UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2004.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
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Commission file number: 0-50993
HEARTSTAT TECHNOLOGY, INC.
(Name of small business issuer in its charter)
DELAWARE 20-1680252
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
530 WILSHIRE BLVD. #304 SANTA MONICA, CA 90401
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (310) 451-7400
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $0.001 PAR VALUE
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ ] No [X]
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
State issuer's revenues for its most recent fiscal year: NIL
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: $690,144.50 AS OF SEPTEMBER 30, 2005
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 48,402,887 AS OF SEPTEMBER 30, 2005
Transitional Small Business Disclosure Format (Check one): Yes ; No X
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1
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
INTRODUCTION
HEARTSTAT TECHNOLOGY, Inc., ("HEARTSTAT" or the "Company") is a
Delaware corporation originally incorporated on October 12, 1995, under the name
of "Hospital Software of America, Inc." The Company has undergone name changes
that are described in the history of the company below. Most recently HEARTSTAT
was renamed from Tec Factory, Inc. pursuant to a February, 6, 2004 Asset
Acquisition Agreement by which the technology assets "HEARTSTAT CNBP/BF" were
acquired by Tec Factory, Inc. Unless otherwise specified, the "Company", "
HEARTSTAT ", "we", "our" and "us" refers to HEARTSTAT Technology Inc. and
"HEARTSTAT CNBP/BF" refers to the Technology assets that we have acquired on
March 18, 2004 as per the Asset Acquisition agreement signed on February 6,
2004. Our principal executive offices are located at 530 Wilshire Blvd, Suite
304, Santa Monica, CA 90401 and our telephone number is 310-451-7400. Company
information can be found on our corporate website:
www.FutureVest.com/HeartstatTechnology.
HISTORY OF THE COMPANY
HEARTSTAT Technology, Inc. was originally incorporated on October 12,
1995, as Hospital Software of America, Inc. On November 29, 1995, the Company
changed its name to "New Health Technologies, Inc., and at the same time
effected at 10,000 to 1 reverse stock split, reducing the outstanding shares
from 300,000,000 to 30,000.
On August 28, 1996, the Company changed its name to "Pubbs Worldwide,
Inc. and at the same time, effected a 35 to 1 reverse stock split, reducing the
number of issued and outstanding shares from 14,000,000 to 400,000. The Company
changed its name to Pubbs Worldwide, Inc. in order to better reflect its
acquisition of Hubbs Development, Inc., which was in the business of operating
restaurants and retail sales of food, beer, wine and beverages. In XYZ of 1998
Pubbs Worldwide, Inc. disposed of all ownership of Hubbs Development, Inc. in
which the company thereafter had no current operating restaurants or
subsidiaries.
On April 5, 1999, the Company changed its name to "Chasen's
International Corporation". The name change was affected in anticipation of a
share exchange agreement between the Company and a group of shareholders, which
owned a controlling interest in Chasen's Restaurant and Jockey Club in Beverly
Hills, California. Management of the Company believed that changing the name of
the Company to Chasen's International Corporation would provide the Company
instant name recognition. The Company effected a stock split of 100 to 1 at this
time. The acquisition was never completed due some discouraging financial
findings discovered after further due diligence on the operations of Chasen's
Restaurant and Jockey Club. There was also some question as to the ability of
the Company to use the Chasen's name as it may have interfered with certain
trademarks.
On July 6, 1999, the Company changed it corporate name to
"Tril-MediaNet.com" after the anticipated share exchange agreement and
acquisition of Chasen's did not materialize. It was believed that the new name
would allow the Company to better continue its software business development and
technology operations and avoid any conflict with the trademarks and ownership
of the name Chasen's.
On November 21, 2000, the Company changed its name to Tec Factory, Inc.
and was planning to purchase Tec Factory Fort Lauderdale, LLC and Tec Factory
Los Angeles, LLC from Web Capital Ventures, Inc. This transaction was not
concluded. The Company had negligible operations between November 2000 and
February 6, 2004.
On February 6, 2004, the Company entered into an agreement to
purchase the HEARTSTAT CNBP/BF technology assets from several Interest Holders
and on February 17, 2004 the Company
2
amended its corporate name to HEARTSTAT Technology, Inc. in anticipation of the
final closing of the agreement.
On March 18, 2004, the Company concluded the February 6, 2004 agreement
to purchase the technology referred to herein as the "HEARTSTAT CNBP/BF". The
HEARTSTAT CNBP/BF Technology (the "Technology") consists of patents and
technology for a non-invasive monitoring of blood flow, perfusion and other
cardiovascular and heart measures. There were no stock splits or other changes
to the Company securities effected at the time of this name change.
The Agreement for the Purchase of Assets, dated February 6, 2004,
provided for the issuance of 38,000,000 shares of common stock plus two royalty
agreements, as consideration for the purchase for a 100% ownership of the
HeartSTAT CNBP/BF Technology from a number or Interest Holders, which included
the Inventor and a number of investors that have been instrumental and partially
responsible for advancing the HEARTSTAT CNBP/BF technology to its current
status. In addition, the Company assumed $20,000 of notes payable. At February
6, 2004, the Company's former board of directors and shareholders approved the
terms of the Agreement for the Purchase of HEARTSTAT CNBP/BF Technology Assets.
This agreement was accounted for as an arms length transaction as none of the
Interest Holders that received stock in this transaction in exchange for their
ownership of the HEARTSTAT CNBP/BF Technology assets were previous shareholders,
directors or officers HEARTSTAT Technology, Inc. prior to the completion of the
transaction.
As part of the Agreement, the Company agreed to a Commercialization
Partnership Agreement (Exhibit B to the Agreement) with the Interest Holders
whereby the Interest Holders agreed that Ted Russell, the inventor of the
technology, could exclusively license in perpetuity the HEARTSTAT CNBP/BF
Technology for the purpose of financing and concluding product commercialization
activities if the Company were to fail to raise at least $2,500,000 of net
proceeds for product development by September 6, 2005. The Company was given a
90-day period to cure the financing inadequacy to prevent the license from being
effected. The terms of the license would include a provision that Mr. Russell,
or an independent entity would repay the Company for any actual investment
capital received at the rate of 20% of any net income of Mr. Russell's
independent commercial operations of producing derivative products using the
HeartSTAT CNBP/BF Technology. In addition, the Company would receive a royalty
on net revenues of such derivative products as follows:
1. A royalty equal to 3% of net revenues if at lest $1.3 million of
investment capital was received
2. A royalty equal to 2% of net revenues if at least $650,000 but
less than $1.3 million of investment capital was received, or
3. A royalty equal to 1% of net revenues if less than $650,000 of
investment capital was received.
On August 15, 2005, due to the Company's inability to raise the
required $2,500,000, Mr. Ted Russell and HeartSTAT, Inc. executed an Asset
Transfer Agreement with the Company for the sale of the Technology to HeartSTAT,
Inc., a private company controlled by Mr. Ted Russell, to permit Mr. Russell to
continue the private funding of and commercialization of the Technology as a
private entity. The Company will receive the following in exchange for the
assets:
o Mr. Russell and the Hull Family will return 20,000,000 shares
of the Company's common stock to treasury, which accounts for
41.3% of the issued and outstanding stock in the company.
o HeartSTAT, Inc. will issue 98,207 shares of stock
(representing 8.7% equity interest in HeartSTAT, Inc.) and
a $70,000 promissory note.
o Mr. Russell and HeartSTAT, Inc. will fully release the Company
from payment of all amounts owed to them.
Mr. Russell and Mr. Pat Maley resigned immediately prior to the filing
of this report as officers and directors of the Company.
3
Upon completion of this transaction, the Company will continue its
technology business development focus with its equity position in HeartSTAT,
Inc. and with future operations.
EMPLOYEES
The company currently has only one full time employee and one part time
executive employee.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently has its principal executive offices located at
530 Wilshire Blvd, Suite 304, Santa Monica, CA 90401. This space represents a
portion of the 670 square feet of office space and is subleased from
FutureVest, Inc. (Formerly Diamond WorldWide)
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to, and its property is not the subject of,
any pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock has been trading on the over-the-counter pink sheet
("Pink Sheets") under the symbol "HSTA" effective March 1, 2004. The common
stock was first listed on June 9, 1998 under the symbol "PUBS" and traded under
that symbol until April 5, 1999. From April 6, 1999 to August 9, 1999, the stock
traded under the symbol "CIIT". From August 10, 1999 to November 27, 2000 the
stock traded under the symbol "TMDN" and from November 28, 2000 to February 29,
2004 the stock traded under the symbol of "TECF". The following table sets forth
the range of high and low bid quotations for each fiscal quarter for the last
two fiscal years. These quotations reflect inter-dealer prices without retail
mark-up, mark-down, or commissions and may not necessarily represent actual
transactions.
FISCAL QUARTER ENDING HIGH BID LOW BID
June 30, 2003............................. $ 0.01 $ 0.01
September 30, 2003........................ $ 0.01 $ 0.01
December 31, 2003......................... $ 0.01 $ 0.01
March 31, 2004............................ $ 0.60 $ 0.60
June 30, 2004............................. $ 0.70 $ 0.70
September 30, 2004........................ $ 0.65 $ 0.65
December 31, 2004......................... $ 0.50 $ 0.50
March 31, 2005............................ $ 0.11 $ 0.11
June 30, 2005............................. $ 0.06 $ 0.06
On September 30, 2005, the closing price for the common stock was $0.05
4
As of September 2, 2005, there were 944 record holders of our common
stock. Since our inception, no cash dividends have been declared on our common
stock.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The acquisition of the HEARTSTAT CNBP/BF Technology assets was
accounted for as an acquisition of assets as opposed to a reverse merger due to
the fact that there was organized operating company that owned or operated the
HEARTSTAT CNBP/BF system in the past 2 years while the technology was in its R&D
phases. (FOR MORE INFORMATION ON THE ACCOUNTING POLICIES USED PLEASE CONSULT THE
NOTES TO THE FINANCIAL STATEMENTS). A predecessor sensing part of the system
used for the HEARTSTAT CNBP/BF technology assets had a number of investors, that
invested in this predecessor part of the system over the past 10 years.
During the fiscal year ended December 31, 2004, the Company conducted
only limited operations, which were focused on obtaining financing to develop
the acquired Technology. Such efforts included the filing of a registration
statement under the Securities Exchange Act of 1934, as management believed that
being a reporting company would enhance financing opportunities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of
operations are based upon our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures of contingent assets
and liabilities. On an ongoing basis, we evaluate our estimates, including those
related to impairment of long-lived assets. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions; however, we believe that
our estimates, including those for the above-described items, are reasonable.
IMPAIRMENT OF LONG-LIVED ASSETS.
Our long-lived assets include property, equipment and goodwill. We
assess impairment of long-lived assets whenever changes or events indicate that
the carrying value may not be recoverable. In performing our assessment we must
make assumptions regarding estimated future cash flows and other factors to
determine the fair value of the respective assets. If these estimates change in
the future we may be required to record impairment charges against these
respective assets.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED DECEMBER 31, 2004 AND 2003.
We operated as Tec Factory for the fiscal year ended December 31, 2003.
During that year, the Company had negligible operations. We completed the
acquisition of the Technology in the first quarter of 2004. We had debited
goodwill in the amount of $58,000 to account for the acquisition of the
Technology, which amount consisted of $38,000 for the issuance of 38,000,000
shares at $0.001 per share and the assumption of $20,000 of notes payable.
We have not yet generated revenues. Operating expenses consisted of
payroll and related expenses for executive, finance and administrative
personnel, recruiting, professional fees and other general corporate expenses as
well as payroll and related expenses for development personnel and
5
consultants. Operating expenses were $222,003 for fiscal 2004, as compared to
$21,000 for fiscal 2003 due to a $58,000 impairment charge in 2004 and the
increased level of activity in 2004. The Company performed its annual impairment
test of its existing goodwill and concluded that an impairment existed at
December 31, 2004. Factors considered led to a substantial doubt by the Company
to recover its investment due to a lack of certainty in future cash flows
calculated on an undiscounted basis. In addition, based on the Company's fair
market value estimate, the related write-down was required to record the
intangible asset to its fair market value.
Accordingly, the net loss was $230,818 for fiscal 2004, as compared to
$21,000 for fiscal 2003.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2004, the Company had a working capital deficit of
$25,752, as compared to a working capital deficit of $42,000 at December 31,
2003. The Company had no cash at December 31, 2004, but maintains an agreement
with FutureVest, Inc. (formerly Diamond WorldWide) a related company, to
continue to finance operations.
The Company has been funded and continues to be funded by FutureVest,
Inc. (formerly Diamond WorldWide), which will continue to fund the operating and
development expenses of the Company. All monies advanced to the Company by
Diamond WorldWide accrue interest at 8% per annum. At December 31, 2004,
$184,566 of long-term debt and $7,493 of interest was owed to FutureVest, Inc.
PLAN OF OPERATION
The Company will be changing its name and pursuing other opportunities
in the area of technology development. For the near term, the Company will be
dependent upon financing provided by its shareholders and related parties to
sustain operations.
ITEM 7. FINANCIAL STATEMENTS
See the pages beginning with page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Bongiovanni & Associates was appointed as our principal accountants as
of March 15, 2004. On August 15, 2005 our CEO and Board of Directors approved
Bongiovanni and Associates to complete the audit for year end December 31, 2004.
Bongiovanni & Associates also completed the audited financial statements for the
fiscal year ended December 31, 2002 and December 31, 2003. During the three most
recent fiscal years and the subsequent interim period, neither we nor anyone on
our behalf consulted Bongiovanni & Associates regarding the application of
accounting principles to a specific completed or contemplated transaction, or
the type of audit opinion that might be rendered on our financial statements.
Prior to the engagement of Bongiovanni and Associates the company did
not have an independent auditor of record.
ITEM 8A. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934,
as of the end of the period covered by this annual report, the Company evaluated
the effectiveness of the design and operation of its disclosure controls and
procedures. This evaluation was carried out under the supervision and with the
participation of the Company's management. Based upon that evaluation, the
6
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective. There have been no
changes in the Company's internal controls or in other factors, which could
significantly affect internal controls subsequent to the date it carried out its
evaluation. It was management's assessment that the delay in filing this report
was due primarily to the Company's change in plans with respect to its business
operations.
Disclosure controls and procedures and other procedures are designed to
ensure that information required to be disclosed in the Company's reports filed
or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time period specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Exchange Act is
accumulated and communicated to management, including the Company's Chief
Executive Officer and Chief Financial Officer as appropriate, to allow timely
decisions regarding required disclosure.
ITEM 8B. OTHER INFORMATION
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Our executive officers and directors are:
NAME AGE POSITION
Garrett K. Krause 38 Chief Executive Officer and Director
Our directors are elected annually by our shareholders and our officers
are appointed annually by our board of directors. Any vacancies in our board to
be are filled by the board itself. Set forth below is a brief description of the
recent employment and business experience of our sole executive officer and
director.
GARRETT K. KRAUSE, CHIEF EXECUTIVE OFFICER& DIRECTOR
As of August 15, 2005, Garrett K. Krause became a director and was
elected as our Chairman and Chief Executive Officer. Since 1992, Mr. Krause has
been the Managing Director of eAngels Equity, LLC, an angel investor network,
based in Miami, Florida. eAngels Equity, LLC participates in the investment in
the real estate, financial services, media, entertainment, and technology
industries. Mr. Krause studied finance at University of Calgary before starting
his private investment and entrepreneurial ventures.
CONFLICTS OF INTEREST
Members of our management are associated with other firms involved in a
range of business activities. Consequently, there are potential inherent
conflicts of interest in their acting as officers and directors of our company.
Insofar as the officers and directors are engaged in other business activities,
we anticipate they will devote only a minor amount of time to our affairs.
Our officers and directors are now and may in the future become
shareholders, officers or directors of other companies, which may be formed for
the purpose of engaging in business activities similar to us. Accordingly,
additional direct conflicts of interest may arise in the future with respect to
such individuals acting on behalf of us or other entities. Moreover, additional
conflicts of interest may arise with
7
respect to opportunities which come to the attention of such individuals in the
performance of their duties or otherwise. Currently, we do not have a right of
first refusal pertaining to opportunities that come to their attention and may
relate to our business operations.
Our officers and directors are, so long as they are our officers or
directors, subject to the restriction that all opportunities contemplated by our
plan of operation which come to their attention, either in the performance of
their duties or in any other manner, will be considered opportunities of, and be
made available to us and the companies that they are affiliated with on an equal
basis. A breach of this requirement will be a breach of the fiduciary duties of
the officer or director. If we or the companies with which the officers and
directors are affiliated both desire to take advantage of an opportunity, then
said officers and directors would abstain from negotiating and voting upon the
opportunity. However, all directors may still individually take advantage of
opportunities if we should decline to do so. Except as set forth above, we have
not adopted any other conflict of interest policy with respect to such
transactions.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, are required to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934. The
following table sets forth reports that were not filed on a timely basis during
the most recently completed fiscal year:
--------------------------------------------------------------------------------
REPORTING PERSON DATE REPORT DUE DATE REPORT FILED
--------------------------------------------------------------------------------
Ted W. Russell Form 3 due 12/29/04 01/07/05
--------------------------------------------------------------------------------
Garrett K. Krause Form 3 due 12/29/04 01/07/05
--------------------------------------------------------------------------------
James Hudson Form 3 due 12/29/04 01/07/05
--------------------------------------------------------------------------------
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information the remuneration of our
chief executive officers for the last three completed fiscal years.
SUMMARY COMPENSATION TABLE
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LONG TERM COMPENSATION
--------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION --------------------------------------
------------------------------------------------
OTHER RESTRICTED SECURITIES
NAME AND PRINCIPAL ANNUAL STOCK UNDERLYING LTIP ALL OTHER
POSITION COMPENSA- AWARD(S) OPTIONS/ PAYOUTS COMPENSA-
YEAR SALARY ($) BONUS ($) TION ($) ($) SARS (#) ($) TION ($)
------------------------------------------------------------------------------------------------------------------------------
James R. Hudson (1) 2004 -0- -0- -0- -0- -0- -0- -0-
Ted Russell (2) 2004 -0- -0- -60,000- -0- -0- -0- -0-
Robert G. Taylor (3) 2003 -0- -0- -0- -0- -0- -0- -0-
2002 -0- -0- -0- -0- -0- -0- -0-
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------------------
(1) Mr. Hudson served as President from April 1, 2004 to February 5, 2005
and as Chief Executive Officer from October 8, 2004 to February 5,
2005.
(2) Mr. Russell served as Chief Executive Officer from April 1, 2004 to
October 8, 2004. He was the President from November 1, 2004 to August
15, 2005. Mr. Russell was not an officer or director of the Company at
the time we filed our registration statement on Form 10-SB (October 20,
2004).
(3) Mr. Taylor was the President from January 2001 through February 27,
2004. He had no compensation from the company.
8
OPTION/SAR GRANTS IN LAST FISCAL YEAR
----------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
----------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SARS GRANTED EXERCISE OR BASE PRICE
NAME OPTIONS/SARS GRANTED TO EMPLOYEES IN ($/SH) EXPIRATION DATE
(#) FISCAL YEAR
----------------------------------------------------------------------------------------------------------------------
James Hudson -0- -- -- --
Ted Russell -0- -- -- --
Robert G. Taylor -0- -- -- --
----------------------------------------------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
----------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR END (#) FISCAL YEAR END ($)
SHARES ACQUIRED ON -----------------------------------------------
NAME EXERCISE (#) VALUE REALIZED ($) EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
----------------------------------------------------------------------------------------------------------------------
James Hudson -0- -0- -0-/-0- -0/-0-
Ted Russell -0- -0- -0-/-0- -0-/-0-
Robert G. Taylor -0- -0- -0-/-0- -0-/-0-
----------------------------------------------------------------------------------------------------------------------
We will reimburse our officers and directors for reasonable expenses
incurred during the course of their performance.
Effective April 1, 2004, Mr. Russell signed a five-year employment
agreement which was to start upon commencement of full R&D operations. He
received monthly compensation of $5,000 from April 1, 2004 to September 1, 2004,
which increased to $7,500 monthly beginning October 1, 2004.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The following table provides certain information as to the officers and
directors individually and as a group, and the holders of more than 5% of the
Common Stock of the Company, as of September 30, 2005:
-----------------------------------------------------------------------------------------------------------------
AMOUNT AND NATURE OF PERCENT OF CLASS
NAME AND ADDRESS OF BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP (2)
-----------------------------------------------------------------------------------------------------------------
Ted W Russell
44 Middle Beach Rd West
Madison, CT 06443 19,599,997 (3) 40.5%
-----------------------------------------------------------------------------------------------------------------
Garrett K. Krause
23852 PCH, #736
Malibu, CA 90265 15,000,000 (3) (4) (5) 31.0%
-----------------------------------------------------------------------------------------------------------------
SolutionMed Ventures
C/O G.K. Krause
1521 Alton Road, #352 4,000,000 (3) (4) (5) 8.3%
Miami Beach, FL 33139
-----------------------------------------------------------------------------------------------------------------
9
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AMOUNT AND NATURE OF PERCENT OF CLASS
NAME AND ADDRESS OF BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP (2)
-----------------------------------------------------------------------------------------------------------------
FutureVest MicroCap Fund
C/O G.K. Krause
1521 Alton Road, #352 4,000,000 (3) (4) (5) 8.3%
Miami Beach, FL 33139
-----------------------------------------------------------------------------------------------------------------
eAngels Technology Fund
C/O G.K. Krause
1521 Alton Road, #352 3,000,000 (3) (4) (5) 6.2%
Miami Beach, FL 33139
-----------------------------------------------------------------------------------------------------------------
Diamond Ventures
C/O G.K. Krause
1521 Alton Road, #352 4,000,000 (3) (4) (5) 8.3%
Miami Beach, FL 33139
-----------------------------------------------------------------------------------------------------------------
All officers and directors as a group (1 person) 34,599,997 71.5%
-----------------------------------------------------------------------------------------------------------------
-------------------
(1) To our knowledge, except as set forth in the footnotes to this table
and subject to applicable community property laws, each person named in
the table has sole voting and investment power with respect to the
shares set forth opposite such person's name.
(2) This table is based on 48,402,887 shares of Common Stock outstanding as
of September 30, 2005. If a person listed on this table has the right
to obtain additional shares of Common Stock within sixty (60) days from
September 30, 2005, the additional shares are deemed to be outstanding
for the purpose of computing the percentage of class owned by such
person, but are not deemed to be outstanding for the purpose of
computing the percentage of any other person.
(3) Mr. Ted W. Russell and Mr. G.K Krause through the eAngels Syndicate may
be deemed to be the "parents" of our company within the meaning of the
rules and regulations of the Securities and Exchange Commission.
(4) Includes 4,000,000 shares owned of record by FutureVest MicroCap Fund;
3,000,000 shares owned by eAngels Technology Fund; 4,000,000 shares
owned by SolutionMed Ventures and 4,000,000 shares owned by Diamond
Ventures.
(5) Garrett K. Krause is an investment manager that manages equity
investments and partnerships for the eAngels Syndicate of investors.
Mr. Garrett K. Krause is deemed the beneficial owner a total of 15
million shares or 31.0% of the total outstanding common stock pursuant
to note (4)
CHANGES IN CONTROL
On August 15, 2005 the Company entered into a Asset Transfer Agreement.
Immediately prior to the filing of this report, Mr. Ted Russell and Mr. Patrick
Maley resigned their positions and upon closing of the Asset Transfer Agreement,
Mr. Russell will return his stock back to the Company, resulting in a change in
control of the Company.
The following table provides certain information as to the officers and
directors individually and as a group, and the holders of more than 5% of the
Common Stock of the Company, as of the completion and closing of the Asset
Transfer Agreement which is scheduled to close immediately subsequent to the
filing of this 10KSB.
10
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AMOUNT AND NATURE OF PERCENT OF CLASS
NAME AND ADDRESS OF BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP (2)
-------------------------------------------------------------------------------------------------------------------
Garrett K. Krause
23852 PCH, #736
Malibu, CA 90265 15,000,000 (3) (4) (5) 52.8%
-------------------------------------------------------------------------------------------------------------------
SolutionMed Ventures
C/O G.K. Krause
1521 Alton Road, #352 4,000,000 (3) (4) (5) 14.1%
Miami Beach, FL 33139
-------------------------------------------------------------------------------------------------------------------
FutureVest MicroCap Fund
C/O G.K. Krause
1521 Alton Road, #352 4,000,000 (3) (4) (5) 14.1%
Miami Beach, FL 33139
-------------------------------------------------------------------------------------------------------------------
eAngels Technology Fund
C/O G.K. Krause
1521 Alton Road, #352 3,000,000 (3) (4) (5) 10.6%
Miami Beach, FL 33139
-------------------------------------------------------------------------------------------------------------------
Diamond Ventures
C/O G.K. Krause
1521 Alton Road, #352 4,000,000 (3) (4) (5) 14.1%
Miami Beach, FL 33139
-------------------------------------------------------------------------------------------------------------------
All officers and directors as a group (1 person) 15,000,000 52.8%
-------------------------------------------------------------------------------------------------------------------
------------------
(1) To our knowledge, except as set forth in the footnotes to this table
and subject to applicable community property laws, each person named in
the table has sole voting and investment power with respect to the
shares set forth opposite such person's name.
(2) This table is based on 28,402,887 shares of Common Stock outstanding as
of the closing of the Asset Transfer Agreement subsequent to this
filing. If a person listed on this table has the right to obtain
additional shares of Common Stock within sixty (60) days from September
30, 2005, the additional shares are deemed to be outstanding for the
purpose of computing the percentage of class owned by such person, but
are not deemed to be outstanding for the purpose of computing the
percentage of any other person.
(3) Mr. Garrett K. Krause through the eAngels Syndicate may be deemed to be
the "parent" of our company within the meaning of the rules and
regulations of the Securities and Exchange Commission.
(4) Includes 4,000,000 shares owned of record by FutureVest MicroCap Fund;
3,000,000 shares owned by eAngels Technology Fund; 4,000,000 shares
owned by SolutionMed Ventures and 4,000,000 shares owned by Diamond
Ventures.
(5) Garrett K. Krause is an investment manager that manages equity
investments and partnerships for the eAngels Syndicate of investors.
Mr. Garrett K. Krause is deemed the beneficial owner a total of 15
million shares or 52.8% of the total outstanding common stock pursuant
to note (4)
11
STOCK OPTION PLANS
On September 30, 2004, our shareholders adopted a stock option plan,
under which an aggregate of 5,000,000 shares of common stock are reserved for
issuance pursuant to the exercise of stock options. These options may be granted
to our employees, officers, directors, and consultants. We may also make awards
of restricted stock under this plan. Shares issued under this plan are
"restricted" in the sense that they are subject to repurchase by us at cost
during the vesting period.
The plan is designed to (i) induce qualified persons to become
employees, officers, or directors of us; (ii) reward such persons for past
services to us; (iii) encourage such persons to remain in our employ or
associated with us; and (iv) provide additional incentive for such persons to
put forth maximum efforts for the success of our business. Transactions under
the plan are intended to comply with all applicable provisions under the
Securities Exchange Act of 1934. This plan will remain in effect until September
30, 2014, unless soon terminated by the Board of Directors.
Our board of directors administers the plan and determines:
o who will be granted options or awards;
o when options or awards will be granted;
o the number of options or shares to be granted;
o which options may be intended to qualify as incentive stock options
under the Internal Revenue Code of 1986, versus non-qualified options
which are not intended to so qualify;
o the time or times when each option becomes exercisable;
o the duration of the exercise period for options;
o the form or forms of the instruments evidencing options or awards
granted under the plan;
o the purchase price of the shares issued under the plan;
o the period or periods of time during which we will have a right to
repurchase the shares; and
o the terms and conditions of such repurchase.
The board may adopt, amend, and rescind such rules and regulations as
in its opinion may be advisable for the administration of the plan. It may amend
the plan without shareholder approval where such approval is not required to
satisfy any statutory or regulatory requirements. The board also may construe
the plan and the provisions in the instruments evidencing options granted under
the plan to employee and officer participants. The board has the power to make
all other determinations deemed necessary or advisable for the administration of
the plan. The board may not adversely affect the rights of any participant
without the consent of such participant.
The plan contains provisions for proportionate adjustment of the number
of shares for outstanding options and the option price per share in the event of
stock dividends, recapitalizations resulting in stock splits or combinations or
exchanges of shares.
The board may select participants in the plan from employees and
officers of us and our subsidiaries and consultants to us and our subsidiaries.
In determining the persons to whom options and awards will be granted and the
number of shares to be covered by each option, the board will take into account
the duties of the respective persons, their present and potential contributions
to our success, and such other factors as the board deems relevant to accomplish
the purposes of the plan.
STOCK OPTIONS. Only employees of us and our subsidiaries, as the term
"employee" is defined for the purposes of the Internal Revenue Code will be
entitled to receive incentive stock options. The option price of any incentive
stock option may be not less than 100% of the fair market value per share on the
date of grant of the option; provided, however, that any incentive stock option
granted under the plan to a person owning more than ten percent of the total
combined voting power of the common stock will have an option price of not less
than 110% of the fair market value per share on the date of grant of the
incentive stock option. The exercise period of options granted under the plan
may not exceed ten years from the date of grant thereof. Incentive stock options
granted to a person owning more than ten percent
12
of the total combined voting power of our common stock will be for no more than
five years. Except in the case of options granted to disinterested directors who
administer the plan, the board will have the authority to accelerate or extend
the exercisability of any outstanding option at such time and under such
circumstances as it, in its sole discretion, deems appropriate. However, no
exercise period may be extended to increase the term of the option beyond ten
years from the date of the grant.
An option may not be exercised unless the optionee then is an employee,
officer, or consultant of us or our subsidiaries, and unless the optionee has
remained continuously as an employee, officer, or consultant since the date of
grant of the option. If the optionee ceases to be an employee, officer, or
consultant other than by reason of death, disability, or for cause, all options
granted to such optionee, fully vested to such optionee but not yet exercised,
will terminate three months after the date the optionee ceases to be an
employee, officer or consultant. All options that are not vested to an optionee,
under the conditions stated in this paragraph for which employment ceases, will
immediately terminate on the date the optionee ceases employment or association.
If an optionee dies while an employee, officer or consultant, or if the
optionee's employment, officer, or consultant status terminates by reason of
disability, all options theretofore granted to such optionee, whether or not
otherwise exercisable, unless earlier terminated in accordance with their terms,
may be exercised at any time within one year after the date of death or
disability of said optionee, by the optionee or by the optionee's estate or by a
person who acquired the right to exercise such options by bequest or inheritance
or otherwise by reason of the death or disability of the optionee.
Options granted under the plan are not transferable other than by will
or by the laws of descent and distribution or pursuant to a qualified domestic
relations order. Options may be exercised, during the lifetime of the optionee,
only by the optionee and thereafter only by his legal representative. An
optionee has no rights as a shareholder with respect to any shares covered by an
option until the option has been exercised.
Unless otherwise specified in an optionee's agreement, options granted
under the plan will become vested with the optionee over the course of four
years from date of grant under the following schedule: 25% upon the first
anniversary of the option grant and the remaining 75% monthly over the following
36 months.
RESTRICTED STOCK AWARDS. Shares issued under the plan will be evidenced
by a written restricted stock purchase agreement between us and the participant.
Shares issued under the plan are transferable only if the transferee agrees to
be bound by all of the terms of the plan, including our right to repurchase the
shares, and only if such transfer is permissible under federal and state
securities laws. To facilitate the enforcement of the restrictions on transfer,
the board may require the holder of the shares to deliver the certificate(s) for
such shares to be held in escrow during the period of restriction.
OUTSTANDING OPTIONS. As of September 30, 2005 there were no options
granted under this plan.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Other than as disclosed below, none of our present directors, officers
or principal shareholders, nor any family member of the foregoing, nor, to the
best of our information and belief, any of our former directors, senior officers
or principal shareholders, nor any family member of such former directors,
officers or principal shareholders, has or had any material interest, direct or
indirect, in any transaction, or in any proposed transaction which has
materially affected or will materially affect us.
The Company currently has its headquarters operations in Santa Monica,
California by subleasing office space from FutureVest, Inc. (formerly Diamond
WorldWide). Term of the lease is month to month and the rent is $250 per month
and started on January 1, 2005. At December 31, 2004, the Company owed $184,566
to FutureVest, Inc. pursuant to an unsecured revolving line of up to $750,000.
Interest accrues at 8% per annum and the entire balance is due December 31,
2007. This debt is
13
convertible into shares of common stock of the Company at a price of $0.35 per
share. Also as of December 31, 2004, $7,493 was owed to FutureVest, Inc. for
accrued interest.
As per the terms of February 6, 2004 Agreement for the Purchase of
Assets there were two royalties payable by the Company to SolutionMED Ventures
of 1.2% and CNPB, Inc. (owned by the inventor, Ted Russell and his spouse) of
2.2% on all product revenues related to HEARTSTAT CNBP/BF Technology.
SolutionMED Ventures is a related company as it is part of the eAngels Syndicate
of investors, managed by Garrett K. Krause. As no revenues were generated during
2004, no royalty payments were made. Upon the consummation of the Asset Transfer
Agreement, the Company will no longer be subject to such royalty obligations.
Garrett K. Krause through the eAngels Syndicate is the beneficial owner
of 15,000,000 shares through the investment funds; SolutionMed Ventures,
FutureVest MicroCap Fund, eAngels Technology Fund and Diamond Ventures.
As part of the Agreement for the Purchase of Assets, the Company agreed
to a Commercialization Partnership Agreement (Exhibit B to the Agreement) with
the Interest Holders whereby the Interest Holders agreed that Ted Russell, the
inventor of the technology, could exclusively license in perpetuity the
HEARTSTAT CNBP/BF Technology for the purpose of financing and concluding product
commercialization activities if the Company were to fail to raise at least
$2,500,000 of net proceeds for product development by September 6, 2005. The
Company was given a 90-day period to cure the financing inadequacy to prevent
the license from being effected. The terms of the license would include a
provision that Mr. Russell, or an independent entity would repay the Company for
any actual investment capital received at the rate of 20% of any net income of
Mr. Russell's independent commercial operations of producing derivative products
using the HEARTSTAT CNBP/BF Technology. In addition, the Company would receive a
royalty on net revenues of such derivative products as follows:
1. A royalty equal to 3% of net revenues if at lest $1.3 million of
investment capital was received
2. A royalty equal to 2% of net revenues if at least $650,000 but
less than $1.3 million of investment capital was received, or
3. A royalty equal to 1% of net revenues if less than $650,000 of
investment capital was received.
On August 15, 2005, in relation to the Company's inability to raise the
required $2,500,000, Mr. Ted Russell and HeartSTAT, Inc. executed an Asset
Transfer Agreement with the Company for the sale of the Technology to HeartSTAT,
Inc., a private company controlled by Mr. Ted Russell, to facilitate the ability
of Mr. Russell to continue the private funding of and commercialization of the
Technology. The Company will receive the following in exchange for the assets:
o Mr. Russell and the Hull Family will return 20,000,000 shares
of the Company's common stock to treasury, which accounts for
41.3% of the issued and outstanding stock in the company.
o HeartSTAT, Inc. will issue 98,207 shares of stock
(representing 8.7% equity interest in HeartSTAT, Inc.) and a
$70,000 promissory note.
o Mr. Russell and HeartSTAT, Inc. will fully release the
Company from payment of all amounts owed to them.
Mr. Russell and Mr. Pat Maley, who were not officers or directors at
the time we filed our registration statement on Form 10-SB (October 20, 2004),
resigned immediately prior to the filing of this report as officers and
directors of the Company. At December 31, 2004, $24,500 was owed to HeartSTAT,
Inc. as long-term debt and $1,321 was owed to HeartSTAT, Inc. for accrued
interest on that debt. Also at December 31, 2004, the Company owed Ted Russell
$7,500 under the terms of his employment contract.
14
ITEM 13. EXHIBITS.
--------------------------------------------------------------------------------
REGULATION
S-B NUMBER EXHIBIT
--------------------------------------------------------------------------------
3.1 Certificate of Incorporation, as amended (1)
--------------------------------------------------------------------------------
3.2 Bylaws (1)
--------------------------------------------------------------------------------
10.1 Agreement for the Purchase of Assets with the Interest holders
of the HEARTSTAT CNBP/BF Technology (1)
--------------------------------------------------------------------------------
10.2 Employment Agreement of Ted Russell (1)
--------------------------------------------------------------------------------
10.3 2004 Stock Option Plan (1)
--------------------------------------------------------------------------------
10.4 SolutionMed Ventures Royalty Agreement (1)
--------------------------------------------------------------------------------
10.5 CNBP, Inc. Royalty Agreement (1)
--------------------------------------------------------------------------------
10.6 Asset Purchase Agreement dated as of August 15, 2005, by and
between HeartSTAT, Inc., Ted W. Russell, and HeartSTAT
Technology, Inc. (2)
--------------------------------------------------------------------------------
10.7 Escrow Agreement dated as of August 15, 2005 (2)
--------------------------------------------------------------------------------
10.8 Convertible Promissory Note to Diamond WorldWide, Inc.
--------------------------------------------------------------------------------
----------------------
(1) Incorporated by reference to the exhibits filed with the registrant's
registration statement on Form 10-SB, file no. 0-50993.
(2) Incorporated by reference to the exhibits filed with the registrant's
amended current report on Form 8-K dated August 15, 2005, file no.
0-50993.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES
For the fiscal years ended December 31, 2004 and 2003, our principal
accountant is expected to bill approximately $9,000 and billed $9,000,
respectively, for the audit of our annual financial statements and review of
financial statements included in our Form 10-SB filing.
AUDIT-RELATED FEES
There were no fees billed for services reasonably related to the
performance of the audit or review of our financial statements outside of those
fees disclosed above under "Audit Fees" for fiscal years 2004 and 2003.
TAX FEES
There were no fees billed for tax compliance, tax advice, and tax
planning services for fiscal years 2004 and 2003.
ALL OTHER FEES
There were no other fees billed by our principal accountant other than
those disclosed above for fiscal years 2004 and 2003.
15
PRE-APPROVAL POLICIES AND PROCEDURES
Prior to engaging our accountants to perform a particular service, our
board of directors obtains an estimate for the service to be performed. The
board of directors in accordance with procedures for the Company approved all of
the services described above.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HEARTSTAT TECHNOLOGY, INC.
Date: October 31, 2005 By: /s/ GARRETT K. KRAUSE
------------------- ---------------------------------
Garrett K. Krause, CEO
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Chief Executive Officer and
Director (Principal Executive,
/s/ GARRETT K. KRAUSE Financial, and Accounting Officer) October 31, 2005
------------------------------
Garrett K. Krause
16
------------
FINANCIAL STATEMENTS
HEARTSTAT TECHNOLOGY, INC.
(FKA TEC FACTORY, INC.)
DECEMBER 31, 2004 AND 2003
------------
BONGIOVANNI & ASSOCIATES
------------------------
CERTIFIED PUBLIC ACCOUNTANTS
F-1
TABLE OF CONTENTS
PAGE(S)
FINANCIAL STATEMENTS:
Balance Sheet F-4
Statements of Operations F-5
Statement of Stockholders' Deficit F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8 -F- 17
F-2
BONGIOVANNI & ASSOCIATES
CERTIFIED PUBLIC ACCOUNTANTS
17111 Kenton Drive - Suite 100-B
Cornelius, North Carolina 28031
================================================================================
To the Board of Directors and Stockholders:
HeartSTAT Technology, Inc.
FKA Tec Factory, Inc.
530 Wilshire Blvd, #736
Santa Monica, CA 90401
We have audited the accompanying balance sheet of HeartSTAT Technology, Inc.
(FKA Tec Factory, Inc.) (a Delaware corporation) as of December 31, 2004 and the
related statements of operations, stockholders' deficit, and cash flows for the
two years ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement. 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 that our audits provide a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of HeartSTAT Technology, Inc. (FKA Tec
Factory, Inc.) as of December 31, 2004 and the results of its operations and its
cash flows for the two years then ended, in conformity with U.S. generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company has suffered recurring losses and
has yet to generate an internal cash flow that raises substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are described in Note G. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
September 21, 2005
/s/ BONGIOVANNI & ASSOCIATES, P.A.
Bongiovanni & Associates, P.A.
Charlotte, North Carolina
F-3
HEARTSTAT TECHNOLOGY, INC.
(FKA Tec Factory, Inc.)
Balance Sheet
AT DECEMBER 31, 2004
================================================================================
ASSETS
CURRENT ASSETS
Cash $ -
Prepaid Expense 1,517
------------------
TOTAL CURRENT ASSETS 1,517
------------------
OTHER ASSETS
Goodwill -
------------------
TOTAL OTHER ASSETS -
------------------
TOTAL ASSETS $ 1,517
==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 10,954
Accrued Interest - Related Parties 8,815
Other Trade Payables - Related Parties 7,500
------------------
TOTAL CURRENT LIABILITIES 27,269
------------------
LONG TERM LIABILITIES
Convertible Notes Payable - Related Parties 209,066
------------------
TOTAL LONG TERM LIABILITIES 209,066
------------------
TOTAL LIABILITIES 236,335
------------------
STOCKHOLDERS' DEFICIT
Common Stock (80,000,000 shares authorized, 48,402,887
shares issued and outstanding, par value $.001) 48,403
Convertible Preferred Stock (5,000,000 shares authorized, no
shares issued and outstanding, par value $.001) -
Retained Deficit (283,221)
------------------
TOTAL STOCKHOLDERS' DEFICIT (234,818)
------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,517
==================
F-4
HEARTSTAT TECHNOLOGY, INC.
(FKA Tec Factory, Inc.)
Statements of Operations
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
================================================================================
Year Ended Year Ended
December 31, 2004 December 31, 2003
----------------- -----------------
REVENUES:
Sales $ - $ -
Cost of sales - -
----------------- -----------------
GROSS PROFIT - -
OPERATING EXPENSES:
General and Administrative 102,003 21,000
Consulting R&D Expenses 62,000 -
Impairment Expense of Intangible Assets 58,000 -
----------------- -----------------
TOTAL OPERATING EXPENSES 222,003 21,000
----------------- -----------------
LOSS FROM OPERATIONS (222,003) (21,000)
OTHER EXPENSES:
Interest Expense 8,815 -
----------------- -----------------
TOTAL OTHER EXPENSES 8,815 -
----------------- -----------------
NET LOSS (230,818) (21,000)
----------------- -----------------
Basic and Fully Diluted Net Loss per Share $ (0.01) $ **
================= =================
Weighted Average Shares Outstanding 39,345,353 10,402,887
================= =================
** Less than $0.01
F-5
HEARTSTAT TECHNOLOGY, INC.
(FKA Tec Factory, Inc.)
Statement of Stockholders' Deficit
FOR THE YEARS DECEMBER 31, 2004 AND 2003
================================================================================
Additional
Common Common Preferred Preferred Paid in Retained
Stock Shares Stock Shares Capital Deficit
----------------------------------------------------------------------------------------
Balances, January 1, 2003 $ 10,403 10,402,887 $ - $ - $ - $ (31,403)
Net Loss for they year - - - - - (21,000)
----------------------------------------------------------------------------------------
Balances, January 1, 2004 10,403 10,402,887 - - - (52,403)
Common stock issued for acquistion
of impaired goodwill 38,000 38,000,000 - - - -
Net Loss for the year - - - - - (230,818)
----------------------------------------------------------------------------------------
Balances, December 31, 2004 $ 48,403 48,402,887 $ - $ - $ - $ (283,221)
========================================================================================
F-6
HEARTSTAT TECHNOLOGY, INC.
(FKA Tec Factory, Inc.)
Statements of Cash Flows
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
================================================================================
2004 2003
---------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (230,818) $ (21,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Impairment of Goodwill 58,000 -
Increase in operating assets
Prepaid Expense (1,517) -
Decrease in operating liabilities
Other trade payable - related parties 7,500 -
Accounts payable and accrued expenses 158,020 21,000
Accrued interest - Related Parties 8,815 -
---------------- --------------
NET CASH USED IN OPERATING ACTIVITIES - -
----------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS - -
---------------- --------------
CASH AND CASH EQUIVALENTS:
Beginning of year - -
----------------- --------------
End of year $ - $ -
================= ==============
OTHER NON-CASH FINANCING ACTIVITIES:
Incurrence of notes payable for purchase of goodwill $ 20,000 $ -
================= ==============
Issuance of common shares for purchase of goodwill $ 38,000 $ -
================= ==============
F-7
HEARTSTAT TECHNOLOGY, INC.
(FKA TEC FACTORY, INC.)
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
================================================================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND - HeartSTAT Technology, Inc. (FKA "Tec Factory, Inc.") ("The
Company") was organized under the laws of the State of Delaware on October 12,
1995 as a corporation. The original name of the Company was Hospital Software of
America, Inc. On February 13, 2004, the Company legally changed its name to
HeartSTAT Technology, Inc. via a Certificate of Amendment of Certificate of
Incorporation as filed with the State of Delaware. The Company entered into an
Agreement for the Purchase of Assets, dated February 6, 2004 that provided for
the issuance of 38,000,000 shares of common stock and the assumption of $20,000
of debt plus two royalty agreements as consideration for the purchase for a 100%
ownership of the medical technology. At February 6, 2004, the Company's board of
directors and shareholders approved the terms of the HeartSTAT Agreement for the
Purchase of Assets. This agreement was accounted for as an arms length
transaction. The objective of the share exchange was for the Company to enter
into the field of non-invasive monitoring of blood flow.
The Company had previously operated as a technology acquisition and development
company under the name of Tec Factory, Inc.
BASIS OF PRESENTATION - The financial statements included herein include the
accounts of HeartSTAT Technology, Inc. (FKA Tec Factory, Inc.) prepared under
the accrual basis of accounting.
MANAGEMENT'S USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that effect the
reported amounts of assets and liabilities, disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
CASH AND CASH EQUIVALENTS - For purposes of the Statements of Cash Flows, the
Company considers liquid investments with an original maturity of three months
or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of financial
instruments including prepaid expense, accounts payable and accrued expenses,
accrued interest and payable to related parties approximated fair value because
of the immediate short-term maturity of these instruments.
F-8
HEARTSTAT TECHNOLOGY, INC.
(FKA TEC FACTORY, INC.)
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
================================================================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT')
INCOME TAXES - Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of deferred taxes related
primarily to differences between the basis of certain assets and liabilities for
financial and tax reporting and net operating loss-carry forwards. Deferred
taxes represent the future tax return consequences of those differences, which
will either be taxable or deductible when the assets and liabilities are
recovered or settled.
The income tax benefit consists of taxes currently refundable due to net
operating loss carry back provisions for federal and state governments. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or the entire deferred
tax asset will not be realized. Deferred tax assets and liabilities are adjusted
for the effect of changes in tax laws and rates on the date of enactment.
LOSS PER SHARE - The Company reports earnings (loss) per share in accordance
with Statement of Financial Accounting Standard (SFAS) No.128. This statement
requires dual presentation of basic and diluted earnings (loss) with a
reconciliation of the numerator and denominator of the loss per share
computations. Basic earnings per share amounts are based on the weighted average
shares of common outstanding. If applicable, diluted earnings per share would
assume the conversion, exercise or issuance of all potential common stock
instruments such as options, warrants and convertible securities, unless the
effect is to reduce a loss or increase earnings per share. Accordingly, this
presentation has been adopted for the period presented. There were no
adjustments required to net loss for the period presented in the computation of
diluted earnings per share.
COMPREHENSIVE INCOME (LOSS) - The Company adopted Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 130, "REPORTING
COMPREHENSIVE INCOME", which establishes standards for the reporting and display
of comprehensive income and its components in the financial statements. There
were no items of comprehensive income (loss) applicable to the Company during
the years covered in the financial statements.
F-9
HEARTSTAT TECHNOLOGY, INC.
(FKA TEC FACTORY, INC.)
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
================================================================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT')
RECENT ACCOUNTING PRONOUNCEMENTS - In November 2002, the FASB issued
Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantee, Including Indirect Guarantees or Indebtedness of
Others", which addresses the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees.
FIN 45 also requires the recognition of a liability by a guarantor at the
inception of certain guarantees that are entered into or modified after December
31, 2002.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment to SFAS No. 123" ("SFAS
No. 148"), which provides alternative methods of transition for companies
voluntarily planning on implementing the fair value recognition provisions of
SFAS No. 123. SFAS No. 148 also revises the disclosure provisions of SFAS No.
123 to require more promineI1t disclosure of the method of accounting for
stock-based compensation, and requiring disclosure of pro forma net income and
earnings per share as if the fair value recognition provisions of SFAS No. 123
had been applied from the original effective date of SFAS No. 123. The Company
adopted the disclosure provisions of SFAS No. 148 for the quarters ending after
December 15, 2002.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities". FIN No. 46 requires the consolidation of entities that cannot finance
their activities without the support of other parties and that lack certain
characteristics of a controlling interest, such as the ability to make decisions
about the entity's activities via voting rights or similar rights. The entity
that consolidates the variable interest entity is the primary beneficiary of the
entity's activities. FIN No. 46 applies immediately to variable interest
entities created after January 31, 2003, and must be applied in the first period
beginning after June 15,2003 for entities in which an enterprise holds a
variable interest entity that it acquired before February 1, 2003. The adoption
of this standard did not have any impact on the Company's financial statements.
In January 2003, the EITF released Issue No. 00-21, ("EITF 00-21"), "Revenue
Arrangements with Multiple Deliveries", which addressed certain aspects of the
accounting by a vendor for arrangement under which it will perform multiple
revenue-generating activities. Specifically, EITF 00-21 addresses whether an
arrangement contains more than one unit of accounting and the measurement and
allocation to the separate units of accounting in the arrangement. EITF 00-21 is
effective for revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. The adoption of this standard did not have an impact on the
Company's financial statements.
F-10
HEARTSTAT TECHNOLOGY, INC.
(FKA TEC FACTORY, INC.)
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
================================================================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT')
In May 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. SFAS No. 149 is effective for contracts entered into or modified after
June 30, 2003 and for hedging relationships designated after June 30, 2003. The
adoption of this Standard did not have any impact on the Company's financial
statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for how companies classify and measure certain financial
instruments with characteristics of both liabilities and equity. It requires
companies to classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003. The standard
did impact the Company's financial statements.
In December 2004, the FASB issued SFAS No. 123(R), "Accounting for Stock-Based
Compensation". SFAS No. 123(R) establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. This Statement focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions.
SGAS 123(R) requires that the fair value of such equity instruments be
recognized as expense in the historical financial statements as services are
performed. Prior to SFAS 123(R), only certain pro-forma disclosures of fair
value were required. SFAS 123(R) shall be effective for the Company as of the
beginning of the first interim or annual reporting period that begins after
December 15, 2005. The adoption of this new accounting pronouncement is expected
to have a material impact on the financial statements of the Company commencing
with the third quarter of the year ending September 30, 2006. Small business
issuers need not comply with the new standard until fiscal periods beginning
after December 15, 2005. The Company already records the expense of employee
stock options for annual and quarterly periods on fair value calculation
according to SFAS No.123.
F-11
HEARTSTAT TECHNOLOGY, INC.
(FKA TEC FACTORY, INC.)
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
================================================================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT')
RECENT ACCOUNTING PRONOUNCEMENTS (CONT.) - In November 2004, the FASB issued
SFAS No. 151, "Inventory Costs" (SFAS 151). This Statement amends the guidance
in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs, and wasted
material (spoilage). SFAS 151 requires that those items be recognized as
current-period charges. In addition, this Statement requires that allocation of
fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. The provisions of SFAS No. 151 are
effective for inventory costs incurred in fiscal years beginning after June 15,
2005.
In December 2003, the issued Staff Accounting Bulletin ("SAB") No. 104, "Revenue
Recognition," rescinded the accounting guidance contained in SAB No. 101,
"Revenue Recognition in Financial Statements," and incorporated the body of
previously issued guidance related to multiple-element revenue arrangements. The
Company's adoption of SAB No. 104 did not have any impact on its financial
statements.
In March 2004, the FASB ratified EITF Issue No. 03-1, "The Meaning of
Other-Than-Temporary Impairment and its Application to Certain Investments"
("EITF 03-1"), but delayed the recognition and measurement provisions of EITF
03-1 in September 2004. For reporting periods beginning after June 14, 2004,
only the disclosure requirements for available-for-sale securities and cost
method investments are required. The Company's adoption of the requirements did
not have a significant impact on the Company's disclosures.
In July 2004, the FASB issued EITF Issue No. 02-14, "Whether an Investor Should
Apply the Equity Method of Accounting to Investments Other than Common Stock"
("EITF 02-14"). EITF 02-14 requires application of the equity method of
accounting when an investor is able to exert significant influence over
operating and financial policies of an investee through ownership of common
stock or in-substance common stock. EITF 02-14 is effective for reporting
periods beginning after September 15, 2004. The adoption of EITF 02-14 will not
have a significant impact on the Company's financial statements.
NOTE B - ASSET ACQUISITION AGREEMENT
On February 6, 2004 the Company completed an asset acquisition agreement whereby
the Company issued 38,000,000 shares of its common stock to various interest
holders and assumed $20,000 in note payables in exchange for a technology that
will be used for monitoring patient blood flow, perfusion, and other
cardiovascular and heart values.
F-12
HEARTSTAT TECHNOLOGY, INC.
(FKA TEC FACTORY, INC.)
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
================================================================================
NOTE C - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES
Convertible notes payable - related parties at December 31, 2004 consist of the
following:
Revolving line for $50,000
payable to a related party
company bearing 8.00% interest,
unsecured. No monthly payments
of principal and interest with
maturity due December 31, 2006.
Debt is convertible into common
stock of the Company at a price
per share of $.35.
Current balance at December 31, 2004 is $24,500
Unsecured revolving line for
$750,000 payable to a company
related through common director-
ship and ownership bearing 8%
interest. Entire balance of
principal matures on December
31, 2007. Debt is convertible
into common stock of the Company
at a price per share of $.35.
Current balance at December 31, 2004 is $184,566
Total convertible debts outstanding $ 209,066
Less: current portion -0-
---------
Long-term portion $ 209,066
=========
Principal maturities of convertible notes payable - related parties as of
December 31, 2004 for the next five years and thereafter is as follows:
2005 $ -0-
2006 24,500
2007 184,566
2008 -0-
2009 -0-
-----------
Total $ 209,066
===========
F-13
HEARTSTAT TECHNOLOGY, INC.
(FKA TEC FACTORY, INC.)
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
================================================================================
NOTE D - COMMITTMENTS
Pursuant to the aforementioned agreement for the purchase of assets, the Company
is committed to 2.2% and 1.2% gross royalty payments to other related entities.
These percentages are based on total net revenues (net of product returns) and
any third party license royalties per each of the agreements.
The Company is also committed to an employment agreement with its officer.
Pursuant to the employment agreement, the Company is committed to paying its
officer a base salary of $150,000 per annum only in the event it raises
$750,000. Until this event occurs, the Company was obligated to pay a monthly
consulting fee to this individual of $5,000 through September 30, 2004. This
amount increased to $7,500 per month on October 1, 2004 the term of the
agreement is five years. Also, by the seventy-fifth day of each new fiscal year
the employee shall be granted a ten-year stock option based on the Company's
profit performance for the prior fiscal accounting year. The option is computed
based on a number of factors including the Company's income taxes, provided that
such pre-tax income exceeds $250,000.
NOTE E - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information for the years ended December
31, 2004 and 2003 are summarized as follows:
Cash paid during the periods for interest and income taxes:
2004 2003
---- ----
Income Taxes $ -- $ --
Interest $ -- $ --
NOTE F - INCOME TAXES
The Company has approximately $151,000 of net operating losses available that
expire in various years through the year 2024.
Due to operating losses and the inability to recognize an income tax benefit
there from, there is no provision for current federal or state income taxes for
the years ended December 31, 2004 and 2003.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for federal and state income tax purposes.
F-14
HEARTSTAT TECHNOLOGY, INC.
(FKA TEC FACTORY, INC.)
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
================================================================================
NOTE F - INCOME TAXES (CONT')
The Company's deferred tax asset at December 31, 2004 consists of a net
operating loss carry forward calculated using federal and state effective tax
rates equating to approximately $51,000 less a valuation allowance in the amount
of approximately $51,000 respectively. Because of the Company's lack of earnings
history, the deferred tax asset has been fully offset by a valuation allowance.
The valuation allowance increased by approximately $37,000 for the year ended
December 31, 2004.
The Company's total deferred tax asset as of December 31, 2004 is as follows:
Net operating loss carry forwards $ 51,000
Valuation allowance (51,000)
------------
Net deferred tax asset $ --
============
The reconciliation of income taxes computed at the federal statutory income tax
rate to total income taxes for the years ended December 31, 2004 and 2003 is as
follows:
2004 2003
---- ----
Income tax computed at the federal statutory rate 34% 34%
State income taxes, net of federal tax benefit -0-% -0-%
----- -----
Valuation allowance (34%) (34%)
----- -----
Net deferred tax asset -0-% -0-%
===== =====
NOTE G - GOING CONCERN
As shown in the accompanying financial statements, the Company has suffered
recurring losses from operations to date. It experienced losses of $230,818
during 2004 and $21,000 during 2003 respectively, had a net deficiency in equity
of $234,818 and a net working capital deficit of $25,752 as of December 31,
2004. These factors raise substantial doubt about the Company's ability to
continue as a going concern.
Management's plans in regard to this matter are to raise equity capital and seek
strategic relationships and alliances in order to increase sales in an effort to
generate positive cash flow. Additionally, the Company must continue to rely
upon equity infusions from investors in order to improve liquidity and sustain
operations. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
F-15
HEARTSTAT TECHNOLOGY, INC.
(FKA TEC FACTORY, INC.)
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
================================================================================
NOTE H - SEGMENT REPORTING
Statement of Financial Accounting Standards No. 131, "DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION" requires companies to report
information about operating segments in interim and annual financial statements.
It also requires segment disclosures about products and services, geographic
areas and major customers. The Company determined that it did not have any
separately reportable operating segments as of December 31, 2004 and 2003.
NOTE I - EQUITY
During the year ended December 31, 2004, the Company legally amended its
Articles of Incorporation to increase the number of authorization common shares
from 25,000,000 to 80,000,000. The par value of $0.001 remained the same.
During the year ended December 31, 2004, the Company also legally amended its
Articles of Incorporation to authorize 5,000,000 convertible preferred shares.
These shares have a par value of $0.001. The ratio of convertibility has not yet
been determined by the Company.
NOTE J - RELATED PARTY TRANSACTIONS
Included in the accounts payable in the accompanying balance sheet at December
31, 2004 is $7,500 other trade payable and $8,815 payable to an entity related
through former directorship and accrued interest.
NOTE K - SUBSEQUENT EVENTS
On August 15, 2005, the Company modified, Exhibit B of the original February 6,
2004 asset acquisition agreement and entered into a Asset Transfer Agreement
whereby all parties have agreed to the following terms and conditions which
provide for closing concurrently with the filing of the Company's Form 10-KSB.
- The Company will sell the acquired assets back a private company
controlled by one of the company's officers in order that this officer can
continue with private funding for the development and commercialization of the
medical technology. The Company will receive the following in exchange for the
assets:
F-16
HEARTSTAT TECHNOLOGY, INC.
(FKA TEC FACTORY, INC.)
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
================================================================================
NOTE K - SUBSEQUENT EVENTS (CONT')
- The officer and other parties will return 20,000,000 shares of common
stock to treasury, which accounts for 41.3% of the issued and outstanding stock
in the Company at December 31, 2004.
- The related party will issue 113,207 shares of its common stock
(representing 9.99% equity interest in the related party and a $70,000
promissory note to a new company to be formed by that Company and held as a 100%
subsidiary. This Company is to be called Alexis BioMedical Technology Fund, Inc.
-All royalty and employment obligations and commitments would be
relinquished at closing of the above transfer.
NOTE L - GOODWILL, NET OF IMPAIRMENT CHARGE
The Company currently does not present any indefinite-lived intangible assets in
its balance sheet. For the year ended December 31, 2004 and in accordance with
SFAS No. 142, the Company performed its annual impairment test of its existing
goodwill and concluded that an impairment existed at that date. The factors
considered led to a substantial doubt of the Company to recover its investment
due to a lack of certainty in future cash flows calculated on an undiscounted
basis. In addition, based its fair market value estimate the related write down
was required to record the intangible asset on its fair market value. As a
result, the Company recorded an impairment charge in the amount of $58,000 for
the full carrying value of goodwill during the year ended December 31, 2004.
F-17