**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

FORM 10-Q

| (Mark One)

**[X]**

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

For the quarterly period ended:  June 30, 2013

**Or**

**[  ]**

**TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Commission File No. 333-140378**

WEBSAFETY, INC.

(Exact name of small business issuer as specified in its charter)

 

**Nevada**

(State or other jurisdiction of 

incorporation or organization)

**20-5150818**

(I.R.S. Employer Identification No.)

 

 

**1 Hampshire Court, Newport Beach, CA 92660**

(Address of Principal Executive Offices)

**(949) 642-7816******

(Issuer’s telephone number)

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically 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-T (§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 check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.

[  ] Large accelerated filer

[  ]  Accelerated filer

[  ] Non-accelerated filer

[X]  Small reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes [  ]     No [X]

State the number of shares outstanding of each of the issuer’s classes of common equity, as of August 12, 2013:

**Class**

**Outstanding shares as of August 12, 2013**

**Common Stock, $0.001 par value**

**551,524,995**

**INDEX**

**Page**

 

 

**PART 1-FINANCIAL INFORMATION**

4

 

 

     Item 1.  Financial Statements

4

 

 

        Balance Sheets as of June 30,2013 and December 31, 2012 (Unaudited)

F-1

 

 

        Statements of Operations for the three and six months ended June 30, 2013 and June 30, 2012 (Unaudited)

F-2

 

 

        Statements of Stockholder’s Equity (Deficit) for the year ended December 31, 2012 through June 30, 2013 (Unaudited)

F-3

 

 

         Statements of Cash Flows for the six months ended June 30, 2013 and June 30, 2012 (unaudited) 

 

 

 

         Notes to Financial Statements (unaudited)

F-5

 

 

 

 

     Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

6

 

 

     Item 3.  Quantitative and Qualitative Disclosures about Market Risk

8

 

 

     Item 4.  Control and Procedures

8

 

 

**PART II-OTHER INFORMATION**

9

 

 

     Item 1.  Legal Proceedings

9

 

 

     Item 1A.  Risk Factors

9

 

 

     Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

11

 

 

     Item 4. Mine Safety Disclosures

11

 

 

     Item 6.  Exhibits

11

 

 

**SIGNATURES**

13

2

**PART I - FINANCIAL INFORMATION**

**Item 1. Financial Statements**

**INTERIM FINANCIAL STATEMENTS**

**(UNAUDITED)**

**Table of Contents**

 

**PAGE**

 

 

Balance Sheets at June 30, 2013 and December 31, 2012 (unaudited)

F-1

 

 

Statements of Operations for the three and six months ended June 30, 2013 and 2012 (unaudited) 

F-2

 

 

Statement of Stockholders’ Equity (Deficit) for the Period from December 31, 2012 through June 30, 2013 (unaudited)  

F-3

 

 

Statements of Cash Flows for the six months ended June 30, 2013 and 2012 (unaudited) 

F-4

 

 

Notes to the Financial Statements (unaudited) 

F-5

3

**WEBSAFETY, INC.**

**BALANCE SHEETS**

**As of June 30, 2013 and December 31, 2012 (unaudited)**

 

 

June 30, 2013

 

 

December 31, 2012

 

 

 

 

 

 

**ASSETS**

 

 

 

 

 

 

 

  CURRENT ASSETS: 

 

 

 

 

 

 

 

    Cash 

 

$

130

 

 

$

25,392

    Prepaid Expenses 

 

 

6,000

 

 

 

-

 

 

 

 

 

 

 

 

      Total Current Assets 

 

 

6,130

 

 

 

25,392

 

 

 

 

 

 

 

 

  PROPERTY AND EQUIPMENT 

 

 

 

 

 

 

 

    Computer equipment, computer software and furniture, net 

 

 

4,715

 

 

 

6,295

 

 

 

 

 

 

 

 

      Total Property and equipment 

 

 

4,715

 

 

 

6,295

 

 

 

 

 

 

 

 

         Total Assets 

 

$

10,845

 

 

$

31,687

 

 

 

 

 

 

 

 

**LIABILITIES AND STOCKHOLDERS' DEFICIT**

 

 

 

 

 

 

 

  CURRENT LIABILITIES: 

 

 

 

 

 

 

 

    Accounts payable 

 

$

181,520

 

 

$

179,416

    Accrued expenses 

 

 

51,394

 

 

 

92,798

    Due to shareholders 

 

 

473,582

 

 

 

899,218

    Loans payable 

 

 

130,854

 

 

 

209,932

 

 

 

 

 

 

 

 

      Total Current Liabilities 

 

 

837,350

 

 

 

1,381,364

 

 

 

 

 

 

 

 

**COMMITMENTS AND CONTINGENCIES**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Preferred Stock, $0.001 par value, Series B: 1,000 and 0 shares issued  

 

 

 

 

 

 

 

  and outstanding, respectively 

 

 

600,000

 

 

 

-

 

 

 

 

 

 

 

 

**  STOCKHOLDERS' DEFICIT:**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Preferred stock at $0.001 par value: 25,000,000 shares authorized, 

 

 

 

 

 

 

 

    Series A: 2,063,335  shares issued and outstanding, respectively 

 

 

2,063

 

 

 

2,063

 

 

 

 

 

 

 

 

    Common stock at $0.001 par value: 700,000,000 shares authorized, 

 

 

 

 

 

 

 

    551,525,795 and 327,906,293 shares issued and outstanding, respectively 

 

 

551,527

 

 

 

327,907

    Additional paid-in capital 

 

 

11,381,172

 

 

 

11,464,983

    Deficit accumulated  

 

 

(13,361,267)

 

 

 

(13,144,630)

 

 

 

 

 

 

 

 

      Total Stockholders' Deficit 

 

 

(1,426,505)

 

 

 

(1,349,677)

 

 

 

 

 

 

 

 

        Total Liabilities and Stockholders' Deficit 

 

$

10,845

 

 

$

31,687

*The accompanying footnotes are an integral part of these financial statements.*

F-1

**WEBSAFETY, INC.**

**STATEMENTS OF OPERATIONS**

**For the six months ended June 30, 2013 and 2012**

**(Unaudited)**

 

 

 

For the three months

 

 

For the three months

 

For the six months

 

For the six months

 

 

 

ended

 

 

ended

 

ended

 

ended

 

 

 

June 30, 2013

 

 

June 30, 2012

 

June 30, 2013

 

June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 REVENUE 

 

 

$

-

 

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 COST OF GOODS SOLD 

 

 

 

-

 

 

 

-

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 GROSS MARGIN 

 

 

 

-

 

 

 

-

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 OPERATING EXPENSES: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 General and administrative expenses 

 

 

 

98,722

 

 

 

309,345

 

 

143,017

 

 

670,878

 

 Loss Contingency 

 

 

 

-

 

 

 

(325,000)

 

 

-

 

 

 

 

 Depreciation and amortization expense 

 

 

 

790

 

 

 

14,687

 

 

1,580

 

 

29,374

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total operating expenses 

 

 

 

99,512

 

 

 

(968)

 

 

144,597

 

 

375,252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 LOSS FROM OPERATIONS 

 

 

 

(99,512)

 

 

 

968

 

 

(144,597)

 

 

(375,252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 OTHER INCOME (EXPENSES) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Income from forgiven accrued interest 

 

 

 

854

 

 

 

-

 

 

854

 

 

-

 

 Amortization of beneficial conversion 

 

 

 

(18,357)

 

 

 

(293,683)

 

 

-

 

 

-

 

 Interest expense 

 

 

 

(4,390)

 

 

 

(18,814)

 

 

(55,691)

 

 

(420,940)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total other income (expenses) 

 

 

 

(21,893)

 

 

 

(312,497)

 

 

(17,203)

 

 

(48,056)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 LOSS BEFORE INCOME TAX PROVISION 

 

 

 

(121,405)

 

 

 

(311,529)

 

 

(72,040)

 

 

(468,996)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 INCOME TAX PROVISION 

 

 

 

-

 

 

 

-

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 NET LOSS 

 

 

$

(121,405)

 

 

$

(311,529)

 

$

(216,637)

 

$

(844,248)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 NET LOSS PER COMMON SHARE 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 - BASIC AND DILUTED: 

 

 

$

(0.000)

 

 

$

(0.001)

 

$

(0.001)

 

$

(0.004)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Weighted common shares outstanding 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 - basic and diluted 

 

 

 

485,329,038

 

 

 

301,122,370

 

 

418,211,965

 

 

227,431,799

*The accompanying footnotes are an integral part of these financial statements.*

F-2

**WEBSAFETY, INC.**

**STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)**

**For the year ended December 31, 2013 and the six months ended June 30, 2013**

**(Unaudited)**

 

 

 Preferred Stock, $0.001 Par Value 

 

 Common Stock, $0.001 Par Value 

 

 Additional 

 

 

 

 

 Total 

 

 

 Number of 

 

 

 

 

 Number of 

 

 

 

 

 Paid-in 

 

 Deficit 

 

 Stockholders' 

 

 

 Shares 

 

 Amount 

 

 Shares 

 

 Amount 

 

 Capital 

 

 Accumulated 

 

 Deficit 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Balances, December 31, 2012 

 

2,063,335

 

$

2,063

 

327,906,293

 

$

327,907

 

$

11,464,983

 

$

(13,144,630)

 

$

(1,349,677)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Conversion of accrued expenses and notes to common stock 

 

 

 

 

 

 

223,619,502

 

 

223,620

 

 

(83,811)

 

 

-

 

 

139,809

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net loss for the six months ended June 30, 2013 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(216,637)

 

 

(216,637)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Balance, June 30, 2013 (unaudited) 

 

2,063,335

 

$

2,063

 

551,525,795

 

$

551,527

 

$

11,381,172

 

$

(13,361,267)

 

$

(1,426,505)

*The accompanying footnotes are an integral part of these financial statements.*

F-3

**WEBSAFETY, INC.**

**STATEMENTS OF CASH FLOWS**

**For the six months ended June 30, 2013 and 2012**

**(Unaudited)**

 

 

 

For the six months

 

 

For the six months

 

 

 

ended

 

 

ended

 

 

 

June 30, 2013

 

 

June 30, 2012

 

 

 

 

 

 

 

 CASH FLOWS FROM OPERATING ACTIVITIES: 

 

 

 

 

 

 

 

 

 Net loss 

 

 

$

(216,637)

 

 

$

(844,248)

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

 

 

 

 Depreciation and amortization expense 

 

 

 

1,580

 

 

 

29,374

 

 Amortization of beneficial conversion 

 

 

 

55,691

 

 

 

420,940

 

 Stock compensation expense 

 

 

 

-

 

 

 

328,378

 

 Income from forgiven accrued interest 

 

 

 

(854)

 

 

 

-

 

 Stock issued for services - non-cash 

 

 

 

-

 

 

 

101,000

 

 Gain on adjustment of Loss Contingency 

 

 

 

-

 

 

 

(325,000)

 

 Changes in operating assets and liabilities: 

 

 

 

 

 

 

 

 

 

 

 Prepaid expenses 

 

 

 

(6,000)

 

 

 

-

 

 

 Increase (decrease) in accounts payable 

 

 

 

2,104

 

 

 

(91,066)

 

 

 Decrease in Loss Contingency 

 

 

 

-

 

 

 

(75,000)

 

 

 Increase (decrease) in accrued expense 

 

 

 

17,203

 

 

 

(48,812)

 

 

 

 

 

 

 

 

 

 NET CASH USED IN OPERATING ACTIVITIES 

 

 

 

(146,913)

 

 

 

(504,434)

 

 

 

 

 

 

 

 

 

 CASH FLOWS FROM FINANCING ACTIVITIES: 

 

 

 

 

 

 

 

 

 

 Repayment of loans 

 

 

 

-

 

 

 

-

 

 Decrease in liability to issue shares 

 

 

 

-

 

 

 

(25,000)

 

 Proceeds from borrowing 

 

 

 

-

 

 

 

319,822

 

 Net proceeds of advances from shareholders 

 

 

 

121,651

 

 

 

210,042

 

 

 

 

 

 

 

 

 

 NET CASH PROVIDED BY FINANCING ACTIVITIES 

 

 

 

121,651

 

 

 

504,864

 

 

 

 

 

 

 

 

 

 NET CHANGE IN CASH 

 

 

 

(25,262)

 

 

 

430

 

 

 

 

 

 

 

 

 

 Cash at beginning of period 

 

 

 

25,392

 

 

 

-

 

 

 

 

 

 

 

 

 

 Cash at end of period 

 

 

$

130

 

 

$

430

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:

 

 

 

 

 

 

 

 

 

 Interest paid 

 

 

$

-

 

 

$

-

 

 Income tax paid 

 

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 NON-CASH INVESTING AND FINANCING ACTIVITIES: 

 

 

 

 

 

 

 

 

 

 Conversion of accrued expenses to common stock 

 

 

$

5,040

 

 

$

-

 

 Conversion of notes to common stock 

 

 

$

134,769

 

 

$

514,400

 

 Conversion of accrued expenses to preferred stock 

 

 

$

52,713

 

 

$

-

 

 Conversion of notes to preferred stock 

 

 

$

547,287

 

 

$

-

*The accompanying footnotes are an integral part of these financial statements.*

F-4

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**June 30, 2013 and 2012**

**(Unaudited)**

**Note 1. Basis of Presentation**

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at June 30, 2013, and for all periods presented herein, have been made.  

**Note 2. Significant Accounting Policies**

**Going Concern**

The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The Company has incurred cumulative net losses of $13,361,267 from the period of July 3, 2006 (Inception) through June 30, 2013 and has used significant cash in support of its operating activities raising substantial doubt about the Company’s ability to continue as a going concern.  The Company in 2012 has raised additional capital and will seek additional sources of capital through the issuance of debt or equity financing, but there can be no assurance the Company will be successful in accomplishing its objectives.

The ability of the Company to continue as a going concern is dependent on additional sources of capital and the success of the Company’s plan.  The financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

**Use of estimates**

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  The Company is subject to uncertainty of future events, economic, environmental and political factors and changes in the Company's business environment; therefore, actual results could differ from these estimates.  Accordingly, accounting estimates used in the preparation of the Company's financial statements will change as new events occur; more experience is acquired, as additional information is obtained and as the Company's operating environment changes. Changes are made in estimates as circumstances warrant.  Such changes in estimates and refinement of estimation methodologies are reflected in the financial statements.

F-5

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**June 30, 2013 and 2012**

**(Unaudited)**

**Earnings per Share**

Basic earnings per common share is computed by dividing net earnings by the weighted average number of common shares outstanding during each period presented. Diluted earnings per common share give the effect to the assumed exercise of stock options when dilutive. In a loss year, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive. At June 30, 2013, there were 1,990,000 stock options.

**Beneficial Conversion Feature**

Costs incurred with parties who are providing financing, which include the intrinsic value of beneficial conversion features associated with the underlying debt, are reflected as a debt discount.  These discounts are generally amortized over the life of the related debt.  In certain circumstances, the intrinsic value of the beneficial conversion feature may be greater than the proceeds associated to the convertible instrument.  In such situations, the amount of the discount assigned to the beneficial conversion feature is limited to the amount of the proceeds allocated to the convertible instrument.

**Fair value of financial instruments**

The Company follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels.  The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

Level 1

 

Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

 

 

 

Level 2

 

Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

 

 

 

Level 3

 

Pricing inputs that are generally unobservable inputs and not corroborated by market data.

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

F-6

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**June 30, 2013 and 2012**

**(Unaudited)**

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts payable, accrued expenses and loans payable approximate their fair values because of the short maturity of these instruments. Loans payable are recorded at their issue value.

Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.

It is not, however, practical to determine the fair value of advances from stockholders, if any, due to their related party nature.

**Stock Based Compensation**

We account for employee share-based awards in accordance with FASB ASC 718. FASB ASC 718 requires recognition in the financial statements of the cost of employee services received in exchange for an award of equity instruments over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). FASB ASC 718 also requires measurement of the cost of employee services received in exchange for an equity award based upon the grant-date fair value of the award.

The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC 505-50.  Accordingly, the measurement date for the fair value of the equity instruments issued is determined at earliest of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete.  In the case of equity instruments, issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

In accordance with ASC 505-50, each transaction involving the issuance of stock in exchange for goods or services is analyzed to determine whether the value of the stock given as consideration on the value of the goods on services received are the more representation of the value of the underlying transactions.

**Comprehensive Income**

The Company has no components of income that would require classification as other comprehensive income.

F-7

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**June 30, 2013 and 2012**

**(Unaudited)**

**Property and Equipment**

Fixed assets are recorded at cost.  Expenditures for major additions and betterments are capitalized.  Maintenance and repairs are charged to operations as incurred.  Depreciation of fixed assets is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful life.  Upon sale or retirement of the asset, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.

**Asset**

**Useful Life**

**(in years)**

Equipment

5 years

Furniture & Fixtures 

7 years

**Reclassification**

Certain accounts in the prior-year financial statements have been reclassified for comparative purposes to conform to the presentation in the current-year financial statements.

**Note 3.  Property and Equipment**

Property and equipment consist of the following at June 30, 2013 and December 31, 2012:

 

2013

 

2012

Property and Equipment

 

 

 

Equipment

$    16,689

 

$  16,689

Software

167,670

 

167,670

Total property and equipment before accumulated depreciation

184,359

 

184,359

 

 

 

 

Less accumulated depreciation

(179,644)

 

(178,064)

Total property and equipment

$     4,715

 

$6,295

Depreciation expense for the six months ended June 30, 2013 and 2012 totaled $1,580 and $29,374, respectively. 

During the six months ended June 30, 2013, the Company had incurred website development costs as part of web site application and infrastructure development activities. Specifically, activities include coordination of design, engineering, initial integration and design modifications, script writing, web site designs and revisions, application side designs, pre-video production build/test flash prototype for oversize video browser scaling, eCommerce engine, etc.  All of these development costs were expensed as incurred.

F-8

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**June 30, 2013 and 2012**

**(Unaudited)**

**Note 4. Loan Payable**

The components of notes as of June 30, 2013 are as follows:

·

On July 23, 2010, the Company entered into a promissory note in the amount of $11,228 including interest of 5% due to Texas Atlantic Capital Partners, LLC. on demand. As of June 30, 2013, this note is still outstanding.

·

$20,000 loan received February 24, 2012, due on demand.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $.0075 per share. As of June 30, 2013, no portion of this note has been converted to common stock.

·

$13,000 loan received February 27, 2012, due on demand.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $.0075 per share. As of June 30, 2013, no portion of this note has been converted to common stock.

·

$63,054 loan received April 9, 2012, due August 31, 2012. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $.0075 per share. As of June 30, 2013, no portion of this note was converted to common stock.

·

$18,800 loan received June 6, 2012, due on demand. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $.0075 per share. As of June 30, 2013, no portion of this note was converted to common stock.

·

$63,000 loan received July 5, 2012, due April 10, 2013, including interest at 8%.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to 61% of the market price. As of June 30, 2013, this note was converted to common stock. 

·

$63,000 loan received September 19, 2012, due June 21, 2013, including interest at 8%.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to 58% of the market price. As of June 30, 2013, this note was converted to common stock.

F-9

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**June 30, 2013 and 2012**

**(Unaudited)**

·

$8,769 loan received October 1, 2012, due on April 1, 2013. The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $.002 per share. As of June 30, 2013, this note was converted to common stock.

Each loan above has a right to convert to common stock.  During the six months ended June 30, 2013, a total of $134,769 of the above mentioned notes were converted into shares of common stock. 

Based on the intrinsic value of the conversion feature, the Company determined that there was a beneficial conversion feature associated with some notes payable.  As a result of the beneficial conversion feature exceeding the proceeds received from the promissory notes, management discounted the notes 100% and will amortize this discount over the life of the note. During the six months ended June 30, 2013 and 2012, amortization of the beneficial conversion feature was $55,691 and $420,940, respectively. As of June 30, 2013, there was no remaining unamortized discount on notes.

**Note 5. Related Party Transactions**

*Consulting, Legal and Administrative Services-*These services consist of management oversight of the operations of the Company; review of financial operations, capital raising and meetings with investors, potential investors, preparation of the Company’s SEC reports and documents for the Company’s operations.

In the aggregate, during the six months ended June 30, 2013, the Company owed to related parties $477,972 for consulting, legal and accrued interest as reflected below.

 

**Consulting,**

**legal and**

**administrative**

**Loan**

**Accrued Interest**

**Total**

Rowland W. Day II

$138,692

$304,890

$4,390

$447,972

Bryan Fowler

 

$30,000

 

$30,000

 

$138,692

$334,890

$4,390

$477,972

Rowland W. Day II is our CEO, CFO and Chairman of the Board.  Bryan Fowler was a technology consultant and shareholder. 

The components of notes as of June 30, 2013 are as follows:

F-10

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**June 30, 2013 and 2012**

**(Unaudited)**

On October 4, 2011, the Company entered into a convertible promissory note in the amount of $516,134 including interest of 5% due to Rowland W. Day II on demand.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $0.005 per share. As of June 30, 2013, $150,000 of this note has been converted to common stock during 2012 and the remaining balance of $366,134 of this note has been converted to preferred stock during 2013.

On October 4, 2011, the Company entered into a convertible promissory note in the amount of $229,401 including interest of 5% due to Rowland W. Day II on demand.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $0.0075 per share. As of June 30, 2013, $181,153 of this note was converted to shares of preferred stock.

On December 31, 2011, the Company entered into a convertible promissory note in the amount of $15,952 including interest of 5% due to Rowland W. Day II on demand.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $0.0075 per share. As of June 30, 2013, no portion of this note was converted to shares of common stock.

On December 31, 2011, the Company entered into a convertible promissory note in the amount of $7,250 including interest of 5% due to Rowland W. Day II on demand.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $0.0075 per share. As of June 30, 2013, no portion of this note was converted to shares of common stock.

On March 31, 2012, the Company entered into a convertible promissory note in the amount of $12,467 including interest of 5% due to Rowland W. Day II on demand.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $0.0075 per share. As of June 30, 2013, no portion of this note was converted to shares of common stock.

On March 31, 2012, the Company entered into a convertible promissory note in the amount of $62,250 including interest of 5% due to Rowland W. Day II on demand.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $0.0075 per share. As of June 30, 2013, no portion of this note was converted to shares of common stock.

F-11

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**June 30, 2013 and 2012**

**(Unaudited)**

On April 1, 2012, the Company entered into a convertible promissory note in the amount of $30,000, due to Bryan Fowler due August 31, 2012.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $0.0075 per share. As of June 30, 2013, no portion of this note was converted to shares of common stock. 

On June 30, 2012, the Company entered into a convertible promissory note in the amount of $83,125 including interest of 5% due to Rowland W. Day II on demand.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $0.0075 per share. As of June 30, 2013, no portion of this note was converted to shares of common stock.

On June 30, 2012, the Company entered into a convertible promissory note in the amount of $18,063 including interest of 5% due to Rowland W. Day II on demand.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $0.0075 per share. As of June 30, 2013, no portion of this note was converted to shares of common stock.

On September 30, 2012, the Company entered into a convertible promissory note in the amount of $16,132 including interest of 5% due to Rowland W. Day II on demand.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $0.0075 per share. As of June 30, 2013, no portion of this note was converted to shares of common stock.

On September 30, 2012, the Company entered into a convertible promissory note in the amount of $57,437 including interest of 5% due to Rowland W. Day II on demand.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $0.0075 per share. As of June 30, 2013, $12,000 was repaid back in 2012, but no portion of this note was converted to shares of common stock.

On December 31, 2012, the Company entered into a convertible promissory note in the amount of $9,237 including interest of 5% due to Rowland W. Day II on demand.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $0.0075 per share. As of June 30, 2013, no portion of this note was converted to shares of common stock.

On December 31, 2012, the Company entered into a convertible promissory note in the amount of $3,771 including interest of 5% due to Rowland W. Day II on demand.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $0.0075 per share. As of June 30, 2013, no portion of this note was converted to shares of common stock.

F-12

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**June 30, 2013 and 2012**

**(Unaudited)**

On March 31, 2013, the Company entered into a convertible promissory note in the amount of $20,813 including interest of 5% due to Rowland W. Day II on demand.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $0.0075 per share. As of June 30, 2013, no portion of this note was converted to shares of common stock.

On March 31, 2013, the Company entered into a convertible promissory note in the amount of $9,398 including interest of 5% due to Rowland W. Day II on demand.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $0.0075 per share. As of June 30, 2013, no portion of this note was converted to shares of common stock.

On June 30, 2013, the Company entered into a convertible promissory note in the amount of $37,440 including interest of 5% due to Rowland W. Day II on demand.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $0.0075 per share. As of June 30, 2013, no portion of this note was converted to shares of common stock.

On June 30, 2013, the Company entered into a convertible promissory note in the amount of $54,000 including interest of 5% due to Rowland W. Day II on demand.  The convertible promissory note provides the holder the right to convert at any time, all or any unpaid principal and interest into shares of the Company’s common stock at a price equal to $0.0075 per share. As of June 30, 2013, no portion of this note was converted to shares of common stock.

Each loan above has a right to convert to common stock.  During the six months ended June 30, 2013, $547,287 plus interest of above mentioned notes were converted into shares of preferred stock that are convertible into common stock.

**Note 6. Facilities**

The Company’s corporate headquarters have been moved to 1 Hampshire Court, Newport Beach, California 92660 which is the office of our CEO and Chairman of the Board Rowland W. Day II.  We are not being charged any rent at this time.

**Note 7. Recent Pronouncements**

Management does not believe that any recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements. 

F-13

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**June 30, 2013 and 2012**

**(Unaudited)**

**Note 8. Stock Based Compensation**

In November 2009, the Board of Directors and Shareholders adopted the 2008 Stock Option Plan providing for the issuance of up to 10,000,000 shares to Company officers, directors, employees and to independent contractors who provide services to the Company.

Options granted under the 2008 Stock Option Plan vest as determined by the Board of Directors and terminate after the earliest of the following events: expiration of the option as provided in the option agreement, 90 days subsequent to the date of termination of the employee, or ten years from the date of grant (five years from the date of grant for incentive options granted to an employee who owns more than 10% of the total combined voting power of all classes stock at the date of grant).  In some instances, granted stock options are immediately exercisable into restricted shares of common stock, which vest in accordance with the original terms of the related options. The Company recognizes compensation expense ratably over the requisite service period.

The option price of each share of common stock shall be determined by the Board of Directors or compensation committee (when one is established), provided that with respect to incentive stock options, the option price per share shall in all cases be equal to or greater than 100% of the fair value of a share of common stock on the date of the grant, except an incentive option granted under the 2008 Stock Option Plan to a shareholder that owns more than 10% of the total combined voting power of all classes of stock, shall have an exercise price of not less than 110% of the fair value of a share of common stock on the date of grant. No participant may be granted incentive stock options, which would result in shares with an aggregate fair value of more than $10,000,000 first becoming exercisable in one calendar year. 

For the six months ended June 30, 2013 and 2012, the Company recorded compensation costs for options and shares granted under the plan amounting to $0 and $328,378, respectively.  There are no unamortized stock compensation costs. A deduction is not allowed for income tax purposes until nonqualified options are exercised. The amount of this deduction will be the difference between the fair value of the Company’s common stock and the exercise price at the date of exercise. The tax effect of the income tax deduction in excess of the financial statement expense, if any, will be recorded as an increase to additional paid-in capital.  No tax deduction is allowed for incentive stock options. Accordingly no deferred tax asset is recorded for GAAP expense related to these options.

Management has valued the options at their date of grant utilizing the Black Scholes Merton option pricing model.  The fair value of the underlying shares was determined based on the closing price of the Company’s publicly-traded shares as of date of the grant.   Further, the expected volatility was calculated using the historical volatility of the Company’s stock.  

F-14

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**June 30, 2013 and 2012**

**(Unaudited)**

The risk-free interest rate is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options depending on the date of the grant and expected life of the options. The expected life of options used was based on the contractual life of the option granted.  The Company determined the expected dividend rate based on the assumption and expectation that earnings generated from operations are not expected to be adequate to allow for the payment of dividends in the near future.

The following table summarizes the status of the Company aggregate stock options granted under the incentive stock option plan:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Number**

 

 

**Weighted**

 

 

 

 

 

 

 

 

 

**of Shares**

 

 

**Average**

 

 

**Weighted**

 

 

 

 

 

 

**Remaining**

 

 

**Intrinsic**

 

 

**Average**

 

 

**Aggregate**

 

**Subject to Exercise**

 

**Options**

 

 

**Price**

 

 

**Life (Years)**

 

 

**Value**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Outstanding as of December 31, 2012**

 

 

**1,990,000**

 

 

$

-

 

 

-

 

 

**$**

-

 

Granted - 2013

 

 

**-**

 

 

$

-

 

 

 

-

 

 

 

-

 

Forfeited - 2013

 

 

**-**

 

 

$

.

 

 

 

 

 

 

 

-

 

Exercised - 2013

 

 

**-**

 

 

$

-

 

 

 

-

 

 

 

-

 

**Outstanding as of June 30, 2013**

 

 

1,990,000

 

 

$

-

 

 

 

-

 

 

$

-

 

**Exercisable as of June 30, 2013**

 

 

1,990,000

 

 

 

 

 

 

 

 

 

 

 

 

 

**Note 9. Legal Proceedings**

On August 28, 2012, Keith Miller a part time employee of the Company at the time of his departure sued the Company, its officers and directors for fraud.  Mr. Miller was previously the Interim Chief Technology Officer of the Company.

The Company and Mr. Miller settled the lawsuit on July 22, 2013.

**Note 10. Patents**

On February 19, 2013, the Company received Patent No:  US 8,380,176,B2.  This Patent covers a method to inhibit the use of a multi-function portable communication device in a moving vehicle.  The Company has not assigned any monetary value nor is it reflected on the Company's financial statements. The costs to file the patent were expensed as incurred.

F-15

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**June 30, 2013 and 2012**

**(Unaudited)**

**Note 11. Commitments and Contingencies**

**Series B Preferred Stock**

The principal terms of the Series B Preferred Stock were as follows:

*Voting rights* - The Series B Preferred Stock has voting rights (five votes per share) equal to those of the Company’s common stock.

*Dividend rights* - The Series B Preferred Stock shall not pay dividend.

*Conversion rights* -  The holders of the Series B Preferred Stock have the right to convert any or all of their Series B Preferred Stock, at the option of the holder, at any time, into common stock on a one for 909,090.909 basis.

*Redemption rights -*The holders of the Series B Preferred Stock may at each holder’s option to cause the Company to redeem any of shares or all shares of Series B Preferred Stock at a price of six hundred dollars ($600) per share.

*Liquidation entitlement* - In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the funds and assets of the Company that may be legally distributed to the Company’s shareholders shall be distributed to shareholders.

The Company has classified the Series B Preferred Stock as temporary equity because it is redeemable at the option of the holder.

F-16

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**June 30, 2013 and 2012**

**(Unaudited)**

**Item 2. Management’s Discussion and Analysis and Plan of Operations**

***The following discussion should be read in conjunction with our unaudited interim financial statements as of, and for the three and six months ended June 30, 2013 and 2012, and with our annual report on Form 10-K for the year ended December 31, 2012.***

**Forward-Looking Statements**

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities for existing products, plans and objectives of management, markets for stock of WebSafety, Inc., and other matters. Statements in this report that are not historical facts are “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Exchange Act and Section 27A of the Securities Act. Such forward-looking statements, including, without limitation, those relating to the future business prospects, revenues, and income of WebSafety, Inc., wherever they occur, are necessarily estimates reflecting the best judgment of the senior management of WebSafety, Inc. on the date on which they were made, or if no date is stated, as of the date of this report. These forward-looking statements are subject to risks, uncertainties and assumptions, including those described in the “Risk Factors” described below, that may affect the operations, performance, development, and results of our business. Because the factors discussed in this report could cause actual results or outcomes to differ materially from thoseexpressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any such forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

**Plan of Operation**

Websafety, Inc. has the objective of marketing and selling through the internet a range of software applications and services for cell phones that allow parents or other caregivers to monitor and be notified of occurrences of predator advances, cyber bullying and pornography received on cell phones. The cell phone application also restricts text messaging while driving and provides location information to parents through the use of GPS technology. 

Since our inception on July 3, 2006 through the end of the June 30, 2013, we have generated a minimal amount of revenue.   We intend to market the products and services by developing relationships with “trusted” sources consisting of child protection advocacy groups including church, school and civic organizations.  We intend to also explore opportunities to enter into strategic revenue sharing partnerships with companies having synergy with our products.  These partners may include auto insurers and cell phone manufacturers.

We are currently revising and updating our software applications and intended to re-launch it during the fourth quarter of 2013.

Our CEO, Rowland W. Day II moved the administration of the business to his law office located in California which is the new address of the Company.

Mr. Day has continued to meet with prospective investors to fund the operations of the Company.  Mr. Day has loaned money to the Company for its working capital.  There is no assurance that enough money can be raised for the Company to become fully operational at any time in the future or that Mr. Day will continue to loan money to the Company.     

5

**Results of Operations**

**Revenue**

Revenues for the three and six month periods ended June 30, 2013 and 2012 totaled $0 and $0, as compared to $0 and $0 respectively. Management attributes the lack of revenue to the revisions that are being made to the software application, the current economic environment and a delay in the execution of sales contracts which has required a substantial investment of management’s time and marketing efforts of the Company. The ultimate outcome of such contracts remains unknown at June 30, 2013. 

**Operating Expenses, Other Income and Expenses and Loss from Operations**

For the three and six months ended June 30, 2013 we sustained a net operating loss of $99,512 and $144,597 compared to operating income of $968 and a net operating loss of $375,252 for the three and six months ended June 30, 2012.  The overall net operating loss decrease was mainly due to a reduction in general and administrative expenses.

 

***Financial Condition***

 

Cash at June 30, 2013 was $130 and working capital (the excess of current assets over current liabilities) was a negative $831,220 compared with a negative $1,355,972 at December 31, 2012. The decrease in negative working capital was primarily attributable to a decrease in current liabilities.

Total current liabilities decreased to $837,350 at June 30, 2013 from $1,381,364 at December 31, 2012.  The decrease was principally due to a decrease in loans payable and decrease in amount due to shareholders primarily from conversions to stock.

Stockholders’ equity was $(826,505) at June 30, 2013 compared to $(1,349,677) December 31, 2012.  The decrease in deficit was due to, the issuances of shares for conversion of debt offset by our current period loss.

 

***Liquidity***

 

For the six months ended June 30, 2013, the Company had not raised any new equity. In light of recent operating results and negative cash flows, additional capital will be required to fund the Company’s operations. 

To support planned operations through 2013 and beyond, additional capital will be required. In that regard it is management’s intent to continue fund raising efforts to generate the capital required to support expanding operations.

There can be no assurance that we will be able to raise any more additional capital on terms that are beneficial to us.

 

***Critical Accounting Policies and Estimates***

 

The discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  Generally accepted accounting principles require management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities.  We base our estimates on experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that may not be readily apparent from other sources.  Our actual results may differ from those estimates.

***Going Concern***

The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The Company has incurred cumulative net losses of approximately $13,361,267 from the period of July 3, 2006 (Inception) through June 30, 2013 and has used significant cash in support of its operating activities raising substantial doubt about the Company’s ability to continue as a going concern.  The Company will seek additional sources of capital through the issuance of debt or equity financing, but there can be no assurance the Company will be successful in accomplishing its objectives.

6

The ability of the Company to continue as a going concern is dependent on additional sources of capital and the success of the Company’s plan.  The financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

***Off-balance sheet arrangements***

At June 30, 2013, we did not have any material commitments for capital expenditures or have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

We have not entered into, and do not expect to enter into, financial instruments for trading or hedging purposes.

**ITEM 4. CONTROLS AND PROCEDURES**

**Disclosure Controls and Procedures**

Our management evaluated, with the participation of our Chief Executive Officer/Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q. Based on this evaluation, our Chief Executive Officer/ Chief Financial Officer has concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of the end of such period, are ineffective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

**Management Report on Internal Control over Financial Reporting**

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act).  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; (iii) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Management assessed our internal control over financial reporting as of June 30, 2013. Management based its assessment on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls. 

7

Based on this assessment, management has concluded that as of June 30, 2013, our internal control over financial reporting was ineffective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. We noted that there is a lack of segregation of certain duties at the Company due to our sole officer with responsibility for general administrative and financial matters. This constitutes a deficiency in financial reporting. We therefore conclude that our internal control over financial reporting were ineffective as of and for the quarter ended June 30, 2013.  At this time, management has decided that considering the sole officer involved and the control procedures in place, the risks associated with such lack of segregation of duties are insignificant and the potential benefits of adding additional employees to clearly segregate duties do not justify the additional expenses associated with such increases. Management will periodically reevaluate this situation. If the volume of business increases and sufficient capital is secured, it is the Company’s intention to further increase staffing to mitigate the current lack of segregation of duties within the general, administrative and financial functions. 

**Changes in Internal Control**

There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting. 

**PART II - OTHER INFORMATION**

**Item 1. Legal Proceedings**

From time to time we may be a defendant or plaintiff in various legal proceedings arising in the normal course of our business.  Except as set forth below, we are currently not a party to any legal proceeding that we believe could have a material adverse effect on our business, financial condition or operating results.  

On August 28, 2012, Keith Miller a part time employee of the Company at the time of his departure sued the Company, its officers and directors for fraud.  Mr. Miller was previously the Interim Chief Technology Officer of the Company.

The Company and Mr. Miller settled the lawsuit on July 23, 2013.

**Item 1.A. Risk Factors**

The Company was organized during 2006 and is at an early stage of operation and has no substantial revenue. The Company devotes its full resources toward revising the software products, marketing, selling and distributing the software products. The Company began receiving revenue from sales of software products during the fourth quarter of 2009. The Company will need to generate significant revenues to overcome an accumulated deficit and obtain profitability. The Company may never achieve profitability. If revenues grow more slowly than anticipated, or if operating expenses exceed expectations the Company’s business, results of operations, and financial condition could be materially adversely affected. 

8

**RISKS RELATING TO OUR BUSINESS**

**THE COMPANY HAS A LIMITED OPERATING HISTORY AND FACES SIGNIFICANT RISKS AND CHALLENGES IN BUILDING THE BUSINESS**

As a result of the Company’s limited operating history, to achieve profitability, the Company must successfully and timely market and sell its software products.  Although the Company has very concrete and specific marketing and sales programs to be implemented, the Company cannot guarantee the success of such programs and alternately, more expensive marketing and sales programs may need to be implemented. Additionally, although the Company believes that a strong market exists for the software products, the Company has conducted no scientific, reliable market surveys but has only performed its own research and due diligence to ascertain the security concerns of parents and others responsible for the safety of children. A more scientific analysis could prove that no market exists for the software products that the Company intends to market and sell; or, if the market exists, the Company may not be able to reach the market with the Company’s limited financial resources and marketing budget. There can be no assurance that the Company will be able to successfully generate revenues. The Company has no significant historical basis to assess how it might respond to competitive, economic, regulatory, or technological challenges. The Company’s business must be considered in light of the risks and uncertainties frequently encountered by companies in the very early stages of operations, particularly companies that operate in new and rapidly developing industries and marketplaces. The Company’s failure to adequately address these risks and uncertainties and rapidly respond to adverse developments as they occur could materially impact the Company’s ability to achieve profitability and, if profitability is achieved, to sustain a level of operations that will cause profitability to be sustained. Although the Company intends to hire numerous people to implement the business of the Company, there is no assurance that the Company will hire the right people or that future changes will not have to be made to find the right people to implement the Company’s business strategy. There is no assurance that the Company’s business strategy or marketing plans will achieve success.

**THE COMPANY’S RELIANCE ON THE CAPABILITIES OF THE SOFTWARE PRODUCTS**

The Company is heavily dependent upon the capabilities of the software products. The failure of the software to accomplish the objectives as represented will damper if not destroy the Company’s marketing.

**COMPANY’S RELIANCE UPON EXECUTIVES AND CONSULTANTS**

The Company’s success is highly dependent upon its sole executive officer identified in this report for critical management decisions and to implement and pursue the Company’s business and marketing plan.  A loss of our sole executive officer through incapacity or for any other reason could materially adversely impact the ability of the Company to complete its business and marketing plan and would require the Company to seek the assistance of other qualified personnel who may not be available.

**CHALLENGES FROM COMPETITION**

Although the Company is unaware of an available product that contains all the characteristics, features and capabilities of the WEBSAFETY software, in the dynamic, ever changing field of technology, many companies of all sizes and capabilities are constantly engaged in software development.  With the notoriety given to child molesters, pedophiles and others causing harm and sometimes death to children, a reasonable assumption is that many companies are currently engaged in software development activities that will possess many of the characteristics and capabilities possessed by WEBSAFETY software.  In the event another company successfully develops and markets a competitive product before the Company can establish a significant presence in its target markets; the Company may never be able to achieve a level of revenue to sustain the Company’s operations

9

**RISKS RELATED TO OUR COMMON STOCK**

**IF MARKET FOR OUR COMMON STOCK DOES NOT DEVELOP, OUR STOCKHOLDERS MAY BE UNABLE TO SELL THEIR SHARES.**

There is currently a limited market for our common stock and we can provide no assurance that a more liquid market will develop. If a liquid market does not develop for our shares, it will be difficult for stockholders to sell their stock.  In such a case, stockholders may find that they are unable to achieve benefits from their investment.

**IF A MARKET FOR OUR COMMON STOCK DEVELOPS, OUR STOCK PRICE MAY BE VOLATILE.**

If a market for our common stock develops, the price at which our common stock will trade may be highly volatile and may fluctuate as a result of a number of factors, including the number of shares available for sale in the market, quarterly variations in our operating results, actual or anticipated announcements of new data, studies, products or services by us or competitors, regulatory investigations or determinations, acquisitions or strategic alliances by us or our competitors, recruitment or departures of key personnel, the gain or loss of significant customers, changes in the estimates of our operating performance, market conditions in our industry and the economy as a whole.

**INVESTORS’ INTERESTS IN OUR COMPANY WILL BE DILUTED AND INVESTORS MAY SUFFER DILUTION IN THEIR NET BOOK VALUE PER SHARE IF WE ISSUE ADDITIONAL SHARES OR RAISE FUNDS THROUGH THE SALE OF EQUITY SECURITIES.**

In the event that we are required to issue any additional shares or enter into private placements to raise financing through the sale of equity securities, investors’ interests in our Company will be diluted and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold.  If we issue any such additional shares, such issuances also will cause a reduction in the proportionate ownership and voting power of all other stockholders.  Further, any such issuance may result in a change in our control.

**WE HAVE NEVER PAID CASH DIVIDENDS AND DO NOT INTEND TO DO SO.**

We have never declared or paid cash dividends on our common stock.  We currently plan to retain any earnings to finance the growth of our business rather than to pay cash dividends.  Payments of any cash dividends in the future will depend on our financial condition, results of operations and capital requirements, as well as other factors deemed relevant by our board of directors.

**WE WILL NEED ADDITIONAL FINANCING.**

We will need additional financing to maintain and expand its business, and such financing may not be available on favorable terms, if at all.  We intend to finance our business through the private placement and public offering of equity and debt securities.  Additional financing may not be available on favorable terms, if at all.  If we need funds and cannot raise them on acceptable terms, we may not be able to execute our business plan, and our shareholders may lose substantially all of their investment.

**TERRORIST ATTACKS, CONTINUED WAR OR OTHER CIVIL DISTURBANCES COULD LEAD TO FURTHER ECONOMIC INSTABILITY AND ADVERSELY AFFECT OUR BUSINESS**

On September 11, 2001, the United States was the target of terrorist attacks of unprecedented scope.  The United States is currently engaged in war with Iraq and Afghanistan.  These attacks and these wars have caused instability in the marketplace and contributed to a downturn in the global economy.  In the future, there may be armed hostilities, continued wars, further acts of terrorism and civil disturbances in the United States or elsewhere, which may further contribute to economic instability in the United States. Such disturbances could have a material adverse effect on our business, financial condition and operating results.

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**Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds**

None.

**Item 4.  Mine safety Disclosures**

Not applicable

**Item 6. Exhibits**

**No.**

**Description of Exhibit**

31.1  Rule 13a-14(a) Certification of Chief Executive Officer

 

31.2  Rule 13e-14(a) Certification of Chief Financial Officer

 

32.1  Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

32.2  Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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**SIGNATURES**

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

**WEBSAFETY, INC.**

 

Date: August 19, 2013

 

By: /s/ Rowland W. Day II

Rowland W. Day II,Principal Executive Officer

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