
indemnification shall be provided with respect to reimbursement of expenses
incurred in defending any action, suit or proceeding if the party in question
is
successful on the merits or otherwise.
Our
certificate of incorporation limits the liability of our directors to us or
to
our stockholders for monetary damages for breach of fiduciary duty as a
director, except in the case of:
|
· |
liability
based on a breach of the duty of loyalty to us or our stockholders;
|
|
· |
liability
for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of the law;
|
|
· |
liability
based under Section 174 of Title 8 of the Delaware General Corporation
Law; or
|
|
· |
liability
for transactions from which the director derived an improper personal
benefit.
|
Our
by-laws provide that we shall indemnify a person made or threatened to be made
a
party to, or is otherwise involved in, any action, suit, claim, demand or
proceeding, whether civil, criminal, administrative or investigative, by reason
of that person’s present or former capacity as our director or as director of
any of our subsidiaries, whether the basis of such proceeding is an alleged
action or inaction by that person, to the fullest extent permitted by the laws
of the state of Delaware.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling us under the foregoing
provisions, we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act,
and
is unenforceable for that reason.
Joel
Sens
received compensation totaling $420,000 in respect of his services during the
last three full fiscal years, which is the only compensation we have paid since
our inception. Joel Sens received total compensation of $90,000 in respect
of
services performed by him from 2002 to 2004 and received $150,000 and $180,000
in respect of services performed by him in 2005 and 2006, respectively. There
have been no other awards or stock based compensation in the last three fiscal
years.
Although
no formal employment agreement has been entered into with Joel Sens, he
currently receives an annual salary of $180,000 per year.
The
table
set forth below summarizes the annual and long-term compensation paid by us
during the years ended December 31, 2006, 2005 and 2004 to or for the account
of
Joel Sens, our chief executive officer, president, treasurer and
secretary.
SUMMARY
COMPENSATION TABLE
Name
and Principal Position
|
Year
|
Annual
Compensation
|
Long-Term
Compensation
|
All
Other Compensation
|
Salary
($)(1)
|
Bonus
($)
|
Other
Annual Compensation ($)
|
Awards
|
Payouts
|
Restricted
Stock Award(s) ($)
|
Securities
Underlying Options / SARs (#)
|
LTIP
Payouts ($)
|
Joel
Sens, CEO
|
2006
|
180,000
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2005
|
150,000
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2004
|
90,000
|
0
|
0
|
0
|
0
|
0
|
0
|
________________
(1)
|
October
2000 employment agreements, contracting for $140,000 per year, with
Darryl
Reed, the former president of our predecessor company, Pre-Settlement
Funding Corporation, and Joel Sens, were renegotiated during 2003
and no
compensation other than the $90,000 paid to Joel Sens in October
2004,
described above, has been paid.
|
AGGREGATED
OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND
FY-END OPTION/SAR VALUES
Name
|
Shares
Acquired on Exercise (#)
|
Value
Realized ($)
|
Number
of Securities Underlying Unexercised Options/SARs At FY-End (#)
Exercisable / Unexercisable
|
Value
of Unexercised In-The-Money Options/SARs At FY-End (#) Exercisable
/
Unexercisable
|
Joel
Sens, CEO
|
0
|
0
|
1,500,000/0
|
$0(1)/$0
|
______________________
(1)
This
amount is calculated by valuing the Company’s shares at $0.48/share, based on
the average of the bid and ask prices at December 31, 2006.
Under
an
October 2000 subscription agreement with Joel Sens, we issued 3,000,000 shares
of our common stock to Joel Sens, as founder, at a price of $0.001 per share.
In
addition, under the October 2000 subscription agreement, we granted Joel Sens
stock options exercisable for 1,500,000 shares of our common stock, as
follows:
|
·
|
400,000
shares of our common stock at $0.50 per share;
|
|
|
|
|
·
|
300,000
shares of our common stock at $1.00 per share;
|
|
|
|
|
·
|
300,000
shares of our common stock at $1.75 per share; and
|
|
|
|
|
·
|
500,000
shares of our common stock at $2.00 per
share.
|
Joel
Sens
has not exercised any of these options. Stock options previously issued for
Darryl Reed were cancelled in an agreement dated September 2003 between Darryl
Reed and us.
There
have been no related party transactions, except for the following:
Our
President and principal shareholder Joel Sens had advanced funds to the Company
for working capital purposes. We had paid in full the amount due to Joel Sens
during the year ended December 31, 2004. Additionally, the total payment we
remitted exceeded the total balance due to Joel Sens in the amount of $42,951,
$50,500 and $144,006 during the years ended December 31, 2006, 2005 and 2004,
respectively. We have accounted for the excess payments to Joel Sens as a
non-reciprocal transfer to a shareholder for 2006, 2005 and 2004, and
accordingly, we have reflected the arrangement as a direct reduction of
additional paid-in capital.
During
2005, Joel Sens contributed capital of $140,000 to us in direct response to
the
excess payments. We have accounted for the net contribution of $89,500 as an
addition to paid-in capital. During 2006, Joel Sens contributed capital of
$54,505 to us in direct response to the excess payment. We have accounted for
the contribution as an addition to paid in capital.
Mr.
Sens,
our sole employee, officer and a director, and our other directors, are engaged
in other businesses, either individually or through partnerships and
corporations in which they have an interest, hold office, or serve on a board
of
directors. As a result, certain conflicts of interest may arise between us
and
our officers and directors. We will attempt to resolve such conflicts of
interest in our favor. Our officers and directors are accountable to us and
to
our stockholders as fiduciaries and are required to exercise good faith, and
integrity in handling our affairs. A stockholder may be able to institute legal
action on our behalf, or on behalf of itself and other similarly situated
stockholders, to recover damages or for other relief.
Market
Information
Prior
to
January 9, 2004, there was no public trading market for our securities. On
January 9, 2004, our securities began trading on the OTCBB maintained by members
of the NASD under the symbol SWRI.OB. As of June 30, 2007, there were
approximately 1,400 holders of record of our common stock.
The
following table sets forth the range of high and low bid prices for our common
stock for each applicable quarterly period. The table reflects inter-dealer
prices without retail mark-up, mark-down or commissions and may not represent
actual transactions:
|
|
|
Fiscal
Year Ended
December
31, 2007
|
|
|
|
|
High($)*
|
|
|
Low($)*
|
|
Second
Quarter
|
|
|
2.45
|
|
|
0.96
|
|
First
Quarter
|
|
|
1.20
|
|
|
0.40
|
|
|
|
|
Fiscal
Year Ended
December
31, 2006
|
|
|
|
|
High($)*
|
|
|
Low($)*
|
|
Fourth
Quarter
|
|
|
0.75
|
|
|
0.40
|
|
Third
Quarter
|
|
|
1.00
|
|
|
0.60
|
|
Second
Quarter
|
|
|
1.50
|
|
|
0.60
|
|
First
Quarter
|
|
|
0.75 |
|
|
0.45 |
|
|
|
|
Fiscal
Year Ended
December
31, 2005
|
|
|
|
|
High($)*
|
|
|
Low($)*
|
|
Fourth
Quarter
|
|
|
1.05
|
|
|
0.40
|
|
Third
Quarter
|
|
|
0.85
|
|
|
0.70
|
|
Second
Quarter
|
|
|
1.00
|
|
|
0.65
|
|
First
Quarter
|
|
|
1.05
|
|
|
0.40
|
|
|
|
|
Fiscal
Year Ended
December
31, 2004
|
|
|
|
|
High($)*
|
|
|
Low($)*
|
|
Fourth
Quarter
|
|
|
1.05
|
|
|
0.90
|
|
Third
Quarter
|
|
|
1.10
|
|
|
0.44
|
|
Second
Quarter
|
|
|
1.50
|
|
|
0.44
|
|
First
Quarter(1)
|
|
|
1.25
|
|
|
0.16
|
|
________________
(1)
|
Data
for the first quarter of 2004 is for the period January 9, 2004,
the date
our common stock began trading on the OTCBB, through March 31,
2004.
|
Dividend
Information
We
have
not declared or paid cash dividends on our common stock or made distributions
in
the past, and we do not anticipate that we will pay cash dividends or make
cash
distributions in the foreseeable future. We currently intend to retain and
invest future earnings, if any, to finance our operations.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following information is provided for the fiscal year ended December 31, 2006,
with respect to compensation plans (including individual compensation
arrangements) under which our equity securities are authorized for issuance,
aggregated as follows:
(i)
|
All
compensation plans (including individual compensation arrangements)
previously approved by our stockholders; and
|
(ii)
|
All
compensation plans (including individual compensation arrangements)
not
previously approved by our
stockholders.
|
EQUITY
COMPENSATION PLAN INFORMATION
|
|
|
|
Number
of securities to be
issued
upon exercise of
outstanding
options, warrants
and
rights (a)
|
|
Weighted-average
exercise
price
of outstanding options,
warrants
and rights (b)
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column (a))
(c)
|
|
Equity
compensation plans approved by stockholders
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Equity
compensation plans not approved by stockholders
|
|
|
1,500,000
|
|
$
|
1.35/share
|
|
|
0
|
|
Total
|
|
|
1,500,000
|
|
$
|
1.35/share
|
|
|
0
|
|
Under
the
October 2000 subscription agreement, we granted Mr. Sens stock options
exercisable for 1,500,000 shares of our common stock. See “Executive
Compensation” above.
We
voluntarily file periodic reports and other information with the SEC. Our
reports and other information can be inspected and copied at the SEC’s Public
Reference Room at 100 F Street, N.E., Washington D.C. 20549. You can obtain
information on the operations of the Public Reference Room by calling the SEC
at
(800) SEC-0330. Information also is available electronically on the Internet
at
http://www.sec.gov.
We
will
provide without charge to each person to whom a copy of this prospectus is
delivered, upon oral or written request of such person, a copy of any or all
documents which are incorporated by reference in this prospectus, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into such documents). Requests for such documents should be
directed to: Seawright Holdings, Inc., 600 Cameron Street, Alexandria, Virginia
22314. Our telephone number is (703) 340-1629.
We
intend
to furnish our stockholders with annual reports containing audited financial
statements and quarterly reports containing financial information.
BENEFICIAL
OWNERS AND MANAGEMENT
The
following table sets forth information regarding the beneficial ownership of
shares of the our common stock as of June 30, 2007 (issued and outstanding)
by
(i) all stockholders known to us to be the beneficial owner of more than five
percent of our outstanding common stock and (ii) all of our directors and
executive officers individually and as a group:
Title
of Class
|
|
Name
and Address of Beneficial
Owner(1)
|
|
Amount
and Nature of Beneficial Ownership(2)
|
|
Percent
of Class(2)
|
|
Common
Stock
|
|
|
Joel
Sens
600
Cameron Street
Alexandria
VA 22314
|
|
|
4,921,414(3)
|
|
|
37.06
|
%
|
Common
Stock
|
|
|
Jeffrey
Sens
1210
Springtree Lane
Westerville
Ohio 43801
|
|
|
2,100
|
|
|
0.001
|
%
|
Common
Stock
|
|
|
All
executive officers and directors as a group (2 people)
|
|
|
4,923,514
|
|
|
37.07
|
%
|
________________
(1)
Each
person has sole voting power and sole dispositive power as to all of the shares
shown as beneficially owned by them.
(2)
Other
than as footnoted below, none of these security holders has the right to acquire
any shares within sixty days from options, warrants, rights, conversion
privilege, or similar obligations. The amount owned and the stockholder’s
percentage ownership is based on issued common stock, as well as convertible
notes, stock options and warrants that are currently exercisable.
(3)
Included within this amount are stock options granted to Joel Sens, as part
of
his October 2000 subscription agreement. These stock options are exercisable
for
1,500,000 shares of our common stock as described under “Executive Compensation”
above. Also included within this amount is 71,000 shares owned by Stafford
Street Capital LLC, an entity wholly owned by Joel Sens.
The
issuance of shares of common stock under the equity line could, theoretically
result in a change in control if most of the 2,000,000 shares of common stock
registered to be issued under the investment agreement were sold to a single
investor. Since Joel Sens is the majority shareholder owning 4,921,414 shares
of
common stock, a single investor or group acquiring more shares of common stock
then Mr. Sens owns could become a majority shareholder. However since we are
in
control of the quantity and timing of the “puts”, there is little practical
likelihood of a change in control resulting from the issuance of shares of
common stock under the equity line.
Our
authorized capital stock consists of 19,900,000 shares of common stock and
100,000 shares of preferred stock. The following is a summary of certain
provisions of our common stock, preferred stock, certificate of incorporation
and by-laws.
Common
Stock
As
of
August 31, 2007, there were 14,792,896 shares of common stock outstanding.
Holders of shares of common stock are entitled to cast one vote for each share
held at all stockholders meetings for all purposes, including the election
of
directors, and to share equally on a per share basis in such dividends as may
be
declared by the board of directors out of funds legally available for dividend
payments. If we liquidate, dissolve or wind up, each outstanding share of common
stock will be entitled to share equally in our assets legally available for
distribution to stockholders after the payment of all debts and other
liabilities. Shares of common stock are not redeemable, have no conversion
rights and carry no preemptive or other rights to subscribe to or purchase
additional shares in the event of a subsequent offering. All outstanding shares
of common stock are, and the shares offered by this prospectus will be, when
issued, fully paid and non-assessable.
Preferred
Stock
During
the year ended December 31, 2003, we issued an aggregate of 55,000 shares of
Series A Convertible Preferred Stock in exchange for $275,000 of proceeds,
net
of costs and fees. The shares were convertible into common stock at the option
of the holder at a ratio of 10 shares of common stock for each share of
preferred stock if converted before the first anniversary of the original issue
date and at a ratio of 5 shares of common stock for each share of preferred
stock if converted after the first anniversary but before the second
anniversary. The preferred stock could have been redeemed for cash at our
option, any time after the first anniversary of the original issue date but
before the second anniversary. The preferred stockholders were entitled to
cumulative dividends when, as and if declared by the board at a per share rate
of 10% per annum of the original issue price. At the option of the preferred
stockholder, accrued and unpaid cumulative dividends may be applied to the
purchase of additional shares of common stock upon conversion of the preferred
stock to common stock. In event of our liquidation the preferred stock ranks
higher than the common stock in determining the distribution of assets and
surplus funds.
In
April
2004, one of our preferred stockholders tendered 5,000 shares of preferred
stock, valued at $5 per share, as partial payment for the exercise of stock
options. This preferred stock was subsequently canceled by us.
In
December 2004, our preferred stockholders elected to convert an aggregate of
50,000 shares of preferred stock into 500,000 shares of our common stock, at
a
ratio of 10 shares of common stock for each share of preferred stock. In
connection with the conversion, we also issued an aggregate of 50,000 shares
of
our common stock in exchange for $25,000 of dividends in arrears. As the date
of
this prospectus, all of our preferred stock had been converted to our common
stock, and there was no preferred stock issued and outstanding.
We
are
not aware of any material litigation or potential litigation affecting us or
our
assets or any of our subsidiaries.
The
legality of our shares of common stock being offered hereby is being passed
upon
by McKee Nelson LLP, Washington, DC. McKee Nelson was not hired on a contingent
basis and will not receive a direct or indirect interest in us and has never
been a promoter, underwriter, voting trustee, director, officer, or employee
of
our company.
The
financial statements included in this prospectus, have been audited by Russell
Bedford Stefanou Mirchandani LLP, Certified Public Accountants, and have been
included in reliance upon the report of such firm given upon their authority
as
experts in accounting and auditing. Russell Bedford Stefanou Mirchandani LLP
was
not hired on a contingent basis and will not receive a direct or indirect
interest in us and has never been a promoter, underwriter, voting trustee,
director, officer, or employee of our company.
We
filed
with the SEC a registration statement on Form SB-2 under the Securities Act
for
the shares of common stock in the offering, of which this prospectus is a part.
This prospectus does not contain all of the information in the registration
statement and the exhibits and schedule that were filed with the registration
statement. For further information with respect to us and the shares of common
stock, we refer you to the registration statement and the exhibits and schedule
that were filed with the registration statement.
Statements
contained in this prospectus about the contents of any contract or any other
document that is filed as an exhibit to the registration statement are not
necessarily complete, and we refer you to the full text of the contract or
other
document filed as an exhibit to the registration statement. A copy of the
registration statement and the exhibits and schedules that were filed with
the
registration statement may be inspected without charge at the Public Reference
Room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549, and
copies of all or any part of the registration statement may be obtained from
the
SEC upon payment of the prescribed fee. Information regarding the operation
of
the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330.
The
SEC
maintains a web site that contains reports, proxy and information statements,
and other information regarding registrants that file electronically with the
SEC. The address of the site is www.sec.gov.
YEARS
ENDED
DECEMBER
31, 2006 AND 2005
SEAWRIGHT
HOLDINGS, INC.
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
INDEX
TO FINANCIAL STATEMENTS
|
|
Page
|
Report
of Independent Registered Certified Public Accounting Firm
|
|
F-3
|
|
|
|
Consolidated
Balance Sheets as of December 31, 2006 and 2005
|
|
F-4-5
|
|
|
|
Consolidated
Statements of Operations for the Years Ended
December
31, 2006 and 2005 and for the Period From Inception
(October
14, 1999) Through December 31, 2006
|
|
F-6-7
|
|
|
|
Consolidated
Statements of (Deficiency in) Stockholders' Equity for
the
Period From Inception (October 14, 1999) Through
December
31, 2006
|
|
F-8-11
|
|
|
F-12-15
|
Consolidated
Statements of Cash Flows for the Years Ended
December
31, 2006 and 2005 and for the Period From Inception
(October
14, 1999) Through December 31, 2006
|
|
|
|
|
|
Notes
to the Consolidated Financial Statements
|
|
F-16-34
|
RUSSELL
BEDFORD STEFANOU MIRCHANDANI , LLP
CERTIFIED
PUBLIC ACCOUNTANTS
REPORT
OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
Board
of
Directors
Seawright
Holdings, Inc.
Alexandria,
VA
We
have
audited the accompanying consolidated balance sheets of Seawright Holdings
Inc.
and subsidiary, a development stage company, (the “Company”) as of December 31,
2006 and 2005 and the related consolidated statements of operations, (deficiency
in) stockholders’ equity, and cash flows for each of the two years in the period
ended December 31, 2006 and for the period from October 14, 1999 (date of
inception) to December 31, 2006. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based upon our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of Seawright Holdings Inc.
and
subsidiary as of December 31, 2006 and 2005, and the results of its operations
and its cash flows for each of the two years in the period ended December
31,
2006, and for the period October 14, 1999 (date of inception) to December
31,
2006 in conformity with accounting principles generally accepted in the United
States of America.
As
discussed in Note A to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No.
123(R), “Share-Based Payment”, effective January 1, 2006.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As shown in the consolidated financial
statements, the Company has incurred net losses since its inception. This
raises
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans in regard to this matter are described in Note O. The
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty.
/s/
RUSSELL
BEDFORD STEFANOU MIRCHANDANI LLP
Russell Bedford Stefanou Mirchandani LLP
Certified
Public Accountants
McLean,
Virginia
April
14,
2007
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2006 AND 2005
|
|
2006
|
|
2005
|
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,986
|
|
$
|
130,857
|
|
Marketable
securities (Note B)
|
|
|
17,993
|
|
|
138,910
|
|
Deferred
financing costs - net (Note D)
|
|
|
325,136
|
|
|
140,289
|
|
Deposits
|
|
|
65,300
|
|
|
125,300
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
411,415
|
|
|
535,356
|
|
|
|
|
|
|
|
|
|
Property
and equipment - net (Note C)
|
|
|
2,110,037
|
|
|
1,775,669
|
|
|
|
|
|
|
|
|
|
Deferred
financing costs - net - less current portion (Note D)
|
|
|
226,671
|
|
|
366,958
|
|
|
|
|
|
|
|
|
|
Intangible
asset (Note D)
|
|
|
27,343
|
|
|
35,156
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,775,466
|
|
$
|
2,713,139
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
BALANCE SHEETS (CONTINUED)
DECEMBER
31, 2006 AND 2005
LIABILITIES
AND (DEFICIENCY
IN)
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Bank
overdraft
|
|
$
|
7,227
|
|
$
|
-
|
|
Incentive
stock liability (Note E)
|
|
|
127,500
|
|
|
-
|
|
Accounts
payable and accrued expenses
|
|
|
452,418
|
|
|
120,445
|
|
Note
payable, current portion (Note E)
|
|
|
1,179,950
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
1,767,095
|
|
|
620,445
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities
|
|
|
|
|
|
|
|
Note
payable - long-term portion (Note E)
|
|
|
518,022
|
|
|
-
|
|
Convertible
notes payable, net of debt discount (Note F)
|
|
|
1,190,024
|
|
|
1,077,944
|
|
Other
long-term liabilities (Note D)
|
|
|
34,200
|
|
|
30,683
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
3,509,341
|
|
|
1,729,072
|
|
|
|
|
|
|
|
|
|
Commitment
and contingencies (Note M)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(DEFICIENCY
IN)
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Preferred
stock, par value $.001 per share;
|
|
|
|
|
|
|
|
100,000
shares authorized.
|
|
|
-
|
|
|
-
|
|
Series
A convertible preferred stock, par value
|
|
|
|
|
|
|
|
$0.001
per share; 60,000 authorized. (Note G)
|
|
|
-
|
|
|
-
|
|
Common
stock, par value $.001 per share;
|
|
|
|
|
|
|
|
19,900,000
shares authorized; 8,935,474 and
|
|
|
|
|
|
|
|
8,875,476
shares issued and outstanding at
|
|
|
|
|
|
|
|
December
31, 2006 and 2005, respectively. (Note G)
|
|
|
8,936
|
|
|
8,876
|
|
Additional
paid-in-capital
|
|
|
3,081,760
|
|
|
3,014,376
|
|
Preferred
stock dividend
|
|
|
(25,000
|
)
|
|
(25,000
|
)
|
Accumulated
deficit during development stage
|
|
|
(3,799,571
|
)
|
|
(2,014,185
|
)
|
|
|
|
|
|
|
|
|
Total
(deficiency in) stockholders' equity
|
|
|
(733,875
|
)
|
|
984,067
|
|
|
|
|
|
|
|
|
|
Total
liabilities and (deficiency in) stockholders' equity
|
|
$
|
2,775,466
|
|
$
|
2,713,139
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
For
the period from
October
14, 1999
(date
of inception)
through
December
31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
Sales,
net
|
|
$
|
3,304
|
|
$
|
2,524
|
|
$
|
5,828
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
1,380,949
|
|
|
885,327
|
|
|
3,873,792
|
|
(Gain)
loss on trading securities
|
|
|
1,570
|
|
|
54,592
|
|
|
(37,356
|
)
|
Depreciation
and amortization
|
|
|
10,490
|
|
|
6,538
|
|
|
17,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,393,009
|
|
|
946,457
|
|
|
3,853,881
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(1,389,705
|
)
|
|
(943,933
|
)
|
|
(3,848,053
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
21
|
|
|
1,000
|
|
|
61,969
|
|
Gain
(loss) on fair value adjustment for put agreement
|
|
|
-
|
|
|
68,752
|
|
|
-
|
|
Gain
on extinguishment of debt
|
|
|
-
|
|
|
60,000
|
|
|
807,103
|
|
Interest
expense, net
|
|
|
(395,702
|
)
|
|
(301,867
|
)
|
|
(837,491)
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
(395,681
|
)
|
|
(172,115
|
)
|
|
31,581
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before income taxes and discontinued
operations
|
|
|
(1,785,386
|
)
|
|
(1,116,048
|
)
|
|
(3,816,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income tax
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before
|
|
|
|
|
|
|
|
|
|
|
discontinued
operations
|
|
|
(1,785,386
|
)
|
|
(1,116,048
|
)
|
|
(3,816,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
|
-
|
|
|
-
|
|
|
16,901
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(1,785,386
|
)
|
|
(1,116,048
|
)
|
|
(3,799,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividend
|
|
|
-
|
|
|
-
|
|
|
(25,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common shareholders
|
|
$
|
(1,785,386
|
)
|
$
|
(1,116,048
|
)
|
$
|
(3,824,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Losses
per common share
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.20
|
)
|
$
|
(0.13
|
)
|
|
|
|
Assuming
dilution
|
|
$
|
(0.20
|
)
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
9,005,009
|
|
|
8,874,462
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF (DEFICIENCY IN) SHAREHOLDERS' EQUITY
FOR
THE
PERIOD OCTOBER 14, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 2006
|
|
Preferred
Shares
|
|
Preferred
Stock Amount
|
|
Common
Shares
|
|
Common
Stock Amount
|
|
Additional
Paid-in Capital
|
|
Common
Stock Subscription
|
|
Preferred
Stock Dividend
|
|
Deficit
Accumulated During Development Stage
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(1,291
|
)
|
$
|
(1,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 1999
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,291
|
)
|
|
(1,291
|
)
|
Common
stock issued on September
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,
2000 in exchange for convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
debt
at $.50 per share
|
|
|
-
|
|
|
-
|
|
|
78,000
|
|
|
78
|
|
|
38,922
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
39,000
|
|
Common
stock issued on November
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,
2000 in exchange for convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
debt
at $.50 per share
|
|
|
-
|
|
|
-
|
|
|
26,000
|
|
|
26
|
|
|
12,974
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(157,734
|
)
|
|
(157,734
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2000
|
|
|
-
|
|
|
-
|
|
|
104,000
|
|
|
104
|
|
|
51,896
|
|
|
-
|
|
|
-
|
|
|
(159,025
|
)
|
|
(107,025
|
)
|
Common
stock issued on January 1,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001
in exchange for convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at
$.50 per share
|
|
|
-
|
|
|
-
|
|
|
174,000
|
|
|
174
|
|
|
86,826
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
87,000
|
|
Common
stock issued on January 2,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001
to founders in exchange for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
services
rendered at $.001 per share
|
|
|
-
|
|
|
-
|
|
|
5,000,000
|
|
|
5,000
|
|
|
20
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,020
|
|
Common
stock issued on January 2,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001
in exchange for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
rendered
at $.50 per share
|
|
|
-
|
|
|
-
|
|
|
90,000
|
|
|
90
|
|
|
44,910
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(556,921
|
)
|
|
(556,921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2001
|
|
|
-
|
|
|
-
|
|
|
5,368,000
|
|
|
5,368
|
|
|
183,652
|
|
|
-
|
|
|
-
|
|
|
(715,946
|
)
|
|
(526,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(357,588
|
)
|
|
(357,588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2002
|
|
|
-
|
|
$
|
-
|
|
|
5,368,000
|
|
$
|
5,368
|
|
$
|
183,652
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(1,073,534
|
)
|
$
|
(884,514
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF (DEFICIENCY IN)
SHAREHOLDERS'
EQUITY (CONTINUED)
FOR
THE
PERIOD OCTOBER 14, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 2006
|
|
Preferred
Shares
|
|
Preferred
Stock Amount
|
|
Common
Shares
|
|
Common
Stock Amount
|
|
Additional
Paid-in Capital
|
|
Common
Stock Subscription
|
|
Preferred
Stock Dividend
|
|
Deficit
Accumulated During Development Stage
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2002
|
|
|
-
|
|
$
|
-
|
|
|
5,368,000
|
|
$
|
5,368
|
|
$
|
183,652
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(1,073,534
|
)
|
$
|
(884,514
|
)
|
Preferred
stock issued in exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
cash at $5 per share
|
|
|
55,000
|
|
|
55
|
|
|
-
|
|
|
-
|
|
|
274,945
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
275,000
|
|
Stock
options issued in exchange for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
services
rendered
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,276
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
506,846
|
|
|
506,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2003
|
|
|
55,000
|
|
$
|
55
|
|
|
5,368,000
|
|
$
|
5,368
|
|
$
|
463,873
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(566,688
|
)
|
$
|
(97,392
|
)
|
Preferred
stock cancelled in exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
stock options exercised at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$.5625
per share
|
|
|
(5,000
|
)
|
|
(5
|
)
|
|
160,000
|
|
|
160
|
|
|
64,845
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
65,000
|
|
Common
stock issued on April 8, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
exchange for cash at $.30 per share
|
|
|
-
|
|
|
-
|
|
|
300,000
|
|
|
300
|
|
|
89,700
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
90,000
|
|
Common
stock issued and subscribed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
connection with private placement
|
|
|
-
|
|
|
-
|
|
|
2,404,978
|
|
|
2,405
|
|
|
1,359,491
|
|
|
25,581
|
|
|
-
|
|
|
-
|
|
|
1,387,477
|
|
Conversion
of preferred stock to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
|
(50,000
|
)
|
|
(50
|
)
|
|
500,000
|
|
|
500
|
|
|
(450
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividend
|
|
|
-
|
|
|
-
|
|
|
50,000
|
|
|
50
|
|
|
24,950
|
|
|
-
|
|
|
(25,000
|
)
|
|
-
|
|
|
-
|
|
Warrants
issued to consultants in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exchange
for services rendered
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
545,460
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
545,460
|
|
Beneficial
conversion feature of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
debentures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
274,499
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
274,499
|
|
Value
of warrants attached to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
debentures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
187,123
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
187,123
|
|
Return
of contributed capital to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholder
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(144,006
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(144,006
|
)
|
Reclassification
of equity to liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
upon
issuance of put agreement
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(90,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(90,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(331,449
|
)
|
|
(331,449
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004
|
|
|
-
|
|
$
|
-
|
|
|
8,782,978
|
|
$
|
8,783
|
|
$
|
2,775,485
|
|
$
|
25,581
|
|
$
|
(25,000
|
)
|
$
|
(898,137
|
)
|
$
|
1,886,712
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF (DEFICIENCY IN)
SHAREHOLDERS'
EQUITY (CONTINUED)
FOR
THE
PERIOD OCTOBER 14, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 2006
|
|
Preferred
Shares
|
|
Preferred
Stock Amount
|
|
Common
Shares
|
|
Common
Stock Amount
|
|
Additional
Paid-in Capital
|
|
Common
Stock Subscription
|
|
Preferred
Stock Dividend
|
|
Deficit
Accumulated During Development Stage
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004
|
|
|
-
|
|
$
|
-
|
|
|
8,782,978
|
|
$
|
8,783
|
|
$
|
2,775,485
|
|
$
|
25,581
|
|
$
|
(25,000
|
)
|
$
|
(898,137
|
)
|
$
|
1,886,712
|
|
Common
stock issued in connection
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with
common stock subscribed in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with private placement
|
|
|
-
|
|
|
-
|
|
|
54,998
|
|
|
55
|
|
|
25,526
|
|
|
(25,581
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Common
stock issued in connection
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with
private placement
|
|
|
-
|
|
|
-
|
|
|
37,500
|
|
|
38
|
|
|
25,150
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fractional
share - return of proceeds
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(13
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(13
|
)
|
Beneficial
conversion feature of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
debentures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,708
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,708
|
|
Value
of warrants attached to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
debentures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,020
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
capital
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
89,500
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
89,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration
of put agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,116,048
|
)
|
|
(1,116,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
-
|
|
$
|
-
|
|
|
8,875,476
|
|
$
|
8,876
|
|
$
|
3,014,376
|
|
$
|
-
|
|
$
|
(25,000
|
)
|
$
|
(2,014,185
|
)
|
$
|
984,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued on May
1, 2006 in exchange for cash at $0.45 per share
|
|
|
-
|
|
|
-
|
|
|
199,998
|
|
|
200
|
|
|
89,800
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
capital
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
54,505
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
54,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options issued to consultants in exchange for services
rendered
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
38,490
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
38,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued on September 1, 2006 in exchange for cash at $0.45
per
share
|
|
|
-
|
|
|
-
|
|
|
20,000
|
|
|
20
|
|
|
8,980
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
of contributed capital to shareholder
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(42,951
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(42,951
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reacquisition
and cancellation of shares
|
|
|
-
|
|
|
-
|
|
|
(160,000
|
)
|
|
(160
|
)
|
|
(81,440
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(81,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,785,386
|
)
|
|
(1,785,386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
-
|
|
$
|
-
|
|
|
8,935,474
|
|
$
|
8,936
|
|
$
|
3,081,760
|
|
$
|
-
|
|
$
|
(25,000
|
)
|
$
|
(3,799,571
|
)
|
$
|
(733,875
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For
the years ended December 31,
|
|
For
the period from
October
14, 1999
(date
of inception)
through
December
31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
Net
loss
|
|
$
|
(1,785,386
|
)
|
$
|
(1,116,048
|
)
|
$
|
(3,799,571
|
)
|
Income
from discontinued operations
|
|
|
-
|
|
|
-
|
|
|
(16,901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,785,386
|
)
|
|
(1,116,048
|
)
|
|
(3,816,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile to net cash from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
10,489
|
|
|
6,538
|
|
|
17,444
|
|
Amortization
of debt discount
|
|
|
120,819
|
|
|
112,083
|
|
|
260,677
|
|
Amortization
of deferred financing costs
|
|
|
165,662
|
|
|
141,788
|
|
|
359,860
|
|
Interest
expense financed through issuance of note payable
|
|
|
40,000
|
|
|
-
|
|
|
40,000
|
|
Accretion
of interest on tradename liability
|
|
|
3,517
|
|
|
1,621
|
|
|
5,138
|
|
Extinguishment
of debt
|
|
|
-
|
|
|
(60,000
|
)
|
|
(807,103
|
)
|
Fair
valuation adjustment - termination agreement
|
|
|
-
|
|
|
(68,752
|
)
|
|
|
|
Financing
expense attributed to conversion of stock options
to
common stock
|
|
|
-
|
|
|
-
|
|
|
1,500
|
|
Common
stock issued to founders
|
|
|
-
|
|
|
-
|
|
|
5,020
|
|
Common
stock issued in exchange for
|
|
|
|
|
|
|
|
|
|
|
services
rendered
|
|
|
-
|
|
|
-
|
|
|
45,000
|
|
Stock
options issued in exchange for services rendered
|
|
|
38,490
|
|
|
-
|
|
|
43,766
|
|
Write-off
of claimed receivable - discontinued
operations
|
|
|
-
|
|
|
-
|
|
|
6,000
|
|
Change
in:
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities - trading
|
|
|
120,917
|
|
|
1,417,495
|
|
|
(17,993
|
)
|
Claims
receivable
|
|
|
-
|
|
|
-
|
|
|
(6,000
|
)
|
Capitalized
financing costs
|
|
|
(32,647
|
)
|
|
-
|
|
|
(32,647
|
)
|
Deposits
|
|
|
60,000
|
|
|
(59,600
|
)
|
|
(65,300
|
)
|
Purchase
of intangible
|
|
|
-
|
|
|
(10,000
|
)
|
|
(10,000
|
)
|
Bank
overdraft
|
|
|
7,227
|
|
|
-
|
|
|
7,227
|
|
Accrued
expenses
|
|
|
331,973
|
|
|
45,172
|
|
|
1,199,521
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) continuing
|
|
|
|
|
|
|
|
|
|
|
operating
activities
|
|
|
(918,939
|
)
|
|
410,297
|
|
|
(2,764,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by discontinued operating activities
|
|
|
-
|
|
|
-
|
|
|
16,901
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash from operating activities
|
|
|
(918,939
|
)
|
|
410,297
|
|
|
(2,747,461
|
)
|
The
accompanying notes are an integral part of these
consolidated financial statements.
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
|
|
For
the years ended December 31,
|
|
For
the period from
October
14, 1999
(date
of inception)
through
December
31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(337,045
|
)
|
|
(264,346
|
)
|
|
(915,763
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash from investing activities
|
|
|
(337,045
|
)
|
|
(264,346
|
)
|
|
(915,763
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock and
|
|
|
|
|
|
|
|
|
|
|
stock
subscription - net of costs and fees
|
|
|
99,000
|
|
|
25,188
|
|
|
1,665,165
|
|
Nonreciprocal
(transfer to) receipt from shareholder
|
|
|
11,554
|
|
|
89,487
|
|
|
(42,965
|
)
|
Proceeds
from issuance of notes payable, net of repayments
|
|
|
1,099,159
|
|
|
-
|
|
|
1,238,159
|
|
Proceeds
from issuance of convertible notes - net
|
|
|
-
|
|
|
16,792
|
|
|
1,082,586
|
|
Proceeds
from issuance of warrants attached to convertible notes - net
|
|
|
-
|
|
|
3,020
|
|
|
169,865
|
|
Repayments
of notes payable
|
|
|
-
|
|
|
(340,000
|
)
|
|
(640,000
|
)
|
Reacquisition
of shares
|
|
|
(81,600
|
)
|
|
-
|
|
|
(81,600
|
)
|
Proceeds
from issuance of preferred stock - net
|
|
|
-
|
|
|
-
|
|
|
275,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash from financing activities
|
|
|
1,
128,113
|
|
|
(205,513
|
)
|
|
3,666,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
$
|
(127,871
|
)
|
$
|
(59,562
|
)
|
$
|
2,986
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - beginning of period
|
|
|
130,857
|
|
|
190,419
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - end of period
|
|
$
|
2,986
|
|
$
|
130,857
|
|
$
|
2,986
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
346,042
|
|
$
|
191,130
|
|
$
|
586,659
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Capitalized
financing costs in connection with issuance of
note payable
|
|
$
|
50,075
|
|
$
|
-
|
|
$
|
50,075
|
|
Capitalized
financing costs in connection with incentive stock
liability
|
|
|
127,500
|
|
|
|
|
|
|
|
Notes
payable issued in connection with capital expenditures
|
|
$
|
|
|
$
|
500,000
|
|
$
|
1,200,000
|
|
Warrants
issued in exchange for financing costs
|
|
$
|
-
|
|
$
|
-
|
|
$
|
545,460
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2006 and 2005
NOTE
A-SUMMARY OF ACCOUNTING POLICIES
A
summary
of the significant accounting policies applied in the preparation of the
accompanying consolidated financial statements follows.
BUSINESS
AND BASIS OF PRESENTATION
Seawright
Holdings, Inc., (Company) was formed on October 14, 1999 under the laws of
the
state of Delaware. The Company is a development stage enterprise, as defined
by
Statement
of Financial Accounting Standards No. 7 (SFAS 7) and
is
seeking to develop a spring water bottling and distribution business. From
its
inception through the date of these financial statements, the Company has
recognized minimal revenues and has incurred significant operating expenses.
Consequently, its operations are subject to all risks inherent in the
establishment of a new business enterprise. For the period from inception
through December 31, 2006, the Company has accumulated losses of
$3,799,571.
The
consolidated financial statements include the accounts of the Company and
its
wholly-owned subsidiary, Seawright Springs LLC. Significant intercompany
transactions have been eliminated in consolidation.
REVENUE
RECOGNITION
For
revenue from product sales, the Company recognizes revenue in accordance
with
Staff Accounting Bulletin No. 104, Revenue
Recognition
(“SAB104”), which superseded Staff Accounting Bulletin No. 101,
Revenue
Recognition in Financial Statements
(“SAB101”). SAB 101 requires that four basic criteria must be met before revenue
can be recognized: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred; (3) the selling price is fixed and determinable; and
(4)
collectibility is reasonably assured. Determination of criteria (3) and (4)
are
based on management’s judgments regarding the fixed nature of the selling prices
of the products delivered and the collectibility of those amounts. Provisions
for discounts and rebates to customers, estimated returns and allowances,
and
other adjustments are provided for in the same period the related sales are
recorded. The Company defers any revenue for which the product has not been
delivered or is subject to refund until such time that the Company and the
customer jointly determine that the product has been delivered or no refund
will
be required. SAB 104 incorporates Emerging Issues Task Force 00-21 (“EITF
00-21”), Multiple-Deliverable
Revenue Arrangements. EITF
00-21 addresses accounting for arrangements that may involve the delivery
or
performance of multiple products, services and/or rights to use assets.
USE
OF
ESTIMATES
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amount of revenue and expenses during the reporting period. Accordingly,
actual
results could differ from those estimates.
CASH
AND
CASH EQUIVALENTS
The
Company maintains a cash balance in a non-interest bearing account that may,
at
times, exceed federally insured limits. For the purposes of the statements
of
cash flows, the Company considers all highly liquid debt instruments purchased
with a maturity date of three months or less to be cash
equivalents.
PROPERTY
AND EQUIPMENT
Property
and equipment are stated at cost. When retired or otherwise disposed, the
related carrying value and accumulated depreciation are removed from the
respective accounts and the net difference less any amount realized from
disposition, is reflected in earnings. Minor additions and renewals are expensed
in the year incurred. Major additions and renewals are capitalized and
depreciated over their estimated useful lives being 5 years for equipment
and 4
years for computers.
ADVERTISING
The
Company follows the policy of charging the costs of advertising to expense
as
incurred. The Company did not incur advertising costs for the past two
years.
IMPAIRMENT
OF LONG-LIVED ASSETS
The
Company has adopted Statement
of Financial Accounting Standards No.144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144).
The
Statement requires that long-lived assets and certain identifiable intangibles
held and used by the Company be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not
be recoverable. Events relating to recoverability may include significant
unfavorable changes in business conditions, recurring losses, or a forecasted
inability to achieve break even operating results over an extended period.
The
Company evaluates the recoverability of long-lived assets based upon forecasted
undiscounted cash flows. Should an impairment in value be indicated, the
carrying value of intangible assets will be adjusted, based on estimates
of
future discounted cash flows resulting from the use of and ultimate disposition
of the intangible, to be reported at the lower of the carrying amount or
the
fair value less costs to sell.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
Statement
of Financial Accounting Standards No. 107, Disclosures About Fair Value of
Financial Instruments (SFAS 107)
requires
disclosure of the fair value of certain financial instruments. The carrying
value of cash and cash equivalents, accounts receivable, accounts payable
and
short-term borrowings, as reflected in the balance sheets, approximate fair
value because of the short-term maturity of these instruments.
STOCK
BASED COMPENSATION
On
January 1, 2006, the Company adopted the provisions of Statement of Financial
Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment,” which
requires the measurement and recognition of compensation expense for all
stock-based awards made to employees based on estimated fair values.
SFAS No. 123(R) supersedes previous accounting under Accounting
Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
Employees” for periods beginning in fiscal 2006. In March 2005, the SEC issued
Staff Accounting Bulletin (“SAB”) No. 107, providing supplemental
implementation guidance for SFAS 123(R). The Company has applied the
provisions of SAB No. 107 in its adoption of
SFAS No. 123(R).
SFAS No. 123(R)
requires companies to estimate the fair value of stock-based awards on the
date
of grant using an option pricing model. The value of the portion of the award
that is ultimately expected to vest is recognized as expense over the requisite
service periods. The Company adopted SFAS No. 123(R) using the
modified prospective application, which requires the application of the standard
starting from January 1, 2006, the first day of the Company’s year. The
Company’s consolidated financial statements for the year ended December 31,
2006, reflect the impact, if any, of SFAS No. 123(R).
Prior
to
the adoption of SFAS No. 123(R), the Company accounted for stock-based
awards to employees using the intrinsic value method in accordance with APB
No. 25, as allowed under SFAS No. 123, “Accounting for
Stock-Based Compensation.” Under the intrinsic value method, no stock-based
compensation expense for employee stock options had been recognized in the
Company’s consolidated statements of operations because the exercise price of
the Company’s stock options granted to employees equaled the fair market value
of the underlying stock at the date of grant. In accordance with the modified
prospective transition method the Company used in adopting
SFAS No. 123(R), the Company’s results of operations prior to fiscal
2006 have not been restated to reflect, and do not include, the impact of
SFAS No. 123(R).
Stock-based
compensation expense recognized during a period is based on the value of
the
portion of stock-based awards that is ultimately expected to vest during
the
period.
The
following table illustrates the pro forma net income and earnings per share
for
the year ended December 31, 2005 as if compensation expense for stock options
issued to employees had been determined consistent with SFAS No. 123:
|
|
For
the year
ended
December
31,
2005
|
|
|
|
|
|
Net
loss - as reported
|
|
$
|
(1,116,048
|
)
|
Add:
Total stock based employee compensation expense as reported under
intrinsic value method (APB. No. 25)
|
|
|
-
|
|
Deduct:
Total stock based employee compensation expense as reported under
fair
value based method (SFAS No. 123)
|
|
|
-
|
|
Net
loss - Pro Forma
|
|
|
(1,116,048
|
)
|
Net
loss attributable to common stockholders - Pro forma
|
|
$
|
(1,116,048
|
)
|
Basic
(and assuming dilution) loss per share - as reported
|
|
$
|
(0.13
|
)
|
Basic
(and assuming dilution) loss per share - Pro forma
|
|
$
|
(0.13
|
)
|
Stock-based
compensation expense is measured using a multiple point Black-Scholes option
pricing model that takes into account highly subjective and complex assumptions.
The expected life of options granted is derived from the vesting period of
the
award, as well as historical exercise behavior, and represents the period
of
time that options granted are expected to be outstanding. Expected volatilities
are based on a blend of historical volatility and implied volatility derived
from publicly traded options to purchase the Company’s common stock, which the
Company believes is more reflective of the market conditions and a better
indicator of expected volatility than solely using historical volatility.
The
risk-free interest rate is the implied yield currently available on
U.S. Treasury zero-coupon issues with a remaining term equal to the
expected life of the option. There were no employee options granted during
2006
or 2005, and all employee options granted prior to 2005 had fully vested
by
January 1, 2005.
Stock-based
compensation expense related to 75,000 stock options issued to consultants
for
services rendered as recognized under SFAS No. 123(R) totaled $38,490
for the year ended December 31, 2006 (Note I). As of December 31, 2006, all
stock options outstanding issued to consultants were fully vested.
EARNING
(LOSS) PER SHARE
Net
earning (loss) per share is provided in accordance with Statement
of Financial Accounting Standards No. 128, Earnings per share (SFAS
128).
Basic
loss per share is computed by dividing losses available to common stockholders
by the weighted average number of common shares and dilutive common stock
equivalents outstanding during the period. Dilutive common stock equivalents
consist of shares issuable upon conversion of convertible debentures and
the
exercise of the Company's stock options and warrants (calculated using the
treasury stock method). During the year ended December 31, 2006 and 2005,
common
stock equivalents are not considered in the calculation of the weighted average
number of common shares outstanding because they would be anti-dilutive,
thereby
decreasing the net loss per common share.
SEGMENT
INFORMATION
The
Company adopted Statement
of Financial Accounting Standards No. 131, Disclosures about Segments of
an
Enterprise and Related Information (SFAS 131)
in the
year ended December 31, 1999. SFAS 131 establishes standards for reporting
information regarding operating segments in annual financial statements and
requires selected information for those segments to be presented in interim
financial reports issued to stockholders. SFAS 131 also establishes standards
for related disclosures about products and services and geographic areas.
Operating segments are identified as components of an enterprise about which
separate discrete financial information is available for evaluation by the
chief
operating decision maker, or decision-making group, in making decisions
regarding the allocation of resources and asset performance. The information
disclosed herein materially represents all of the financial information related
to the Company's principal operating segment.
INCOME
TAXES
The
Company follows Statement
of Financial Accounting Standards No. 109, Accounting for Income taxes (SFAS
109)
for
recording the provision for income taxes. Deferred tax assets and liabilities
are computed based upon the difference between the financial statement and
income tax basis of assets and liabilities using the enacted marginal tax
rate
applicable when the related asset or liability is expected to realized or
settled. Deferred income tax expenses or benefits are based on the changes
in
the asset or liability during each period. If available evidence suggests
that
it is more likely than not that some portion or all of the deferred tax assets
will not be realized, a valuation allowance is required to reduce the deferred
tax assets to the amount that is more likely than not to be realized. Future
changes in such valuation allowance are included in the provision for deferred
income taxes in the period of change.
Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current, depending
on
the classification of assets and liabilities to which they relate. Deferred
taxes arising from temporary differences that are not related to an asset
or
liability are classified as current or non current depending on the periods
in
which the temporary differences are expected to reverse.
CONCENTRATIONS
OF CREDIT RISK
Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash and cash equivalents
and marketable securities. The Company places its cash and temporary cash
investments with high credit quality institutions. At times, such investments
may be in excess of the FDIC insurance limit. Marketable securities are reviewed
periodically by management who has established guidelines for the Company’s
investment portfolio. Marketable securities maintained by the Company are
not
FDIC insured.
LIQUIDITY
The
Company is in the development stage and its efforts have been principally
devoted to developing the spring water bottling and distribution business.
To
date, the Company has generated minimal revenues, has incurred expenses and
has
sustained losses. As shown in the accompanying consolidated financial
statements, the Company has incurred accumulated losses of $3,799,571 for
the
period from inception through December 31, 2006. The Company's current
liabilities exceeded its current assets by $1,355,680 as of December 31,
2006.
Consequently, its operations are subject to all risks inherent in the
establishment of a new business enterprise.
DEBT
AND
EQUITY SECURITIES
The
Company follows the provisions of Statement
of Financial Accounting Standards No. 115, Accounting for Certain Investments
in
Debt and Equity Securities (SFAS 115).
The
Company classifies debt and equity securities into one of three categories:
held-to-maturity, available-for-sale or trading. These security classifications
may be modified after acquisition only under certain specified conditions.
Securities may be classified as held-to-maturity only if the Company has
the
positive intent and ability to hold them to maturity. Trading securities
are
defined as those bought and held principally for the purpose of selling them
in
the near term. All other securities must be classified as
available-for-sale.
Held-to-maturity
securities are measured at amortized cost in the consolidated balance sheets.
Unrealized holding gains and losses are not included in earnings or in a
separate component of capital. They are merely disclosed in the notes to
the
consolidated financial statements.
Available-for-sale
securities are carried at fair value on the consolidated balance sheets.
Unrealized holding gains and losses are not included in earnings but are
reported as a net amount (less expected tax) in a separate component of capital
until realized.
Trading
securities are carried at fair value on the consolidated balance sheets.
Unrealized holding gains and losses for trading securities are included in
earnings.
Declines
in the fair value of held-to-maturity and available-for-sale securities below
their cost that are deemed to be other than temporary are reflected in earnings
as realized losses.
INTANGIBLES
In
accordance with Statement
of Financial Accounting Standards No. 142,
Goodwill
and Other Intangible Assets (SFAS 142),
indefinite-lived intangible assets are not amortized but are reviewed annually
for impairment. Separable intangible assets that are not deemed to have an
indefinite life are amortized over their useful lives and reviewed for potential
impairment whenever events or circumstances indicate that carrying amounts
may
not be recoverable.
The
Company tests, for impairment, the tradename value reported on the consolidated
balance sheet on the last day of the Company’s year. The tradename impairment
test under SFAS 142 requires a two-step approach, which is performed at the
reporting unit level, as defined in SFAS 142. Step one identifies potential
impairments by comparing the fair value of the reporting unit to its carrying
amount. Step two, which is only performed if there is a potential impairment,
compares the carrying amount of the reporting unit’s tradename value to its
implied value, as defined in SFAS 142. If the carrying amount of the reporting
unit’s tradename exceeds the implied fair value of the tradename, an impairment
loss is recognized for an amount equal to that excess.
Financing
costs associated with the Company’s convertible promissory notes are deferred
and amortized over the term of the loan.
NEW
ACCOUNTING PRONOUNCEMENTS
Currently
Effective
In
December 2004, the Financial Accounting Standards Board issued Statement
No. 123
(revised 2004), which is a revision of Statement 123 “Accounting for Stock-Based
Compensation.” This Statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods
or
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity’s equity instruments or that may be settled by the issuance of those
equity instruments. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based
payment
transactions. This Statement is effective for public entities as of the
beginning of the first interim or annual reporting period that begins after
December 15, 2005. The adoption of this Statement did not have a material
effect
on the Company’s financial condition, results of operations, or cash
flows.
In
May
2005, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 154, “Accounting Changes and
Error Corrections,” which changes the accounting for and reporting of a change
in accounting principle. This statement applies to all voluntary changes
in
accounting principles and changes required by an accounting pronouncement
in the
unusual instance that the pronouncement does not include specific transition
provisions. This statement requires retrospective application to prior period
financial statements of changes in accounting principle, unless it is
impractical to determine either the period-specific or cumulative effects
of the
change. SFAS 154 is effective for accounting changes made in fiscal years
beginning after December 15, 2005. The adoption of this standard did not
have a material effect on the Company’s financial condition, results of
operations, or cash flows.
In
November 2005, the FASB issued FASB Staff Position (FSP) FAS 115-1 and 124-1,
The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments.
The
guidance in this FSP addresses the determination of when an investment is
considered impaired, whether that impairment is other than temporary, and
the
measurement of an impairment loss. The FSP also includes accounting
considerations subsequent to the recognition of other-than temporary impairment
and requires certain disclosures about unrealized losses that have not been
recognized as other-than-temporary impairments. The guidance in this FSP
is
required to be applied to reporting periods beginning after December 15,
2005.
Earlier application is permitted, but the Company did not adopt the recognition
provisions of this standard until January 1, 2006. The disclosure provisions
were adopted in previous years. The adoption of this Statement did not have
a
material effect on the Company’s financial condition, results of operations or
cash flows.
In
September 2006, the Securities and Exchange Commission (the “SEC”) released
Staff Accounting Bulletin No. 108 (“SAB 108”), which provides detail in the
quantification and correction of financial statement misstatements. SAB 108
specifies that companies should apply a combination of the “rollover” and “iron
curtain” methodologies when making determinations of materiality. The rollover
method quantifies a misstatement based on the amount of the error originating
in
the current year income statement. The iron curtain approach quantifies
misstatements based on the effects of correcting the misstatement existing
in
the balance sheet at the end of the current year, regardless of the year(s)
of
origination. SAB 108 instructs companies to quantify the misstatement under
both
methodologies and, if either method results in the determination of a material
error, the Company must adjust its financial statements to correct the error.
SAB 108 also reminds preparers that a change from an accounting principle
that
is not generally accepted to a principle that is generally accepted is a
correction of an error. The Bulletin is effective for annual financial
statements covering the first fiscal year ending after November 15, 2006.
The adoption of this Bulletin did not have a material effect on the Company’s
financial condition or results of operations.
Currently
Effective in Future
Years
On
February 16, 2006 the FASB issued SFAS 155, “Accounting for Certain Hybrid
Instruments,” which amends SFAS 133, “Accounting for Derivative Instruments and
Hedging Activities,” and SFAS 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities.” SFAS 155 allows financial
instruments that have embedded derivatives to be accounted for as a whole
(eliminating the need to bifurcate the derivative from its host) if the holder
elects to account for the whole instrument on a fair value basis. SFAS 155
also
clarifies and amends certain other provisions of SFAS 133 and SFAS 140. This
statement is effective for all financial instruments acquired or issued in
fiscal years beginning after September 15, 2006. The Company does not
expect its adoption of this new standard to have a material impact on its
financial position, results of operations or cash flows.
In
July
2006, the FASB issued FASB Interpretation No. 48 (FIN 48), “Accounting for
Uncertainty in Income Taxes—an interpretation of FASB Statement 109”, which
provides guidance on the measurement, recognition, and disclosure of tax
positions taken or expected to be taken in a tax return. The interpretation
also
provides guidance on derecognition, classification, interest and penalties,
and
disclosure. FIN 48 prescribes that a tax position should only be recognized
if
it is more-likely-than-not that the position will be sustained upon examination
by the appropriate taxing authority. A tax position that meets this threshold
is
measured as the largest amount of benefit that is greater than 50 percent
likely
of being realized upon ultimate settlement. The cumulative effect of applying
FIN 48 is to be reported as an adjustment to the beginning balance of retained
earnings in the period of adoption. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The company is assessing the impact, if
any, that the adoption may have on its financial statements.
In
March
2006, the FASB issued FASB Statement No. 156, Accounting for Servicing of
Financial Assets - an amendment to FASB Statement No. 140. Statement 156
requires that an entity recognize a servicing asset or servicing liability
each
time it undertakes an obligation to service a financial asset by entering
into a
service contract under certain situations. The new standard is effective
for
fiscal years beginning after September 15, 2006. The Company does not
expect its adoption of this new standard to have a material impact on its
financial position, results of operations or cash flows.
In
September 2006, the FASB issued SFAS 157, Fair
Value Measurements,
which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (“GAAP”), and expands disclosures about
fair value measurements. The Company will be required to adopt SFAS 157
effective for the fiscal year beginning January 1, 2008. The requirements
of SFAS 157 will be applied prospectively except for certain derivative
instruments that would be adjusted through the opening balance of retained
earnings in the period of adoption. The Company is currently evaluating the
impact of the adoption of SFAS 157 on the Company’s consolidated financial
statements and the management believes that the adoption of SFAS 157 will
not
have a significant impact on its consolidated results of operations or financial
position.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
158, Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans - an
amendment of FASB Statements No. 87, 88, 106, and 132R
(‘SFAS
158’). SFAS 158 changes current practice by requiring employers to
recognize the overfunded or underfunded positions of defined benefit
postretirement plans, including pension plans, on the balance sheet. The
funded status is defined as the difference between the projected benefit
obligation and the fair value of plan assets. SFAS 158 also requires
employers to recognize the change in funded status in other comprehensive
income
(a component of shareholders’ equity). SFAS 158 does not change the
requirements for the measurement and recognition of pension expense in the
statement of income. SFAS 158 is effective for fiscal years ending after
December 15, 2006. The Company does not anticipate any material impact to
its financial condition or results of operations as a result of the adoption
of
SFAS 158.
In
September 2006, the FASB ratified the consensus reached by the EITF on Issue
No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit
Aspects of Endorsement Split-Dollar Life Insurance Arrangements.” EITF 06-4
requires the recognition of a liability and related compensation costs for
endorsement split-dollar life insurance policies that provide a benefit to
an
employee that extends to postretirement periods as defined in SFAS No. 106,
“ Employers’ Accounting for Postretirement Benefits Other Than Pensions.” The
EITF reached a consensus that “Company Owned Life Insurance” policies purchased
for this purpose do not effectively settle the entity’s obligation to the
employee in this regard, and thus the entity must record compensation cost
and a
related liability. Entities should recognize the effects of applying this
Issue
through either, (a) a change in accounting principle through a
cumulative-effect adjustment to retained earnings or to other components
of
equity or net assets in the balance sheet as of the beginning of the year
of
adoption, or (b) a change in accounting principle through retrospective
application to all prior periods. This Issue is effective for fiscal years
beginning after December 15, 2007. The Company is assessing the impact, if
any, that adoption may have on its financial statements.
In
December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration
Payment Arrangements ("FSP
00-19-2")
which addresses accounting for registration payment arrangements. FSP
00-19-2
specifies that the contingent obligation to make future payments or otherwise
transfer consideration under a registration payment arrangement, whether
issued
as a separate agreement or included as a provision of a financial instrument
or
other agreement, should be separately recognized and measured in accordance
with
FASB Statement No. 5, Accounting for Contingencies. FSP
00-19-2
further clarifies that a financial instrument subject to a registration
payment
arrangement should be accounted for in accordance with other applicable
generally accepted accounting principles without regard to the contingent
obligation to transfer consideration pursuant to the registration payment
arrangement. For registration payment arrangements and financial instruments
subject to those arrangements that were entered into prior to the issuance
of
EITF 00-19-2, this guidance is effective for financial statements issued
for
fiscal years beginning after December 15, 2006 and interim periods within
those
fiscal years. The adoption of FSP 00-19-2 is not expected to have a material
impact on the Company’s financial condition or results of
operations.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS
159
permits entities to choose to measure many financial instruments, and certain
other items, at fair value. SFAS
159
applies to reporting periods beginning after November 15, 2007. The adoption
of
SFAS 159 is not expected to have a material impact on the Company’s financial
condition or results of operations.
RECLASSIFICATIONS
Certain
reclassifications have been made in prior year’s financial statements to conform
to classifications used in the current year.
NOTE
B -
MARKETABLE SECURITIES
During
the year ended December 31, 2006 and 2005, the Company classified all of
its
marketable securities as trading as the securities were bought and held
principally for the purpose of selling them in the near term. The Company
actively and frequently trades securities with the objective of generating
profits on short-term differences in price. The trading securities are marked
to
market on a monthly basis. At December 31, 2006 and 2005, the Company's trading
securities were carried at fair values of $17,993 and $138,910, respectively.
The Company included a realized net loss of $1,570, a net loss of $54,592,
and a
net gain of $37,356 on trading securities during the years ended December
31,
2006 and 2005, and for the period from October 14, 1999 (date of inception)
through December 31, 2006, respectively.
NOTE
C -
PROPERTY AND EQUIPMENT
In
October, 2003, the Company acquired approximately 140 acres of land and
related
improvements in Augusta County, Virginia, in exchange for $1,000,000, comprised
of $300,000 of cash and a $700,000 promissory note payable. In June 2005,
the
Company purchased a parcel of land located approximately 10 miles south
of the
Augusta County, Virginia location. The purchased parcel is 33.52 acres
which the
Company acquired for $725,000, comprised of $225,000 of cash and a $500,000
promissory note payable. The Company anticipates entering the sale of bulk
spring water and retail bottling business utilizing the properties’ water
resources. The Company also completed the purchase of the second Staunton,
Virginia property on April 10, 2006. The purchase price for the second
property
was $240,000, less a previously made $10,000 refundable deposit. The Company
paid $90,000 of the remaining purchase price at settlement and has financed
the
remaining $140,000.
Major
classes of property and equipment at December 31,
2006 and 2005 consisted of the following:
|
|
2006
|
|
2005
|
|
Land
|
|
$
|
1,965,000
|
|
$
|
1,725,000
|
|
Equipment
|
|
|
32,167
|
|
|
29,438
|
|
Building
improvements
|
|
|
118,595
|
|
|
24,280
|
|
|
|
|
|
|
|
|
|
|
|
|
2,115,762
|
|
|
1,778,718
|
|
Less
- accumulated depreciation
|
|
|
(5,725
|
)
|
|
(3,049
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
2,110,037
|
|
$
|
1,775,669
|
|
Depreciation
expense was $2,676 and $2,632 for the years ended December 31, 2006 and 2005,
respectively. The building improvements have not been placed in service as
of
December 31, 2006. Accordingly, depreciation has not been recorded on this
asset
group.
NOTE
D -
INTANGIBLES
INTANGIBLE
ASSET
In
June
2005, the Company purchased intellectual property including trademarks, service
marks, trade dress, trade names, brand names, designs and logos as well as
formulas for flavored sparkling waters and teas from a competitor. Under
the
terms of the agreement, the Company paid a purchase price of $10,000 with
royalties to be paid for the first 4,000,000 cases of bottled water or tea
sold
under the trademarks. As of the fifth anniversary of the effective date of
the
purchase, if the Company has not sold 4,000,000 cases of product under the
trademark, the seller shall be entitled to a payment of $50,000 less any
royalties previously paid under the agreement. The royalty payable under
this
intangible has been recorded at its present value of $34,200 at December
31,
2006 and is included in other long-term liabilities. The intangibles have
been
recorded at the carrying amount of $27,343 net of the discount amortized
and
charged to interest expense in relation to these intangibles through December
31, 2006 of $11,719. The intangible assets acquired will be amortized over
a
period of 5 years.
The
Company has adopted SFAS No. 142, Goodwill and Other Intangible Assets, whereby
the Company periodically tests its intangible assets for impairment. On an
annual basis, and when there is reason to suspect that their values have
been
diminished or impaired, these assets are tested for impairment, and write-downs
will be included in results from operations.
Estimated
amortization expense is as follows for years ending December 31:
2007
|
|
$
|
7,812
|
|
2008
|
|
|
7,812
|
|
2009
|
|
|
7,812
|
|
2010
|
|
|
3,907
|
|
2011
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
|
|
|
|
|
Total
|
|
$
|
27,343
|
|
DEFERRED
FINANCING COSTS
Deferred
financing costs associated with the Company’s convertible and various notes
payable are deferred and amortized over the life of the loan. Deferred financing
costs consisted of the following at December 31:
|
|
2006
|
|
2005
|
|
Deferred
financing costs
|
|
$
|
911,667
|
|
$
|
701,445
|
|
Less
- accumulated amortization
|
|
|
(359,860
|
)
|
|
(194,198
|
)
|
|
|
|
551,807
|
|
|
507,247
|
|
Less
- current portion
|
|
|
(293,941
|
)
|
|
(140,289
|
)
|
|
|
|
|
|
|
|
|
Deferred
financing costs - long-term
|
|
$
|
257,866
|
|
$
|
366,958
|
|
Amortization
expense on deferred financing costs was $165,662 and $141,788 as of December
31,
2006 and 2005, respectively.
NOTE
E -
NOTES PAYABLE
Notes
payable at December 31 consisted of the following:
|
|
2006
|
|
2005
|
|
Note
payable, 8% interest, principal and outstanding interest due and
payable
in May 2006, collateralized by land.
|
|
$
|
-
|
|
$
|
500,000
|
|
9.375
% note payable, monthly payments of $4,592 with remaining principal
and
outstanding interest due and payable June 2009,
collateralized
by land.
|
|
|
524,236
|
|
|
-
|
|
15%
note payable, monthly interest payments, principal due June 2007,
collateralized by land.
|
|
|
515,000
|
|
|
-
|
|
35%
note payable, monthly principal and interest payments of $65,000,
maturing
in December 2007, collateralized by signed put notices.
|
|
|
658,736
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
1,697,972
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
Less
- current portion
|
|
|
(1,179,950)
|
|
|
(500,000
|
)
|
|
|
|
|
|
|
|
|
Notes
payable - long-term
|
|
$
|
518,022
|
|
$
|
-
|
|
Aggregate
maturities of long-term debt as of December 31, 206 are as follows:
Fiscal
Year
|
|
|
|
|
|
|
|
2007
|
|
$
|
1,179,950
|
|
2008
|
|
|
55,098
|
|
2009
|
|
|
462,924
|
|
2010
|
|
|
-
|
|
2011
and after
|
|
|
-
|
|
|
|
|
|
|
|
|
$
|
1,697,972
|
|
During
June 2006, the Company obtained a $525,000 loan, which is secured by the
Mt.
Sidney property. The Company’s President absolutely and unconditionally
guaranteed the loan on behalf of the Company. By the terms of this second
loan,
the Company promised to pay to the lender the principal amount of $525,000
together with interest at a rate of 9.375% per annum on the unpaid principal
balance of the loan. The loan requires 35 regular installments of $4,592
each
and one balloon payment equal to the remaining principal balance of the loan,
accrued interest, and other applicable fees, costs and charges, due in June
2009. This loan was obtained to pay off a promissory note issued in May 2005
in
the amount of $500,000 and a portion of the accrued interest in the amount
of
$25,000 in connection with the promissory note. The remaining accrued interest
in connection with this promissory note and related fees and penalties were
also
paid off in cash during the year ended December 31, 2006.
During
2006, the Company obtained two interest-only mortgage loans totaling $515,000
in
regard to its Mt. Sidney property. The loans bear interest at a fixed rate
of
15.00% per annum, require monthly installments of interest throughout their
terms with a balloon payment, equal to the principal balance of the loans,
due
in June 2007.
During
December 2006, the Company entered into a promissory note with a face amount
of
$780,000. Under the terms of the note, the Company received $650,000 less
closing costs of $50,075 creating a calculated effective interest rate of
35%.
As a further incentive, the Company agreed to issue 250,000 shares of its
common
stock to the holder of the promissory note. The fair value of the shares,
$127,500, has been accounted for as deferred financing costs to be amortized
over the life of the note. An incentive stock liability was recorded to account
for the Company’s obligation at year end 2006. As detailed in the agreement, the
Company shall make payments to the holder in the amount of the greater of
(a)
100% of each Put (as defined in the investment agreement detailed in Note
N)
given to the investor from the Company or (b) made in 12 monthly increments
of
$65,000. The agreement is collateralized by signed put notices as well as
the
personal property of the President and Chief Executive Officer of the Company.
The Company is required to abide by certain covenants as detailed in the
promissory note. As the promissory note is neither a mandatorily redeemable
financial instrument or a forward contract, the obligation was recorded as
a
liability and measured in accordance with FASB 150 at its fair
value.
NOTE
F -
PRIVATE PLACEMENT AND CONVERTIBLE PROMISSORY NOTES PAYABLE
The
Company entered into a Private Placement Memorandum in August 2004 to offer
up
to 1,000 units of an equity/notes payable instrument. Each unit consists
of
2,500 shares of common stock of the Company, $1,500 of convertible promissory
notes (Convertible Notes), and 1 warrant to purchase 300 shares of the Company's
common stock at $0.85 per share. The Convertible Notes accrue interest at
11%
per annum which is payable and due in September 2009. The note holders have
the
option to convert any unpaid note principal and accrued interest to the
Company's common stock at a rate of $0.85 per share anytime after six months
from the issuance date of the note.
As
of
December 31, 2005, the Company had received proceeds of $2,665,116, net of
placement costs and fees of $331,884, for 999 units subscribed. Pursuant
to the
terms of the Private Placement Memorandum, the Company issued to the investors
Convertible Notes in an aggregate of $1,498,500. The Company is obligated
to
issue 2,497,500 shares of its common stock, valued at $1,563,376, to the
investors in connection with the private placement. The Company also issued
to
investors an aggregate of 999 warrants to purchase 299,700 shares of common
stock as of December 31, 2005.
A
summary
of convertible promissory notes payable at December 31 are as
follows:
|
|
2006
|
|
2005
|
|
Convertible
notes payable (Convertible Notes), 11% per
|
|
|
|
|
|
|
|
annum,
maturity of September 2009, note holder has
|
|
|
|
|
|
|
|
the
option to convert unpaid note principal and interest
|
|
|
|
|
|
|
|
to
the Company's common stock at $0.85 per share
|
|
$
|
1,498,500
|
|
$
|
1,498,500
|
|
Debt
discount - note, net of accumulated amortization
|
|
|
|
|
|
|
|
of
and $125,970 and $69,929 at December 31, 2006 and
|
|
|
|
|
|
|
|
2005,
respectively.
|
|
|
(154,238
|
)
|
|
(210,278
|
)
|
|
|
|
|
|
|
|
|
Debt
discount - beneficial conversion feature - note, net
|
|
|
|
|
|
|
|
of
accumulated amortization of $125,970 and $69,929
|
|
|
|
|
|
|
|
at
December 31, 2006 and 2005, respectively.
|
|
|
(154,238
|
)
|
|
(210,278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
1,190,024
|
|
|
1,077,944
|
|
|
|
|
|
|
|
|
|
Less
- current portion
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,190,024
|
|
$
|
1,077,944
|
|
In
accordance with Emerging
Issues Task Force Issue 98-5, Accounting For Convertible Securities With
a
Beneficial Conversion Feature or Contingently Adjustable Conversion Ratios
(EITF
98-5),
the
Company allocated, on a relative fair value basis, the net proceeds amongst
the
common stock, convertible notes and warrants issued to the investors. As
of
December 31, 2005, the Company recognized a discount to the notes in the
amount
of $280,207. The note discount is being amortized over the maturity period
of
the notes, being five years. As of December 31, 2005, the Company had recognized
a total of $280,207 of the proceeds, which is equal to the intrinsic value
of
the imbedded beneficial conversion feature, to additional paid-in capital
and a
discount against the Convertible Note. The debt discount attributed to the
beneficial conversion feature is amortized over the Convertible Notes’ maturity
period, being five years, as interest expense.
In
connection with the placement of the Convertible Notes, the Company issued
detachable warrants granting the holders the right to acquire a total of
299,700
shares of the Company’s common stock at $0.85 per share as of December 31, 2005.
The warrants expire five years from their issuance. As of December 31, 2005,
the
Company had recognized the value attributable to the warrants, being $190,143,
to additional paid-in capital in accordance with Emerging
Issues Task Force Issue 00-27, Application of Issue No. 98-5 to Certain
Convertible Instruments (EITF 00-27). The
Company valued the warrants in accordance with EITF 00-27 using the
Black-Scholes pricing model and the following assumptions: contractual terms
of
5 years, an average risk free interest rate of 3.38%, a dividend yield of
0%,
and volatility of 296%.
The
Company amortized the Convertible Notes’ debt discount and the debt discount
attributed to the beneficial conversion feature and recorded non-cash interest
expense of $112,083 for the years ended December 31, 2006 and 2005.
Financing
costs attributable to the equity portion of the private placement totaled
$175,899 and were netted against the amount attributable to common stock.
Deferred financing costs of $155,985 attributable to the debt portion of
the
private placement are being amortized over the life of the debt instrument,
being 5 years. The Company amortized $31,197 for the years ended December
31,
2006 and 2005, in relation to the deferred financing costs.
NOTE
G -
COMMON STOCK
The
Company was incorporated under the laws of the State of Delaware on October
14,
1999 under the name of Pre-Settlement Funding Corporation. The Company has
authorized 100,000 shares of preferred stock, with a par value of $.001 per
share. The Company has designated 60,000 of its preferred stock as Series
A
Convertible Preferred Stock. As of December 31, 2006 and 2005, the Company
does
not have any shares of Series A Convertible Preferred Stock issued and
outstanding. The Company has authorized 19,900,000 shares of common stock,
with
a par value of $.001 per share. As of December 31, 2006 and 2005, there were
8,935,474 and 8,875,476 shares of common stock issued and outstanding,
respectively.
In
March
2000, the Company issued $ 124,000 of notes payable convertible into common
stock at a price equal to $.50 per share. As of December 31, 2000, the holders
of the notes payable elected to convert $52,000 of the notes, net of costs,
in
exchange for 104,000 shares of the Company's common stock.
In
January 2001, the holders of the $ 72,000 of convertible Notes Payable,
exercised their rights to convert the unpaid principal to 144,000 shares
of the
Company's common stock at the conversion price of $.50 per share.
In
January 2001, $15,000 of convertible notes payable were issued and converted
to
30,000 shares of the Company's common stock.
In
January 2001, the Company issued 5,000,000 shares of its common stock to
the
Company's Founders in exchange for services provided to the Company from
its
inception. The Company valued the shares issued at $.001 per share, which
approximated the fair value of the services rendered. The compensation costs
of
$5,020 were charged to income during the year ended December 31,
2001.
In
January 2001, the Company issued 90,000 shares of its common stock to
consultants in exchange for services provided to the Company. The Company
valued
the shares issued at $ .50 per share, which approximated the fair value of
the
shares issued during the period the services were rendered. The compensation
costs of $ 45,000 were charged to income during the year ended December 31,
2001.
During
the year ended December 31, 2003, the Company authorized the issuance of
60,000
shares of newly designated Series A Convertible Preferred stock, with a par
value of $0.001 per share. As of December 31, 2003 the Company issued 55,000
shares of the Series A Convertible Preferred stock in exchange for $275,000,
net
of costs and fees.
The
Series A Convertible Preferred Stock are convertible into the Company's common
stock at the option of the holder at a ratio of ten (10) shares of common
stock
for each share of preferred stock if converted before the first anniversary
of
the original issue date and at a ratio of five (5) shares of common stock
for
each share of preferred stock if conversion is made after the first anniversary
but before the second anniversary.
The
preferred shares may be redeemed for cash at the option of the Company, any
time
after the first anniversary of the original issue date but before the second
anniversary. The Preferred Shareholders shall be entitled to cumulative
dividends when and if declared by the Company's Board of Directors at a per
share rate of 10% per annum of the original issue price. At the option of
the
preferred shareholders, accrued and unpaid cumulative dividends may be applied
to the purchase of additional shares of the Company's common stock upon
conversion of the preferred shares to common shares. The Preferred Shares
rank
senior to the common stock. The Preferred Shares have a liquidation preference
of payment of the original purchase price of the Preferred Shares plus all
declared but unpaid dividends on such shares.
The
fair
value of the Company's common stock at the time the conversion option was
granted was below the value of the Preferred Stock if converted. Accordingly,
the Company recognized no beneficial conversion feature embedded in the Series
A
Preferred Stock.
In
April
2004, the Company issued 160,000 shares of its common stock to a shareholder
in
exchange for previously issued stock options exercised at $.5625 per share,
for
a total of $90,000. In exchange for the shares, the holder of the options
paid
$63,500 in cash, and tendered 5,000 shares of the Company's previously issued
Series A preferred stock valued at $5 per share. The remaining balance of
$1,500
was accounted for as financing expenses and was charged to operations during
the
year ended December 31, 2004. The preferred shares tendered were subsequently
cancelled by the Company.
In
April
2004, the Company issued an aggregate of 300,000 shares of its restricted
common
stock to an investor in exchange for $90,000 of proceeds, net of costs and
fees.
Pursuant
to the Private Placement Memorandum, the Company was obligated to issue an
aggregate of 2,460,000 shares of its common stock, valued at $1,387,477 net
of
placement costs attributable to the equity portion of the private placement,
to
the investors in connection with 984 units sold in the private placement
as of
December 31, 2004. The Company has issued an aggregate of 2,404,978 shares
to
the investors at December 31, 2004, and the remaining aggregate of 54,998
shares
were issued to the investors in January 2005 (fractional shares of 24 shares
of
common stock will not be issued). The Company has accounted for the shares
not
issued at December 31, 2004 as common stock subscription payable in the amount
of $25,581.
In
December 2004, the Company's Series A Preferred Stock holders elected to
convert
an aggregate of 50,000 sharers of Preferred Stock into 500,000 shares of
the
Company's common stock, at a ratio of ten (10) shares of common stock for
each
share of preferred stock. In connection with the conversion, the Company
also
issued an aggregate of 50,000 shares of its common stock in exchange for
$25,000
of dividends in arrears. As of December 31, 2004, all Series A Convertible
Preferred Stock has been converted to the Company's common stock, and there
was
no Preferred Stock issued and outstanding at December 31, 2004.
In
January 2005, pursuant to the Private Placement Memorandum, the Company was
obligated to issue an aggregate of 37,500 shares of its common stock, valued
at
$25,188 to the investors in connection with 15 units sold in the private
placement as of December 31, 2005.
During
the year ended 2006, the Company issued an aggregate of 219,998 shares of
common
stock in exchange for $99,000 of proceeds, net of costs and fees.
In
December 2006, the Company repurchased 160,000 shares of common stock from
a
former employee for $1.25 per share. In accordance with FASB Technical Bulletin
85-6, the amount paid per share was considered to be significantly in excess
of
the current market price of $0.51 per share thereby creating a presumption
that
the purchase price is not attributable to the stock value alone. As such,
the
excess amount of $0.74 per share is deemed to be attributable to a severance
payment and $118,400 was charged to compensation expense in 2006. The shares
were retired by the Company immediately after repurchase.
NOTE
H -
TERMINATION AGREEMENT
In
April
2004, the Company issued 160,000 shares of its common stock to a shareholder
in
exchange for previously issued stock options exercised at $.5625 per share,
for
a total of $90,000. In exchange for the shares, the holder of the options
paid
$63,500 in cash, and tendered 5,000 shares of the Company's previously issued
Series A preferred stock valued at $5 per share. The remaining balance of
$1,500
was accounted for as financing expense and was charged to operations during
the
year ended December 31, 2004.
In
October 2004, the Company entered into an agreement (termination agreement)
granting the shareholder an option to put the 160,000 shares of common stock
to
the Company one year from the date of the agreement for $1.25 per share.
The
shareholder agreed to cancel 677,500 stock options exercisable at $.5625
per
share.
The
Company accounted for the puts in accordance with Statement
of Financial Accounting Standards No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity (SFAS
150),
and
classified the fair value attributable to the put option as an accrued
liability, as the puts issued under the termination agreement embody an
obligation to repurchase the Company's equity shares which would require
the
Company to settle the agreement by transferring its assets. The put option
was
initially measured at its fair value of $170,256 as of the date of the
agreement.
Assumptions
used to estimate the fair value of the put option are as follows:
Risk-free
interest rate
|
|
|
3.38%
|
|
Dividend
yield
|
|
|
-
|
|
Volatility
|
|
|
296%
|
|
Time
to expiration
|
|
|
1
year
|
|
Equity
was reduced by the original value of the shares, being $90,000, with the
remaining value of $80,256 being charged to other expense.
In
October 2005, the termination agreement and puts expired without being
exercised. At the time of expiration, the fair value of the accrued liability
attributable to the puts was $87,984. Accordingly, equity has been increased
by
the original value of the shares, being $90,000, with the remaining value
of
$2,016 being charged to other expense.
NOTE
I -
STOCK OPTIONS AND WARRANTS
STOCK
OPTIONS
The
following table summarizes the changes in options outstanding and the related
prices for the shares of the Company's common stock issued to the Company’s
Chief Executive Officer. These options were granted in lieu of cash compensation
for services performed or other consideration.
Options
Outstanding
|
|
Options
Exercisable
|
|
Exercise
Price
|
|
|
Number
Outstanding
|
|
|
Weighted
Average Contractual Life
(Years)
|
|
|
Weighted
Average Exercise Price
|
|
|
Numbers
Exercisable
|
|
|
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
0.50 - 2.00
|
|
|
1,575,000
|
|
|
3.84
|
|
$
|
1.33
|
|
|
1,575,000
|
|
$
|
1.33
|
|
Transactions
involving options issued to employees and consultants during 2006 and 2005
are
summarized as follows:
|
|
|
Number
of
Shares
|
|
|
Weighted
Average
Price
Per
Share
|
|
Outstanding
at December 31, 2004
|
|
|
1,500,000
|
|
|
1.35
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
Cancelled
or expired
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2005
|
|
|
1,500,000
|
|
$
|
1.35
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
75,000
|
|
|
0.85
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
Cancelled
or expired
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
|
|
1,575,000
|
|
$
|
1.33
|
|
The
estimated value of the compensatory options granted to a consultant in exchange
for services rendered was determined using the Black-Scholes pricing model
and
the following assumptions: contractual term of 4 years, a risk free interest
rate of 4.875%, a dividend yield of 0% and volatility of 111%. The Company
charged $38,490 to operations in connection with these options during the
year
ended December 31, 2006.
WARRANTS
In
connection with the Company’s Private Placement (Note F) the Company granted an
aggregate of 999 warrants to investors, each exercisable for 300 shares of
common stock Additionally, the Company granted 594,000 warrants to a placement
agent in exchange for services. Each warrant will be exercisable for one
share
of the Company's common stock.
The
following table summarizes the changes in warrants outstanding and the related
prices for the shares of the Company's common stock.
Warrants Outstanding
|
|
Warrants
Exercisable
|
|
Exercise
Price
|
|
|
Number
Outstanding
|
|
|
Weighted
Average Contractual Life
(Years)
|
|
|
Weighted
Average Exercise Price
|
|
|
Numbers
Exercisable
|
|
|
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
0.85
|
|
|
594,999
|
|
|
2.69
|
|
$
|
0.85
|
|
|
594,999
|
|
$
|
0.85
|
|
Transactions
involving warrants issued to investors and consultants are summarized as
follows:
|
|
Number
of
common
shares
issuable
upon
exercise
of warrants
|
|
Weighted
Average
Price
Per
Share
|
|
Outstanding
at December 31, 2004
|
|
|
889,200
|
|
|
0.85
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
4,500
|
|
|
0.85
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
Cancelled
or expired
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2005
|
|
|
893,700
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
Cancelled
or expired
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
|
|
893,700
|
|
$
|
0.85
|
|
The
estimated value of the compensatory warrants granted to the Company's placement
agent in exchange for services rendered was determined using the Black-Scholes
pricing model and the following assumptions: contractual term of 5 years,
a risk
free interest rate of 3.38%, a dividend yield of 0% and volatility of 291%.
The
Company capitalized financing costs of $545,460 and the financing costs were
amortized over the contractual terms (five years) of the convertible debenture.
During the year ended December 31, 2006 and 2005, the Company amortized
financing costs and charged $109,092 and $110,591, respectively, to
operations.
NOTE
J -
RELATED PARTY TRANSACTIONS
The
Company’s President had advanced funds to the Company for working capital
purposes. The Company had paid in full the amount due to the Company’s President
during the years ended December 31, 2004. Additionally, the total payment
the
Company remitted exceeded the total balance due to the Company’s President in
the amount of $42,951, $50,500 and $144,006 during the years ended December
31,
2006, 2005 and 2004, respectively. The Company has accounted for the excess
payments to the Company’s President as a nonreciprocal transfer to a shareholder
for 2006, 2005 and 2004 and, accordingly, has reflected the overpayment as
a
direct reduction of additional paid-in capital.
During
2005, the Company’s President contributed capital of $140,000 to the Company in
direct response to the excess payment. The Company has accounted for the
net
contribution of $89,500 as an addition to paid-in capital.
During
2006, the Company’s President contributed capital of $54,505 to the Company in
direct response to the excess payment. The Company has accounted for the
contribution as an addition to paid-in capital.
The
Company’s director, Ronald L. Attkisson, is also the principal stockholder of
Jones, Byrd and Attkisson, which, from August 2004 until February 2005, acted
as
placement agent for the Company’s private placement. In connection with its role
as placement agent, Jones, Byrd and Attkisson received a fee of $299,700
and was
issued 594,000 warrants exercisable for 594,000 shares of our common stock
at
$0.85 per share (Note F and Note I). Jones, Byrd and Attkisson is also acting
as
placement agent under the investment agreement with regard to the equity
line of
credit. Under our placement agent agreement for the equity line of credit
(Note
N), we agreed to pay Jones, Byrd and Attkisson 1% of the gross proceeds from
each put exercised under the investment agreement. Subsequent to the date
of
financial statements, Ronald Attkisson resigned as a director of the Company.
NOTE
K -
EARNINGS PER SHARE
|
|
2006
|
|
|
|
Income
(Numerator)
|
|
Shares
(Denominator)
|
|
Per-share
Amount
|
|
Loss
available to common shareholders
|
|
$
|
(1,785,386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and fully diluted loss per share
|
|
$
|
(1,785,386
|
)
|
|
9,005,009
|
|
$
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
available to common shareholders
|
|
$
|
(1,116,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and fully diluted loss per share
|
|
$
|
(1,116,048
|
)
|
|
8,874,462
|
|
$
|
(0.13
|
)
|
Options
to purchase 1,575,000 shares of common stock at $1.33 per share outstanding
during 2006 and as well as options to purchase 1,500,000 shares of common
stock
at $1.35 per share outstanding during 2005 were not included in the computation
of diluted earnings per share due to their anti-dilutive effect on earnings
per
share. The options to purchase 1,575,000 shares of common stock were still
outstanding at the end of year 2006.
Warrants
to purchase 893,700 shares of common stock at $0.85 per share were outstanding
at December 31, 2006 and 2005, and were not included in the computation of
diluted earnings per share due to their anti-dilutive effect on earnings
per
share.
Convertible
notes with the option to purchase 1,762,942 shares of common stock at $0.85
per
share were outstanding at December 31, 2006 and 2005, and were not included
in
the computation of diluted earnings per share due to their anti-dilutive
effect
on earnings per share.
NOTE
L -
INCOME TAXES
The
Company has adopted SFAS 109, which requires the recognition of deferred
tax
liabilities and assets for the expected future tax consequences of events
that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between financial statements and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Permanent differences between taxable income reported
for
financial reporting purposes and income tax purposes are
insignificant.
For
income tax reporting purposes, the Company's aggregate unused net operating
losses approximate $3,280,000, and expire through 2026, subject to limitations
of Section 382 of the Internal Revenue Code, as amended. The deferred tax
assets
related to the net operating loss carryforwards are approximately $1,100,000
and
$673,500 for the years ended December 31, 2006 and 2005, respectively.
The
Company has provided a valuation reserve against the full amount of the net
operating loss benefit for 2006 and 2005 since, in the opinion of management
based upon the earning history of the Company, it is unlikely the benefits
will
be realized.
NOTE
M -
COMMITMENTS AND CONTINGENCIES
LEASE
COMMITMENTS
The
Company leases office space for its corporate offices in Alexandria, Virginia
on
a month to month basis. Rental expense for the years ended December 31, 2006
and
2005 was $2,253 and $2,308, respectively, and was charged to operations in
the
period incurred.
CONSULTING
AGREEMENTS
The
Company has consulting agreements with outside contractors to provide web
development, business development, and investment banking services. The
agreements are generally for a term of 12 months from inception and renewable
automatically from year to year unless either the Company or Consultant
terminates such engagement with written notice. Compensation under each
agreement varies in accordance with the terms of each engagement.
LITIGATION
As
of
December 31, 2006, the Company is not a party to ant legal proceedings, nor
are
there any judgments against the Company. However, the Company may be subject
to
legal proceedings and claims, which arise in the ordinary course of its
business. Although occasional adverse decisions or settlements may occur,
the
Company believes that the final disposition of such matters should not have
a
material adverse effect on its financial position, results of operations
or
liquidity.
NOTE
N -
LINE OF CREDIT
On
September 12, 2005, the Company entered into an investment agreement (Agreement)
with Dutchess Private Equities Fund, LP (Dutchess) to provide the Company
with
an Equity Line of Credit. Pursuant to the Agreement, Dutchess has agreed
to
provide the Company with up to $5,000,000 of funding during the 36-month
period
following the date a registration statement of the Company’s common stock is
declared effective by the Securities and Exchange Commission. During this
36
month period, the Company may request a draw down under the Equity Line of
Credit by which the Company would sell shares of its common stock to Dutchess,
which is obligated to purchase the shares under the Agreement. The Company
may,
at its election, require Dutchess to purchase an amount equal to no more
than
either (a) 200% of the average daily volume of the Company’s common stock for
the 10 trading days prior to the put notice date, multiplied by the average
of
the three daily closing bid prices immediately preceding the put notice date
or
(b) $100,000; provided that the Company may not request more than $1,000,000
in
any single put notice. On the trading day following the put notice date,
a
pricing period of five trading days will begin. The purchase price for the
common stock identified in the put notice will be equal to 95% of the lowest
closing best bid price of the Company’s common stock during the pricing period.
The Company is under no obligation to draw down under the Equity Line of
Credit.
In November 2006, a registration statement pertaining
to the Company’s common stock was declared effective by the Securities and
Exchange Commission.
NOTE
O -
GOING CONCERN MATTERS
The
accompanying statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities
in
the normal course of business. As shown in the financial statements from October
14, 1999 (date of inception of Company), the Company has generated minimal
revenues and has accumulated losses of $3,799,571. These factors, among others,
may indicate that the Company will be unable to continue as a going concern
for
a reasonable period of time.
The
Company's existence is dependent upon management's ability to develop profitable
operations and resolve its liquidity problems. Management anticipates the
Company will attain profitable status and improve its liquidity through the
continued development of its products, establishing a profitable market for
the
Company's products and additional equity investment in the Company. The
accompanying financial statements do not include any adjustments that might
result should the Company be unable to continue as a going concern.
In
order
to improve the Company's liquidity, the Company is actively pursing additional
debt and equity financing through discussions with investment bankers and
private investors. There can be no assurance the Company will be successful
in
its effort to secure additional equity financing.
If
operations and cash flows continue to improve through these efforts, management
believes that the Company can continue to operate. However, no assurance
can be
given that management's actions will result in profitable operations or in
the
resolution of its liquidity problems.
PART
I -
FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS (UNAUDITED)
Index
to
Financial Statements
Condensed Consolidated Balance Sheet
at June
30, 2007 (unaudited) |
F-32
|
|
|
Condensed
Consolidated Statement of Operations
For
The Three and Six Months Ended June 30, 2007 and 2006
And
For The Period From October 14, 1999 (Date Of Inception) Through
June 30,
2007 (unaudited)
|
F-33
|
|
|
Condensed
Consolidated Statements Of (Deficiency In) Stockholders’
Equity
For
The Period From October 14, 1999 (Date Of Inception) Through June
30, 2007
(unaudited)
|
F-34
|
|
|
Condensed
Consolidated Statements of Cash Flows
For
Six Months Ended June 30, 2007 and 2006
And
For The Period From October 14, 1999 (Date Of Inception) Through
June 30,
2007 (unaudited)
|
F-38
|
|
|
Notes
to Unaudited Condensed Consolidated Financial Information June
30, 2007
|
F-39
|
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONDENSED
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
|
|
June
30, 2007
|
|
ASSETS
|
|
(Unaudited)
|
|
Current
assets:
|
|
|
|
Cash
and cash equivalent
|
|
$ |
475
|
|
Marketable
securities (Note B)
|
|
|
22,505
|
|
Financing
costs, net – current portion
|
|
|
19,116
|
|
Deposits
|
|
|
65,300
|
|
Total
current assets
|
|
|
107,396
|
|
|
|
|
|
|
Property
and equipment:
|
|
|
|
|
Land
|
|
|
1,965,000
|
|
Equipment
|
|
|
32,167
|
|
Building
|
|
|
100,800
|
|
Building
improvement
|
|
|
102,906
|
|
|
|
|
2,200,873
|
|
Less:
accumulated depreciation
|
|
|
(7,131 |
) |
Total
property and equipment
|
|
|
2,193,742
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
Financing
costs, net – less current portion
|
|
|
4,977
|
|
Intangible
asset, net
|
|
|
23,437
|
|
Total
other assets
|
|
|
28,414
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,329,552
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Cash
disbursed in excess of available funds
|
|
$ |
1,680
|
|
Accounts
payable and accrued liabilities
|
|
|
170,909
|
|
Due
to related party (Note G)
|
|
|
156,158
|
|
Notes
payable – current portion (Note C)
|
|
|
1,010,450
|
|
Total
current liabilities
|
|
|
1,339,197
|
|
|
|
|
|
|
Convertible
notes payable, net of debt discount (Note D)
|
|
|
32,436
|
|
Notes
payable – less current portion (Note C)
|
|
|
518,786
|
|
Other
long-term liabilities
|
|
|
36,107
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,926,526
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
Preferred
stock, par value $.001 per share; 100,000 shares authorized: (Note
E)
|
|
|
|
|
Series
A Convertible Preferred stock, par value $.001 per share; 60,000
shares
authorized; none issued and outstanding at June 30, 2007
|
|
|
-
|
|
Common
stock, par value $.001 per share; 19,900,000 shares authorized;
13,279,610
shares issued and outstanding at June 30, 2007 (Note E)
|
|
|
13,280
|
|
Additional
paid-in-capital
|
|
|
6,314,749
|
|
Preferred
stock dividend
|
|
|
(25,000 |
) |
Accumulated
deficit
|
|
|
(5,900,003 |
) |
Stockholders'
equity
|
|
|
403,026
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$ |
2,329,552
|
|
See
accompanying notes to unaudited condensed consolidated financial
information
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
For
the three months ended June 30,
|
|
|
For
the six months ended June 30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
For
the period from October 14, 1999 (Date of Inception) Through June
30,
2007
|
|
Revenue,
net
|
|
$ |
1,775
|
|
|
$ |
1,010
|
|
|
$ |
2,084
|
|
|
$ |
1,600
|
|
|
$ |
7,912
|
|
Gross
profit
|
|
|
1,775
|
|
|
|
1,010
|
|
|
|
2,084
|
|
|
|
1,600
|
|
|
|
7,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
365,188
|
|
|
|
332,295
|
|
|
|
546,419
|
|
|
|
559,847
|
|
|
|
4,420,211
|
|
(Gain)
loss on trading securities (Note B)
|
|
|
(456 |
) |
|
|
731
|
|
|
|
248
|
|
|
|
531
|
|
|
|
(37,108 |
) |
Amortization
and financing fees
|
|
|
456,223
|
|
|
|
-
|
|
|
|
544,051
|
|
|
|
-
|
|
|
|
544,051
|
|
Marketing
expenses
|
|
|
153,392
|
|
|
|
-
|
|
|
|
295,812
|
|
|
|
-
|
|
|
|
295,812
|
|
Depreciation
expenses
|
|
|
703
|
|
|
|
658
|
|
|
|
1,406
|
|
|
|
1,316
|
|
|
|
18,851
|
|
Total
operating expense
|
|
|
975,050
|
|
|
|
333,684
|
|
|
|
1,387,936
|
|
|
|
561,694
|
|
|
|
5,241,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(973,275 |
) |
|
|
(332,674 |
) |
|
|
(1,385,852 |
) |
|
|
(560,094 |
) |
|
|
(5,233,905 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
61,969
|
|
Gain/(Loss)
on early extinguishment of debt
|
|
|
(79,970 |
) |
|
|
-
|
|
|
|
(79,970 |
) |
|
|
-
|
|
|
|
727,133
|
|
Interest
expense, net
|
|
|
(386,595 |
) |
|
|
(90,755 |
) |
|
|
(634,610 |
) |
|
|
(170,130 |
) |
|
|
(1,472,101 |
) |
|
|
|
(466,565 |
) |
|
|
(90,755 |
) |
|
|
(714,580 |
) |
|
|
(170,130 |
) |
|
|
(682,999 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before income taxes and discontinued
operations
|
|
|
(1,439,840 |
) |
|
|
(423,429 |
) |
|
|
(2,100,432 |
) |
|
|
(730,224 |
) |
|
|
(5,916,904 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before discontinued operations
|
|
|
(1,439,840 |
) |
|
|
(423,429 |
) |
|
|
(2,100,432 |
) |
|
|
(730,224 |
) |
|
|
(5,916,904 |
) |
Income
from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(1,439,840 |
) |
|
$ |
(423,429 |
) |
|
$ |
(2,100,432 |
) |
|
$ |
(730,224 |
) |
|
$ |
(5,900,003 |
) |
Preferred
stock dividend
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(25,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common shareholders
|
|
$ |
(1,439,840 |
) |
|
$ |
(423,429 |
) |
|
$ |
(2,100,432 |
) |
|
$ |
(730,224 |
) |
|
$ |
(5,925,003 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses
per common share (basic and assuming dilution)
|
|
$ |
(0.12 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.20 |
) |
|
$ |
(0.08 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
11,664,075
|
|
|
|
9,008,809
|
|
|
|
10,427,284
|
|
|
|
8,942,143
|
|
|
|
|
|
See
accompanying notes to unaudited condensed consolidated financial
information
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONDENSED
CONSOLIDATED STATEMENTS OF (DEFICIENCY IN) STOCKHOLDERS' EQUITY
FOR
THE
PERIOD OCTOBER 14, 1999 (DATE OF INCEPTION) TO JUNE 30, 2007
(Unaudited)
|
|
|
Preferred
Shares
|
|
|
Preferred
Stock Amount
|
|
|
Common
Shares
|
|
|
Common
Stock Amount
|
|
|
Additional
Paid-in Capital
|
|
|
Common
Stock Subscription
|
|
|
Preferred
Stock Dividend
|
|
|
Deficit
Accumulated During Development Stage
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
$ |
-
|
|
|
|
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
(1,291 |
) |
|
$ |
(1,291 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 1999
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,291 |
) |
|
|
(1,291 |
) |
Common
stock issued on September
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,
2000 in exchange for convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
debt
at $.50 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
78,000
|
|
|
|
78
|
|
|
|
38,922
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,000
|
|
Common
stock issued on November
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,
2000 in exchange for convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
debt
at $.50 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
26,000
|
|
|
|
26
|
|
|
|
12,974
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(157,734 |
) |
|
|
(157,734 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2000
|
|
|
-
|
|
|
|
-
|
|
|
|
104,000
|
|
|
|
104
|
|
|
|
51,896
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(159,025 |
) |
|
|
(107,025 |
) |
Common
stock issued on January 1,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001
in exchange for convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at
$.50 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
174,000
|
|
|
|
174
|
|
|
|
86,826
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
87,000
|
|
Common
stock issued on January 2,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001
to founders in exchange for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
services
rendered at $.001 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000,000
|
|
|
|
5,000
|
|
|
|
20
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,020
|
|
Common
stock issued on January 2,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001
in exchange for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
rendered
at $.50 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
90,000
|
|
|
|
90
|
|
|
|
44,910
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(556,921 |
) |
|
|
(556,921 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2001
|
|
|
-
|
|
|
|
-
|
|
|
|
5,368,000
|
|
|
|
5,368
|
|
|
|
183,652
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(715,946 |
) |
|
|
(526,926 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(357,588 |
) |
|
|
(357,588 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2002
|
|
|
-
|
|
|
$ |
-
|
|
|
|
5,368,000
|
|
|
$ |
5,368
|
|
|
$ |
183,652
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
(1,073,534 |
) |
|
$ |
(884,514 |
) |
See
accompanying notes to unaudited condensed consolidated financial
information
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONDENSED
CONSOLIDATED STATEMENTS OF (DEFICIENCY IN) STOCKHOLDERS' EQUITY (CONTINUED)
FOR
THE
PERIOD OCTOBER 14, 1999 (DATE OF INCEPTION) TO JUNE 30, 2007
(Unaudited)
|
|
Preferred
Shares
|
|
|
Preferred
Stock Amount
|
|
|
Common
Shares
|
|
|
Common
Stock Amount
|
|
|
Additional
Paid-in Capital
|
|
|
Common
Stock Subscription
|
|
|
Preferred
Stock Dividend
|
|
|
Deficit
Accumulated During Development Stage
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2002
|
|
|
-
|
|
|
$ |
-
|
|
|
|
5,368,000
|
|
|
$ |
5,368
|
|
|
$ |
183,652
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
(1,073,534 |
) |
|
$ |
(884,514 |
) |
Preferred
stock issued in exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
cash at $5 per share
|
|
|
55,000
|
|
|
|
55
|
|
|
|
-
|
|
|
|
-
|
|
|
|
274,945
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
275,000
|
|
Stock
options issued in exchange for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
services
rendered
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,276
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
506,846
|
|
|
|
506,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2003
|
|
|
55,000
|
|
|
$ |
55
|
|
|
|
5,368,000
|
|
|
$ |
5,368
|
|
|
$ |
463,873
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
(566,688 |
) |
|
$ |
(97,392 |
) |
Preferred
stock cancelled in exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
stock options exercised at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$.5625
per share
|
|
|
(5,000 |
) |
|
|
(5 |
) |
|
|
160,000
|
|
|
|
160
|
|
|
|
64,845
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
65,000
|
|
Common
stock issued on April 8, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
exchange for cash at $.30 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
300,000
|
|
|
|
300
|
|
|
|
89,700
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
90,000
|
|
Common
stock issued and subscribed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
connection with private placement
|
|
|
-
|
|
|
|
-
|
|
|
|
2,404,978
|
|
|
|
2,405
|
|
|
|
1,359,491
|
|
|
|
25,581
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,387,477
|
|
Conversion
of preferred stock to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
|
(50,000
|
) |
|
|
(50 |
) |
|
|
500,000
|
|
|
|
500
|
|
|
|
(450 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividend
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
50
|
|
|
|
24,950
|
|
|
|
-
|
|
|
|
(25,000
|
) |
|
|
-
|
|
|
|
-
|
|
Warrants
issued to consultants in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exchange
for services rendered
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
545,460
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
545,460
|
|
Beneficial
conversion feature of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
debentures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
274,499
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
274,499
|
|
Value
of warrants attached to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
debentures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
187,123
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
187,123
|
|
Return
of contributed capital to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholder
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(144,006 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(144,006 |
) |
Reclassification
of equity to liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
upon
issuance of put agreement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(90,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss, as restated
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(331,449 |
) |
|
|
(331,449 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004
|
|
|
-
|
|
|
$ |
-
|
|
|
|
8,782,978
|
|
|
$ |
8,783
|
|
|
$ |
2,775,485
|
|
|
$ |
25,581
|
|
|
$ |
(25,000
|
) |
|
$ |
(898,137 |
) |
|
$ |
1,886,712
|
|
See
accompanying notes to unaudited condensed consolidated financial
information
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONDENSED
CONSOLIDATED STATEMENTS OF (DEFICIENCY IN) STOCKHOLDERS' EQUITY (CONTINUED)
FOR
THE
PERIOD OCTOBER 14, 1999 (DATE OF INCEPTION) TO JUNE 30, 2007
(Unaudited)
|
|
Preferred
Shares
|
|
|
Preferred
Stock Amount
|
|
|
Common
Shares
|
|
|
Common
Stock Amount
|
|
|
Additional
Paid-in Capital
|
|
|
Common
Stock Subscription
|
|
|
Preferred
Stock Dividend
|
|
|
Deficit
Accumulated During Development Stage
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004
|
|
|
-
|
|
|
$ |
-
|
|
|
|
8,782,978
|
|
|
$ |
8,783
|
|
|
$ |
2,775,485
|
|
|
$ |
25,581
|
|
|
$ |
(25,000 |
) |
|
$ |
(898,137 |
) |
|
$ |
1,886,712
|
|
Common
stock issued in connection
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with
common stock subscribed in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with private placement
|
|
|
-
|
|
|
|
-
|
|
|
|
54,998
|
|
|
|
55
|
|
|
|
25,526
|
|
|
|
(25,581 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common
stock issued in connection
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with
private placement
|
|
|
-
|
|
|
|
-
|
|
|
|
37,500
|
|
|
|
38
|
|
|
|
25,150
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fractional
share - return of proceeds
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13 |
) |
Beneficial
conversion feature of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
debentures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,708
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,708
|
|
Value
of warrants attached to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
debentures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,020
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration
of put agreement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
90,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
capital
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
89,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
89,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss, as restated
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,116,048 |
) |
|
|
(1,116,048 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
-
|
|
|
|
-
|
|
|
|
8,875,476
|
|
|
|
8,876
|
|
|
|
3,014,376
|
|
|
|
-
|
|
|
|
(25,000 |
) |
|
|
(2,014,185 |
) |
|
|
984,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issued
on May 1, 2006 in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exchange
for cash at $0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
share
|
|
|
-
|
|
|
|
-
|
|
|
|
199,998
|
|
|
|
200
|
|
|
|
89,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
capital
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
54,505
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
54,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issued
to consultants in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exchange
for services rendered
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,490
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issued
on September 1, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
exchange for cash at $0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
share
|
|
|
-
|
|
|
|
-
|
|
|
|
20,000
|
|
|
|
20
|
|
|
|
8,980
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
contributed
capital to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholder
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(42,951 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(42,951 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reacquisition
and cancellation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
shares
|
|
|
-
|
|
|
|
-
|
|
|
|
(160,000 |
) |
|
|
(160 |
) |
|
|
(81,440 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(81,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,785,386 |
) |
|
|
(1,785,386 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
-
|
|
|
$ |
-
|
|
|
|
8,935,474
|
|
|
$ |
8,936
|
|
|
$ |
3,081,760
|
|
|
$ |
-
|
|
|
$ |
(25,000 |
) |
|
$ |
(3,799,571 |
) |
|
$ |
(733,875 |
) |
See
accompanying notes to unaudited condensed consolidated financial
information
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONDENSED
CONSOLIDATED STATEMENTS OF (DEFICIENCY IN) STOCKHOLDERS' EQUITY (CONTINUED)
FOR
THE
PERIOD OCTOBER 14, 1999 (DATE OF INCEPTION) TO JUNE 30, 2007
(Unaudited)
|
|
Preferred
Shares
|
|
|
Preferred
Stock Amount
|
|
|
Common
Shares
|
|
|
Common
Stock Amount
|
|
|
Additional
Paid-in Capital
|
|
|
Common
Stock Subscription
|
|
|
Preferred
Stock Dividend
|
|
|
Deficit
Accumulated During Development Stage
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
-
|
|
|
$ |
-
|
|
|
|
8,935,474
|
|
|
$ |
8,936
|
|
|
$ |
3,081,760
|
|
|
$ |
-
|
|
|
$ |
(25,000 |
) |
|
$ |
(3,799,571 |
) |
|
$ |
(733,875 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issued
in connection with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dutchess
put agreements for
|
|
|
-
|
|
|
|
-
|
|
|
|
218,542
|
|
|
|
218
|
|
|
|
330,687
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
330,905
|
|
cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issued
in connection with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dutchess
put agreements,
|
|
|
-
|
|
|
|
-
|
|
|
|
781,459
|
|
|
|
782
|
|
|
|
789,648
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
790,430
|
|
conversion
of notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issued
in connection with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise
of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
451,351
|
|
|
|
451
|
|
|
|
346,947
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
347,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issued
in connection with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financing
incentive
|
|
|
-
|
|
|
|
-
|
|
|
|
250,000
|
|
|
|
250
|
|
|
|
127,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
127,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
capital
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42,951
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issued
in connection with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
converted
notes payables
|
|
|
-
|
|
|
|
-
|
|
|
|
2,642,784
|
|
|
|
2,643
|
|
|
|
1,595,506
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,598,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,100,432 |
) |
|
|
(2,100,432 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2007
|
|
|
-
|
|
|
$ |
-
|
|
|
|
13,279,610
|
|
|
$ |
13,280
|
|
|
$ |
6,314,749
|
|
|
$ |
-
|
|
|
$ |
(25,000 |
) |
|
$ |
(5,900,003 |
) |
|
$ |
403,026
|
|
See
accompanying notes to unaudited condensed consolidated financial
information
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For
the six months ended June 30,
|
|
|
For
the period from October 14, 1999 (date of inception) through
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
$ |
(1,284,813 |
) |
|
$ |
(423,890 |
) |
|
|
(4,032,274 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH (USED IN) INVESTING ACTIVITIES
|
|
|
(85,110 |
) |
|
|
(107,900 |
) |
|
|
(1,000,873 |
) |
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
1,367,412
|
|
|
|
494,505
|
|
|
|
5,033,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
(DECREASE) IN CASH AND EQUIVALENTS
|
|
|
(2,511 |
) |
|
|
(37,285 |
) |
|
|
475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at the beginning of the period
|
|
|
2,986
|
|
|
|
130,857
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at the end of the period
|
|
|
475
|
|
|
|
93,572
|
|
|
|
475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
|
148,683
|
|
|
$ |
82,419
|
|
|
|
735,342
|
|
Income
taxes paid
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized
financing costs in connection
|
|
with
issuance of notes payable:
|
|
|
24,228
|
|
|
|
-
|
|
|
|
74,303
|
|
Amortization
of financing costs
|
|
|
527,714
|
|
|
|
70,144
|
|
|
|
887,574
|
|
Depreciation
and amortization
|
|
|
5,312
|
|
|
|
5,222
|
|
|
|
22,756
|
|
Accretion
of interest – trade name liability
|
|
|
1,907
|
|
|
|
1,711
|
|
|
|
7,045
|
|
Amortization
and write off of debt discounts
|
|
|
572,253
|
|
|
|
56,040
|
|
|
|
832,930
|
|
Interest
expense financed through acquisition of note payable
|
|
|
-
|
|
|
|
25,000
|
|
|
|
25,000
|
|
Notes
payable issued in connection with acquisition of land
|
|
|
-
|
|
|
|
140,000
|
|
|
|
140,000
|
|
See
accompanying notes to unaudited condensed consolidated financial
information
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
June
30, 2007
(Unaudited)
NOTE
A-SUMMARY OF ACCOUNTING POLICIES
General
The
accompanying unaudited condensed financial statements have been prepared
in
accordance with accounting principles generally accepted in the United States
of
America for interim financial information and with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
In
the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Accordingly,
the results from operations for the three and six months period ended June
30,
2007 are not necessarily indicative of the results that may expected for
the
year ending December 31, 2007. The unaudited condensed financial statements
should be read in conjunction with the December 31, 2006 financial statements
and footnotes thereto included in the Company's SEC Form 10-KSB.
Business
and Basis of Presentation
Seawright
Holdings, Inc. (the "Company") was formed on October 14, 1999 under the laws
of
the state of Delaware. The Company is a "development stage
enterprise" (as defined in statement of Financial Accounting Standards No.
7).
The Company is currently engaged in the spring water bottling and distribution
business. From its inception through the date of these financial
statements, the Company has recognized minimal revenues and has incurred
significant operating expenses. Consequently, its operations are subject
to all
risks inherent in the establishment of a new business enterprise. For the
period
from inception through June 30, 2007, the Company has accumulated losses
of
$5,900,003
The
consolidated financial statements include the accounts of the Company, and
its
wholly-owned subsidiary, Seawright Springs LLC. Significant intercompany
transactions have been eliminated in consolidation.
Reclassification
Certain
reclassifications have been made to conform prior periods’ data to the current
presentation. These reclassifications had no effect on reported
losses.
Revenue
Recognition
For
revenue from product sales, the Company recognizes revenue in accordance
with
Staff Accounting Bulletin No. 104, Revenue Recognition (“SAB104”),
which superseded Staff Accounting Bulletin No. 101, Revenue Recognition
in Financial Statements (“SAB101”). SAB 101 requires that four
basic criteria must be met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists; (2) delivery has occurred; (3) the selling
price is fixed and determinable; and (4) collectibility is reasonably assured.
Determination of criteria (3) and (4) are based on management’s judgments
regarding the fixed nature of the selling prices of the products delivered
and
the collectibility of those amounts.
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
June
30, 2007
(Unaudited)
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (Continued)
Provisions
for discounts and rebates to customers, estimated returns and allowances,
and
other adjustments are provided for in the same period the related sales are
recorded. The Company defers any revenue for which the product has not been
delivered or is subject to refund until such time that the Company and the
customer jointly determine that the product has been delivered or no refund
will
be required. SAB 104 incorporates Emerging Issues Task Force 00-21
(“EITF 00-21”), Multiple-Deliverable Revenue Arrangements. EITF 00-21
addresses accounting for arrangements that may involve the delivery or
performance of multiple products, services and/or rights to use
assets.
Recent
Accounting Pronouncements
In
February 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities.” SFAS No. 159
allows an entity the irrevocable option to elect fair value for the initial
and
subsequent measurement for certain financial assets and liabilities on a
contract-by-contract basis. Subsequent changes in fair value of these
financial assets and liabilities would be recognized in earnings when they
occur. SFAS No. 159 is effective for the Company’s financial
statements for the year beginning January 1, 2008, with earlier adoption
permitted. The Company is currently evaluating the effect and timing
that adoption of this statement will have on its consolidated financial position
and results of operations.
NOTE
B - MARKETABLE SECURITIES
The
Company classified all of its marketable securities as trading as the securities
are bought and held principally for the purpose of selling them in the near
term. The Company actively and frequently traded securities with the
objective of generating profits on short-term differences in
price. The trading securities are marked to market on a monthly
basis. At June 30, 2007, the Company’s trading securities are carried
at fair value of $22,505. The Company had a net loss of $248, $531,
and a net gain of $37,108 on trading securities during the six-month period
ended June 30, 2007 and 2006, and for the period from October 14, 1999 (date
of
inception) through June 30, 2007, respectively.
NOTE
C - NOTES PAYABLE
Notes
payable at June 30, 2007 are as follows:
|
|
June
30, 2007
|
|
9.375
% note payable, monthly payments of $4,592 with remaining principal
and
outstanding interest due and payable June 2009, collateralized
by
land.
|
|
$ |
524,236
|
|
|
|
|
|
|
15%
note payable, monthly interest payments, principal due June 2007,
collateralized by land -
The Company is in default under the terms of the note agreement
at June
30, 2007.
|
|
|
505,000
|
|
|
|
|
|
|
7%
note payable, due on or before April 1, 2008,
uncollateralized.
|
|
|
300,000
|
|
|
|
|
|
|
12%
note payable, due on or before December 20, 2007, collateralized
by signed
put notices.
|
|
|
200,000
|
|
|
|
$ |
1,529,236
|
|
Less:
current portion
|
|
$ |
1,010,450
|
|
|
|
|
|
|
Note
payable – long term
|
|
$ |
518,786
|
|
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
June
30, 2007
(Unaudited)
NOTE
C - NOTES PAYABLE (Continued)
During
June 2007, the Company entered into a promissory note with a face amount
of
$200,000. Under the terms of the note, the Company received $185,000 less
closing costs of $15,000, and the Note bears interest at a fixed rate of
12.00%
per annum. As detailed in the agreement, the Company shall make mandatory
monthly payments of interest, in an amount equal to the interest accrued
on the
principal balance of the Note from the last Interest Payment until such time
as
the current interest payment is due and payable. Upon the effectiveness of
a
registration statement to be filed with the Securities and Exchange Commission
(the “Effective Date”), the Company shall make mandatory monthly payments on the
Face Amount of the Note in an amount equal to the greater of 1) an amount
equal
to the Face Amount of the Note divided by the number of months from the
Effective Date until the maturity date or 2) 100% of each Put given to the
Investor by the Company. The agreement is collateralized by (i)
a lien on all of the Company’s assets, (ii) put notices, and the Company is
required to abide by certain covenants as detailed in the promissory
note.
During
the second quarter of 2007 and as provided for in the investment agreement
with
Dutchess Private Equities Fund, LP, the Company issued 781,459 shares of
common
stock valued at $790,430, to a note holder as payment on its outstanding
debt
and interest expense during the six months of 2007 (Note E).
Aggregate
maturities of long-term debt as of June 30, 2007 are as follows:
Twelve
months ended June 30,
|
|
|
|
2008
|
|
$ |
1,010,450
|
|
2009
|
|
|
518,786
|
|
2010
|
|
|
-
|
|
2011
|
|
|
-
|
|
2012
and after
|
|
|
-
|
|
Total
|
|
$ |
1,529,236
|
|
NOTE
D – PRIVATE PLACEMENT AND CONVERTIBLE PROMISSORY NOTES
PAYABLE
The
Company entered into a Private Placement Memorandum in August 2004 to offer
up
to 1,000 units of equity/notes payable instrument. Each unit consists of
2,500
shares of common stock of the Company, $1,500 of convertible promissory notes
(“Convertible Notes”), and 1 warrant to purchase 300 shares of the Company’s
common stock at $0.85 per share. The Convertible Notes accrues
interest at 11% per annum, payable and due in September 2009. The
noteholder has the option to convert any unpaid note principal and accrued
interest to the Company’s common stock at a rate of $0.85 per share anytime
after six months from the issuance date of the note.
As
of
December 31, 2005, the Company received total proceeds of $2,665,116, net
of
placement costs and fees of $331,884, for 999 units
subscribed. Pursuant to the terms of the Private Placement
Memorandum, the Company issued to the investors Convertible Notes in an
aggregate of $1,498,500. The Company is obligated to issue 2,497,500
shares of its common stock, valued at $1,563,376, to the investors in connection
with the private placement. The Company also issued to investors an
aggregate of 999 warrants to purchase 299,700 shares of common stock as of
December 31, 2005.
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
June
30, 2007
(Unaudited)
NOTE
D – PRIVATE PLACEMENT AND CONVERTIBLE PROMISSORY NOTES PAYABLE
(Continued)
A
summary
of convertible promissory notes payable at June 30, 2007 is as
follows:
|
|
June
30, 2007
|
|
Convertible
notes payable (“Convertible Notes”); 11% per annum; maturity date is in
September 2009; noteholder has the option to convert unpaid note
principal
and interest the Company’s common stock at $0.85 per
share.
|
|
$ |
1,498,500
|
|
Convertible
notes converted into the Common Stock
|
|
|
(1,459,500 |
) |
Debt
Discount – beneficial conversion feature, net of accumulated amortization
and write-off of $276,924 at June 30, 2007
|
|
|
(3,282 |
) |
Note
Discount, net of accumulated amortization and write-off of $276,924
at
June 30, 2007
|
|
|
(3,282 |
) |
Total
|
|
|
32,436
|
|
In
accordance with Emerging Issues Task Force Issue 98-5, Accounting For
Convertible Securities With a Beneficial Conversion Feature or Contingently
Adjustable Conversion Ratios (EITF 98-5), the Company allocated, on a
relative fair value basis, the net proceeds amongst the common stock,
convertible notes and warrants issued to the investors. As of
December 31, 2005, the Company had recognized a discount to the notes in
the
amount of $280,207. The note discount is being amortized over the
maturity period of the notes, being five years. As of December 31,
2005, the Company had recognized a total of $280,207 of the proceeds, which
is
equal to the intrinsic value of the imbedded beneficial conversion feature,
to
additional paid-in capital and a discount against the Convertible Note. The
debt
discount attributed to the beneficial conversion feature is amortized over
the
Convertible Notes’ maturity period, being five years, as interest
expense.
In
connection with the placement of the Convertible Notes, the Company issued
detachable warrants granting the holders the right to acquire a total of
299,700
shares of the Company’s common stock at $0.85 per share as of December 31,
2005. The warrants expire five years from their
issuance. As of December 31, 2005, the Company had recognized
the
value
attributable to the warrants, being $190,143, to additional paid-in capital
in
accordance with Emerging Issues Task Force Issue 00-27, Application of Issue
No. 98-5 to Certain Convertible Instruments (EITF 00-27). The Company
valued the warrants in accordance with EITF 00-27 using the Black-Scholes
pricing model and the following assumptions: contractual terms of 5 years,
an
average risk free interest rate of 3.38%, a dividend yield of 0%, and volatility
of 296%.
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
June
30, 2007
(Unaudited)
NOTE
D – PRIVATE PLACEMENT AND CONVERTIBLE PROMISSORY NOTES PAYABLE
(Continued)
During
the second quarter of 2007 most of, the convertible notes payable were converted
into shares of the Company’s common stock, except for the remaining balance of
$32,436. The noteholders agreed to a conversion rate of one share of Common
stock for each $0.60 of principal and unpaid interest accrued through the
closing date plus an additional six months of interest at the rate of 11%
per
annum. The additional six months of interest, $79,970, was recorded as a
loss on
early extinguishment of debt. A
total
of $40,500 of convertible notes and accrued interest of $1,927 totaling $42,427
was converted at $0.85 into 49,914 shares of Common stock and a total of
$1,419,000 of convertible notes and accrued interest of $136,722 totaling
$1,555,722 was converted at $0.60 into 2,592,870shares of Common stock. Thus,
a
total of 2,614,784 Common stock were issued.
The
Company amortized and wrote off the Convertible Notes discount and debt discount
attributed to the beneficial conversion feature and recorded non-cash interest
expense of $301,915 and $56,040 for the periods ended June 30, 2007 and 2006,
respectively. The unamortized portion pertaining to the conversion of the
notes
discount and beneficial conversion feature as of June 30, 2007 was written
off
and recorded as an interest expense.
Financing
costs attributable to the equity portion of the private placement totaled
$175,899 and were netted against the amount attributable to common
stock. Deferred financing costs of $155,985 attributable to the debt
portion of the private placement are being amortized over the life of the
debt
instrument, being 5 years. The unamortized portion of financing costs
as of June 30, 2007 for the converted notes into common stock during the
second
quarter of 2007 was written off. The Company amortized and wrote off
$78,670 and $15,598 for the periods ended June 30, 2007 and 2006, respectively,
in relation to the deferred financing costs.
NOTE
E - CAPITAL STOCK
The
Company was incorporated under the laws of the State of Delaware on October
14,
1999 under the name of Pre-Settlement Funding Corporation. The company has
authorized 100,000 shares of preferred stock, with a par value of $.001 per
share. The Company has designated 60,000 of its preferred stock as Series
A
Convertible Preferred Stock. As of June 30, 2007, the Company has no
Preferred Stock issued and outstanding. The Company has authorized
19,900,000 shares of common stock, with a par value of $.001 per
share. As provided for in the investment agreement with Dutchess
Private Equities Fund, LP, the Company issued 781,459 shares of common stock
valued at $790,430, to a note holder as payment on its outstanding debt and
interest expense during the six months of 2007. During the period
ended June 30, 2007, the President and majority shareholder of the Company
also
contributed capital of $42,951 as further explained in Note G. The Company
issued 451,351 shares of common stock in exchange for stock options and warrants
exercised at various exercise prices per share for the price range between
$0.56
and $0.85 and received total proceeds of $347,398 (Note F). The Company also
issued 250,000 shares of common stock to a note holder in exchange for financing
incentive accrued during the year ended December 31, 2006. Further,
the Company issued 2,642,784 shares of Company’s common stock upon conversion of
certain convertible promissory notes (Note D). As of June 30, 2007, there
are
13,279,610 shares of common stock issued and outstanding. Finally, as provided
for in the investment agreement with Dutchess Private Equities Fund, LP (Dutchess
put agreement), the Company issued 218,542 shares of common stock for
cash and received $330,905.
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
June
30, 2007
(Unaudited)
NOTE
F – STOCK OPTIONS AND WARRANTS
Stock
Options
The
following table summarizes the changes in options outstanding and the related
prices for the shares of the Company’s common stock issued to the Company
employees and consultants. These options were granted in lieu of cash
compensation for services performed or other consideration.
Options
Outstanding
|
|
Options
Exercisable
|
Exercise
Prices
|
|
Number
Outstanding
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
Weighed
Average Exercise Price
|
|
Number
Exercisable
|
|
Weighted
Average Exercise Price
|
$ 0.50
- 2.00
|
|
1,500,000
|
|
3.34
|
|
1.33
|
|
1,500,000
|
|
1.33
|
Transactions
involving options issued to employees and consultants are summarized as
follows:
|
|
Number
of Shares
|
|
|
Weighted
Average
Price
Per Share
|
|
Outstanding
at January 1, 2005
|
|
|
1,600,000
|
|
|
$ |
1.35
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Canceled
or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at December 31, 2005
|
|
|
1,600,000
|
|
|
|
1.35
|
|
Granted
|
|
|
75,000
|
|
|
|
0.85
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Canceled
or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at December 31, 2006
|
|
|
1,675,000
|
|
|
|
1.33
|
|
Granted
|
|
|
|
|
|
|
-
|
|
Exercised
|
|
|
175,000
|
|
|
|
0.64
|
|
Canceled
or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at June 30, 2007
|
|
|
1,500,000
|
|
|
|
1.33
|
|
Warrants
In
connection with the Company’s Private Placement (Note D) the Company granted an
aggregate of 999 warrants to investors, each exercisable for 300 shares of
common stock Additionally, the Company granted 594,000 warrants to a
placement agent in exchange for services. Each warrant will be exercisable
for
one share of the Company's common stock.
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
June
30, 2007
(Unaudited)
NOTE
F – STOCK OPTIONS AND WARRANTS (Continued)
The
following table summarizes the changes in warrants outstanding and the related
prices for the shares of the Company’s common stock.
Warrants
Outstanding
|
|
Warrants
Exercisable
|
Exercise
Prices
|
|
Number
Outstanding
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
Weighed
Average Exercise Price
|
|
Number
Exercisable
|
|
Weighted
Average Exercise Price
|
$ 0.85
|
|
318,648
|
|
2.19
|
|
0.85
|
|
318,648
|
|
0.85
|
Transactions
involving warrants issued to investors and consultants are summarized as
follows:
|
|
Number
of Common Shares Issuable Upon Exercise of Warrants
|
|
|
Weighted
Average
Price
Per Share
|
|
Outstanding
at January 1, 2005
|
|
|
-
|
|
|
$ |
-
|
|
Granted
|
|
|
889,200
|
|
|
|
0.85
|
|
Exercised
|
|
|
4,500
|
|
|
|
0.85
|
|
Canceled
or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at December 31, 2005
|
|
|
893,700
|
|
|
|
0.85
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Canceled
or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at December 31, 2006
|
|
|
893,700
|
|
|
$ |
0.85
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(276,351 |
) |
|
|
0.85
|
|
Canceled
or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at June 30, 2007
|
|
|
617,349
|
|
|
$ |
0.85
|
|
SEAWRIGHT
HOLDINGS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
June
30, 2007
(Unaudited)
NOTE
G - RELATED PARTY TRANSACTIONS
From
time
to time, the Company’s President has advanced funds to the Company for working
capital purposes. The Company had paid in full the amount due to the
Company’s President during the year ended December 31,
2006. Additionally, the total payment the Company remitted exceeded
the total balance due to the Company’s President in the amount of $42,951 during
the year ended December 31, 2006. The Company has accounted for the
excess payments to the Company’s President as a nonreciprocal transfer to a
shareholder for 2006 and, accordingly, has reflected the overpayment as a
direct
reduction of additional paid-in capital.
During
2007, the Company’s President contributed capital of $42,951 to the Company in
direct response to the excess payments. The Company has accounted for the
contribution as an addition to paid-in capital. The Company’s
President also advanced an additional $156,158 for working capital purposes
during the second quarter of 2007 and is reflected as Due to Related Party
on
the unaudited condensed consolidated balance sheet.
NOTE
H - GOING CONCERN MATTERS
The
accompanying unaudited condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of
assets
and the satisfaction of liabilities in the normal course of business. As
shown
in the unaudited condensed consolidated financial statements from October
14,
1999 (date of inception of Company), the Company has generated minimal revenues
and has accumulated losses of $5,900,003.
These factors, among others, may indicate that the Company will be unable
to
continue as a going concern for a reasonable period of time.
The
Company's existence is dependent upon management's ability to develop profitable
operations and resolve its liquidity problems. Management anticipates the
Company will attain profitable status and improve its liquidity through the
continued development of its products, establishing a profitable market for
the
Company's products and additional equity investment in the Company. The
accompanying unaudited condensed consolidated financial statements do not
include any adjustments that might result should the Company be unable to
continue as a going concern.
In
order
to improve the Company's liquidity, the Company is actively pursing additional
debt and equity financing through discussions with investment bankers and
private investors. There can be no assurance the Company will be successful
in
its effort to secure additional equity financing.
If
operations and cash flows continue to improve through these efforts, management
believes that the Company can continue to operate. However, no assurance
can be
given that management's actions will result in profitable operations or in
the
resolution of its liquidity problems.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section
145 of the Delaware General Corporation Law authorizes a corporation to
indemnify directors, officers, employees or agents of the corporation if the
person acted in good faith and in a manner he reasonably believed to be in
or
not opposed to the best interest of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe his conduct was
unlawful, as determined in accordance with the Delaware General Corporation
Law.
Section 145 of the Delaware General Corporation Law further provides that
indemnification shall be provided with respect to reimbursement of expenses
incurred in defending any action, suit or proceeding if the party in question
is
successful on the merits or otherwise.
Our
certificate of incorporation limits the liability of our directors to us or
to
our stockholders for monetary damages for breach of fiduciary duty as a
director, except in the case of:
|
· |
liability
based on a breach of the duty of loyalty to us or our stockholders;
|
|
· |
liability
for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of the law;
|
|
· |
liability
based under Section 174 of Title 8 of the Delaware General Corporation
Law; or
|
|
· |
liability
for transactions from which the director derived an improper personal
benefit.
|
Our
by-laws provide that we shall indemnify a person made or threatened to be made
a
party to, or is otherwise involved in, any action, suit, claim, demand or
proceeding, whether civil, criminal, administrative or investigative, by reason
of that person’s present or former capacity as our director or as director of
any of our subsidiaries, whether the basis of such proceeding is an alleged
action or inaction by that person, to the fullest extent permitted by the laws
of the state of Delaware.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling us under the foregoing
provisions, we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act,
and
is unenforceable for that reason.
ITEM
25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The
following table sets forth the various costs and expenses in connection with
the
sale and distribution of the common stock being registered, other than the
underwriting discounts and commissions. All amounts shown are
estimates.
|
|
Amount
to
be
paid
|
|
SEC
Registration Fee
|
|
$
|
56.97
|
|
Printing
and Edgarizing expenses
|
|
$
|
5,000.00
|
|
Legal
fees and expenses
|
|
$
|
100,000.00
|
|
Accounting
fees and expenses
|
|
$
|
20,000.00
|
|
Transfer
agent
|
|
$
|
1,000.00
|
|
Stock
certificates
|
|
$
|
1,000.00
|
|
Miscellaneous
|
|
$
|
1,000.00
|
|
Total
|
|
$
|
128,056.97
|
|
ITEM
26. RECENT SALES OF UNREGISTERED SECURITIES
We
filed
a Regulation D, Rule 501(a) filing with the Securities and Exchange Commission,
or SEC, on September 21, 2004. Thereafter, we engaged Jones, Byrd and Attkisson,
Inc. as Placement Agent to sell up to 1,000 units, each of which consisted
of
(1) 2,500 shares of our common stock, (2) $1,500 worth of convertible promissory
notes due September 1, 2009, carrying an interest rate of 11% per annum, and
convertible into common stock at $0.85 per share any time after six months
from
the date of issuance and (3) five year warrants to purchase 300 shares of our
common stock at an exercise price of $0.85 per share. The shares of our common
stock sold as part of these units include piggyback registration rights.
Piggyback registration rights provide that, in the event we file a registration
statement with the SEC, such as this registration statement being filed on
Form
SB-2, all of the shares and warrants issued in connection with the units will
be
included where requested by the holders of the units.
As
of
January 31, 2005, we sold 999 of the 1,000 units, resulting in gross proceeds
in
the amount of $2,997,000. After payment of legal and accounting fees, and fees
to Jones, Byrd and Attkisson in the amount of $299,700, we had a net total
of
$2,665,116 in funds available to us as a result of the private placement. In
connection with their role as Placement Agent, Jones, Byrd and Attkisson was
also issued 594,000 warrants convertible into 594,000 shares of our common
stock
at $0.85 per share. On January 31, 2005, we notified Jones, Byrd and Attkisson
that we were closing this offering.
On
April
27, 2006 we sold 199,998 shares of our common stock to three accredited
investors for a purchase price of $0.45/share.
The
sales
set forth above were undertaken under Rule 506 of Regulation D under the
Securities Act of 1933, as amended (the “Act”), by the fact that:
|
· |
the
sale was made to accredited investors, as defined in Rule 501(a), or
investors meeting the characteristics described in Rule
506(b)(2)(ii);
|
|
· |
we
gave each purchaser the opportunity to ask questions and receive
answers concerning the terms and conditions of the offering and to
obtain
any additional information that we possessed or could acquire without
unreasonable effort or expense that is necessary to verify the accuracy
of
information furnished;
|
|
· |
at
a reasonable time prior to the sale of securities, we advised each
purchaser of the limitations on resale in the manner contained in
Rule
502(d)(2);
|
|
· |
neither
we nor any person acting on our behalf sold the securities by any
form of
general solicitation or general advertising; and
|
|
· |
we
exercised reasonable care to assure that each purchaser of the
securities is not an underwriter within the meaning of Section 2(11)
of
the Act in compliance with Rule
502(d).
|
On May 1, 2006 we entered into a consulting agreement with National Financial
Communications Corp. In connection with the consulting agreement, the Company
granted National Financial Communications Corp. options to purchase 75,000
shares of Company’s common stock at an exercise price of $.85 per share. This
transaction was exempt from registration pursuant to Section 4(2) of the Act
by
the fact that:
|
· |
National
Financial Communications Corp. is a sophisticated investor;
|
|
· |
National
Financial Communications Corp. was advised that any shares acquired
will
be restricted and may not be resold absent an effective registration
statement or an applicable exemption from registration;
|
|
· |
National
Financial Communications Corp. acknowledged that any shares acquired
would
be acquired for its own account and for investment purposes and not
with a
view to resale or redistribution;
|
|
· |
The
number of shares involved is relatively small and there is only one
acquirer;
|
|
· |
The
transaction was negotiated directly with National Financial Communications
Corp. and did not involve any public
offer.
|
On September 6, 2006 we sold 20,000 shares of our common stock to an accredited
investor for a purchase price of $0.45 per share.
The
sale
set forth above was undertaken under Rule 506 of Regulation D under the Act,
by
the fact that:
|
· |
the
sale was made to an accredited investor, as defined in Rule 501(a),
or
investor meeting the characteristics described in Rule
506(b)(2)(ii);
|
|
· |
we
gave the purchaser the opportunity to ask questions and receive answers
concerning the terms and conditions of the offering and to obtain
any
additional information that we possessed or could acquire without
unreasonable effect or expense that is necessary to verify the accuracy
of
information furnished;
|
|
· |
at
a reasonable time prior to the sale of securities, we advised the
purchaser of the limitations on resale in the manner contained in
Rule
502(d)(2);
|
|
· |
Neither
we nor any person acting on or behalf sold the securities by any
form of
general solicitation or general advertising; and
|
|
· |
we
exercised reasonable care to assure that purchaser of securities
is not an
underwriter within the meaning of Section 2(11) of the Act in compliance
with Rule 502(d).
|
On
December 6, 2006, pursuant to a promissory note, we sold 250,000 shares of
our
common stock to Dutchess. The transaction was exempt from
registration pursuant to Section 4(2) of the Act by the fact that:
·
|
Dutchess
is a sophisticated investor;
|
·
|
Dutchess
was advised that any shares acquired will be restricted and may
not be
resold absent an effective registration statement or an applicable
exemption from registration;
|
·
|
Dutchess
acknowledged that any shares acquired would be acquired for its
own
account and for investment purposes and not with a view to resale
or
redistribution;
|
·
|
The
number of shares involved is relatively small and there is only
one
acquirer;
|
·
|
The
transaction was negotiated directly with Dutchess and did not involve
any
public offer.
|
On
February 27, 2007 we sold 100,000 shares of our common stock to National
Financial Communications Corp. The transaction was exempt from
registration pursuant to Section 4(2) of the Act by the fact that:
·
|
National
Financial Communications
Corp. is a sophisticated investor;
|
·
|
National
Financial Communications Corp. was advised that any shares acquired
will
be restricted and may not be resold absent an effective registration
statement or an applicable exemption from registration;
|
·
|
National
Financial Communications Corp. acknowledged that any shares acquired
would
be acquired for its own account and for investment purposes and
not with a
view to resale or redistribution;
|
·
|
The
number of shares involved is relatively small and there is only
one
acquirer;
|
·
|
The
transaction was negotiated directly with National Financial Communications
Corp. and did not involve any public offer.
|
On
August
31, 2007 we sold 700,000 shares of our common stock to Griffdom
Enterprises. The transaction was exempt from registration pursuant to
Section 4(2) of the Act by the fact that:
·
|
Griffdom
Enterprises is a sophisticated investor;
|
·
|
Griffdom
Enterprises was advised that any shares acquired will be restricted
and
may not be resold absent an effective registration statement or
an
applicable exemption from registration;
|
·
|
Griffdom
Enterprises acknowledged that any shares acquired would be acquired
for
its own account and for investment purposes and not with a view
to resale
or redistribution;
|
·
|
The
number of shares involved is relatively small and there is only
one
acquirer;
|
·
|
The
transaction was negotiated directly with Griffdom Enterprises and
did not
involve any public offer.
|
On
August 31, 2007 we sold 300,000 shares of our common stock to K&C
Investments. The transaction was exempt from registration pursuant to
Section 4(2) of the Act by the fact that:
·
|
K&C
Investments is a sophisticated investor;
|
·
|
K&C
Investments was advised that any shares acquired will be restricted
and
may not be resold absent an effective registration statement or
an
applicable exemption from registration;
|
·
|
K&C
Investments acknowledged that any shares acquired would be acquired
for
its own account and for investment purposes and not with a view
to resale
or redistribution;
|
·
|
The
number of shares involved is relatively small and there is only
one
acquirer;
|
·
|
The
transaction was negotiated directly with K&C Investments and did not
involve any public offer.
|
ITEM
27. EXHIBITS
Exhibit
|
Description
|
3.1
|
Amended
and Restated Certificate of Incorporation of Pre-Settlement Funding
Corporation (incorporated by reference on Form 8-K as filed on October
24,
2003).
|
3.2
|
Certificate
of Designation of Series A Convertible Preferred Shares of Seawright
Holdings, Inc. (incorporated by reference on Form 8-K as filed on
October
24, 2003).
|
3.3
|
Amended
and Restated By-laws of Seawright Holdings, Inc. (incorporated by
reference on Form 8-K as filed on October 24, 2003).
|
4.1
|
Form
of Common Stock Certificate (incorporated by reference from exhibit
4(i)
of Form 10-QSB as filed with the SEC on May 23, 2005).
|
4.2
|
Amended
Form of Subscription Agreement (incorporated by reference from exhibit
4(i) of Post-Effective Amendment No. 1, filed on Form SB-2 on July
6,
2001).
|
4.3
|
Form
of 10% Convertible Note (incorporated by reference from exhibit 4(ii)
of
the Company’s registration statement on Form SB-2 as filed with the SEC on
March 9, 2001).
|
4.4
|
Form
of Registration Agreement relating to the 10% Convertible Notes
(incorporated by reference from exhibit 4(iii) of the Company’s
registration statement on Form SB-2 as filed with the SEC on March
9,
2001).
|
4.5
|
Subscription
Agreement dated October 26, 2000 by and between Pre-Settlement Funding
Corporation and Joel P. Sens (incorporated by reference from exhibit
4(iv)
of the Company’s registration statement on Form SB-2 as filed with the SEC
on March 9, 2001).
|
4.6
|
Subscription
Agreement dated October 26, 2000 by and between Pre-Settlement Funding
Corporation and Darryl Reed (incorporated by reference from exhibit
4(v)
of the Company’s registration statement on Form SB-2 as filed with the SEC
on March 9, 2001).
|
4.7
|
Form
of Common Stock Purchase Option relating to Exhibits 4.5 and 4.6
above
(incorporated by reference from exhibit 4(vi) of the Company’s
registration statement on Form SB-2 as filed with the SEC on March
9,
2001).
|
4.8
|
Form
of Amended Escrow Agreement by and between Pre-Settlement Funding
Corporation, Three Arrows Capital Corp. and The Business Bank
(incorporated by reference from exhibit 4(vii) Post-Effective Amendment
No. 1, filed on Form SB-2 on July 6, 2001).
|
5
|
Opinion
of Counsel.
|
9
|
Stockholder
Agreement by and among Pre-Settlement Funding Corporation, Joel P.
Sens
and Darryl W. Reed, dated October 26, 2000 (incorporated by reference
from
exhibit 9 of the Company’s registration statement on Form SB-2 as filed
with the SEC on March 9, 2001).
|
10.1
|
Form
of Purchase and Security Agreement (incorporated by reference from
exhibit
10(i) of the Company’s registration statement on Form SB-2 as filed with
the SEC on March 9, 2001).
|
10.2
|
Employment
Agreement between Pre-Settlement Funding Corporation and Joel Sens
dated
October 1, 2000 (incorporated by reference from exhibit 10(iii) of
the
Company’s registration statement on Form SB-2 as filed with the SEC on
March 9, 2001).
|
10.3
|
Letter
by Typhoon Capital Consultants, LLC to Pre-Settlement Funding Corporation
on December 11, 2001 withdrawing as a consultant to Pre-Settlement
Funding
Corporation and waiving all rights to any cash or equity compensation
owed
to it by Pre-Settlement Funding Corporation except for the fifty
thousand
(50,000) shares already issued to Typhoon Capital Consultants, LLC
(incorporated by reference from exhibit 10(iv) of Post-Effective
Amendment
No. 5, filed on Form SB-2 on January 16,
2002).
|
10.4
|
Form
of Consultant Agreement dated January 8, 2001 between Pre-Settlement
Funding Corporation and Chukwuemeka A. Njoku (incorporated by reference
from exhibit 10(v) of Post-Effective Amendment No. 1, filed on Form
SB-2
on July 6, 2001).
|
10.5
|
Letter
Agreement for consulting services dated August 31, 2000 between
Pre-Settlement Funding Corporation and Graham Design, LLC (incorporated
by
reference from exhibit 10(vi) of the Company’s registration statement on
Form SB-2 as filed with the SEC on March 9, 2001).
|
10.6
|
Letter
Agreement for consulting services dated June 13, 2000, between
Pre-Settlement Funding Corporation and Baker Technology, LLC (incorporated
by reference from exhibit 10(vii) of the Company’s registration statement
on Form SB-2 as filed with the SEC on March 9, 2001).
|
10.7
|
Purchase
and Sale Agreement by and between Baker Seawright Corporation, Seller
and
Stafford Street Capital, LLC (incorporated by reference from exhibit
2 of
the Form 8-K filed with the SEC on October 24, 2003).
|
10.8
|
Amendment
to Purchase and Sale Agreement (incorporated by reference from exhibit
2.1
of the Form 8-K filed with the SEC on October 24, 2003).
|
10.9
|
Assignment
of Contract pursuant to Purchase and Sale Agreement (incorporated
by
reference from exhibit 2.2 of the Form 8-K filed with the SEC on
October
24, 2003).
|
10.10
|
Confidential
Private Placement Memorandum of Seawright Holdings, Inc. dated August
20,
2004 (incorporated by reference from exhibit 10 of Form 10-QSB as
filed
with the SEC on November 21, 2005).
|
10.11
|
David
Levy Termination Agreement dated October 1, 2004 (incorporated by
reference from Form S-8 POS as filed on February 7, 2005).
|
10.12
|
Contract
for Purchase of Unimproved Property dated as of November 23, 2004,
by and
between A.B.C. Farms, LLC and Seawright Holdings, Inc. (incorporated
by
reference from exhibit 10(i) of Form 10-QSB as filed with the SEC
on May
23, 2005).
|
10.13
|
Contract
for Purchase of Unimproved Property dated as of February 24, 2005,
by and
between Robert J. Daly et al and Seawright Holdings, Inc. (incorporated
by
reference from exhibit 10(ii) of Form 10-QSB as filed with the SEC
on May
23, 2005).
|
10.14
|
Note
dated May 20, 2005, by Seawright Holdings, Inc. to A.B.C. Farms,
LLC
(incorporated by reference from exhibit 2.03 of Form 8-K as filed
on June
2, 2005).
|
10.15
|
Asset
Purchase Agreement dated as of June 27, 2005, by and between Seawright
Holdings, Inc. and QuiBell Partners, L.L.C. (incorporated by reference
from exhibit 2.01 of Form 8-K as filed on June 30, 2005).
|
10.16
|
Investment
Agreement dated as of September 12, 2005, by and between Seawright
Holdings, Inc. and Dutchess Private Equities Fund, L.P. (incorporated
by
reference from exhibit 10.1 of Form 8-K as filed on September 16,
2005).
|
10.17
|
Registration
Rights Agreement dated as of September 12, 2005, by and between Seawright
Holdings, Inc. and Dutchess Private Equities Fund, L.P. (incorporated
by
reference from exhibit 10.2 of Form 8-K as filed on September 16,
2005).
|
10.18
|
Placement
Agent Agreement dated as of September 12, 2005, by and between Seawright
Holdings, Inc. and Jones, Byrd and Attkisson, Inc. (incorporated
by
reference from exhibit 10.3 of Form 8-K as filed on September 16,
2005).
|
10.19
|
Consulting
Agreement dated as of May 1, 2006, by and between Seawright Holdings,
Inc.
and National Financial Communications Corp (incorporated by reference
from
Form 8-K as filed with the SEC on June 2, 2006).
|
10.19.1
|
Amendment
to Consulting Agreement dated as of September 6, 2006, by and between
Seawright Holdings, Inc. and National Financial Communications Corp
(incorporated by reference from Form 8-K as filed with the SEC on
September 11, 2006).
|
10.20
|
Deed
of Trust Note dated June 8, 2006, by and between Seawright Holdings,
Inc.
and Charter House, LLC (incorporated by reference from Form 8-K
as filed
with the SEC on June 15, 2006).
|
10.21
|
Business
Loan Agreement (including the related Promissory Note and Commercial
Guaranty) dated June 29, 2006, by and between Seawright Holdings,
Inc. and
Fidelity & Trust Bank (incorporated by reference from Form 8-K as
filed with the SEC on July 6, 2006).
|
10.22
|
Modification
Agreement (incorporated by reference from exhibit 2.03 of Form 8-K
as
filed on October 5, 2006).
|
10.23
|
Sequence
Investment Partners Engagement Letter (incorporated by reference
from
exhibit 10.1 of Form 8-K as filed on December 11, 2006).
|
10.24
|
Promissory
Note with Dutchess Private Equities Fund, L.P. (incorporated by reference
from exhibit 10.2 of Form 8-K as filed on December 11, 2006).
|
10.25
|
Security
Agreement with Dutchess Private Equities Fund, L.P. (incorporated
by
reference from exhibit 10.3 of Form 8-K as filed on December 11,
2006).
|
10.26
|
Promissory
Note with Dutchess Private Equities Fund, L.P. (incorporated by reference
from exhibit 10.1 of Form 8-K as filed on June 21, 2007).
|
10.27
|
Security
Agreement with Dutchess Private Equities Fund, L.P. (incorporated
by
reference from exhibit 10.2 of Form 8-K as filed on June 21,
2007).
|
10.28
|
Form
of Convertible Note Conversion Agreement by and between Seawright
Holdings, Inc. and the Noteholder listed on the signature pages
thereto.
|
21
|
Subsidiaries
of the Registrant (incorporated by reference from exhibit 21 of Form
10-KSB as filed with the SEC on April 15, 2005).
|
23.1
|
Consent
of Independent Registered Certified Public Accounting Firm.
|
23.2
|
Consent
of McKee Nelson LLP (included in exhibit 5 hereto).
|
24
|
Power
of Attorney (included in the signature page to this
prospectus)
|
ITEM
28. UNDERTAKINGS
The
Company hereby undertakes that it will:
(1)
File,
during any period in which it offers or sells securities, a post-effective
amendment to this registration statement to:
(i)
Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii)
Reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in
volume and price represent no more than a 20% change in the maximum offering
price set forth in the “Calculation of Registration Fee” table in the effective
registration statement; and
(iii)
Include any additional or changed material information on the plan of
distribution.
(2)
For
determining any liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide
offering.
(3)
File
a post-effective amendment to remove from registration any of the securities
that remain unsold at the end of the offering.
(4)
Pursuant to Rule 512(g)(2), of Regulation S-B,
each prospectus filed pursuant to rule 424(b) as part of a registration
statement relating to an offering, other than registration statements relying
on
Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall
be
deemed to be part of and included in the registration statement as of the
date
it is first used after effectiveness. Provided, however, that no statement
made
in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration
statement, will as to a purchaser with a time of contract of sale prior to
such
first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made
in
any such document immediately prior to such date of first
use.
(5)
Insofar
as indemnification for liabilities arising under the Act may be permitted
to
directors, officers, and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small business issuer
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In
the
event that a claim for indemnification against such liabilities (other than
the
payment by the small business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer
or controlling person in connection with the securities being registered,
the
small business issuer will, unless in the opinion of its counsel the matter
has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(6)
For
determining any liability under the Securities Act, treat the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by
the
Company under Rule 424(b)(1), or (4) or 497(h) under the Securities Act as
part
of this registration statement as of the time the SEC declared it
effective.
(7)
For
determining any liability under the Securities Act, treat each post-effective
amendment that contains a form of prospectus as a new registration statement
for
the securities offered in the registration statement, and that offering of
the
securities at that time as the initial bona fide offering of those
securities.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form SB-2 and authorized this registration statement
to be signed on its behalf by the undersigned, in the city of Alexandria,
Virginia, on October 17, 2007.
SEAWRIGHT
HOLDINGS, INC.
By: /s/
Joel P. Sens
Name: Joel
P.
Sens
Title:
Chief
Executive Officer
In
accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and
in the dates stated:
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Joel P. Sens
Joel
P. Sens
|
|
Chief
Executive Officer and President (principal executive officer),
Treasurer
(principal financial officer and principal accounting officer)
and
Director
|
|
October
17, 2007
|
|
|
|
|
|
/s/
Jeffrey Sens *
Jeffrey
Sens
|
|
Director
|
|
October
17, 2007
|
|
|
|
|
|
*
By: /s/ Joel P. Sens
|
|
|
|
|
Joel
P. Sens
Attorney-in-fact
|
|
|
|
|
EXHIBIT
INDEX
Exhibit
Number |
Description
|
|
|
3.1
|
Amended
and Restated Certificate of Incorporation of Pre-Settlement Funding
Corporation.(1)
|
|
|
3.2
|
Certificate
of Designation of Series A Convertible Preferred Shares of Seawright
Holdings, Inc.(1)
|
|
|
3.3
|
Amended
and Restated By-laws of Seawright Holdings, Inc.(1)
|
|
|
4.1
|
Form
of Common Stock Certificate.(2)
|
|
|
4.2
|
Amended
Form of Subscription Agreement.(3)
|
|
|
4.3
|
Form
of 10% Convertible Note.(4)
|
|
|
4.4
|
Form
of Registration Agreement relating to the 10% Convertible Notes.(5)
|
|
|
4.5
|
Subscription
Agreement dated October 26, 2000 by and between Pre-Settlement
Funding
Corporation and Joel P. Sens.(6)
|
|
|
4.6
|
Subscription
Agreement dated October 26, 2000 by and between Pre-Settlement
Funding
Corporation and Darryl Reed.(7)
|
|
|
4.7
|
Form
of Common Stock Purchase Option.(8)
|
|
|
4.8
|
Form
of Amended Escrow Agreement by and between Pre-Settlement Funding
Corporation, Three Arrows Capital Corp. and The Business Bank.(9)
|
5
|
Opinion
of Counsel.*
|
9
|
Stockholder
Agreement by and among Pre-Settlement Funding Corporation, Joel
P. Sens
and Darryl W. Reed, dated October 26, 2000.(10)
|
|
|
10.1
|
Form
of Purchase and Security Agreement.(11)
|
|
|
10.2
|
Employment
Agreement between Pre-Settlement Funding Corporation and Joel Sens
dated
October 1, 2000.(12)
|
|
|
10.3
|
Letter
by Typhoon Capital Consultants, LLC to Pre-Settlement Funding Corporation
on December 11, 2001 withdrawing as a consultant to Pre-Settlement
Funding
Corporation and waiving all rights to any cash or equity compensation
owed
to it by Pre-Settlement Funding Corporation except for the fifty
thousand
(50,000) shares already issued to Typhoon Capital Consultants,
LLC.(13)
|
|
|
10.4
|
Form
of Consultant Agreement dated January 8, 2001 between Pre-Settlement
Funding Corporation and Chukwuemeka A. Njoku.(14)
|
|
|
10.5
|
Letter
Agreement for consulting services dated August 31, 2000 between
Pre-Settlement Funding Corporation and Graham Design, LLC.(15)
|
|
|
10.6
|
Letter
Agreement for consulting services dated June 13, 2000, between
Pre-Settlement Funding Corporation and Baker Technology, LLC.(16)
|
|
|
10.7
|
Purchase
and Sale Agreement by and between Baker Seawright Corporation,
Seller and
Stafford Street Capital, LLC.(1)
|
|
|
10.8
|
Amendment
to Purchase and Sale Agreement.(1)
|
|
|
10.9
|
Assignment
of Contract pursuant to Purchase and Sale Agreement.(1)
|
|
|
10.10
|
Confidential
Private Placement Memorandum of Seawright Holdings, Inc. dated
August 20,
2004.(17)
|
|
|
10.11
|
David
Levy Termination Agreement dated October 1, 2004.(18)
|
|
|
10.12
|
Contract
for Purchase of Unimproved Property dated as of November 23, 2004,
by and
between A.B.C. Farms, LLC and Seawright Holdings, Inc.(19)
|
|
|
10.13
|
Contract
for Purchase of Unimproved Property dated as of February 24, 2005,
by and
between Robert J. Daly et al and Seawright Holdings, Inc.(20)
|
|
|
10.14
|
Note
dated May 20, 2005, by Seawright Holdings, Inc. to A.B.C. Farms,
LLC.(21)
|
|
|
10.15
|
Asset
Purchase Agreement dated as of June 27, 2005, by and between Seawright
Holdings, Inc. and QuiBell Partners, L.L.C.(22)
|
|
|
10.16
|
Investment
Agreement dated as of September 12, 2005, by and between Seawright
Holdings, Inc. and Dutchess Private Equities Fund, L.P.(23)
|
10.17
|
Registration
Rights Agreement dated as of September 12, 2005, by and between
Seawright
Holdings, Inc. and Dutchess Private Equities Fund, L.P.(23)
|
|
|
10.18
|
Placement
Agent Agreement dated as of September 12, 2005, by and between
Seawright
Holdings, Inc. and Jones, Byrd and Attkisson, Inc.(23)
|
|
|
10.19
|
Consulting
Agreement dated as of May 1, 2006, by and between Seawright Holdings,
Inc.
and National Financial Communications Corp.(25)
|
|
|
10.19.1
|
Amendment
to Consulting Agreement dated as of September 6, 2006, by and between
Seawright Holdings, Inc. and National Financial Communications
Corp.
(26)
|
|
|
10.20
|
Deed
of Trust Note dated June 8, 2006, by and between Seawright Holdings,
Inc.
and Charter House, LLC.
(27)
|
|
|
10.21
|
Business
Loan Agreement (including the related Promissory Note and Commercial
Guaranty) dated June 29, 2006, by and between Seawright Holdings,
Inc. and
Fidelity & Trust Bank.
(28)
|
|
|
10.22
|
Modification
Agreement to the Deed of Trust Note dated June 8, 2006, by and
between the
Seawright Holdings, Inc., Palma Collins as Trustee and Charter
House,
LLC.
(29)
|
|
|
10.23
|
Engagement
letter, by and between Sequence Investment Partners, LLC, and Seawright
Holdings, Inc.
(30)
|
|
|
10.24
|
Promissory
Note, by and between Dutchess Private Equities, Fund, L.P. and
Seawright
Holdings, Inc.
(31)
|
|
|
10.25
|
Security
Agreement with Dutchess Private Equities Fund, L.P. (32)
|
|
|
10.26
|
Promissory
Note with Dutchess Private Equities Fund, L.P. (33)
|
|
|
10.27
|
Security
Agreement with Dutchess Private Equities Fund, L.P. (34)
|
|
|
10.28
|
Form
of Convertible Note Conversion Agreement by and between
Seawright Holdings, Inc. and the Noteholder listed on the signature
pages
thereto.**
|
|
|
21
|
Subsidiaries
of the Registrant.(24)
|
|
|
23.1
|
Consent
of Independent Registered Certified Public Accounting
Firm.*
|
|
|
23.2
|
Consent
of McKee Nelson LLP (included in exhibit 5 hereto).*
|
|
|
24
|
Power
of Attorney **
|
____________________________
* Filed
herewith.
**
Previously filed.
(1)
|
Incorporated
by reference from Form 8-K as filed with the SEC on October 24,
2003.
|
(2)
|
Incorporated
by reference from exhibit 4(i) of Form 10-QSB as filed with the
SEC on May
23, 2005.
|
(3)
|
Incorporated
by reference from exhibit 4(i) of Amendment No. 1 to the Registration
Statement on Form SB-2 as filed with the SEC on July 6,
2001.
|
(4)
|
Incorporated
by reference from exhibit 4(ii) of Registration Statement on Form
SB-2 as
filed with the SEC on March 9, 2001.
|
(5)
|
Incorporated
by reference from exhibit 4(iii) of Registration Statement on Form
SB-2 as
filed with the SEC on March 9, 2001.
|
(6)
|
Incorporated
by reference from exhibit 4(iv) of Registration Statement on Form
SB-2 as
filed with the SEC on March 9, 2001.
|
(7)
|
Incorporated
by reference from exhibit 4(v) of Registration Statement on Form
SB-2 as
filed with the SEC on March 9, 2001.
|
(8)
|
Incorporated
by reference from exhibit 4(vi) of Registration Statement on Form
SB-2 as
filed with the SEC on March 9, 2001.
|
(9)
|
Incorporated
by reference from exhibit 4(vii) of Amendment No. 1 to the Registration
Statement on Form SB-2 as filed with the SEC on July 6,
2001.
|
(10)
|
Incorporated
by reference from exhibit 9 of Registration Statement on Form SB-2
as
filed with the SEC on March 9, 2001.
|
(11)
|
Incorporated
by reference from exhibit 10(i) of Registration Statement on Form
SB-2 as
filed with the SEC on March 9, 2001.
|
(12)
|
Incorporated
by reference from exhibit 10(iii) of Registration Statement on
Form SB-2
as filed with the SEC on March 9, 2001.
|
(13)
|
Incorporated
by reference from exhibit 10(iv) of Amendment No. 5 to the Registration
Statement on Form SB-2 as filed with the SEC on January 16,
2002.
|
(14)
|
Incorporated
by reference from exhibit 10(v) of Amendment No. 1 to the Registration
Statement on Form SB-2 as filed with the SEC on July 6,
2001.
|
(15)
|
Incorporated
by reference from exhibit 10(vi) of Amendment No. 1 to the Registration
Statement on Form SB-2 as filed with the SEC on July 6,
2001.
|
(16)
|
Incorporated
by reference from exhibit 10(vii) of Amendment No. 1 to the Registration
Statement on Form SB-2 as filed with the SEC on July 6,
2001.
|
(17)
|
Incorporated
by reference from exhibit 10 of Form 10-QSB as filed with the SEC
on
November 21, 2005.
|
(18)
|
Incorporated
by reference from Form S-8 POS as filed with the SEC on February
7,
2005.
|
(19)
|
Incorporated
by reference from exhibit 10(i) of Form 10-QSB as filed with the
SEC on
May 23, 2005.
|
(20)
|
Incorporated
by reference from exhibit 10(ii) of Form 10-QSB as filed with the
SEC on
May 23, 2005.
|
(21)
|
Incorporated
by reference from Form 8-K as filed with the SEC on June 2,
2005.
|
(22)
|
Incorporated
by reference from Form 8-K as filed with the SEC on June 30,
2005.
|
(23)
|
Incorporated
by reference from Form 8-K as filed with the SEC on September 16,
2005.
|
(24)
|
Incorporated
by reference from exhibit 21 of Form 10-KSB as filed with the SEC
on April
15, 2005.
|
(25)
|
Incorporated
by reference from Form 8-K as filed with the SEC on June 2,
2006.
|
(26)
|
Incorporated
by reference from Form 8-K as filed with the SEC on September 11,
2006.
|
(27)
|
Incorporated
by reference from Form 8-K as filed with the SEC on June 15,
2006.
|
(28)
|
Incorporated
by reference from Form 8-K as filed with the SEC on July 6,
2006.
|
(29)
|
Incorporated
by reference from Form 8-K as filed with the SEC on October 11,
2006.
|
(30)
|
Incorporated
by reference from Form 8-K as filed with the SEC on December 11,
2006.
|
(31)
|
Incorporated
by reference from Form 8-K as filed with the SEC on December 11,
2006.
|
(32)
|
Incorporated
by reference from exhibit 10.3 of Form 8-K as filed with the SEC
on
December 11, 2006.
|
(33)
|
Incorporated
by reference from exhibit 10.1 of Form 8-K as filed with the SEC
on June
21, 2007.
|
(34)
|
Incorporated
by reference from exhibit 10.2 of Form 8-K as filed with the SEC
on June
21, 2007.
|
II-13