Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
Revenues
for the fiscal year ended December 31, 2007 were $44,170.
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates as of March 20, 2008 was $16,630,144 (based on the closing price
of $.058 per share on March 20, 2008 as reported on the over-the counter
Bulletin Board).
As of
March 20, 2008, there were 286,726,624 outstanding shares.
Transitional
Small Business Disclosure Format (Check one): Yes o No x
-1-
eTelcharge.com
Annual
Report on Form 10-KSB
For
the Fiscal Year Ended December 31, 2007
TABLE
OF CONTENTS
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Page
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PART
I
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Item
1 Description
of Business
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Item
2 Description
of Property
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Item
3 Legal
Proceedings
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Item
4 Submission
of Matters to a Vote of Security Holders
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PART II
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Item
5 Market
for Common Equity, Related Stockholder Matters and Small Business
Issuer
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Purchases
of Equity Securities
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Item
6 Management’s
Discussion and Analysis or Plan of Operation
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Item
7 Financial
Statements
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F1
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Item
8 Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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Item
8A(T)
Controls and Procedures
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Item
8B Other
Information
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PART III
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Item
9 Directors,
Executive Officers, Promoters and Control Persons and
Corporate
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Governance;
Compliance with Section 16(a) of the Exchange Act
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Item
10
Executive Compensation
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Item
11 Security
Ownership of Certain Beneficial Owners and Management and
Related
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Stockholder
Matters
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Item
12 Certain
Relationships and Related Transactions, and Director
Independence
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Item
13 Exhibits
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Item
14 Principal
Accountant Fees and Services
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Signatures
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-2-
PART
I.
Item 1. Description of
Business.
HISTORY
eTELCHARGE.com
(“eTelcharge”), was incorporated under the laws of the State of Nevada on June
7, 1999. Its offices are located at 1636 N. Hampton Road, Suite 270 DeSoto,
Texas 75115. eTelcharge has an Internet web site, www.etelcharge.com and its
stock symbol is: ETLC.
BUSINESS
DEVELOPMENT
eTelcharge
was organized in June 1999 to provide customers of online merchants the ability
to charge their online purchases to their local telephone bill. In May of 2003,
eTelcharge expanded its service by offering credit card processing for merchants
and becoming a merchant service company.
eTelcharge
currently has two core business units in its portfolio:
eTelcharge,
the New Online Way to Pay™
|
·
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Online-to-phone
bill purchasing
|
|
·
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Online
digital stored value card
|
eTelcharge
Traditional Merchant Services
|
·
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Retail
Transaction Services
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|
·
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Credit
cards, Loyalty cards, EBT, Check authorization and
guarantee
|
|
·
|
Government-to-People
Transaction Processing Service
|
|
·
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Government-grade
merchant services
|
eTelcharge
entered into an agreement with AT&T in February of 2006 for provision of
billing and collection services which was amended in April 2006, and which
allows it to process, subject to AT&T’s prior approval, non-credit card
transactions for AT&T customers and have those transactions applied to their
AT&T land-line telephone bills. This agreement authorizes billing
in the SW region of the United States and covers all other regions of the US in
roll out phases from the SE region to the West Coast territory within AT&T
markets. Under the April 2006 amendment, eTelcharge and AT&T
entered into a trial of billing information and entertainment type
charges on the AT&T Telco End User monthly bill.
eTelcharge
concurrently developed a Traditional Merchant Services business unit, leveraging
its expertise in transaction processing to provide persistently high value to
its merchant services customers. Within this business unit,
Etelcharge has penetrated the growing market segment of Government-to-People
payment services.
-3-
In June
2007, Rob Howe joined eTelcharge as its President and CEO, and in August 2007
Mr. Howe became Chairman of the Board. Under Mr. Howe's guidance,
eTelcharge evaluated its ongoing development efforts, and its old technology and
current development efforts, and replaced them with an entirely new,
internally-developed online payment technology based on Web 2.0
standards. eTelcharge fully discontinued all old versions of its
proprietary Online billing software solution, and in September, 2007, eTelcharge
completed work on and launched its new technology platform.
We rely
on a combination of patent, trademark, copyright and trade secret law, as well
as confidentiality agreements and other contractual relationships with our
employees, affiliates, distributors and others to protect our intellectual
property rights.
STRATEGY
eTelcharge’s
strategy is to provide billing through home phone bill to online merchants,
build its membership base and provide its technology to other online billing
users, such as cable companies, utilities and in other
geographies. By accomplishing the three prongs of the strategy,
eTelcharge will monetize virtually every touch with its customers.
MARKETING
eTelcharge
seeks to market its services to online merchants for its inclusion among their
payment options. Additionally eTelcharge will offer digital online
stored value cards—specific-use stored value cards like gift cards, and
general-use stored value cards such as VISA, MasterCard, American Express, which
can be loaded through the eTelcharge membership. By providing this
flexibility in purchase options, eTelcharge expects to appeal to a variety of
online purchasers. Additionally, because of the very nature of the
eTelcharge membership, eTelcharge expects to attract online purchasers who are
concerned about identity theft, as the eTelcharge membership is inherently safer
from the identity theft perspective.
COMPETITION
There are
few competitors in the market today who provide online consumers with the
options for payment provided by eTelcharge as its core
business. eTelcharge believes its “first mover advantage” is,
however, subject to being eroded, and eTelcharge expects to need to continue to
be aggressive in its marketing efforts. The two main competitors to
eTelcharge are BSG, Inc. of San Antonio, TX and PaymentOne, Inc. of San Jose,
CA. There can be no assurance that competitors will not develop
software in the future that will allow them to include the same or similar
products and services for online purchasing.
GOVERNMENT
REGULATION
eTelcharge
is not directly regulated by any governmental agencies nor is it subject to
statutes, rules or regulations, which regulate the manner in which it does
business. However, eTelcharge’s online merchants are subject to numerous
governmental regulations required of merchants in general such as truth in
advertising requirements, product safety and the like. eTelcharge does not
believe that it would be held liable for violations by its merchants of any such
government regulations or with respect to disputes between its merchants and
online customers. Nevertheless, it may be named in such proceedings; in which
case, it could be required to expend substantial fees in defending itself and
could be liable for substantial money judgments.
-4-
EMPLOYEES
As of
March 21, 2008 eTelcharge has 4 full-time employees and 2 part-time
employees.
Risk
Factors
An
investment in shares of our common stock involves various
risks. Before deciding to invest in our common stock, you should
carefully consider the risks described below in conjunction with the other
information in this Form 10-KSB, including the items included as
exhibits. Our business, financial condition and results of operations
could be harmed by any of the following risks or by other risks that have not
been identified or that we may believe are immaterial or
unlikely. The value or market price of our common stock could decline
due to any of these risks, and you may lose all or part of your
investment. The risks discussed below also include forward-looking
statements, and our actual results may differ substantially from those discussed
in these forward-looking statements.
Risks
related to our operations
Our
auditors have expressed doubt about, and their opinion contains an explanatory
paragraph regarding, our ability to continue as a going concern. If
we do not generate substantial revenue from our operations and are also unable
to obtain capital from other sources, we will significantly curtail our
operations or halt them entirely.
Historically,
we have been dependent on financings to fund our development and working capital
needs. As of December 31, 2007, we had cash and cash equivalents
equal to $230,227. As described below under “Recent Sales of
Unregistered Securities” in Item 5, Golden Gate Investors (“GGI”) has purchased
a convertible debenture for $200,000 cash and a $1.3 million note, and, is
committed, subject to certain contingencies, to purchase up to three additional
identical debentures. We believe that our existing capital resources
will be sufficient to provide needed capital for approximately three
months. If GGI provides additional amounts under its investment,
those cash reserves will allow us to provide for our capital needs for an
additional period of time, depending upon how much capital is
provided. We do not expect to generate significant revenues from
customers in the immediate future. Accordingly, if we do not raise
additional funds from other sources, we would have to continue to severely
diminish our operations or halt them entirely. Additional financing
may not be available to us on acceptable terms, or at all.
We
have experienced relatively large losses during our development and, without
significant increases in the market penetration of our services and improvements
to our operating margins, we will not achieve profitability.
Since
inception, we have incurred significant net losses as set forth in the financial
information included elsewhere in this report. We anticipate that we
will continue to incur significant losses for at least the
short-term. We will not achieve profitable operations until we
successfully attract and retain a significant number of customers for our
services and generate revenues from these sources that are sufficient to offset
the substantial up-front expenditures and operating costs associated with
developing and commercializing our services. We may never be able to
accomplish these objectives.
-5-
It
will be difficult for you to evaluate us based on our past performance because
we are a relatively new company with a limited operating history.
eTelcharge
is currently a development stage company and, accordingly, has only limited
financial results on which you can evaluate eTelcharge and
operations. We are subject to, and have not been successful in
addressing, the risks typically encountered by new enterprises and companies
operating in the merchant services industry, including those risks relating
to:
|
·
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the
failure to develop brand name recognition and
reputation;
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·
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the
failure to achieve market acceptance of our
services;
|
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·
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an
inability to grow and adapt our business and technology to evolving
consumer demand.
|
Because
of our small size, our management may be unable to successfully manage our
business.
In order
to successfully execute our business plan, our management must succeed in all of
the following critical areas:
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·
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Developing
and maintaining our current products and
services;
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·
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Marketing
and selling our products and
services;
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·
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Obtaining
additional capital for development, maintenance, and marketing of our
products and services; and
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·
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Managing
our business as it grows.
|
We
currently have only six employees, four of whom are full time and two are part
time. The greatest burden of succeeding in the above areas,
therefore, falls on our three executive officers. Focusing on any one
of these areas may divert their attention from our other areas of concern and
could affect our ability to manage other aspects of our business. We
cannot assure you that our management will be able to succeed in all of these
areas or, even if we do so succeed, that our business will be successful as a
result. Our small size and limited operating history may make it
difficult for us to attract and retain employees, which could further divert
management’s attention from the operation of our business.
We
Rely Upon Key Personnel.
Our
success will depend, to a great extent, upon the experience, abilities and
continued services of our executive officers. If we lose the services
of our executive officers, our business could be harmed. Our success
also will depend upon our ability to attract and retain other highly qualified
managerial, technology, and sales personnel and their ability to develop and
maintain strategic relationships. We may not be able to continue to
attract and retain qualified personnel.
Our
inability to maintain our current, and establish new, strategic relationships
could impair our revenue growth.
In
accordance with our business model, we plan and have entered into strategic
relationships in order to facilitate or accelerate our penetration into the
merchant service market. The termination of our relationship with
AT&T or our failure to develop additional strategic relationships in the
future may limit our ability to develop markets or to sell our services, and
thereby impair our revenue growth.
-6-
Our
ability to compete depends on our continuing right to use, and our ability to
protect, our intellectual property rights.
Our
success and ability to compete depend in large part on using our intellectual
property and proprietary rights to protect the technology we use and the
products we make. We rely on a combination of patent, trademark,
copyright and trade secret law, as well as confidentiality agreements and other
contractual relationships with our employees, customers, affiliates,
distributors and others to protect our intellectual property rights.
The
measures we have taken to protect our technology and products may not be
sufficient to prevent their misappropriation by third parties or independent
development by others of similar technologies or products. In order
to protect our technology and products and enforce our proprietary rights, we
may need to initiate litigation against third parties. These legal
and administrative proceedings could be expensive and occupy significant
management time and resources.
Our
products may infringe the intellectual property rights of others.
It is not
possible to know with certainty whether the development or sale of our products
and services or other intellectual property includes rights owned by third
parties. There may, for example, be patent applications pending at
the moment, which if granted, may cover products that we have just developed or
are developing. In certain other jurisdictions there is no
publication of the subject matter of patents until the patents are
issued. Third parties may from time to time claim that our current or
future products infringe their patent or other intellectual property
rights. Any intellectual property claim could involve time-consuming
and disruptive litigation and, if determined adversely to us, could prevent us
from selling our products and services, and subject us to substantial monetary
damages or require us to seek licenses.
Our
shares of common stock are considered a “penny stock”, and any investment in our
shares will be considered a high-risk investment and be subject to restrictions
on marketability.
Since the
price of our shares is below $5.00, our common shares are deemed to be “penny
stock” for the purposes of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). Brokers effecting transactions in a penny stock are
subject to additional customer disclosure and record keeping
obligations. The additional obligations include disclosure of the
risks associated with low price stocks, stock quote information and broker
compensation. In addition, brokers making transactions in penny
stocks are subject to additional sales practice requirements under the Exchange
Act. These additional requirements include making inquiries into the
suitability of penny stock investments for each customer or obtaining the prior
written agreement of the customer for the penny stock purchase. These
rules may restrict the ability of brokers or dealers to sell our common stock
and may affect the ability of our investors to sell their
shares. Some brokers will not effect transactions in our
securities. In addition, because our common stock is traded on the
OTC Bulletin Board, investors may find it difficult to obtain accurate
quotations of the stock and may experience a lack of buyers to purchase such
stock or a lack of market makers to support the stock price.
Our stock price is likely to be
volatile.
There is
generally significant volatility in the market prices and limited liquidity of
securities of early stage companies. Contributing to this volatility
are various events that can affect our stock price in a positive or negative
manner. These events include, but are not limited to: market
acceptance and sales growth of our products; litigation involving eTelcharge or
our industry; developments or disputes concerning our proprietary rights;
departure of key personnel; future sales of our securities; fluctuations in our
financial results or those of companies that are perceived to be similar to us;
investors’ general perception of us; and general economic, industry and market
conditions. If any of these events occur, it could cause our stock price to
fall.
-7-
Our
stockholders could experience dilution of their ownership interest if we issue
more shares that are purchased by third parties.
Under
Nevada law, stockholders in public companies such as the registrant do not have
preemptive rights. This means that our stockholders do not have the
legal right to purchase shares in a new issue before they are offered to third
parties. In addition, our board of directors may approve the issuance
of shares in many instances without stockholder approval. As a
result, our stockholders could experience dilution of their ownership interest
if we decide to raise additional funds by issuing more shares and these shares
are purchased by third parties.
We
may be unable to maintain an effective system of internal controls and
accurately report our financial results or prevent fraud, which may cause our
current and potential stockholders to lose confidence in our financial reporting
and adversely impact our business and our ability to raise additional funds in
the future.
Effective
internal controls are necessary for us to provide reliable financial statements
and effectively prevent fraud. As disclosed elsewhere in the
annual report, management has assessed the effectiveness of our internal control
over financial reporting as of December 31, 2007, and has determined that it is
not effective as the result of a lack of segregation of duties and lack of
formal financial reporting procedures. If we cannot provide reliable
financial statements or prevent fraud, our operating results and our reputation
could be harmed as a result, causing stockholders and/or prospective investors
to lose confidence in management and making it more difficult for us to raise
additional capital in the future.
We
failed to make certain Exchange Act filings.
We
previously determined and announced that certain “Information Statements”
required to be filed with the Securities and Exchange Commission (“SEC”) under
Regulation 14C of the Exchange Act, in connection with certain actions taken by
written consent of our stockholders in 2000, 2005 and 2007, were not so
filed. As a result of this non-compliance, we may be subject to civil
and administrative proceedings brought by the SEC, which may include the
possible imposition of monetary penalties.
Item
2. Description of Property.
eTelcharge
currently leases 3,000 square feet of office space on a three-year lease
expiring January 31, 2010 at 1636 N. Hampton Road, Suite 270, DeSoto, Texas
75115. The base rent is $4,098 per month. We believe our
facilities are adequate and suitable for our current level of operations. Our
management believes that the leased property is adequately covered by
insurance.
Item
3. Legal Proceedings
None.
Item
4. Submission of Matters to a Vote of Security Holders.
No matter
was submitted during the fourth quarter of the fiscal year covered by this Form
10-KSB to a vote of eTelcharge’s security holders.
-8-
PART
II.
Item
5. Market for Common Equity, Related Stockholder Matters and Small Business
Issuer Purchases of Equity Securities.
Market
Information
Our
common stock is currently quoted on the OTC Bulletin Board (“OTCBB”) under the
symbol “ETLC”. The OTCBB is a regulated quotation service that
displays real-time quotes, last-sale prices and volume information in
over-the-counter equity securities. OTCBB securities are traded by a
community of market makers that enter quotes and trade reports. This
market is extremely limited and any prices quoted may not be a reliable
indication of the value of our common stock.
The
following table sets forth the range of high and low bid quotations for our
common stock for each of the periods indicated as reported by the
OTCBB. These quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual
transactions.
|
Fiscal
Year ended December 31, 2007
|
|||||
|
QUARTER
ENDED
|
LOW
|
HIGH
|
|||
|
October
1, 2007 – December 31, 2007
|
.05
|
.11
|
|||
|
July
1, 2007 – September 30, 2007
|
.03
|
.12
|
|||
|
April
1, 2007 – June 30, 2007
|
.01
|
.04
|
|||
|
January
1, 2007 – March 31, 2007
|
.02
|
.03
|
|||
|
Fiscal
Year ended December 31, 2006
|
|||||
|
QUARTER
ENDED
|
LOW
|
HIGH
|
|||
|
October
1, 2006- December 31, 2006
|
.02
|
.07
|
|||
|
July
1, 2006 - September 30, 2006
|
.05
|
.17
|
|||
|
April
1, 2006- June 30, 2006
|
.04
|
.11
|
|||
|
January
1, 2006 - March 31, 2006
|
.05
|
.18
|
|||
As of
March 21, 2008, we had approximately 628 holders of record of voting common
stock.
We have
not paid dividends on our common stock and do not anticipate the payment of cash
dividends in the foreseeable future. We anticipate all earnings, if any, over
the next 12 to 24 months will be retained for future investments in business.
Any future determination to pay cash dividends will be at the discretion of the
Board of Directors and will be dependent upon our results of operations,
financial conditions, contractual restrictions, and other factors deemed
relevant by the Board of Directors. We are under no collateral restrictions in
declaring or paying dividends to our common stockholders. There are no material
restrictions limiting, or that are likely to limit, eTelcharge’s ability to pay
dividends on our securities, except for any applicable limitations under Nevada
corporate law.
-9-
Recent
Sales of Unregistered Securities
As
described in the chart below, the Company issued to six “accredited investors”
shares of its common stock (“Common Stock”), par value $.003 per share, for
cash. These shares were issued without registration in reliance upon
the exemption afforded by the provisions of Section 4(2) of the Securities Act
of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder,
based on the fact that the issued shares were not sold or offered pursuant to
general solicitation, and in reliance upon the representations of such investors
as to such investor’s status as an accredited investor and investment
experience, that such investor had access to information about the Company, that
such investor was purchasing such securities for its own account and not with a
view to resale or distribution or any part thereof in violation of the
Securities Act and an acknowledgement by such investor that resale of such
securities may not be made unless registered under the Securities Act or another
exemption from registration is available. In addition, such shares
bear a legend indicating such restrictions on transferability.
|
Date
|
Number
of Shares Issued
|
Consideration
($)
|
|
February
13, 2007
|
1,366,400
|
6,782
|
|
February
21, 2007
|
4,000,000
|
20,000
|
|
April
24, 2007
|
8,000,000
|
40,000
|
|
May
15, 2007
|
8,000,000
|
40,000
|
|
August
17, 2007
|
1,500,000
|
30,000
|
|
August
23, 2007
|
2,000,000
|
40,000
|
|
August
27, 2007
|
688,572
|
13,763
|
|
August
28, 2007
|
1,500,000
|
20,000
|
|
August
31, 2007
|
4,000,000
|
20,000
|
|
September
5, 2007
|
4,070,338
|
81,406.75
|
|
September
17, 2007
|
5,880,532
|
117,611
|
|
October
2, 2007
|
3,721,011
|
74,404
|
|
October
15, 2007
|
3,750,000
|
75,000
|
|
October
31, 2007
|
2,500,000
|
100,000
|
|
November
1, 2007
|
151,531
|
3,031
|
|
November
13, 2007
|
2,000,000
|
10,000
|
|
November
27, 2007
|
4,285,482
|
141,733
|
As
described in the chart below, eTelcharge issued to eleven consultants shares of
Common Stock in consideration of a combination of services provided and, with
respect to one consultant, cash and services. These shares were
issued without registration in reliance upon the exemption afforded by the
provisions of Section 4(2) of the Securities Act, based on the fact that the
issued shares were not sold or offered pursuant to general solicitation, and
that the consultants had sufficient sophistication and access to information
about eTelcharge. In addition, such shares bear a legend indicating
such restrictions on transferability.
|
Date
|
Number
of Shares Issued
|
Value
of Consideration ($)
|
|
March
20, 2007
|
12,110,000
|
193,760
|
|
August
9, 2007
|
12,000,000
|
240,000
|
|
August
31, 2007
|
2,000,000
|
10,000
|
|
September
12, 2007
|
985,555
|
19,711
|
|
October
22, 2007
|
2,448,122
|
144,209
|
|
November
1, 2007
|
6,700,000
|
556,100
|
|
January
8, 2008
|