SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Annual Report Pursuant to Section 13
of the Securities Exchange Act of 1934
For the Fiscal Year Ended September 30, 2012
Commission File Number 000-51533
(Name of small business issuer specified in its charter)
a Wyoming corporation
5337 Route 374, Merrill, New York 12955
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (518) 425-0320
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.00000001 par value
Indicate by a check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by a check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x
Indicate by a check mark whether the registrant has submitted and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-K (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No x
Indicate by a check mark if there is disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. x
Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x
As of September 30, 2012, there were a total of 891,202,810 shares of common stock, par value $0.00000001 per share, issued and outstanding.
As of January 14, 2012, there were a total of 801,191,326 shares of common stock, par value $0.00000001 per share, issued and outstanding.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K (this Form 10-K, that are not historical facts are identified as forward-looking statements. Forward-looking statements include projections, assumptions or information concerning possible or assumed future actions, events or results of operations of our company. These statements involve estimates and assumptions based on the judgment of our management. A number of risks and uncertainties may cause actual results to differ materially from those suggested by the forward-looking statements. Discussions containing forward-looking statements may be found in the material set forth under Description of Business, Part I, Item 1 on Page 1, Risk Factors, Part I, Item 1A on Page 6, Managements Discussion and Analysis of Financial Conditions and Results of Operations, Part II, Item 7 on page 11 and in other sections of this annual report.
We use words such as believe, intend, expect, anticipate, plan, may, will and similar expressions or negatives thereof to identify certain, but not necessarily all, forward-looking statements. All forward-looking statements in this annual report are made as of the date hereof, based on information available to us as of the date hereof, and we do not undertake any obligation to update publicly any forward-looking statements to reflect subsequent events or circumstances. Such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of SuperDirectories, Inc. to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. References in this Form 10-K, unless another date is stated, are to September 30, 2012.
As used in this Annual Report, the terms we, us, our, SD, the Company and Super Directories, means Super Directories, Inc. (unless the context indicates a different meaning).
Super Directories, Inc., a Wyoming corporation, was formed in October 1999. Our corporate offices are located at 5337 Route 374, Merrill, New York 12955, and our telephone number is (518) 425-0320. Our website is located at www.superdirectories.com. We are a development stage company whose activities to date have included organization of the company; design and development of the SuperDirectories website linking to the Companys searchable directory of selected materials; developing the searchable directory database itself; and continued improvement and expansion of such directory and infrastructure leading to its readiness for commercialization. We have not been involved in any bankruptcy, receivership or similar proceeding or in any material reclassification, merger, consolidation, or purchase or sale of a significant amount of assets other than in the ordinary course of business.
Although we are not a search engine (see Our Business below) and not comparable to the leading search engines Yahoo and Google, reference to Yahoo and Google is relevant as they are both search engines (which we are not) as well as directories (which we are as well). We think information about companies in similar or related industries is relevant to an understanding of our business. Thus, we also included data concerning Amazon and EBay. We refer to them as we will attempt to engage in their Affiliate and Associate programs.
SuperDirectories is not a search engine. Our principal product is a searchable directory of selected topics presented on the internet, at www.superdirectories.com. It is not possible to search the internet from within the SuperDirectories searchable directory-database. The search capability offered to SuperDirectories users is limited to searching our own database. The principal advantage available to SuperDirectories users is elimination of large amounts of extraneous material in every response. Our database produces results which are comprised of specific materials presented alphabetically and geographically compared to voluminous and often random results from the keyword-driven internet search engine model. As an additional user convenience, SuperDirectories website provides links to major search engines to assist users to make searches via other firms search engines. These links, permitting internet search, are not a significant element in the SD presentation. We use a program called Open Tracker, an internet website traffic analyzer, which provides statistics about visitors including the most popular pages.
Contents of our directory/database represent the company's selection of material suitable for inclusion in its directory from the much larger selection of material to be found on the internet. We use the terms human edited and full text searchable to describe our directory/database and its self-search features. Human editing, the selection of content, is done by independent contractors (editors) engaged by us for that purpose. Each of our editors has been trained to create new categories, revise existing categories in our directory, and add new websites to the categories. The Human Editing Process bears an average cost of $0.92 per category including a minimum of one website link. This is determined by dividing the total monthly cost of the editors compensation by the number of categories and links in our database. Checking for bad links is automated and carries no specific costs. The potential limitations on the information available are directly proportioned to the number of editors collecting such information. An editor now bookmarks an average of 320 links per day into our database. It is our goal to grow this to average more than 500 per day with additional training and thereby reduce our overall unit costs. For the year-ended September 30, 2011, we had 26 editors, 22 working on adding new information and 4 on revising and updating information, with 2,168,302 categories and 1,804,737 links in our database. As of September 30, 2012 we have 9 editors total, with 2,651,726 categories and 2,096,388 links.
Human editing is the process of selection for and entry into our database of selected URLs representing desired content. The selection process enables us to accumulate an orderly database, linking subject to location. The database is constructed and programmed to allow full text rather than keyword search of its directory. Full text search limits the search response to only those which match the inquiring text and its sense completely. As an example only, a search for Fishing Charters in Massachusetts (if it were offered) would yield only sites which represent fishing charters available in Massachusetts, not a general Fishing Charters listing, nor any non-fishing related information about Massachusetts. The editors are given assignments in specific topic areas. They search for and select sites to be included based upon their specific assignments within the framework of their training and experience. The final word on selection rests with our President. We have established a priority list for the subjects to research based upon their internet search popularity. We have a system called Replication that is a part of our Microsoft SQL program. It copies over the newly created categories and links every two hours from our database machines to all our internet server machines. Because it is an integral part of SQL, there is no incremental cost.
Our market is the entire universe of internet directory searchers. SD seeks to add materially to the depth and breadth of its database, ultimately presenting the market with a directory of defined term listings, each item of which matches precisely to the textual sense of the phrase entered by the searcher. We keep up-to-date with the latest technologies available in our trade and have the latest routers and servers. We recognize that failure to keep current will seriously and adversely affect our ability to compete. We are unaware of any disadvantage we have suffered.
The search feature of our directory allows users to query our database in many different ways such as category, name, location, chain or company affiliation plus limits by other selected modifiers such as Pets Allowed in hotel listings because the Full Text Structure of our directories is designed to accommodate such searches.
SuperDirectories editors add content to the SuperDirectories website in a manner which accommodates content and context search queries rather than simply keyword searches. Full Text searching is the capability of SuperDirectories system which provides a narrower search, more directly matched to the context and content of the databases human edited offerings. Full Text search limits the search response to only those items that match the inquiring text and its sense completely. Our goal is to offer a more limited and precise source of directory service. Our directory is organized to provide relevance for both category-based and keyword searches. Searches may also be conducted by location or subject by making use of options on queries type tools. These are represented by common database software functions. When searching a database, one might add refinement to a search by selecting from among a list of options to be added to or omitted from a search query. Our navigation interface allows a user to follow a search path into categories and sub-categories visually on the screen. The database shows all regions, countries, states, counties and major cities of the world with best links to them, and a multitude of subjects in organized and classified listings. As of September 30, 2011, our directory included a collection of 2,168,302 active searchable categories, and links to more than 1,804,737 selected websites, and as of September 30, 2012 we have over 2,651,726 searchable categories and 2,096,388 links. As we add searchable categories and links to relevant websites increasing those totals approximately every two hours, we expect to grow in marketability. We have a program that checks the connectivity of all the URLs in our database every six hours. Any URLs that do not open within 10 seconds are listed and rechecked daily for 30 days and then automatically deleted if not active. Our editors routinely revise the directory content. Although our growth of searchable categories and links has stalled over the past two quarters, we expect our database to begin to grow again at a rate of 2,100 categories per day, which is not inconsistent with the frequency of additions.
To the extent service businesses are dominant in our database, that focus is not a planned limitation. It is our intention to eventually add manufacturing, research, biotechnology and other sciences, for example, as our capital allows.
SuperDirectories' human edited content and full text search capability is maintained on servers in Watertown, NY, Gatineau, QC and Montreal, QC (with additional servers to be acquired as needed) and accessed via www.superdirectories.com. Our routers are selected and configured to lead each user to the fastest available internet connection. A fourth server, located in Watertown, NY is internally known as our database machine. It is not available to internet users, but is remotely accessible to our consultants by their individual security passwords. The database machine does replicate every two hours to the 3 other machines all the new categories and websites that were added to the database machine since their last replication. The two hours setting is an option and could be changed for any other time setting. A fifth server, located in Gatineau, QC is used as a test machine by our tech consultants for testing new programs and applications.
SuperDirectories is a United States registered Service Mark (No. 2,425,941), and superdirectories.com, superdirectories.biz, superdirectories.info, superdirectories.us and lukesmart.com are domain names owned by the Company. The servers contain the directory structure and content and are fully searchable Full Text Databases. Over the years, we have developed and refined many software programs of our own to assist our consultants in their research, download through the internet, remotely create and organize categories with websites links into our database. We do not publish the source of our programs. Although there are no patents or trademarks, we consider these to be trade secrets, not to be published or shared with other entities. By not having patents, we risk loss of exclusivity. However, most of our trade secrets pertain solely to our database. To the best of our knowledge, there is no other such database style on the internet. As a result, we feel the risk is not substantial. See Risk Factor-Patents, Licenses and Trademarks.
We have been working since 2000 to develop our searchable database and expect to commence commercial marketing by the end of our fiscal year 2013. There have been no other business activities. Our management has selected a pace which is based upon his opinion of our ability to finance the development and growth safely. We recognize results are fully dependent upon and could be limited by our financial position and ability to raise funds as we progress to operational status. Nevertheless, as of September 30, 2012, cost of construction and maintenance will be met, based upon the available cash as of the date (see Description of Business, General, page 3 and Risk Factors, starting on page 9). It is our belief our directory will never become essentially complete in as much as topics of current interest and the technologies of listing and searching those topics is under perpetual change and will require continual revision and improvement. Our President intends to begin marketing the database at such time as he believes it is large enough to attract users and generate revenues, which we estimate to be prior to the close of fiscal year 2013.
SuperDirectories is free; there are no fees to the internet users. Our revenues will be derived from future fees to be charged to the listed websites including a listing fee and pay-per-click charges each time a site is accessed by a user. Publicity banners and Associate and Affiliate Agreements will also be expected to generate revenues. Final pricing and marketing models have not been determined. We have Online Tutorials to educate internet users on how to get the most pertinent results from their queries. Our consultants/editors use proprietary and licensed software products that help them find, categorize, index and rate high-quality websites.
The Company has not yet produced revenue or offered its product on a commercial basis. We do not presently charge a listing fee or receive pay-per-click charges. We expect to commence such activity as disclosed under Marketing Activities below.
Our President works closely with our editors to ensure that only authoritative and up-to-date context is in our directory. This is a part of their training and is controlled by a special editing program we created. It is considered to be a trade secret not to be disclosed or shared with others.
Other products and services planned to be offered include Associate and Affiliate programs, Referral programs for airline ticket bookings, cruise bookings, fishing charter bookings , golf packages bookings , hotel room bookings, and ski packages bookings . Such services are common between internet E-commerce sites. Typically, a program runs between the two concerned websites, and a fee is paid monthly for all referrals leading to a sale at a rate ranging from 8% to 15% of the sale price. No agreements or final pricing decisions have been reached with anyone concerning this type of business.
The directory and search engine industry is competitive and rapidly changing. We have kept up with changes in technology, i.e., new servers and other equipment and training of our editors. However, we remain vulnerable to more rapid developments. Concentration on development of our database (due to financial considerations) results in lag time with our competitors and increased costs to catch up. Because the Companys database is directly dependent upon funding and we have generated no revenues to date, our searchable results will continue to be limited by our financial situation. In the Internet content retrieval market, we will compete on the basis of the quality of our content and the ease of use of our online services. We have no current market position. When we commence our business operations, we will compete with Google, MSN and Yahoo!, all of whom have greater capital and/or technical resources, large distribution networks or user bases, longer operating histories and greater brand recognition than we have. Nevertheless, we believe our database offers very good and complete information on more than 4,005 of the most popular searched subjects on the internet. We have a 98% mark of active working links. An active working link is a URL that leads the user to a very good website page, considered to be extremely high rate of active working links in the industry.
As disclosed above and elsewhere in this document, the Company has not generated any revenues to date. Thus, continued operations are totally dependent on funding through raising capital. It follows that searchable results will continue to be limited and dependent upon our financial situation.
Status of Any Publicly Announced New Product or Service
There have been no public announcements regarding new products or services.
Marketing activities have not yet commenced. We expect to commence our marketing during the fiscal year ending September 30, 2013. When we start, our marketing strategy will be primarily targeted at the following groups:
Among other things, it is planned that any of our listed sites that have not been covered by a Pay-per-Click agreement with us when we begin to market our service will receive a bi-weekly report showing the hits they have received from us. There are two kinds of listed websites (1) those that we selected and listed in our work to populate our database, i.e., make them available and increase our number, (such listings will remain free) and (2) those that will submit or have submitted their website for listing subject to payment of a listing fee. All sites will have the option to join our Pay-per-Click program at a fixed price of a certain price per click. Those that do join will be found at the top of any routine query done on our database. As a result, our pay per click customers will get more clicks since our users will find them more easily. We do not intend to remove any listed websites because they are not a part of our Pay-per-Click agreement or have not paid a listing fee.
The search feature of our directory does not use quotation marks to set off search terms as all conventional spiral directories on the internet do. Since all our categories and website URLs are named in a Full Text methodology, the users may query our database in a very different way than possible with search engines and conventional spiral directories. We are a searchable directory, not a search engine. A thorough understanding of the different ways to search our database may be found on our tutorial pages included on our website at http://www.superdirectories.com/notices.asp?Notice_ID=31.
The priority order in which websites will appear in our search results will be controlled by the popularity of each website, modified by their participation in our Pay-per-click or listing fee programs. The website owners contracting for a publicity banner might be expected to experience greater popularity and in turn to show at the top of the search result listing.
It is our opinion that all websites listed on SuperDirectories are advertisers. However, as explained above, those who do not pay will also be automatically found, but at a lower order in the search result listing.
In addition, when we commence our commercial activity, our search results will be annotated in a manner most usually adopted in the industry such as Sponsored Results of Color Coding or other appropriate mechanism to identify and setoff paid results.
Source and Availability of Raw Materials
We are not a user of raw materials and do not anticipate any future use.
We are a development stage company and currently have no customers. When we commence marketing, we may be dependent on one or a few customers and there is no guarantee we will be able to obtain any customers from the database. However, our target list of potential customers to be solicited is estimated to be more than 1,000,000 website owners to be found on the database. As of this date, we do not have agreements or indications of interest from any of these website owners. Although there is no guarantee that any will choose to participate, we feel that our target list of 1,000,000 is realistic based upon our current level of 2,651,726 websites listed. However, our ability to provide services remains dependent upon our financial situation.
We do not presently have any Associate or Affiliate Agreements in place, nor do we have a standard form for such agreements. The anticipated terms, which are in general use in the industry, are described in Managements Discussion and Analysis of Financial Condition. Basically, an Associate or Affiliate would offer a product or service through a listing on SuperDirectories and pay a negotiated fee expected to be between 8% and 15% of the price of the item payable monthly after a sale.
As of the date hereof, we have one employee, Luke Lalonde, who is also sole director and President and who puts in 100% of his available time. He works on Company programs, finances and regulatory matters 10-12 hours a day, seven days a week. We have never had a work stoppage, and our employee is not represented by a labor union. There are no labor contracts. We consider our relations with our employee to be good. As of September 30, 2012, we used 9 independent editors on a contract base, while we currently continue to have 9 such editors. All such editor-contractors are organized as business entities such as corporations. There are no written contracts with any of them. They agree to perform a specific task and are compensated in accordance with quality of performance. There are no standard sets of terms. None of them are shareholders, directors, officers or employees of the Company or of Mr. Lalonde or any of his associates or affiliates. They invoice us on a job done basis at an approximate cost of $1,000 per editor per month. We intend to hire several additional administrative employees once commercial operations begin.
Environment and Government Approval
We do not have any environmental compliance costs, and there is no existing or anticipated impact by reason of government regulation or approval.
Patents, Trademarks and Royalty Agreements
We hold the registered Service Mark SUPERDIRECTORIES- carrying registration number 2,425,941 in the United States Patent and Trademark Office. We hold no other patents, licenses, franchises, concessions or royalty agreements. The service mark expired on January 31, 2011 and our counsel informs us we have until August 28, 2013 to file a Declaration of Use with the U.S. PTO in order to keep our service mark active.
Most of our software programs have been developed "in-house"; there are now 168 such programs running on our website. These programs are vital to our success in that they provide the basis and background for creation and implementation of our business. See Risk Factor-Patents, Licenses and Trademarks.
Research and Development
During the fiscal years ended September 30, 2009, 2010 and 2011 we spent approximately $285,185, $241,576 and $108,799 respectively, on product development (which we call Software expenses on our Statement of Operations). There was no significant additional Research and Development investment in fiscal year 2012. None of these costs have been or will be passed on to customers or be borne directly by them.
Our web site, www.superdirectories.com, will provide access, without charge, to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission.
Acquisition of Super Directories Business
In 2000, our President Mr. LaLonde transferred his legal title, right and interest to the company in the internet website concept and design he has created or will create that will be known as superdirectories.com by Subscription Agreement dated April 29, 2000. The agreement provided he would invest in the company by subscribing to 100,000,000 shares of common stock in exchange for the Super Directories business, any concepts, intellectual property, etc.
We are a development stage company, and our lack of operating history makes evaluating our business and future prospects difficult.
We were incorporated in Delaware in October 1999, re-incorporated into the state of Wyoming in 2010, and we have not generated any revenues to date. The directory, database and the website are the Companys significant assets other than financial resources such as cash and access to new capital. We have been engaged predominately in start-up activities related to the development of our SuperDirectories database and website. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small developing company starting and growing a business enterprise in the highly competitive environment in which we intend to operate. To address these risks, we must, among other things, respond to competitive developments; continue to attract, retain and motivate qualified persons; research and develop new technologies; and commercialize services incorporating such technologies. There can be no assurance that we will be successful in addressing these risks or any other risks. There can be no assurance that we will be able to successfully implement our business plan, generate sufficient revenues to meet our expenses, operate profitably or be commercially successful.
We have a history of operating losses and we anticipate significant increases in our operating expenses over the next few years, which could limit our ability to become profitable.
We anticipate incurring additional losses during the next stages of development and expansion. In addition, we anticipate that our operating expenses will increase for the foreseeable future as we expand our business operations. As a result of these increased expenses, we will need to generate significantly higher revenues, or otherwise seek out additional funds, to maintain our business operations. There can be no assurance that we will be successful in obtaining revenues or additional funds in amounts necessary to fund our operations or implement our business strategies.
Our database is directly dependent upon our funding.
Since we have not generated revenues to date, the development and maintenance of our database is directly dependent upon funding through loans or sales of equity or debt securities. Accordingly, our searchable results will continue to be limited and dependent upon our financial position.
Our business plan emphasizes commercializing our directory and search solutions, but we have not developed these capabilities to date.
Our business plan is based on our ability to develop a substantial Internet user base and, in turn, develop commercial applications including paid placement and paid inclusion listings and additional related services such as research and booking tools and comparison shopping tools. By developing a substantial Internet user base, we would be able to offer advertisers the opportunity to reach Internet users on a broad scale and find their target audiences more effectively. That is our plan, however, and we have no prior experience in developing these types of services. Moreover, we may not be able to develop a substantial Internet user base or develop paid placement inclusion listing services or other related services that are attractive to advertisers. If we are unable to develop these capabilities, we will not be able to generate any revenue and our business, financial condition and prospects would be materially harmed.
We may be unable to obtain additional operating funds through loans or future sales of equity or debt securities, which could have a material adverse effect on our ability to implement our business plan, and which could result in dilution to our stockholders.
Our capital requirements to implement our business strategy will be significant. We will need additional funds from loans and/or the sale of equity or debt securities. We anticipate requiring additional funds in order to fully implement our business plan to expand significantly our operations. No assurance can be given that such funds will be available or, if available, will be on commercially reasonable terms satisfactory to us. Our inability to obtain financing would have a material adverse effect on our ability to implement our business strategy and, as a result, could require us to diminish or suspend our business operations.
Furthermore, our future capital needs could require us to sell equity or debt securities. The sale of additional equity or convertible debt securities could result in dilution to our stockholders. If additional funds are raised through the issuance of debt securities, these securities could have rights that are senior to holders of our common stock and could contain covenants that restrict our operations.
The public market for our securities is relatively illiquid, thereby significantly restricting the transferability of our securities.
Although our stock is quoted through the OTC Markets Group (OTC: SDIR), our stock is thinly traded and relatively illiquid. In addition, the stock market has generally experienced, and continues to experience, price and volume fluctuations which have affected the market price of many micro capital companies and which have often been unrelated to the operating performance of these companies. These broad market fluctuations, as well as general economic and political conditions, may adversely affect the market price of our common stock in any market that may develop.
We could face liability for information contained on, and communications made through, our website.
We may be subject to claims for defamation, negligence, copyright or trademark infringement, personal injury or other legal theories relating to the information we publish on our website. These types of claims have been brought, sometimes successfully, against online services as well as other print publications in the past. Based on links we provide to other websites, we could also be subject to claims based upon online content we do not control that is accessible from our website. These claims could result in substantial costs, damage to our reputation and business, and a diversion of our management's attention and resources, regardless of whether we are successful in defending against such claims. We do not have commercial general liability insurance to protect us against these types of claims.
Our small size and limited operating history may significantly limit our ability to compete successfully against larger, more established competitors such as Google, Yahoo, Microsoft, and others, which could have a material adverse effect on our business, results of operations and financial condition.
The online directory industry is characterized by large, well organized and well funded competitors such as Yahoo!, Google, and MSN who are active in the directory business in addition to their known prominence in the search field. As a development stage enterprise with no revenues, we do not compare ourselves to these very large entities, and because of our small size, we may have difficulty in competing with larger, more established competitors. The Internet directory and search market is rapidly evolving and intensely competitive, and we expect competition to intensify in the future. Barriers to entry are low; current and new competitors can easily launch new websites at a relatively low cost. Other major companies have the financial and technical ability to compete aggressively in this market. Many of our competitors have longer operating histories, larger customer bases, greater brand recognition in other business and Internet markets, and significantly greater financial, marketing, technical and other resources than we have. Competitive pressures created by any one of these companies, or by our competitors collectively, could have a material adverse effect on our business, results of operations and financial condition, and we can give no assurance that we will be able to compete successfully against current and future competitors.
We may be unable to respond to the rapid technological change in our industry, which could significantly limit our ability to compete in our industry.
Our industry is characterized by rapidly changing technologies, frequent new product and service introductions and evolving industry standards. The growth of the Internet and intensity of competition in the Internet search industry make these market characteristics more pronounced. Our future success will depend on our ability to adapt to rapidly changing technologies by continually improving the performance features and reliability of our products and services. The existing information on our directory is revised and updated once a month. We may experience difficulties that could delay or prevent the successful development, introduction or marketing of new products and services. In addition, any enhancements must meet the requirements of our current and prospective users and must achieve significant market acceptance. We could also incur substantial costs if we need to modify our service or infrastructure to adapt to these changes. The failure to offer the most current technologies could significantly limit our ability to compete and could have a material adverse effect upon our business.
We have only one employee and executive officer and director, which could adversely affect our operations.
We have only one employee, Luke Lalonde, who is also our president, and only executive officer and director, and is totally responsible for our current operations.
We depend on certain key personnel, the loss of whose services could adversely affect our business.
We depend significantly upon the services of Luke Lalonde, our president and majority stockholder. The loss of his services could adversely affect our business and implementation of our business plan and growth strategy. This in turn could materially harm our financial condition and future results. We do not currently have an employment agreement with Mr. Lalonde and his services may become unavailable to us at any time. We do not carry key person life insurance on the life of Mr. Lalonde. To highlight the risk, we point out that Mr. LaLonde suffered a heart-related illness which incapacitated him for several weeks, from January March 2012.
Our sole executive officer and director has a controlling majority voting interest in the corporation, rendering other shareholders votes essentially moot on most matters.
Based on his share ownership, our president and sole director, Luke Lalonde owns a controlling majority voting interest in the corporation, through his exclusive ownership of so-called Super-Preferred stock, which carries an automatic majority interest in the company. This renders as effectively moot the voting rights of all other shareholders on most matters.
We incur significant costs as a result of being a fully reporting company.
Compliance with the reporting obligations under the Exchange Act involves substantial costs, including the cost of an independent registered public accounting firm to review quarterly financial reports and audit Financial Statements included in our annual reports, the cost of directors and officers liability insurance and indemnification, the costs to implement internal control procedures for financial reporting and public disclosure, the cost of preparing quarterly, annual and periodic reports and filing them with the SEC and the cost of printing and mailing information related to stockholders' meetings. We believe that these costs are offset by the benefit of greater access to capital and an improved trading market and liquidity for our stockholders. However, the costs related to being public are largely fixed, while the benefits are dependent upon a number of factors, the success of which cannot be guaranteed.
Our Process is More Time-Consuming and Costlier Than Our Competitors Processes.
Our Human Editing Process bears a cost of $0.92 per category. This is relatively expensive because of the use of consultants. We are limited by the number of consultants collecting or adding new data and continuously adding and updating. We must control these costs to remain competitive. At the same time, we are faced with the need to remain current and not allowing time lags in our building-up of data. Lack of sufficient controls in these areas could conceivably cost us customers, resulting in decreased revenues. Mr. Lalonde is in constant consideration of these factors and supervision of the persons involved. We are unable at this time to place a specific amount on potential losses.
We may be liable for issuing some of our common stock without registration or an exemption there from.
During the period October 1, 2002 through August 31, 2005 we issued 16,301 shares (16,301,161 shares pre-split) for approximately $941,000 to non-United States persons. We relied on the exemption from regulation provided by Regulation S. If it is ever determined that we did not properly rely on the exemption or otherwise erred in such reliance, we could be or become liable for a claim by investors or regulators that such shares were issued in violation of Section 5 of the Securities Act of 1933, i.e., issuing shares without registration or not pursuant to an applicable exemption. No such claim has been made by any regulator or shareholder.
During the course of the preparation of the original filing of our registration statement, a concern was orally expressed that the documentation supporting the Regulation S exemption was potentially insufficient. Although there was no written legal opinion or finding to that effect, we determined to offer to repurchase the shares, and an offer was made to all non-United States persons. A written rescission offer was sent by first class mail on October 15, 2005 and a written offer was hand delivered at a shareholder meeting in Montreal on October 16, 2005. There have been no further contacts in this regard. However, there could be a second potential claim based on the fact that the rescission offer was not properly made and did not qualify for a Regulation S exemption. The rescission offer itself could create a violation of Section 5 of the Securities Act, and, if Regulation S were not available or properly implemented, it could give rise to a second potential violation claim of issuing stock without registration or a proper exemption. This would create the same prospects of liability discussed above. No shareholder has accepted the offer.
We may be or become liable for a violation of section 5 relative to the registration of shares issued to a consultant, Mr. Frank G. Wright, pursuant to an option agreement if it is ever determined that we did not properly use Form S-8. Mr. Wright received his option grant as a part of his compensation for services rendered. One of the items provided for in the agreement was that Mr. Wright would assist in getting our stock quoted on the OTC Bulletin Board. If Mr. Wright were to perform this service, the Company could not use Form S-8 to register the option shares issued to Mr. Wright. Mr. Wright's agreement also provided he would not be required to perform any activity that would render Form S-8 unavailable. The test relied upon by the Company was whether or not SD authorized or requested that Mr. Wright perform an activity and whether Mr. Wright performed such activity at our request which would render our issue of securities in reliance on S-8 a violation of Section 5. If a claim is made and it is ultimately determined that Form S-8 was not available to the issuer, we may face the same types of actions and claims against us discussed in paragraph 2 above. We cannot estimate the amount or nature of our liability, if any. Mr. Wright has sold all of his shares back to the Company.
Oral Contracts with Our Editors.
We do not have written contract with our independent editors. As a result, they may cease working with us at any time with little or no notice, taking what they have learned with them and using it to compete with us. This could cause delay in completion of our website program and additional expense in locating, hiring and training replacements. Such delays could possibly cost us customers and loss of future revenues.
Patents, Licenses and Trademarks
As noted in Our Business section above, we have no patents, licenses or trademark (except for a United States registered Service Mark) protecting our programs and other aspects of our business. They, therefore, could be adopted and used by other entities, weakening our ability to compete with other providers. Such a result could cost us customers and create additional expense in providing our services as well as possible loss of future revenues. The sources of our programs are considered to be trade secrets and are essential to creation and implementation of our business; but they are not covered by patents or trademarks. We cannot estimate the impact on our financial position or future business, if any, if these are improperly disclosed.
Our principal corporate offices are located at 5337 Route 374, Merrill, New York and consist of approximately 150 square feet of office and administrative space that we lease from and share with Aqua Nature of USA, Inc. pursuant to an informal month-to-month lease arrangement. Such rent has now been set at a fixed amount of $4,000 per month. Luke Lalonde, our president and majority stockholder is the majority stockholder of Aqua Nature of USA, Inc. Aqua Nature of USA, Inc.s sole business is owning and managing properties controlled by Mr. Lalonde. For each of the fiscal years ended September 30, 2009, 2010 and 2011 we paid Aqua Nature of USA, Inc. $48,000 in rent and services related to the property.
We are not currently a party to any pending legal proceeding, nor is any of our property the subject of a pending legal proceeding. We are not aware of any proceeding that a governmental authority is contemplating against us.
Submission of Matters to a Vote of Security Holders
No matters were presented to a vote of securities holders during the fourth quarter of the fiscal year covered by this report.
Market for Common Equity and Related Stockholder Matters
As of September 30, 2012, there were 891,202,810 shares of our common stock outstanding.
Of the 891,202,810 total shares outstanding, 40,161,060 are restricted from re-sale, while 851,041,750 shares constitute our float and may be re-sold without restriction. Our shares of common stock are publicly-traded through OTC Markets Group secondary stock quotation service through our stock symbol SDIR.
We are considered a fully-reporting company pursuant to section 12(g) of the Securities Exchange Act of 1934 and are required to file various reports and other information pursuant to section 13 of such Exchange Act.
The Securities and Exchange Commission has promulgated rules affecting so-called "Penny Stocks," which are defined in Rule 15g-9 promulgated under the Exchange Act as equity securities whose market price is less than $5.00. Our stock falls under this definition. Transactions in Penny Stocks are restricted and regulated in several ways:
These regulations could make it more difficult for investors to transact in our common stock, and therefore, a market in our securities may be less developed than that of otherwise similar issuers who are not subject to Penny Stock regulations.
As of September 30, 2012, there were approximately 1,341 holders of record of our common stock.
As of January 14, 2013, there are approximately 1,341 holders of record of our common stock.
Dividends, if any, will be contingent upon our revenues and earnings, if any, capital requirements and financial conditions. The payment of dividends, if any, will be within the discretion of our board of directors. We have never declared or paid any dividends on our common stock and we do not intend to pay dividends on our common stock in the foreseeable future. We anticipate that, for the foreseeable future, we will retain any earnings to finance the growth and development of our business and for general corporate purposes.
Securities Authorized for Issuance Under Equity Compensation Plans
As of September 30, 2012 and the date of this Annual Report, there are no existing compensation plans. An earlier option plan has been fully exercised.
Management's Discussion and Analysis of Financial Condition and Results of Operations
This report contains what may be deemed to be forward looking statements. These forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results, including those set forth in the following Plan of Operation and elsewhere in this report. See also Cautionary Statement in our Business section, above.
The following discussion and analysis should be read in conjunction with our financial statements and notes thereto included elsewhere in this report.
Results of Operations.
We are a development stage company. We have relied on funds raised through sales of our common stock and from loans from officers to fund our operations. For the period from November 15, 1999 (inception) to September 30, 2012 we had no operating revenues and incurred net operating losses of $8,787,208. For the years ended September 30, 2011 and 2012, we incurred net operating losses of $276,437 and $158,453, respectively.
In prior periods, our net operating losses consisted principally of product development costs and legal and accounting fees primarily incurred in connection with ongoing SEC filing requirements. For the year ended September 30, 2012 we have trimmed our software and general administrative expenses.
Liquidity and Capital Resources.
Our cash at September 30, 2011 and September 30, 2012, was $49,576 and $24,642, respectively. While our most basic administrative needs are likely to be able to be met for the next 12 months with the cash we currently have, we will need to raise additional funds to finance our proposed operations during the next 6 months. No assurance can be given that funding will be available to us, on reasonable terms, if at all.
Net cash used in operating activities in the years ended September 30, 2011 and September 30, 2012 was $255,960 and $123,319, respectively. Net cash provided by financing activities for the year ended September 30, 2011 was $297,885, while net cash provided by financing activities for the most recent year ended September 30, 2012 was $100,885. This year-over-year decrease in net cash provided by financing activities is due mostly to the fact that we sold approximately $100,000 less common stock this most recent fiscal year ended than we did in the previous year, as well as the fact that we did not pay back any loans to our sole officer and director Luke LaLonde in FY2012.
Plan of Operation.
The following discussion of our plan of operation for the next 12 months and our discussion of our liquidity and capital resources should be read in conjunction with our financial statements and notes thereto, and the other financial data included elsewhere in this annual report. We are including this Plan of Operation in recognition of the fact that we are a development stage company and have yet to achieve operating revenues.
Our plan of operation for the next twelve months is dependent upon our raising additional capital. As of September 30, 2012 we had approximately $24,642 in cash available and believe we can satisfy our basic capital requirements
for the fiscal year ending September 30, 2013 from private placement of our common stock and loans from management. No assurance can be given however, that we will be able to sell shares of our common stock, and no member of our management is under any obligation to loan money to us. During the fiscal year ending September 30, 2013, we will continue to engage consultants to perform human editing services, expanding the quality and size of our searchable directory. As expansion occurs, and as increased user activity places greater demand on the system, more hardware (servers and routers) will be added to manage the increased volume of data stored in the database and presented by the online directory. Except for one or more servers and routers as may be occasioned by large demand for our directory, we do not expect to purchase any significant equipment or make any other capital expenditure. Our major expenditures, should we be successful in raising sufficient capital, will be in human resources as we describe below.
We have been successful in financing our operational and developmental activities to date by selling shares of our common stock and from advances from our President. However, we have no assurance that we will be able to continue in this way, and our current available cash balance of $24,642as of September 30, 2012 is insufficient to continue development, and will require a significant stock offering and/or continued advances from our President in order to have sufficient capital to continue development until income producing business operations are commenced. We have no plans for other business activities if we are unable to raise required funds. We believe we will need to raise additional capital of approximately $450,000 in order to continue operations for the fiscal year ending September 30, 2013 as well as fully implement our entire business and marketing strategy at all planned levels of activity. Our activities to date have been limited to building our database. The information available through our directory comes from ever changing and growing sources.
We have recently experienced delays in meeting certain target dates related to our business operations. The delays were principally caused by our need to synchronize the capabilities of our existing servers and to install fiber optic lines in our Gatineau, Quebec facilities. Also, early in fiscal 2012, our sole full-time employee, officer and director, Luke LaLonde, had an illness which incapacitated him for several weeks. AS of the date of this filing, he has resumed his fill time activities.
We believe that in early 2013, we will have a sufficient database to make our website marketable. We currently have 9 directory editors who work on a contract basis, research subjects for our directory, create new categories and add websites to our directory. Our average cost per directory consultant is approximately $1,200 per month. We are currently conducting a training program for our editors to help us to reach the desired efficiency of each editor being able to add approximately 1,800 new links per day into our database.
We currently have five servers in operation two in Watertown, New York at facilities operated by Westelcom, two in Gatineau, Quebec, and one at facilities operated by MCI in Montreal. We plan to install a sixth server at a Westelcom facility in Plattsburgh, New York during the early part of 2013.
In early 2013, we intend to start building an administrative staff that will be needed to manage our business as we prepare to move from a developmental to operational mode. In this regard, we plan to add approximately six administrative personnel and expect to begin to incur related payroll costs of approximately $15,000 per month.
By early 2013, we anticipate that we will have sufficiently developed our database to the point where we can offer a product that will be receptive to potential customers. At that time, although we will continue to add to our database, we intend to start adding marketing personnel to develop and implement a plan to bring our product into the marketplace. We plan to add 2 marketing personnel per month beginning in early 2013 until we reach a total of 10 at an approximate monthly payroll cost of $2,750 per such employee.
We expect that our marketing team will be fully assembled by midyear 2013. At that point, much of the effort of our marketing team will be directed to developing a national marketing effort and formulating a plan and cost projection
to carry it out. Our national marketing effort is not expected to commence until after September 2013. The feasibility of our national marketing plan will be dependent on our ability to raise additional capital and we have no assurances that this can be accomplished. However, it is not vital to our operations and we will implement it only when and if we have sufficient funds. We have no present plans for any other business.
A major portion of our anticipated revenues is expected to come from Pay Per Click fees which we expect will commence in early 2013. We are presently generating 245,000 clicks per month and we have no agreements in place at this time to convert clicks to cash. Our rate structure will be a flat $0.25 per click compared to an average of $0.92 per click for Google and Yahoo, the most measurable in our industry who generate more than 2,000,000 clicks per day. We expect to increase our monthly click rate as our marketing activities increase.
Banners will be sold on an annual basis, starting as soon as possible after January 2013 when we will attempt to convert all present (trial basis) free-banner sites to paid sites. The program has not commenced, no transactions have been recorded and no sums raised or fees received.
We intend to introduce a fixed price per click (as opposed to the highest bid strategy employed by all known competitors) which we expect to yield a following dedicated to true content matching rather than a ranking based on price. This plan will be modified to offer discounts to sites producing the highest click ratings. We believe this strategy is not yet in wide use and will require a series of modifications to test and prove the concept. In the opinion of management, the bidding concept for key words is not the proper, customer-centric way to determine the priority order of websites to be shown in search results. We believe that showing the most frequently accessed sites at the top of the results list produces a more practical result for users/searchers.
Off-Balance Sheet Arrangements.
We have no off-balance sheet arrangements.
Critical Accounting Policies.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.
Development Stage Activities
The Company was incorporated in the state of Delaware on November 15, 1999. Activities to date have been directed at developing a searchable directory of selected contents from the Internet and raising capital through the issuance of the Companys capital stock.
The Company measures and recognizes compensation expense for all share-based payment awards made to employees, consultants and directors based on their grant-date estimated fair values over the period in which the share-based awards are expected to vest.
Use of Estimates
The preparation of financial statements requires us to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and disclosures of contingent assets and liabilities as of the date of the financial statements. On an ongoing basis, we evaluate our estimates, including those related to reserves; impairment of website development cost, value of our stock issued to consultants for services and deferred
taxes. We base our estimates on 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.
Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk Interest rate risk refers to fluctuations in the value of a security resulting from changes in the general level of interest rates. We do not have significant short-term investments. Accordingly, we believe that we do not have a material interest rate exposure.
Foreign Currency Risk Our functional currency is the United States dollar and we do not currently transact business in foreign currencies. Accordingly, we believe that we do not have a material foreign currency exposure.
Commodity Price Risk Based on the nature of our business, we have no direct exposure to commodity price risk.
The information on the following pages presents consolidated balance sheets of the Company as of September 30, 2011 and 2012 and consolidated statements of operations, changes in stockholders equity (deficit), and cash flows for each of the 2 years then ended and for the period from November 15, 1999 (inception) to September 30, 2012.
(A Development Stage Company)
Consolidated Unaudited Balance Sheets
See accompanying notes to consolidated financial statements.
(A Development Stage Company)
Consolidated Unaudited Statements of Operations
See accompanying notes to consolidated financial statements.
(A Development Stage Company)
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
From November 15, 1999 (Inception) through September 30, 2011
See accompanying notes to consolidated financial statements.
(A Development Stage Company)
Consolidated Statements of Cash Flows
See accompanying notes to consolidated financial statements.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 1 Description of business and basis of presentation:
SuperDirectories, Inc. (we, our, the Company) is a corporation originally organized under the State of Delaware General Corporation Law. The Corporation was created on November 15, 1999 under the name LukeSmart, Inc. and was renamed SuperDirectories, Inc. on July 9, 2002. On August 19, 2010, the Company amended in Articles of Incorporation and transferred its registered address to the state of Wyoming.
The accompanying consolidated financial statements include the accounts of SuperDirectories, Inc. and Direct Trust. All significant intercompany accounts and transactions have been eliminated in consolidation. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange Commission.
Activities to date have been directed at developing a searchable directory of selected contents from the internet and raising capital through the issuance of the Companys capital stock. As a result, the Company is development stage enterprise, as defined by ASC 915. From inception of the development stage through the date of these financial statements, the Company has not generated any revenues and has significant operating expenses. Consequently, its operations are subject to all risks inherent in the establishment of a new business enterprise.
Note 2 Summary of significant accounting policies:
Cash and cash equivalents
The Company considers all unrestricted highly liquid investments with an initial maturity of three months or less to be cash equivalents.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of cash. Cash balances at September 30, 2012 did not exceed FDIC insurance protection levels, however, periodically, cash balances may exceed FDIC insurance protection levels; subjecting the Company to risk related to the uninsured balance. The Companys deposits are held at large established bank institutions and management believes that the risk of loss associated with any uninsured balances is remote.
Property and equipment
Property and equipment are stated at cost when purchased. Depreciation of property and equipment is computed using the straight-line method based on the estimated useful lives of the assets. The useful life of office equipment is from 3 to 5 years. Upon retirement or disposal of an asset, the cost and accumulated depreciation are eliminated from the accounts and the resulting gain or loss is included in the determination of net income (loss). Depreciation expense was $9,000 and $16,471 for the years ended September 30, 2012 and 2011, respectively.
The trade name is carried at cost less accumulated amortization. Intangible assets with finite lives are generally amortized on a straight-line basis over the economic lives of the respective assets, generally two to fifteen years. The Company recorded amortization expense of $215 and $215 for the years ended September 30, 2012 and 2011, respectively.
Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use is based on the amount the carrying value exceeds the fair value of the asset. There was no impairment of long-lived assets for the years ended September 30, 2012 and 2011.
Income taxes are recorded in accordance with ASC No. 740, Income Taxes which requires an asset and liability approach for accounting for income taxes. Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes relating primarily to differences between the financial and tax basis of the balance sheet elements. The deferred tax assets represent the future return consequences of differences which will be deductible when the assets or liabilities are recovered or settled. Conversely, a deferred tax liability is required when the basis differences will yield a future taxable amount when the asset or liability is settled.
The Company also adopted the provisions in ASC 740-10 as it relates to accounting for uncertainty in income taxes. The provisions clarify the accounting for uncertainty in income taxes recognized in an enterprises financial statements and prescribe a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The provisions also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
The Company may from time to time be assessed interest or penalties by major tax jurisdictions. In the event it receives an assessment for interest and/or penalties, it will be classified in the financial statements as tax expense.
Software costs are expensed as incurred and consists primarily of subcontractor payments and related expenses for enhancements to and maintenance of the Companys network and the classification and organization of listings. The Company also incurs development costs for database development and website development. Development costs are capitalized. To date, these development costs have been impaired and classified as software costs until management expects such costs can generate revenues in the future.
The Company measures and recognizes compensation expense for all share-based payment awards made to employees, consultants and directors based on their grant-date estimated fair values over the period in which the share-based awards are expected to vest. Stock-based compensation expense recognized for the years ended September 30, 2012 and 2011 was $0 and $4,716, respectively.
Loss per share of common stock
Loss per common share is computed by dividing net income (loss) by weighted average common shares outstanding for the period. Basic loss per share is computed using an unadjusted weighted average number of common shares. Diluted earnings per share are compiled using the weighted average number of shares of common stock, outstanding during the period plus an adjustment for the dilutive effect of securities convertible into common stock. There was no difference between basic and diluted loss per share for the years ended September 30, 2012 and 2011 as the effect of these potential common shares were anti-dilutive due to the net loss during both years.
Fair value of financial instruments
The carrying value of cash and cash equivalents, accounts payable, accrued expenses, and advances from officer, as reflected in the consolidated balance sheets, approximate fair value because of the short-term maturity of these instruments.
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 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.
Recently issued accounting pronouncements
No new accounting pronouncement issued or effective has had, or is expected to have, a material impact on the Companys consolidated financial statements.
Note 3 Going concern:
During the year ended September 30, 2012, SuperDirectories has not generated any revenue and therefore has been unable to generate cash flows sufficient to support its operations and has been dependent on advances from its officer. In addition to negative cash flow from operations, SuperDirectories has experienced recurring net losses, and has a working capital deficit of $351,828 as of September 30, 2012.
These factors raise substantial doubt about the Companys ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary if SuperDirectories, Inc. is unable to continue as a going concern. Management believes that actions presently being taken to obtain additional equity funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.
Note 4 Acquisition of Direct Trust:
On September 16, 2010, the Company issued 2,400,000 common shares and 12,000,000 Series B preferred shares in exchange for all of the beneficial interest shares of Direct Trust, a California business trust controlled by the Companys President and majority shareholder. The Company acquired Direct Trust to act as an extension of the Company to achieve its business objectives, including being a vehicle for the Company to effect corporate restructuring and recapitalization. Because Direct Trust had no assets or operations, the transaction was not accounted as an acquisition of a business and the fair value of the shares issued of $221,934 was accounted for as stock compensation expense. The estimated fair value of the shares issued was calculated using the discounted cash flow method with Monte Carlo simulation.
Description of business of Direct Trust
Direct Trust (formerly Charco Acquisition Trust) was formed on August 27, 1998, as a California business trust. It was formed by trustee Robert Bryan, a businessman and corporate consultant. Its initial business plan in 1998 was simply to merge with or acquire another business.
Note 5 Related party transactions:
The Company receives services and rents its administrative offices from Aqua Nature of USA, Inc., a company controlled by the majority shareholder of SuperDirectories, Inc. Services and rentals from related parties of $48,000 for each of the years ended September 30, 2012 and 2011, are included in general and administrative expenses.
During the years ended September 30, 2012 and 2011, the Companys President and majority shareholder advanced $9,000 and $99,001, respectively, to the Company to fund its current operations. As of September 30, 2012 and 2011, the amount due to the President and majority shareholder was $353,709 and $344,709, respectively. The advances to the Company are unsecured, non-interest bearing and are payable upon demand.
Note 6 Shareholders equity:
Common and preferred stock
On August 19, 2010, the Articles of Incorporation was amended to reflect the following: an increase in the authorized number of common stock shares to 49,880,000,000 shares; 10,000,000 new Series A preferred shares were authorized; 90,000,000 new Series B preferred shares were authorized; and 20,000,000 new Series C preferred shares were authorized. The par value per share for the common stock and all classes of preferred stock was set at $0.00000001 per share. The holders of Series B and Series C preferred shares are entitled to dividends when and if declared by the Board of Directors at its sole discretion.
Common stock split
On December 31, 2010, the Company recorded a 1-for-1,000 reverse split of its common stock. The reverse split does not affect the number of common shares authorized for issuance. All share and per share information has been retroactively adjusted to reflect the reverse stock split in the financial statements and in the notes to financial statements for all periods presented, to reflect the reverse stock split as if it occurred at inception.
On June 1, 2012, the Company recorded a 1-for-2,500 reverse split of its common stock. The reverse split does not affect the number of common shares authorized for issuance. All share and per share information has been retroactively adjusted to reflect the reverse stock split in the financial statements and in the notes to financial statements for all periods presented, to reflect the reverse stock split as if it occurred at inception.
Preferred stock rights
Series A preferred stock
If at least one share of Series A preferred stock is issued and outstanding, then the total aggregate issued Series A preferred shares shall be convertible into the number of common shares which equals four times the sum of: (a) the total number of common shares which are issued and outstanding at the time of conversion, plus (b) the total number of shares of Series B and Series C preferred stock which are outstanding at the time of conversion. Each individual share of Series A preferred stock shall be convertible using the Series A preferred stock conversion factor divided by the number of Series A preferred shares issued and outstanding at the time of conversion. The voting rights of Series A preferred shares are determined based on a formula similar to its conversion rights.
Series B preferred stock
Each share of Series B preferred stock is convertible into the number of common shares equal to the price of the Series B Preferred Stock as stated in the Companys Bylaws divided by 100 times the par value of the common stock, subject to adjustment as may be determined by the Board of Directors. The holders of Series B preferred shares are entitled to dividends when and if declared by the Board of Directors at its sole discretion. Each share of Series B preferred stock shall have ten votes for any election or other vote placed before the shareholders of the Company.
Series C preferred stock
Each share of Series A preferred stock is convertible into 500 common shares. The holders of Series C preferred shares are entitled to dividends when and if declared by the Board of Directors at its sole discretion. Each share of Series C preferred stock shall have one vote for any election or other vote placed before the shareholders of the Company.
Common stock sales
On various dates in fiscal 2010, the Company sold a total of 58,250 common shares at prices ranging from $1.00 to $1.20 per share for a total consideration of $66,900.
During the year ended September 30, 2011, the Company sold 460,000 common shares at an average price of $0.43 per share for a total consideration of $198,965.
During the year ended September 30, 2011, the Company received subscriptions from third party investors for 100,000 common shares at $0.25 per share for a total of $25,000. The amounts receivable from the subscriptions were collected in October 2011 and are reported as subscriptions receivable in the consolidated balance sheets as of September 30, 2011.
Stock issuances for services
The Company entered into financial advisory and consulting agreements with various consultants mostly for one-year terms with effective dates starting in November 2010, in exchange for a total of 255,000 of its Series B preferred shares. The Series B preferred shares were issued in January 2011 and accordingly, the fair value of $4,716 was recognized in the accompanying consolidated statements of operations during the year ended September 30, 2011 under general and administrative expenses.
On August 25, 2010, the Companys Board of Directors authorized the issuance of one share of its Series A preferred stock to its President and majority shareholder as compensation for services to be rendered to the Company, in accordance with his employment agreement. The Company recorded stock compensation expense of $887,735 which is equivalent to the fair value of the Series A preferred share. The fair value of the stock issued was calculated using the discounted cash flow method with Monte Carlo simulation.
On June 26, 2012, the Company issued 850,000,000 shares to its President and majority shareholder as compensation for services rendered to the Company. The Company recorded stock compensation expense of
Conversion of Series B preferred stock to common stock
In January 2011, holders of 1,160 shares of the Companys Series B preferred stock converted their respective Series B preferred stock into 2.9 billion shares of the Companys common shares, in accordance with the conversion privileges provided for in the Companys Bylaws. As a result of this conversion, additional paid-in capital was decreased by the total par value of the corresponding common shares issued at the date of conversion.
Note 7 Income taxes:
The net deferred tax asset as of September 30, 2012 and 2011 include the following components:
As of September 30, 2012, the Company has unused net operating loss carry-forwards of approximately $6.4 million which will begin to expire in 2019. Due to the uncertainty regarding the level of future earnings, the Company has recorded a valuation allowance to reflect the estimated amount of deferred tax assets that may not be realized.
Note 8 Subsequent events:
In December 2012, the majority shareholder, Luke LaLonde returned 90,011,484 restricted common shares to the corporate treasury and they were cancelled.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
In 2012, we changed independent accountants. This has been fully disclosed in our Forms 10-SB and 8-K, as amended, previously filed.
Our prior accountants during the fiscal year ended September 30, 2009 had not advised us that internal controls did not exist or that they were unwilling to rely on managements representations or that the scope of the audit should be expanded or that information had come to their attention that would materially impact the fairness or reliability of any opinion. The prior accountants were authorized to respond fully to the inquiries of a successor.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934 as amended (Exchange Act), as of September 30, 2010. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commissions rules and forms and that our disclosure and controls are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.
Managements Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control Integrated Framework. Based upon their evaluation, they concluded that we did not maintain effective internal control over financial reporting as of September 30, 2011, based on the specified criteria They identified control deficiencies regarding: (1) lack of segregation of duties; (2) lack of timely completion of financial control and reporting processes; and (3) need for stronger internal control environment. We believe that these material weaknesses are due to the fact that we only have one employee. During the current fiscal year ending on September 30, 2012, we intend to increase the number of administrative employees; however, the number of such employees will still be limited and may prevent adequate controls in the future, such as segregation of duties, due to cost/benefit of such remediation.
The control deficiencies that we identified could result in a misstatement of account balances that would result in a reasonable possibility that a material misstatement to our financial statements may not be prevented or detected on a timely basis. Accordingly, we have determined that these combined control deficiencies constitute a material weakness.
Attestation Report of Registered Public Accounting Firm.
This annual report does not include an attestation report of the Companys registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only managements report in this Annual Report.
Changes in Internal Controls.
There were no significant changes in our internal controls over financial reporting that occurred during the quarter and year ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Directors, Executive Officers, and Corporate Governance
Executive Officers, Key Employees and Directors
The following table sets forth the name, age and positions of Luke Lalonde, our sole executive officer and director. Mr. Lalonde is serving as a director until the next annual meeting of stockholders and until his successor is elected and qualified or until his earlier resignation or removal. Mr. Lalonde is serving as our sole executive officer for a term which continues until the meeting of the board of directors which follows the next annual meeting of stockholders and until his successor shall have been chosen and qualified. He devotes 100% of his working time to our business (40 to 80 hours per week).
Mr. Lalonde has served as our President and sole director since 1999. From 1993 until 1999, Mr. Lalonde was semi-retired. From 1980 until 1993, Mr. Lalonde was the founder, President and Chief Executive Officer of AquaNature, Inc., a natural spring water bottling company, located in Quebec, Canada. Mr. Lalonde also owned and operated AquiCulture, Inc., a rainbow trout farm, from 1972 until 1986. Both AquaNature, Inc. and AquiCulture, Inc. were sold to Danon, Inc. in 1993. Mr. Lalonde is also majority shareholder of Aqua Nature of USA. Aqua Nature of USA is limited to owning land and residences used by Mr. Lalonde for family purposes and our office. Mr. Lalondes activities with Aqua Nature of USA are limited to reviewing accounts payable and financial items and making payment decisions.
There are no family relationships among our directors, executive officers, or persons nominated or chosen by us to become directors or executive officers.
Involvement in Certain Legal Proceedings
During the past five years, none of our directors, persons nominated to become a director, executive officers, promoters or control persons have been involved in: a) Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; b) Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violation and other minor offenses); c) Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or d) Being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Audit Committee and Audit Committee Financial Expert.
We do not currently have an audit committee financial expert, nor do we have an audit committee. Our board of directors, which currently consists solely of Mr. Lalonde, handles the functions that would otherwise be handled by an audit committee. We do not currently have the capital resources to pay director fees to a qualified independent expert who would be willing to serve on our board and who would be willing to act as an audit committee financial expert. As our business expands and as we appoint others to our board of directors we expect that we will seek a qualified independent expert to become a member of our board of directors. Before retaining any such expert our board of directors would make a determination as to whether such person is independent, and otherwise meets the requirements of an audit committee financial expert.
The information required by Item 405 of Regulation S-K is presented in the Certain Relationships and Related Transactions section below.
Code of Ethics
The Company has adopted a Policy Statement on Business Ethics and Conflicts of Interest, which was approved by the Board of Directors, applicable to all employees. A copy of our Code of Ethics is available upon request by contacting Management of our Company.
The following table sets forth compensation paid to persons who may be considered executive officers of the Company during the three fiscal years ended September 30, 2012. Mr. Lalonde received no compensation of any nature.
Option Grants in Last Fiscal Year
We have not granted options to any officer at any time.
Mr. Lalonde, our sole director, does not receive any compensation for acting as such.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of September 30, 2012 certain information concerning the ownership of our common stock by: a) any person who is known to us to own beneficially 5% or more of our outstanding common stock; b) any director, president and executive officers; and c) director and executive officers as a group.
Unless otherwise indicated, the person named below has sole voting and investment power with respect to all shares shown as beneficially owned by him, except to the extent authority is shared by his spouse under applicable community property laws.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes all shares over which the subject individual has or shares voting or investment power. Shares of common stock subject to options that are currently exercisable within 60 days of the date of this report are treated as outstanding for the purpose of computing the percentage ownership of the subject individual. These shares, however, are not considered outstanding when computing the percentage ownership of any other person.
There is no plan or arrangement with respect to a change in control. We currently do not have any equity compensation plans.
(1) Mr. Lalonde's business address is in care of SuperDirectories, Inc., 5337 Route 374, Merrill, New York 12955.
Certain Relationships and Related Transactions
We are party to an informal arrangement with Aqua Nature of USA, Inc. pursuant to which we lease from them our principal corporate offices located at 5337 Route 374, Merrill, New York and we also receive certain telephone, internet, administrative, bookkeeping and related services. Luke Lalonde, our president and majority stockholder is the majority stockholder of Aqua Nature of USA, Inc. We paid Aqua Nature of USA, Inc. $48,000 for each of our fiscal years ended September 30, 2010 and 2011. See our Properties section and financial statements above.
Beginning in fiscal year 2009 the Company received services totaling $29,650 from 9200-2914 Quebec, Inc., a company owned by the daughter of the President and majority stockholder of SuperDirectories, Inc.
During the years ended September 30, 2012 and 2011, the Companys President and majority shareholder advanced $9,000 and $99,001, respectively, to the Company to fund its current operations. As of September 30, 2012 and 2011, the amount due to the President and majority shareholder was $344,709 and $353,709, respectively. The advances to the Company are unsecured, non-interest bearing and are payable upon demand.
During the year ended September 30, 2010, SuperDirectories, Inc. acquired 100% of the beneficial interest in Direct Trust, of which the President, Luke Lalonde, was the controlling shareowner at the time of the acquisition. Of that interest, 83% was acquired from the controlling shareholder of SuperDirectories, Inc. in exchange for 2 million common shares and 10 million Series B preferred shares of SuperDirectories, Inc. The controlling shareholder of SuperDirectories, Inc. acquired the interest in Direct Trust, which held no assets or liabilities, for $1,000.
Principal Accountant Fees and Services
The following table sets forth fees billed to the Company by our auditors during the fiscal years ended September 30, 2010 and 2011.
Audit fees consist of fees billed for professional services rendered for the audit of the Companys consolidated financial statements and review of the interim consolidated financial statements included in quarterly reports and services in connection with statutory and regulatory filings or engagements.
Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company's consolidated financial statements, which are not reported under Audit Fees.
Tax fees consist of fees billed for professional services for tax compliance, tax advice and tax planning.
All other fees consist of fees for products and services other than the services reported above.
In accordance with Section 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
In accordance with the Exchange Act, this report has been signed by the following persons on behalf of the Registrants in the capacities and on the dates indicated:
By: /s/ Luke Lalonde
Sole Director and President
January 15, 2013