**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-K/A**

AMENDMENT NO. 2

| (Mark One)

 

**[X]**

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

For the fiscal year ended:  December 31, 2011

**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**

 

**20-5150818**

(State or other jurisdiction of incorporation or

organization)

 

(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)

________________

(Former name, former address and former fiscal year, if changed since last report)

Securities registered under Section 12(b) of the Exchange Act:  **None**

Securities registered under Section 12(g) of the Exchange Act:

**Common stock $.001 par value**

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [  ] No [X]

Indicate by check mark whether issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer”, and “small reporting company” in Rule 12b-2 of the Exchange Act.  (check one)

Large accelerated filer: . [  ]

Accelerated filer: [  ]

Non-accelerated filer: [  ]

Small reporting company: [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

The aggregate market value of the voting and non-voting common equity held by non-affiliates was $714,715.00 based on 211,853,406  non-affiliate shares outstanding as of June 30, 2011 (Registrant’s most recently completed Second Fiscal Quarter). Computed by reference to the price at which the common equity was last sold which was $0.03 per share.

As of April 5, 2012, there were 290,653,406 shares of common stock, $0.001 par value, outstanding.

**Documents incorporated by reference:**

None.

 

**Explanatory Note**

WebSafety, Inc. is filing this Amendment No. 2 (the “Amendment”) to its Annual Report on Form 10-K for the period ended December 31, 2011, filed with the Securities and Exchange Commission on April 16, 2012 (the “Form 10-K”), to revise the signature page dates and  Exhibit 31.1, 31.2, 32.1,32.2.

No other changes have been made to the Form 10-K. This Amendment speaks as of the original filing date of the Form 10-K, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Form 10-K. 

 

 

2

**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. formerly known as (“fka”) Blindspot Alert, Inc. (the “Company”) 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 Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and Section 27A of the Securities Act of 1933, as amended. Such forward-looking statements, including, without limitation, those relating to the future business prospects, revenues and income of Websafety, Inc. fka Blindspot Alert, Inc., wherever they occur, are necessarily estimates reflecting the best judgment of the senior management of Websafety, Inc. fka Blindspot Alert, 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 those expressed 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.

 

You should understand that the following important factors, in addition to those discussed in the “Risk Factors” section could affect our future results and could cause those results to differ materially from those expressed in such forward-looking statements:

 

·

general economic conditions;

·

the effectiveness of our planned advertising, marketing and promotional campaigns;

·

anticipated trends and conditions in the industry in which we operate, including regulatory changes;

·

our future capital needs and our ability to obtain financing; and

·

other risks and uncertainties as may be detailed from time to time in our public announcements and filings with the Securities and Exchange Commission (“SEC”).

 

Although we believe that our expectations are reasonable, we cannot assure you that our expectations will prove to be correct. Should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described in this report as anticipated, believed, estimated, expected or intended.

 

Except to the extent required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or any other reason. All subsequent forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to herein. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report may not occur.

 

3

**TABLE OF CONTENTS**

 

**PAGE**

**PART I**

 

Item 1.  Business

5

Item 1A.  Risk Factors

6

Item 2.  Description of Property

8

Item 3.  Legal Proceedings

8

Item 4.  Mine Safety Disclosures

8

 

 

**PART II**

 

Item 5.  Market for Registrant’s Common Equity. Related Stockholder Matters and Issuer  Purchases  of Equity

9

Item 6.  Selected Financial Data

9

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of  Operation
9

Item 7A:  Quantitative and Qualitative Disclosures about Market Risk

11

Item 8:  Financial Statements and Supplementary Data

11

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial  Disclosures

12

Item 9A.  Controls and Procedures

12

Item 9B.  Other Information

13

 

 

**Part III**

 

Item 10.  Directors, Executive Officers and Corporate Governance

13

Item 11.  Executive Compensation

14

Item 12:  Item 12. Security Ownership of Certain Beneficial Owners and Management and Related  Stockholder  Matters

14

Item 13.  Certain Relationships and Related Transactions, and Director Independence

15

Item 14.  Principal Accounting Fees and Services

15

 

 

**Part IV**

 

Item 15.  Exhibits, Financial Statement Schedules

16

  

4

**PART I**

**ITEM 1.  *BUSINESS***

**Business Development**

We were incorporated on July 3, 2006 in the State of Nevada under the name Promotions on Wheels Holdings, Inc.  We changed our name to Blindspot Alert, Inc. on December 12, 2008 and to Websafety, Inc. on September 11, 2009.  The Company was originally a developmental stage company with a principal business objective of offering live promotions and marketing events utilizing unique custom built mobile displays.  On July 21, 2008, we discontinued that business.

On June 30, 2008, the Company entered into a License Agreement (“License”) with WQN, Inc., a Texas corporation (“WQN”), which, in consideration for the sum of $300,000 granted the Company the right to market and sell WQN’s Websafety software products.  The License covered software products that had been developed by WQN and granted the Company an exclusive right for a period of 12 months to market and sell the software products through the Home Shopping Network, QVC, Inc., CVS Pharmacy, WalMart, and Walgreens and the non exclusive right to market and sell the software products worldwide.  

The License provided for the Company to retain 65% of all revenue received from the sale of CYBERSAFETY software and to pay 35% of all revenue to the Licensor, WQN.  The License Agreement required Licensor to provide Company technical and customer support and required Licensor to provide Company with all future updates of the software.

On July 2, 2009 the Company entered into an asset acquisition agreement with WQN, Inc. Under the agreement we acquired all of the technology known as Websafety Technology for approximately 27,000,000 shares of our common stock. Consequently, the Company no longer has any royalty commitments to WQN under the June 30, 2008 license agreement.

Management believes that our products are a timely solution to many of the dangers that come with the unprecedented access to information and people that is provided by the internet and cell phones provide.

From June 2008 through December 31, 2009 we refined our website and we commenced limited revenue activity in the fourth quarter of 2009.  We intend to market our products and services through relationships developed 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 related companies, auto insurers, telecom logistic companies and cell phone manufacturers.

**Business of Issuer**

We are focused on marketing, selling, and distributing a range of Internet software applications and services for cell phones worldwide. These software applications allow parents or other caregivers to monitor and be notified of occurrences of predator advances, cyber bullying, pornography; and cell phone applications that restrict text messaging while driving and provide location information to parents using GPS technology. We market our software products under the WEBSAFETY or CELLSAFETY brand names. 

Since our inception on July 3, 2006 and as of December 31, 2011, we have generated a minimal amount of revenue and have incurred a cumulative net loss of $11,618,598.  In 2011 our revenues were $65,830, however, we believe that we must raise approximately $250,000 through the sale of equity or promissory notes for us to sustain operations through the next twelve (12) months.  This amount of capital has been budgeted to maintain our minimal infrastructure and marketing and sales campaign.  We believe that the recurring revenues from sales of software products eventually will be sufficient to support ongoing operations.  We can provide no assurance that the actual expenses we incur will not materially exceed our estimates or that cash flow from sales will be adequate to maintain our business.  As a result, our independent auditors have expressed substantial doubt about our ability to continue as a going concern as noted in the independent auditor’s report to the financial statements included in this report.

In the month of September, 2011 due to the lack of revenue and inability to raise enough capital to pay for ongoing operations, we vacated our premises in Irving, Texas.  All employees left the Company and we suspended our operations pending the raising of additional capital to finance our operations on a going forward basis.

5

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.  To date very little money has been raised or loaned to the Company.  There is no assurance that enough money can be raised for the Company to become operational at any time in the future.

Our Chief Executive Officer and Chief Financial Officer/Director works for us on a part-time basis.  We also have four other Directors.    

**ITEM 1A.  *RISK FACTORS***

The Company was organized during 2006 and is at an early stage of operation and has no substantial revenue.  The Company no longer devotes its full resources toward 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. 

**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 HIRING EXECUTIVES AND CONSULTANTS**

The Company’s success is highly dependent upon hiring executive officers and key consultants in order to implement and pursue the Company’s business and marketing plan.  The inability to hire the executives or consultants  will materially adversely impact the ability of the Company to complete its business and marketing plan and may require the Company to seek the assistance of other qualified personnel who may not be available.

6

**CHALLENGES FROM COMPETITION**

Although the Company is unaware of an available product that contains all the characteristics, features and capabilities of its software products, 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 the 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. 

**RISKS RELATED TO OUR COMMON STOCK**

**IF A 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 NEED ADDITIONAL FINANCING**

We need additional financing to maintain and expand the 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.   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.

7

**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 a war in 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.

**ITEM 2.  *DESCRIPTION OF PROPERTY***

As of March 22, 2010, we entered into a five year lease agreement for 5,502 square feet of corporate office space located in Irving, Texas.  The total lease payments were to be $472,255 over the five year period beginning May 1, 2010 and expiring on April 30, 2015.  In September, 2011, the Board of Directors decided to vacate the facility, thus defaulting on the lease agreement (see Note 13). All lease payments have been properly included in the Company’s expenses and accrued as necessary through December 31, 2011. 

**ITEM 3.  *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 25, 2009, the Company terminated its President, Clifton Jolley for cause.  In late November 2010, the Company and Mr. Jolley agreed to settle the dispute with neither party admitting any liability.

The Company vacated the rental facility in September 2011 and is currently in default under the lease.  As result of falling into default pursuant to the terms of the lease agreement, the Company has expensed the security deposit of $19,756.

The landlord filed a lawsuit against the Company on November 8, 2011 for the unpaid and future lease payments of approximately $400,000.  The Company is in discussions with representatives of the landlord.  The Company has accrued under Loss Contingency, $400,000 related to the unpaid and future lease payments

**ITEM 4.  *MINE SAFETY DISCLOSURES***

Not applicable. 

8

**PART II**

**ITEM 5.  *MARKET FOR REGISTRANT’S COMMON EQUITY.  RELATED STOCKHOLDERS MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES***

**Market Information**

Our common stock is quoted on the OTCBB under the symbol “WBSI”.  The following table shows the high and low bid prices of our common stock, as quoted on the OTCBB, by quarter during our last fiscal year when trading began.  These quotes reflect inter-dealer prices, without retail markup, markdown or commissions and may not represent actual transactions.  

 

 

 

**High**

 

 

**Low**

 

1st Quarter (through April 9, 2012)

 

$

.01

 

 

$

.01

 

**Year Ended December 31, 2011**

 

 

 

 

 

 

 

 

1st Quarter

 

$

.47

 

 

$

.11

 

2nd Quarter

 

 

.28

 

 

 

.02

 

3rd Quarter

 

 

.03

 

 

 

.01

 

4th Quarter

 

 

.02

 

 

 

.01

 

 

 

 

 

 

 

 

 

 

**Year Ended December 31, 2010**

 

 

 

 

 

 

 

 

1st Quarter

 

$

1.95

 

 

$

0.90

 

2nd Quarter

 

 

1.95

 

 

 

1.69

 

3rd Quarter

 

 

3.09

 

 

 

0.34

 

4th Quarter

 

 

0.40

 

 

 

0.15

 

**Holders**

As of April 9, 2012, there were approximately 135 holders of record of our common stock.  This number does not include beneficial owners of common stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.

**Dividends**

We have never declared or paid any dividends.  We anticipate, as our board of directors deems appropriate, that we will continue to retain all earnings for use in our business.

**Securities Authorized For Issuance Under Equity Compensation Plans**

On February 18, 2011 we issued 2,000,000 options to Travis Bond, the Chief Operating Officer of the Company. In addition, we issued 330,000 to various other people. 

**ITEM 6.  *SELECTED FINANCIAL DATA***

We are a smaller reporting company as defined in 17 CFR229.10(f)(I) and are not required to provide information required by this item, per Item 301 of Regulation S-K (17 CFR 229.201)

9

**ITEM 7.  *MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS***

**Plan of Operations**

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. In June 2008 the Company acquired for $300,000 a worldwide non exclusive license that permits the Company to sell the proprietary software that identifies the threats from predators, cyber bullies and transmitters of pornography. The license also allows for selective exclusivity within certain markets.

On July 2, 2009 the Company entered into an asset acquisition agreement with WQN, Inc. Under the agreement we acquired all of the technology known as Websafety Technology for approximately 27,000,000 shares of our common stock. Consequently, the Company no longer has any royalty commitments to WQN under the June 30, 2008 license agreement.

Since our inception on July 3, 2006 through the end of the December 31, 2011, 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.

In 2011, we raised $420,000 in new equity funding through the sale of common stock and preferred stock, the proceeds were used in 2011 to fund our operations through August of 2011.  We suspended our operations in September of 2011 due to lack of working capital.

**Results of Operations**

For the year ended 2011 we sustained a net operating loss of $3,662,668 as compared to a loss of $5,443,673 for the same twelve month period ended December 31, 2010.  In 2011 we had revenues of $65,830 as compared to revenues of $309,382 in 2010.

The table below highlights on a line item basis the significant elements of expense during the two periods that constituted the preponderance of expense incurred. 

 

 

**Years Ended December 31,**

 

 

**Increase**/

 

**Expense Category**

 

**2011**

 

 

**2010**

 

 

**(Decrease)**

 

General and Administrative:

 

 

 

 

 

 

 

 

 

 

 

 

Payroll

 

$

430,830

 

 

$

497,327

 

 

$

(66,497)

 

Insurance D&O

 

 

11,966

 

 

 

26,680

 

 

 

(14,714)

 

Accounting

 

 

16,632

 

 

 

40,500

 

 

 

(23,868)

 

Consulting/Contract

 

 

277,452

 

 

 

877,152

 

 

 

(599,700)

 

Legal

 

 

226,905

 

 

 

380,830

 

 

 

(153,925)

 

Marketing/Website

 

 

90,231

 

 

 

181,161

 

 

 

(90,930)

 

Travel

 

 

15,078

 

 

 

89,543

 

 

 

(74,465)

 

Commissions

 

 

20,479

 

 

 

84,296

 

 

 

(63,817)

 

Office Expense & Telephone

 

 

26,033

 

 

 

106,009

 

 

 

(79,976)

 

Rent

 

 

87,180

 

 

 

45,540

 

 

 

41,640

 

Stock Compensation Expense

 

 

902,820

 

 

 

515,640

 

 

 

387,180

 

Other

 

 

20,030

 

 

 

30,398

 

 

 

(10,368)

 

Totals

 

$

2,125,636

 

 

$

 2,875,076

 

 

$

(749,440)

 

In the fourth quarter of 2010 the Company fully wrote off the Technology asset that was purchased in the third quarter of 2009.   In accordance with ASC 360-10-35 a long-lived asset shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.  Due to the Company’s inability to meet cash flow projections established on 

10

the date the technology was acquired, management decided to impair the asset fully and took a loss of $1,881,877 at December 31, 2010. 

The decrease in expenses from December 31, 2010 to December 31, 2011 is primarily attributed to the impairment charge taken in 2010 on our intangible asset and amortization on the intangible prior to its impairment charge. Both events unique to the Company’s 2010 fiscal year.  

***Liquidity***

As noted previously, through December 31, 2011 we raised $420,000 in new equity. In order to establish operations in 2012 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 reestablish operations.

Cash and cash equivalents decreased $26,868 to ($700) at December 31, 2011 when compared to cash and cash equivalents of $26,168 at December 31, 2010. The decrease is most attributable to the decline in revenue.

The decrease in accounts receivable of $150 at December 31, 2011 when compared to December 31, 2010 can be attributed to a write off of an uncollectible employee advance. 

 The increase in accounts payable and accrued expenses of $139,419 at December 31, 2011 when compared to December 31, 2010 can primarily be attributed to the decline in revenue generating activities which resulted in less cash for our obligations. 

For the years ended December 31, 2011 and 2010 we had $0 and $17,921 related to investing activities. The activity from 2010 represents the purchase of long-term assets. 

***Recent Accounting Pronouncements***

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the company’s results of operations, financial position or cash flow. 

**ITEM 7A.  *QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK***

At December 31, 2011, we had no additional cash to invest. In the past and going forward, we consider any liquid investment with an original maturity of three months or less when purchased to be cash equivalents. We adhere to an investment policy which requires that all investments be investment grade quality and no more than ten percent of our portfolio may be invested in any one security or with one institution.

**ITEM 8.  *FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA***

**CONTENTS**

 

**PAGE**

Report of Independent Registered Public Accounting Firm

F-1

 

 

**FINANCIAL STATEMENTS**

 

  Balance Sheets as of December 31, 2011 and 2010

F-2

  Statements of Operations for the years ended December 31, 2011 and 2010

F-3

  Statements of Stockholders’ (Deficit) for the years ended December 31, 2011 and 2010

F-4

  Statements of Cash Flows for the years ended December 31, 2011 and 2010

F-5

11

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and

   Stockholders of Websafety, Inc

 

We have audited the accompanying balance sheets of Websafety, Inc as of December 31, 2011 and 2010, and the related statements of operations, stockholders’ deficit and cash flows for each of the years in the two-year period ended December 31, 2011. Websafety, Inc’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Websafety, Inc as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, these conditions raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

 

/s/ EFP Rotenberg, LLP

 

EFP Rotenberg, LLP

Rochester, New York

April 16, 2012

 

F-1

**WEBSAFETY, INC.**

**BALANCE SHEETS**

 

**As of**

 

**December 31, 2011**

**December 31, 2010**

**ASSETS**

 

 

 

 

 

 

 

*Current assets:*

 

 

 

 

 

Cash

$

-

$

26,168

 

Accounts receivable

 

-

 

150

 

 

*Total current assets*

 

-

 

26,318

 

 

 

 

 

*Property and Equipment:*

 

 

 

 

 

Computer equipment, computer software and furniture, net

 

9,450

 

12,429

 

Software license and website development, net

 

45,427

 

101,139

 

 

*Total property and equipment*

 

54,877

 

113,568

 

 

 

 

 

*Other Assets:*

 

 

 

 

 

Deposits

 

-

 

19,756

 

$

54,877

$

159,642

 

 

 

 

 

**LIABILITIES AND STOCKHOLDERS' (DEFICIT)**

 

 

 

 

 

 

 

 

 

*Current liabilities:*

 

 

 

 

 

Cash overdraft

$

700

$

-

 

Accounts payable

 

351,617

 

297,730

 

Accrued expense

 

109,538

 

24,010

 

Accrued Loss Contingency

 

400,000

 

-

 

Deferred revenue

 

-

 

3,587

 

Due to shareholders, net of discount

 

768,737

 

508,249

 

Loan payable, net of discount

 

170,540

 

110,833

 

Liability to issue shares

 

25,000

 

53,000

 

 

*Total current liabilities*

 

1,826,132

 

997,409

 

 

 

 

 

*Stockholders' deficit:*

 

 

 

 

 

Preferred stock; $.001 par value, 25,000,000 shares

 

 

 

 

 

authorized, 2,863,335 shares issued and

 

 

 

 

 

outstanding.

 

2,863

 

2,863

 

 

 

 

 

 

Common stock; $.001 par value, 300,000,000 shares

 

 

 

 

 

authorized, 87,689,938 and 70,313,828  shares issued and

 

 

 

 

 

outstanding.

 

87,691

 

70,314

 

 

 

 

 

 

Additional paid in capital

 

9,816,789

 

7,104,986

 

Deficit accumulated

 

(11,678,598)

 

(8,015,930)

 

 

*Total stockholders' deficit*

 

(1,771,255)

 

(837,767)

 

 

 

 

 

 

$

54,877

$

159,642

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

F-2

**WEBSAFETY, INC.**

**STATEMENTS OF OPERATIONS**

**For the years ended December 31, 2011 and 2010**

 

**December 31,**

 

**2011**

**2010**

 

 

 

 

 

 

 

 

 

 

*Revenue*

$

65,830

$

309,382

*Cost of goods sold*

 

(38,492)

 

(143,385)

*Gross margin*

 

27,338

 

165,997

 

 

 

 

 

*Operating expenses:*

 

 

 

 

 

General and administrative expenses

 

2,125,636

 

2,875,076

 

Impairment loss

 

-

 

1,881,877

 

Research & Development

 

-

 

2,500

 

Loss Contingency

 

400,000

 

-

 

Depreciation and amortization expense

 

58,688

 

762,872

 

***Total operating expenses***

 

2,584,324

 

5,522,325

 

 

 

 

 

 

***(Loss) from operations***

 

(2,556,986)

 

(5,356,328)

 

 

 

 

 

*Other income (expense):*

 

 

 

 

 

Interest expense

 

(1,105,682)

 

(87,345)

 

 

 

 

 

 

***(Loss) before provision for income taxes***

 

(3,662,668)

 

(5,443,673)

Provision for income taxes

 

-

 

-

 

 

 

 

 

 

**Net (loss)**

$

(3,662,668)

$

(5,443,673)

 

 

 

 

 

Basic and diluted loss per share

$

(0.047)

$

(0.078)

 

 

 

 

 

Basic and diluted weighted average

 

 

 

 

common shares outstanding

 

78,024,034

 

69,480,326

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

F-3

**WEBSAFETY, INC.**

**STATEMENTS OF STOCKHOLDERS' (DEFICIT)**

**For the years ended December 31, 2011 and 2010**

 

 

 

**Additional**

 

**Total**

 

**Preferred Stock**

**Common Stock**

**Paid-in**

**Accumulated**

**Stockholders'**

 

**Shares**

**Amount**

**Shares**

**Amount**

**Capital**

**(Deficit)**

**Equity (Deficit)**

 

 

 

 

 

 

 

 

**Balances December 31, 2009**

4,230,002

$

4,230

54,895,714

$

54,896

$

4,817,805

$

(2,572,257)

$

2,304,674

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for cash

 

 

 

 

 

 

 

 

 

 

 

 

 

January 6, 2010 one issuance at $0.45

 

 

 

100,000

$

100

 

44,900

 

 

 

45,000

 

January 27, 2010 one issuance at $0.043

 

 

 

1,600,000

$

1,600

 

68,400

 

 

 

70,000

 

March 9, 2010 one issuance at $0.05

 

 

 

400,000

$

400

 

19,600

 

 

 

20,000

 

March 9, 2010 one issuance at $0.045

 

 

 

33,333

$

33

 

14,967

 

 

 

15,000

 

March 9, 2010 one issuance at $0.045

 

 

 

23,000

$

23

 

10,327

 

 

 

10,350

 

April 5, 2010 one issuance at $0.45

 

 

 

26,500

$

27

 

11,898

 

 

 

11,925

 

April 5, 2010 one issuance at $0.45

 

 

 

155,400

$

155

 

69,775

 

 

 

69,930

 

April 5, 2010 one issuance at $0.45

 

 

 

22,222

$

22

 

9,978

 

 

 

10,000

 

June 2, 2010 one issuance at $0.45

 

 

 

50,000

$

50

 

22,450

 

 

 

22,500

 

June 18, 2010 one issuance at $0.45

 

 

 

534,192

$

534

 

239,852

 

 

 

240,386

 

August 6, 2010 one issuance at $0.45

 

 

 

47,223

$

47

 

21,203

 

 

 

21,250

 

September 7, 2010 one issuance at $0.25

 

 

 

124,446

$

124

 

30,987

 

 

 

31,111

 

September 15, 2010 one issuance at $0.25

 

 

 

100,000

$

100

 

24,900

 

 

 

25,000

 

September 22, 2010 one issuance at $0.45

 

 

 

55,740

$

56

 

25,027

 

 

 

25,083

 

October 27, 2010 one issuance at $0.20

 

 

 

100,000

$

100

 

19,900

 

 

 

20,000

 

October 29, 2010 one issuance at $0.25

 

 

 

50,000

$

50

 

12,450

 

 

 

12,500

 

November 16, 2010 two issuances at $0.25

 

 

 

100,000

$

100

 

24,900

 

 

 

25,000

 

December 28, 2010 Debt Conversion at $0.18

 

 

 

421,414

$

421

 

75,434

 

 

 

75,855

 

December 28, 2010 Debt Conversion at $0.10

 

 

 

545,000

$

545

 

53,955

 

 

 

54,500

 

 

 

 

 

 

 

 

 

 

 

 

-

Issuance of common stock for services

 

 

 

 

 

 

 

 

 

 

 

-

 

January 6, 2010 one issuance at $0.04

 

 

 

100,000

$

100

 

3,900

 

 

 

4,000

 

January 6, 2010 one issuance at $0.04

 

 

 

200,000

$

200

 

7,800

 

 

 

8,000

 

January 6, 2010 one issuance at $0.04

 

 

 

28,000

$

28

 

1,092

 

 

 

1,120

 

March 17, 2010 one issuance at $0.025

 

 

 

7,000,000

$

7,000

 

168,000

 

 

 

175,000

 

June 2, 2010 one issuance at $0.45

 

 

 

15,000

$

15

 

6,735

 

 

 

6,750

 

June 2, 2010 one issuance at $0.45

 

 

 

4,522

$

5

 

2,030

 

 

 

2,035

 

June 2, 2010 one issuance at $0.45

 

 

 

55,555

$

56

 

24,944

 

 

 

25,000

 

June 18, 2010 one issuance at $0.45

 

 

 

200,000

$

200

 

89,800

 

 

 

90,000

 

August 6, 2010 one issuance at $0.45

 

 

 

25,000

$

25

 

975

 

 

 

1,000

 

August 6, 2010 one issuance at $0.45

 

 

 

100,000

$

100

 

44,900

 

 

 

45,000

 

September 15, 2010 one issuance at $0.25

 

 

 

135,000

$

135

 

33,615

 

 

 

33,750

 

September 15, 2010 one issuance at $0.40

 

 

 

125,000

$

125

 

49,875

 

 

 

50,000

 

September 15, 2010 one issuance at $0.45

 

 

 

42,500

$

43

 

19,082

 

 

 

19,125

 

September 22, 2010 one issuance at $0.45

 

 

 

10,068

$

10

 

4,523

 

 

 

4,533

 

September 22, 2010 one issuance at $0.25

 

 

 

550,000

$

550

 

136,950

 

 

 

137,500

 

October 27, 2010 three issuances at $0.25

 

 

 

340,000

$

340

 

84,660

 

 

 

85,000

 

October 1, 2010 three issuances at $0.25

 

 

 

100,000

$

100

 

24,900

 

 

 

25,000

 

 

 

 

 

 

 

 

 

 

 

 

-

Stock Compensation Expense

 

 

 

 

 

 

 

515,641

 

 

 

515,641

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of preferred shares to common shares at 1.25 to 1

(1,366,667)

 

(1,367)

1,708,334

$

1,708

 

(341)

 

 

 

-

Issuance of common stock to adjust issue price

 

 

 

11,111

$

11

 

4,989

 

 

 

5,000

Issuance of common stock to adjust issue price

 

 

 

179,554

$

180

 

44,709

 

 

 

44,889

Beneficial Conversion Feature of Promissory Note

 

 

 

 

 

 

 

217,500

 

 

 

217,500

Net loss for the period ended December 31, 2010

 

 

 

 

 

 

 

 

 

(5,443,673)

 

(5,443,673)

 

 

 

 

 

 

 

 

 

 

 

 

 

**Balances December 31, 2010**

2,863,335

$

2,863

70,313,828

$

70,314

$

7,104,986

$

(8,015,930)

$

(837,767)

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for cash

 

 

 

 

 

 

 

 

 

 

 

 

 

March 4, 2011 six issuances at $0.10

 

 

 

1,025,000

$

1,025

 

101,475

 

 

 

102,500

 

April 27, 2011 two issuances at $0.10

 

 

 

475,000

$

475

 

47,025

 

 

 

47,500

 

May 24, 2011 seven issuances at $0.10

 

 

 

2,700,000

$

2,700

 

267,300

 

 

 

270,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for services

 

 

 

 

 

 

 

 

 

 

 

 

 

January 13, 2011 one issuance at $0.25

 

 

 

40,000

$

40

 

9,960

 

 

 

10,000

 

January 31, 2011 one issuance at $0.25

 

 

 

200,000

$

200

 

49,800

 

 

 

50,000

 

February 11, 2011 one issuance at $0.25

 

 

 

200,000

$

200

 

49,800

 

 

 

50,000

 

March 1, 2011 one issuance at $0.25

 

 

 

40,000

$

40

 

9,960

 

 

 

10,000

 

April 27, 2011 one issuance at $0.13

 

 

 

15,000

$

15

 

1,985

 

 

 

2,000

 

May 24, 2011 four issuances at $0.10

 

 

 

242,500

$

243

 

24,007

 

 

 

24,250

 

August 4, 2011 one issuance at $0.04

 

 

 

250,000

$

250

 

9,750

 

 

 

10,000

 

August 4, 2011 one issuance at $0.03

 

 

 

416,666

$

417

 

12,083

 

 

 

12,500

 

August 10, 2011 one issuance at $0.03

 

 

 

1,193,734

$

1,194

 

23,806

 

 

 

25,000

Conversion of notes to common stock

 

 

 

10,253,210

$

10,253

 

217,247

 

 

 

227,500

Issuance of common stock to adjust issue price (see note 6)

 

 

 

325,000

$

325

 

(325)

 

 

 

-

Stock Compensation Expense

 

 

 

 

 

 

 

902,820

 

 

 

902,820

Beneficial Conversion Feature of Promissory Note

 

 

 

 

 

 

 

985,110

 

 

 

985,110

Net loss for the period ended December 31, 2011

 

 

 

 

 

 

 

 

 

(3,662,668)

 

(3,662,668)

 

 

 

 

 

 

 

 

 

 

 

 

 

**Balances December 31, 2011**

2,863,335

$

2,863

87,689,938

$

87,691

$

9,816,789

$

(11,678,598)

$

(1,771,255)

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

F-4

**WEBSAFETY, INC.**

**STATEMENTS OF CASH FLOWS**

**For the years ended December 31, 2011 and 2010**

 

**December 31,**

 

**2011**

**2010**

Operating activities:

 

 

 

 

Net loss

$

(3,662,668)

$

(5,443,673)

Adjustments to reconcile net loss to

 

 

 

 

net cash used in operating activities:

 

 

 

 

 

Depreciation and amortization expense

 

58,688

 

762,872

 

Amortization of beneficial conversion

 

1,105,682

 

-

 

Stock compensation expense

 

902,820

 

515,641

 

Stock issued for services - Non-cash

 

193,750

 

712,811

 

Impairment charge for Websafety Technology

 

-

 

1,881,877

Changes in operating assets and liabilities:

 

 

 

 

 

Decrease in accounts receivable

 

150

 

17,021

 

Decrease (increase) in deposit

 

19,756

 

(12,936)

 

Increase  in accounts payable

 

53,887

 

145,371

 

Increase in loss contingency

 

400,000

 

-

 

Decrease in lease payable

 

-

 

-

 

Decrease  in deferred revenue

 

(3,587)

 

(111,153)

 

Increase (decrease) in accrued expense

 

85,528

 

10,142

 

***Net cash (used in) operating activities***

 

(845,994)

 

(1,522,027)

 

 

 

 

 

Investing activities:

 

 

 

 

 

Purchase of long term assets

 

-

 

(17,921)

 

 

 

 

 

Financing activities:

 

 

 

 

 

Increase in cash overdraft

 

700

 

-

 

Decrease in Liability to Issue Shares

 

(28,000)

 

(50,120)

 

Proceeds from borrowing

 

183,000

 

328,333

 

Proceeds of advances from shareholders

 

244,126

 

426,875

 

Proceeds from sale of common stock

 

420,000

 

855,280

 

***Net cash provided by financing activities***

 

819,826

 

1,560,368

 

 

 

 

 

Net changes in cash

 

(26,168)

 

20,420

 

 

 

 

 

Cash, beginning of year

 

26,168

 

5,748

 

 

 

 

 

Cash, end of period

$

-

$

26,168

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest paid

 

-

 

-

 

Tax paid

 

-

 

-

 

 

 

 

 

Non Cash Investing and Financing Activities:

 

 

 

 

 

Conversion of notes to common stock

$

227,500

$

-

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

F-5

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**December 31, 2011**

**Note 1.  Nature of Business and Summary of Significant Accounting Policies**

*Nature of business and organization*

Websafety, Inc., a Nevada corporation, (hereinafter referred to as the “Company”) was incorporated in the State of Nevada on July 3, 2006.  The Company from inception through June 2008 had been in the business of offering live promotions and marketing events.

 In June 2008 a majority ownership change was made and the business emphasis was shifted to the marketing and sales through the internet of software and services that allow parents or other caregivers to monitor and be notified of occurrences of predator advances, cyber bullying and pornography. 

On June 20, 2008, the Company issued 13,200,000 shares of its common stock to Texas Atlantic Capital Partners, LLC, (“Texas Atlantic”).  The issuance of these shares represented approximately 62% of the then outstanding stock. The issuance resulted in a change of control and met the definition of a business combination under paragraph 9, of Statement of Financial Accounting Standards No 141, Business Combinations (FAS 141).  Concurrent with the issuance of the shares to Texas Atlantic, the shareholders elected to cancel certain shares in order to effect the desired post change in control ownership ratio.

The business combination was accounted for under the purchase method of accounting followed by a recapitalization of the Company. The issuance of the 13,200,000 shares and the cancellation of the 35,500,000 shares of common stock was retroactively presented in the statements of stockholders’ (deficit) as if the transaction with Texas Atlantic had occurred as of the earliest period presented (See Note 7). 

On June 30, 2008, the Company entered into a License Agreement (“License”) with WQN, Inc., a Texas corporation (“WQN”), which, in consideration for the sum of $300,000 granted the Company the right to market and sell WQN’s Websafety software products.

On July 2, 2009 the Company entered into an asset acquisition agreement with WQN, Inc. Under the agreement, the Company acquired all of the technology known as Websafety Technology for 27,000,000 shares of our common stock. Consequently, the Company no longer has any royalty commitments to WQN under the June 30, 2008 license agreement. As of April 5, 2012, the 27,000,000 common shares owned directly by WQN, Inc. represents approximately 30.8% of our 87,689,938 shares of outstanding common stock.  

*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-6

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**December 31, 2011**

*Cash and cash equivalents- concentration of risk*

Cash and cash equivalents include interest bearing and non-interest bearing bank deposits, money market accounts, and short-term instruments with a liquidation provision of three months or less.

 

The Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation (FDIC).  This government corporation insures balances up to $250,000 per depositor through December 31, 2013.

*Commitments and Contingencies*

 

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur.  The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.  In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements.  If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

*Income taxes*

The Company accounts for its income taxes in accordance with FASB Accounting Standards Codification (“ASC”) 740, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and tax credit carry forwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes.  Significant components of the Company’s deferred tax liabilities and assets as of December 31, 2011 are as follows:

Deferred tax assets:

 

 

 

Accumulated net operating loss

 

$

11,678,598

 

Income tax rate

 

 

34%

 

 

 

 

3,970,732

 

Less valuation allowance

 

 

(3,970,732)

 

     Net

 

$

-

 

F-7

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**December 31, 2011**

Through December 31, 2011, a valuation allowance has been recorded to offset the deferred tax assets, including those related to the net operating losses.  At December 31, 2011, the Company had approximately $10,501,830 of federal and state net accumulated operating losses.  The net operating loss carry forwards, if not utilized will begin to expire in 2026. The utilization of these losses for tax purposes will be limited due to the operation of Internal Revenue Code Section 382 which restricts the utilization of net operating loss carry forwards is circumstances where there is a more than 51% change of control in a company.

Reconciliations of the U.S. federal statutory rate to the actual tax rate for the years ended December 31, 2011 and 2010 are as follows:

 

 

**2011**

 

**2010**

 

Federal statutory income tax rate

 

 

34.0%

 

 

34.0%

 

State tax net of federal benefit

 

 

0.0%

 

 

0.0%

 

 

 

 

34.0%

 

 

34.0%

 

Increase in valuation allowance

 

 

(34.0)%

 

 

(34.0)%

 

 

 

 

 

 

 

 

 

     Effective tax rate

 

 

0.0%

 

 

0.0%

 

In accordance with FASB ASC-740-10, the Company has evaluated tax positions taken in the financial statements. Because of the significant net operating losses sustained, management does not believe that the Company has any uncertain federal of state tax position uncertainties at December 31, 2011.

*Net loss per common share*

The Company computes net loss per share in accordance with FASB ASC 260-10.  Under the provisions of ASC 260-10, basic net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period.  The calculation of diluted net loss per share gives effect to common stock equivalents; however, potential common shares are excluded if their effect is anti-dilutive.

*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 fair value of the Company’s financial instruments is determined by using available market information and appropriate valuation methodologies in accordance with FASB ASC 820. The Company’s principal financial instruments are cash, accounts receivable and accounts payable. At December 31, 2011, cash, accounts receivable, and accounts payable, due to their short maturities, and liquidity, are carried at amounts which reasonably approximate fair value.

F-8

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**December 31, 2011**

*Revenue recognition*

In October of 2009 the Company began recognizing revenue from the sales of Websafety products.  Websafety is a comprehensive software package that gives parents the capability to monitor and protect children against potentially dangerous emergency situations or threatening.  Customers pay for a monthly subscription to the Websafety service. 

The Company recognizes software license revenue under ASC 985-605 and related interpretations. 

*Accounts receivable and billing*

The Company conducts sales primarily through the Internet utilizing merchant services for the processing of customer credit card or other electronic means of paying. Merchant bank transactions normally settle within two to three days.  As of December 31, 2011, no credit has been extended to “on account” customers.  Because all sales have been booked via credit card, management does not deem it necessary to record a receivable allowance at December 31, 2011.  We expect trade receivables to increase over time as our daily sales activity also increases.

*Property and equipment*

Property and equipment consisted primarily of web site development costs, software licensing fees, computer software and equipment, and furniture and fixtures. Property and equipment are stated at their historical cost net of accumulated deprecation and amortization. Depreciation on furniture, fixtures and computer equipment is computed using the 200% DB method over the lesser of the estimated useful life and the actual life of the related asset.  Amortization on software license and website development is computed using the straight-line method over the lesser of the estimated useful life and the actual life of the related asset. Expenditures relating to maintenance, repairs and renewals of minor items are expensed as incurred. 

The estimated useful lives are as follows:

Software License

5 Years

Web Site Development

3 Years

Computer Equipment

5 Years

Furniture and Fixtures

7 Years

*Web Site Development Costs:*

The Company has incurred internal web site development costs during the development, implementation and operational stages. Specific activities include coordination of design, engineering, initial integration and design modifications, script writing, web site designs and revisions, application site designs, pre-video production build/test flash prototype for oversize video browser scaling, eCommerce engine, etc. These costs were expensed or capitalized in accordance with FASB ASC 350-40 and FASB ASC 350-50 ("Accounting for Web Site Development Costs"). 

F-9

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**December 31, 2011**

*Websafety Technology:*

On July 2, 2009, the Company entered into an agreement with WQN, Inc. to acquire the software technology, known as “Websafety”. The Company capitalizes software development costs when technological feasibility has been established for the software in accordance with ASC 985-20, “Accounting for the Costs of Computer Software to be sold, leased, or otherwise marketed.” Such capitalized costs are amortized on a product-by-product basis over their economic life or the ratio of current revenues to current anticipated revenues from such software, whichever provides the greater amortization. The Company periodically reviews the carrying value of capitalized software development costs and impairments are recognized in the results of operations when the expected future undiscounted operating cash flow derived from the capitalized software is less than its carrying value. The Company uses what it believes are reasonable assumptions and where applicable, established valuation techniques in making its estimates. 

*Long-Lived Assets*

FASB ASC 360-10, requires that we evaluate our long-lived assets for financial impairment on a regular basis.  We evaluate the recoverability of long-lived assets not held for sale by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with them.  Such evaluations are performed when circumstances warrant an assessment. If such evaluations indicate that the future discounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values.  There was an impairment of $1,881,877 at December 31, 2010 which pertained to the Websafety Technology asset that management deemed will not provide any future benefit.  

*Stock Based Compensation*

We follow the provisions of 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.

We account for non-employee share-based awards in accordance with FASB ASC 505-50.

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 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 or services received are greater than the value of the underlying transactions.

*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-10

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**December 31, 2011**

*Reclassifications*

Certain prior year amounts have been reclassified to conform to the current year presentation.

**Note 2.  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 incurred cumulative net losses of approximately $11,678,598 through December 31, 2011 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 2011 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.

**Note 3. Concentration of Credit Risk**

For the years ended December 31, 2011 and 2010 the Company had only $65,830 and $309,382 in revenues, respectively.  A concentration of credit risks exist due to the fact that the Company has a limited number of both customers and vendors.  If a number of customers or vendors decided to take their business elsewhere, the Company’s losses could increase significantly.  As of December 31, 2011, no credit has been extended to “on account” customers.  Because all sales have been booked via credit card, management does not deem it necessary to record a receivable allowance at December 31, 2011.

**Note 4.  Property and Equipment**

Property and equipment consist of the following at December 31, 2011 and 2010:

 

2011

2010

 

 

 

Property and Equipment

 

 

Equipment

$    16,689

$    16,689

Software

167,910

167,910

Total property and equipment before accumulated depreciation

184,599

184,599

 

 

 

Less accumulated depreciation

(129,719)

(71,031)

Total property and equipment

$     54,880

$   113,568

Depreciation expense for fiscal 2011 and 2010 totaled $58,688 and $57,169, respectively.

F-11

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**December 31, 2011**

The Company has 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 capitalized in accordance with FASB ASC 350-50.

**Note 5.  Intangible Asset**

As a result of the Websafety Technology asset purchase, the Company gained all rights of ownership to the intellectual property of Websafety Technology.  The Company invested an additional $122,815 to develop technology to complete the project.  On October 1, 2009, the Company deemed the technology ready to be sold and used by the general public.  The Company recorded the Intangible Asset in the amount of $2,822,815 and decided to amortize the asset over a 36 month period.

Intangible assets

**2011**

**2010**

Websafety Technology

$           -

$2,822,815

Total intangible assets before accumulated amortization

-

2,822,815

 

 

 

Less accumulated amortization

-

940,938

Total intangible assets before impairment

$          -

$1,881,877

 

 

 

Less intangible impairment

-

1,881,877

Total intangible assets

$          -

$0

Amortization expense for fiscal 2011 and 2010 totaled $0 and $705,703, respectively.

In accordance with ASC 360-10-35 a long-lived asset shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.  Due to the Company’s inability to meet cash flow projections established on the date the technology was acquired, management decided to impair the asset fully and to took a loss of $1,881,877 at December 31, 2010. 

**Note 6. Loan Payable**

·

$100,000 loan received September 22, 2010 due March 22, 2011 including interest at 5%.  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 $0.10 per share. As of December 31, 2011, this note was converted to shares of common stock.

·

$80,000 loan received October 8, 2010 due July 11, 2011 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 December 31, 2011, this note was converted to shares of common stock.

F-12

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**December 31, 2011**

·

$37,500 loan received November 29, 2010 due September 1, 2011 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 December 31, 2011, this note was converted to shares of common stock.

·

$42,500 loan received February 9, 2011 due November 11, 2011 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 December 31, 2011, $10,000 of this note had been converted to common stock. The balance was in default at December 31, 2011 and subsequent to that date converted to common stock.

·

$53,000 loan received April 21, 2011 due January 25, 2012 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 December 31, 2011, no portion of this note had been converted to common stock. Subsequent to year end the balance was converted to common stock.

·

$37,500 loan received May 23, 2011 due February 27, 2012 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 December 31, 2011, no portion of this note had been converted to common stock. Subsequent to year end the balance was converted to common stock.

·

$50,000 loan received June 23, 2011 due December 22, 2011 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 December 31, 2011, no portion of this note had been converted to common stock. The balance was in default at December 31, 2011 and subsequent to that date converted to common stock.

Each loan above has a right to convert to common stock.  During the year ended December 31, 2011, a total of $227,500 of the above mentioned loans 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 each of our third party and our outstanding shareholder loans.  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. The debt discount has been amortized as interest expense and the remainder, $55,352, will be amortized straight line over the remaining life of the corresponding note. For the year ended December 31, 2011 and 2010, amortization of the beneficial conversion feature, recorded as interest expense, was $1,0766,623 and $80,833, respectively.

F-13

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**December 31, 2011**

**Note 7.  Stock Issuances**

During the year ended December 31, 2011 we had the following common stock issuances. 

Date

Number of Shares

Value

January 2011

240,000

$60,000

February 2011

200,000

50,000

March 2011

1,390,000

112,500

April 2011

490,000

49,500

May 2011

6,384,531

489,250

July 2011

1,612,903

10,000

August 2011

1,860,400

47,860

September 2011

1,750,000

12,500

December 2011

3,448,276

10,000

Total Common Issuances

17,376,110

$841,620

In addition to the common stock issued above we also recorded $25,000 as a liability to issue shares at December 31, 2011 and will be issued in the first quarter of 2012.   

In connection with the Company’s subscription agreement, subscribers also receive warrants to purchase additional shares of the Company’s common stock at the established exercise price. The following table displays warrants issued in connection with subscriptions for the year ended December 31, 2011:

**Date of Grant**

**Warrants Granted**

**Exercise**

**Price**

**Warrants Outstanding**

**as of 12/31/2011**

**Expiration**

**Date**

January 2011

4,050,000

$0.15-0.21

4,050,000

January 2012

February 2011

1,350,000

$0.20

1,350,000

February 2012

March 2011

725,000

$.20

725,000

March 2012

April 2011

500,000

$.20

100,000

April 2012

May 2011

-

-

-

 

June 2011

-

-

-

 

July 2011

-

-

-

 

August 2011

-

-

-

 

September 2011

-

-

-

 

October 2011

-

-

-

 

November 2011

-

-

-

 

December 2011

-

-

-

 

Total

6,625,000

 

6,625,000

 

**Note 8.  Related Party Transactions**

Amounts owed to related parties were for expenses personally incurred and for services received from the related parties. The services that were provided are outlined below.

F-14

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**December 31, 2011**

*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 year ended December 31, 2011, the Company owed to related parties $824,610 for consulting, legal and accrued interest as reflected below. 

 

**Consulting,**

**legal and**

**administrative**

**Loan**

**Accounting**

**Services**

**Total**

Rowland W. Day II

$532,784

$237,352

 

$770,136

Bryan Fowler

 

$43,173

 

$43,173

John Williams

 

 

$8,289

$8,289

 

$532,784

$283,537

$8,289

**$821,598**

Rowland W. Day II is our CEO, CFO and Chairman of the Board.  Bryan Fowler is our technology consultant.  John Williams was the former contract Treasurer and CFO of the Company.

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 December 31, 2011, no portion of this note was converted to shares of common stock. $150,000 was converted subsequent to year end.

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 $0.005 per share. As of December 31, 2011, 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 $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 $0.005 per share. As of December 31, 2011, 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 $0.005 per share. As of December 31, 2011, 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 $43,173 including interest of 5% due to Bryan Fowler due March 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 $0.005 per share. As of December 31, 2011, no portion of this note was converted to shares of common stock.

F-15

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**December 31, 2011**

**Note 9. 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.

The Company vacated the rental facility in September 2011 and is currently in default under the lease.  As result of falling into default pursuant to the terms of the lease agreement, the Company has expensed the security deposit of $19,756.

The landlord filed a lawsuit against the Company on November 8, 2011 for the unpaid and future lease payments of approximately $400,000.  The Company is in discussions with representatives of the landlord.  The Company has accrued under Loss Contingency, $400,000 related to the unpaid and future lease payments.

**Note 10. Sales and Marketing Program**

In July 2010 we entered into a sales and marketing agreement with Manage Mobility.  Manage Mobility manages Telecom services for corporations and municipalities and intends to market our products to their clients.

In October 2010 we entered into an agreement with AAA of Northwest Ohio.  AAA of Northwest Ohio offers auto related products and services to their members.  AAA of Northwest Ohio began to market our software to its members in the third quarter of 2011 and then suspended its marketing efforts in the fourth quarter of 2011.

Management has developed direct selling, multi-level-marketing channels for the sales of the Websafety PC and Cellular products. This channel allows the sales of our services through a person-to-person transaction, away from a fixed retail location. All of the individuals offering our services are independent salespeople.

**Note 11. Legal Proceedings**

The Company vacated the rental facility in September 2011 and is currently in default under the lease.  As result of falling into default pursuant to the terms of the lease agreement, the Company has expensed the security deposit of $19,756.

The landlord filed a lawsuit against the Company on November 8, 2011 for the unpaid and future lease payments of approximately $400,000.  The Company is in discussions with representatives of the landlord.  The Company has accrued under Loss Contingency, $400,000 related to the unpaid and future lease payments.

F-16

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**December 31, 2011**

**Note 12. Private Placement Agreement**

On February 8, 2010 Litchfield Enterprises, Inc. signed a non-exclusive consulting agreement with the Company to assist with a private placement of the Company’s stock. Per this agreement, Litchfield Enterprises, Inc. will on a “best effort” basis, seek to raise one million one hundred and twenty-five thousand dollars ($1,125,000) by selling 2,500,000 shares at $.45 per share.  Also, under the private placement agreement, the Company granted Litchfield Enterprises, Inc. one (1) warrant exercisable at $.80 per share for each share of their private placement placed.  These warrants will be valid for one (1) year from the date of issuance.  As of December 31, 2010, we issued 800,000 shares of common stock to Litchfield and their investors along with 600,000 warrants.

On September 11, 2010 Wakabayashi Fund, LLC signed a non-exclusive consulting agreement with the Company to act as a capital consultant for a six month period..  Under the private placement agreement, the Company agrees to pay Wakabayashi a success fee of seven percent (7%), inclusive of all fees, in cash of the amount of capital raised as a result of contact by Wakabayashi.  There has been no measurable activity undertaken by Wakabayashi Fund, LLC to raise capital for the Company.

On August 6, 2010, the Company retained Aegis Capital as an exclusive placement agent to raise a minimum of $1,350,000 and    a maximum of $5,400,000 of capital for the Company; on September 20, 2010 the Company and Aegis Capital agreed to mutually terminate the exclusive placement agent.

**Note 13. 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.

F-17

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**December 31, 2011**

In September 2009, 700,000 stock options with an exercise prices ranging from of $0.10 to $0.35 were granted to officers of the Company which vest as follows: 20% at the conclusion of each 12 month period from the 5 year term.  These options carry a grant expiration date of 5 years after issuance.  In January 2010, 1,400,000 stock options with exercise prices of $0.025 were granted to an officer and a board member of the Company which vest monthly over a 36 month term.  These options carry a grant expiration date of 3 years after issuance.  In February 2011, 2,000,000 stock options with exercise price of $.10 were granted to an officer of the Company which vest monthly over a 12 month term.  These options carry a grant expiration date of 1 year after issuance.  In February 2011, 330,000 stock options with exercise price of $0.10 were granted to employees of the Company which vest monthly over a 48 month term.  These options carry a grant expiration date of 4 years after issuance. As of December 31, 2011, approximately 3,034,798 stock options had vested of which 2,427,798 vested in fiscal 2011. 

For the years ended December 31, 2011 and 2010, the Company recorded compensation costs for options and shares granted under the plan amounting to $902,820 and $515,641, respectively.  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.  

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 weighted-average assumptions were utilized in the fair value calculations for options granted in fiscal 2011:

 

**Year ended**

 

**December 31, 2011**

 

 

Exercise Price

**$.25**

Expected dividend yield

**0 %**

Expected stock price volatility

**276.94%**

Risk-free interest rate

**.28 - 1.29%**

F-18

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**December 31, 2011**

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

 

 

 

**Number**

 

 

 

 

 

 

 

 

 

 

 

 

**of Shares**

 

 

 

 

 

**Weighted**

 

 

 

 

 

 

**Remaining**

 

 

**Exercise**

 

 

**Average**

 

 

**Aggregate**

 

**Subject to Exercise**

 

**Options**

 

 

**Price**

 

 

**Life (Years)**

 

 

**Value**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Outstanding as of January 1, 2010**

 

 

**700,000**

 

 

$

.14

 

 

5.00

 

$

150,000

 

Granted - 2010

 

 

**1,400,000**

 

 

$

.025

 

 

 

5.00

 

$

1,365,000

 

Forfeited - 2010

 

 

**-**

 

 

$

 

 

 

 

-

 

 

-

 

Exercised - 2010

 

 

**-**

 

 

$

-

 

 

 

-

 

 

-

 

Outstanding as of December 31, 2010

 

 

**2,100,000**

 

 

 

.06

 

 

 

5.00

 

$

1,515,000

 

Granted - 2011

 

 

**2,330,000**

 

 

$

.10

 

 

 

1.28

 

 

429,420

 

Forfeited - 2011

 

 

**(440,000)**

 

 

$

.01

 

 

 

5.00

 

 

(24,056)

 

Exercised - 2011

 

 

**-**

 

 

$

-

 

 

 

-

 

 

-

 

**Outstanding as of December 31, 2011**

 

 

**3,990,000**

 

 

$

.08

 

 

 

3.04

 

$

1,920,364

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Exercisable as of December 31, 2011**

 

 

**3,034,798**

 

 

$

-

 

 

 

-

 

$

-

 

The weighted-average grant date fair value of options outstanding at December 31, 2011 was $0.438. There were no options exercised as of December 31, 2011 and 440,000 options were forfeited. Options issued and outstanding have exercise price ranging from $.10 to $.35.

The following table summarized the status of the Company aggregate non-vested shares granted under the 2008 Stock Option Plan for the year ended December 31, 2011:

 

 

**Number of**

**Non-**

**vested**

**Shares**

**Subject to**

**Options**

 

 

**Weighted-**

**Average**

**Grant-**

**Date**

**Fair Value**

 

**Non-vested as of December 31, 2010**

 

 

**1,493,000**

 

 

$

**.721**

 

Non-vested granted - year ended December 31, 2011

 

 

**2,330,000**

 

 

$

 

 

Vested - year ended December 31, 2011

 

 

**(2,427,798)**

 

 

$

**-**

 

Forfeited - year ended December 31, 2011

 

 

**(440,000)**

 

 

$

 

 

**Non-vested as of December 31, 2011**

 

 

**955,202**

 

 

$

**.74**

 

As of December 31, 2011 the unrecognized compensation cost related to non-vested share based compensation arrangements granted under the plan that was approximately $709,076.  These costs will be recognized on a straight line basis over the remaining vesting life which currently extends to January 08, 2015.  

F-19

**WEBSAFETY, INC.**

**NOTES TO THE FINANCIAL STATEMENTS**

**December 31, 2011**

**Note 14. Subsequent Events**

On April 12, 2012, the Company will amend its Articles of Incorporation to increase its authorized common shares to 700,000,000.  The amendment was approved by a majority of the shareholders holding approximately 53.49% of the outstanding voting securities.

F-20

**ITEM 9.  *Changes in and Disagreements with Accountants on Accounting and Financial Disclosure***

None.

**ITEM 9A. Disclosure *Controls and Procedures***

Our management with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act for the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, our principal executive officer and principal financial officer have concluded that these controls and procedures were ineffective at December 31, 2011, including those to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, and is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.

**Report of Management 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 December 31, 2011. 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. 

 

Based on this assessment, management has concluded that as of December 31, 2011, 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 the small number of employees with responsibility for general administrative and financial matters and lack of expertise to identify and assess unusual or complex accounting transactions. These constitute  deficiencies in financial reporting. We therefore conclude that our internal control over financial reporting were ineffective as of and for the year ended December 31, 2011. At this time, management has decided that considering the employees 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. For unusual or complex accounting transactions we will bring in an outside consultant to assess these transactions.  Management will periodically reevaluate this situation. If the volume of business 

12

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. 

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to final rulings of the SEC that permit us to provide only management’s report in this annual report.

**Changes in Internal Controls**

We have evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, that there have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting. Inherent limitations exist in any system of control including the possibility of human error and the potential of overriding controls. The effectiveness of an internal control system may also be affected by changes in conditions.

**ITEM 9B.  *OTHER INFORMATION***

None.

 

 

 

13

**PART III**

**ITEM 10.  *DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE***

**Directors and Executive Officers**

Our current officers and directors are listed below.  Each of our directors will serve for one year or until their respective successors are elected and qualified.  Our officers serve at the pleasure of the board of directors.

**Name**

**Age**

**Position**

**Start of Term**

Rowland W. Day II

56

CEO, CFO, Chairman of the Board

February 25, 2008

 

 

 

 

Jaimie Day

54

Director

March 15, 2012

 

 

 

 

Melinda Day

52

Director

March 15, 2012

 

 

 

 

Denton Jones

60

Director

July 21, 2008

 

 

 

 

B Michael Adler

65

Director

July 2, 2009

***Rowland W. Day II, 56 years of age, Chief Executive Office, Chief Financial Officer and Chairman of the Board.***

Mr. Day is a business corporate lawyer and has practiced law since 1983.  Mr. Day is currently a director of RE3W WorldWide and Restaurants on the Run.  Mr. Day was the sole director of Promotions on Wheels Holdings, Inc. when the change of control occurred with Texas Atlantic Partners and the license was acquired from WQN, Inc. in April 2008.

***Jaimie D. Day, 54 years of age, Director.***

Mrs. Day has been an interior designer for over 30 years and is a homemaker.  She is the wife of Rowland W. Day II, the Company’s CEO and Director.

14

***Melinda Day, 52 years of age, Director.***

From 2011 to the present, Ms. Day has been the Finance Data Entry Manager for the Boy Scouts of America, Orange County Council.  Prior to 2011, for approximately 25 years, Ms. Day had been a volunteer worker for the Boy Scouts of America at the Orange County Council.  Ms. Day is the sister of Rowland W. Day II, the Company’s CEO and Director.

***Denton Jones, 60 years of age, Director.***

Mr. Jones has been a private investor for over 30 years.  He is the manager of Texas Atlantic Partners, LLC, the holder of 11,800,000 shares of common stock.  Mr. Jones is a director of WQN, Inc.  Mr. Jones requested that he become a director at the time Texas Atlantic Partner became the largest shareholder of the Company in April 2008.

***B Michael Adler, 65 years of age, Director***

Mr. Adler is founder of two public companies - Intellicall, Inc. and World Quest Networks, Inc. that have been pioneers in emerging telecommunications and internet technologies.  Mr. Adler has been awarded ten United States patents that have been integral to telecommunications (answer supervision and automated collect used by MCI) and the Internet (click-to-talk used by Google).  Mr. Adler is a director of WQN, Inc. and is its CEO and required that in connection with the acquisition of the WQN, Inc. asset by the Company that he become a director.

***Family Relationships***

 

Jaimie Day is the wife of our CEO and Chairman, Rowland W. Day II.  Melinda Day is the sister of our CEO and Chairman of the Board, Rowland W. Day II.

***Legal Proceedings***

There have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees, including judgments finding violations of any federal or state securities or commodities law, material to the evaluation of the ability and integrity of any of our directors, executive officers, promoters or control persons during the past five years.

**ITEM 11.  *EXECUTIVE COMPENSATION***

Our Chief Executive Officer/Chief Financial Officer are paid on an as-billed basis at the rate of $250 per hour.  A promissory note is issued at the end of each quarter for the amount of services expended on behalf of the Company.  No compensation of cash or equity has been paid or granted for the services of our directors.

**ITEM 12.** ***SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS***

The following table sets forth the securities ownership of our directors, named executive officers, and any person or group who is known to us to be the beneficial owner of more than five percent of our voting stock as of April 5, 2012:

15

**Title of Class**

 

**Name and Address of Beneficial Owner1**

 

**Amount and Nature**

**of Beneficial Owner1**

 

 

**Percent of**

**class**

** **

Common Stock

 

Rowland W. Day II1

 

 

40,000,000

 

 

 

13.76

 

Common Stock

 

Denton Jones2

 

 

11,800,000

 

 

 

4.06

%

Common Stock

 

B Michael Adler3

 

 

27,000,000

 

 

 

9.29

%

 

 

Jaimie Day1

 

 

 

 

 

 

 

 

 

 

Melinda Day1

 

 

 

 

 

 

 

 

Common Stock

 

All directors and executive officers as a group (3 persons)

 

 

78,800,000

 

 

 

27.11

%

1  Applicable percentage ownership is based on 290,653,406 shares of total voting stock outstanding at April 5, 2011.  The number of shares of voting stock owned are those “beneficially owned” as determined under the rules of the SEC, including any shares of voting stock as to which a person has sole or shared voting or investment power and any shares of voting stock which the person has the right to acquire within sixty days through the exercise of any option, warrant or right.  All addresses for Mr. and Mrs. Day and Ms. Day are c/o 1 Hampshire Court, Newport Beach, CA 92660.

2  Includes 11,800,000 shares owned by Texas Atlantic Capital Partners.  Mr. Jones is the Managing Member of Texas Atlantic Capital Partners.

3  Includes 27,000,000 shares owned by WQN, Inc.  Mr. Adler is the CEO of WQN, Inc. and a director.

 

Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all Shares beneficially owned by them.  A person is deemed to be the beneficial owner of securities which may be acquired by such person within sixty days from the date on which beneficial ownership is to be determined, upon the exercise of options, warrants or convertible securities.  Each beneficial owner’s percentage ownership is determined by assuming that options, warrants and convertible securities that are held by such person (but not those held by any other person) and which are exercisable, convertible or exchangeable within such sixty day period, have been so exercised, converted or exchanged.

**ITEM 13.  *CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
**Transactions with Related Persons**

In the aggregate, during the year ended December 31, 2011, the Company owed to related parties $824,610 for consulting, legal and accrued interest as reflected below. 

 

**Consulting, legal****and**

**administrative**

**Loan**

**Accounting Services**

**Total**

Rowland W. Day II

$532,784

$237,352

 

$770,136

Bryan Fowler

 

$46,185

 

$46,185

John Williams

 

 

$8,289

$8,289

 

$532,784

$283,537

$8,289

**$824,610**

Rowland W. Day II is our CEO, CFO and Chairman of the Board.  Bryan Fowler is our technology consultant.  John Williams was the former contract Treasurer and CFO of the Company.

16

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.  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 December 31, 2011, no portion of this note was converted to shares of common stock.

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.  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 December 31, 2011, 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 $15,952 including interest of 5% due to Rowland W. Day II.  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 December 31, 2011, 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.  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 December 31, 2011, no portion of this note was converted to shares of common stock.

The services that were provided are outlined below.

*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 and potential investors, preparation of the Company’s SEC reports and documents for the Company’s operations.

**Director Independence**

It is our position that Messers, Adler, Day and Jones and Mrs. Day are not independent. 

**ITEM 14.  *PRINCIPAL ACCOUNTING FEES AND SERVICES***

The following table sets forth the aggregate fees billed to us for the fiscal years ended December 31, 2011 and 2010 by EFP Rotenberg LLP.

Audit Fees:

 

**Fiscal Year**

**2011**

 

 

**Fiscal Year**

**2010**

 

  EFP Rotenberg LLP

 

$

14,600

 

 

$

14,600

 

  Audit Related Fees: EFP Rotenberg LLP(1)

 

$

7,100

 

 

$

11,693

 

(1)Review and assistance with comment letters and Company responses.

***Tax Fees***

There were no fees paid in either 2011 or 2010 for tax related matters.

17

**PART IV**

**ITEM 15.  *EXHIBITS, FINANCIAL STATEMENT SCHEDULE***

**Exhibit No.**

**Description**

3.1

Amended and Restated Certificate of Incorporation of Blindspot Alert, Inc., a Nevada corporation. Incorporated by reference to our current report on Form 14-C filed with the SEC on December 5, 2008.

10.1

Incorporated by reference to our current report on Form 8-K filed with the SEC on July 25, 2008 License Agreement dated June 30, 2008.

31.1

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

31.2

Rule 13a-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

18

**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:  April 16, 2012

By:  */s/ Rowland W. Day II*

 

Rowland W. Day II,

 

Chief Executive Officer

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

 

Signature

 

Title(s)

 

Date

 

 

 

 

 

*/s/  Rowland W. Day II*

 

Chief Executive Officer

 

April 16, 2012

Rowland W. Day II

 

 

 

 

 

 

 

 

 

*/s/ Jaimie Day*

 

Director

 

April 16, 2012

Jamie Day

 

 

 

 

 

 

 

 

 

*/s/ Melinda Day*

 

Director

 

April 16, 2012

Melinda Day

 

 

 

 

 

 

 

 

 

*/s/  Denton Jones*

 

Director

 

April 16, 2012

Denton Jones

 

 

 

 

 

 

 

 

 

*/s/  B Michael Adler*

 

Director

 

April 16, 2012

B Michael Adler

 

 

 

 

19*** |
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