Business Context and Reporting Period
This Form 8-K Current Report was filed by Valuesetters Inc. (not Netcapital Inc.) on October 3, 2014, covering events occurring on September 30, 2014. The filing details the acquisition of certain assets and liabilities of TelcoSoftware.com Corp., a mobile content delivery business providing video, audio, and texting services over fixed and mobile broadband connections.
Key Financial Metrics and Transaction Details
- Transaction Consideration: The Company acquired the business in exchange for a $1,000,000 increase in debt payable to its majority shareholder and principal lender.
- Equity Issuance: The Lender purchased the business for 40,000,000 shares of the Company's common stock.
- Contingent Consideration: If the acquired business generates annual revenues exceeding $1,000,000 in its second year of operations, the Lender will pay an additional 9,900,000 shares of common stock to the Seller. This does not require additional consideration from the Company.
- Assets Acquired: Primary assets include software for content delivery systems (identified cost of $1,838,000), customer lists, and three employees.
- Financial Statements: The filing does not provide current revenue, profit, cash flow, or margin data for the Company or the acquired business. Financial statements for the acquired business and pro forma information are scheduled to be filed within 71 calendar days.
Material Changes and Agreements
The primary material change is the entry into a Material Definitive Agreement and the completion of an asset acquisition. The Company assumed a $1,000,000 debt obligation to the Lender to facilitate the purchase. Additionally, a License Agreement was executed wherein the Seller (TelcoSoftware.com Corp.) becomes a wholesale customer of the Company and retains the right to use the acquired software, with the acquired employees continuing to provide support services to the Seller.
Outlook, Risks, and Contingencies
- Future Filings: The Company intends to file financial statements of the acquired business and pro forma financial information under a Form 8-K/A amendment within 71 days of the required filing date.
- Performance Contingency: Future equity dilution (up to 9.9 million shares) is contingent on the acquired business achieving over $1 million in annual revenue in its second year.
- Debt Obligation: The transaction increased the Company's direct financial obligation to its principal lender by $1,000,000.
Investor Verification Checklist
- Verify the exact terms of the Amended Loan and Security Agreement (Exhibit 10.1) regarding the new $1,000,000 debt obligation.
- Monitor the upcoming Form 8-K/A filing for the financial statements of TelcoSoftware.com Corp. to assess the viability of the $1 million revenue target.
- Confirm the impact of the 40,000,000 share issuance on existing shareholder dilution.
- Review the License Agreement to understand the ongoing revenue relationship with the Seller as a wholesale customer.