"Errors in the business math?"

The math is correct - but we need to take into account that quite a lot of money already has been spent on this...

The core of the math is that it will cost approximately $20,000 to finish the next stage. I say "approximately", because it depends a lot on time - which I cannot control. If we can go ahead before December 31, 2003, (This deadline has passed) the cost will be significant lower, hence the offer of $85/share, going up to $120 January 1, 2004.

There will be 500 shares in total in the corporation. Only 200 are available. The balance remains with parties that have financed the venture till now - and a little for myself and the parties that have actively supported me until now. My interest will be covered through shares, exactly like yours. I will sign over all rights to the invention to the corporation you become a shareholder of, just like me.

Once we commit to get going, there will be no difference between your shares and mine. If you don't get paid, I don't either. Whatever you get paid in dividends per share will be the same I get paid in dividends per share. If we need more money for the venture, we can raise it by selling more shares and accept the resulting dilution of our interests. The 200 shares currently for sale are devoted for this though. At the standard price of $120/share, we don't need to sell them all - but if we do, we have a little extra money to work with to speed things up and to increase our chances of making the venture prosperous. I have enough experiences with business ventures that were promising but underfinanced. I have never heard of any excess financing hurting a business venture...

So, this is why the math appears to be sloppy. It isn't - but it is not precise either. The thing is that the longer it takes to raise the funds, the more expensive the venture gets, because the effort of raising the funds has to be paid somehow... I could, of course, make a precise budget. But it would seriously not be worth the paper it was written on.

It is also a genuine business feature that early birds get a better price - simply because the risk is higher for the first ones. Once someone else has committed, the risk is reduced dramatically - and thus the price of the shares will go up. That's just how the market works, and I do not find that unreasonable. So, the price that effectively was paid for the first 300 shares is indeed less than the $85/share I ask at this time - because the parties that paid for the initial research, without having a clue if the idea was even patentable and without having a clue what exactly the market could be for the idea, definitely ran a much bigger risk than the investors that enter the scene now that this research has been done and paid for...

So, the "big picture" is that there are 200 shares available out of a total of 500. 300 are allocated to parties that started the venture. 200 are for sale by those parties to new investors.

For completion of the next stage, we will need about $15,000. I budget with $20,000 in order to have a reasonable contingency.

Now, if we reach, say, $14,000 by December 31, 2003, then we need only very little in addition to that - and can probably make it without selling all 200 shares. Those shares will still be available though, at the agreed price - so if you want to increase your investment and your fraction of the venture (and thus your resulting profits), it is possible.

I plan on arranging some teleconference calls for all interested parties in a few days. You will get more details about those also. There are no details supposed to be hidden or unclear for anybody who is interested. Because of the time pressure, I just have to get the most important things out first, so I can find out if the idea can fly or not....

"I sure hope this is not a scam..."

The project is for sure not a scam, but I cannot honestly give any guarantees for success either. The letter from the patent attorney on the web page says as clearly as anybody possibly can say it: the idea is most likely patentable - but until the patent actually is issued, nobody can say anything for sure. With my own experience in patents (I worked 7 years for a manufacturer that often had me check out other people's patents in order to find ways of avoiding them...), you just simply don't get any closer, at this stage.

Another thing is to use the patent. There will be no use for it, if we cannot find a manufacturer that will dare to invest in the production machinery and the marketing. Again, I have worked for manufacturers in the past and participated in many tradeshows. I know how tedious and expensive it is to penetrate such a market to find such possible manufacturers - not to mention the time and expense negotiating a deal with them. It is naive to think that a budget of a few hundred dollars can do this - and that's why I would rather share the possible profits for a piece of the pie, instead of sitting with a patent I cannot follow up on...

Finally, in order to get things totally straight, I am putting my interest at the very same terms as what I am offering you. I will sign over the rights to a corporation in which my interest will be shares, like yours. It just costs money to establish such a corporation, so I cannot do it until the funds are available for this project - and there is no point in establishing the corporation if we cannot run the project...

So, it all hinges on us being able to raise enough funds to start the machinery. However, based on the interest shown from Peeing Post subscribers alone, I am confident that it is possible.

The patent application process will probably take 6-12 months. And the search for a manufacturer probably a similar time.

The retail price will depend a lot on what the manufacturer wants. And I trust that he will want to price it for maximum sales and profits... However, the construction can be kept so simple that it can be produced probably at less than $5 a piece -which virtually makes it possible to determine the price based on marketing concerns alone. This is one of the biggest advantages of the idea: it is so simple that I am sure people will scream "why didn't I think of that?" when they see it. That's also why the patent is mandatory. With no patent, the idea is way to easy to steal...

I will be doing a conference call (maybe two) with the people who are interested, so we can address as many questions as possible. I will come back later today with the times, as I want to have a representative from ISC on the line too.

Some additional questions :

"How long do you estimate it will take for the product to hit the market?"

1. Raising the funds to finish the patent application and obtain the patent.
2. Finding a manufacturer that is willing to invest in the product.

Preparing the application and the drawings and what is all needed for the patent office will take 3-5 months. The patent office will then sit on the application from 6 to 12 months, but we can use the waiting time to find a manufacturer. This is the "patent pending" stage. Preparation of the materials to present to them at trade shows and in direct invitations will typically take 3-5 months also, but those can be the same 3-5 months as the preparation of the patent application.

So, with luck, we could have an agreement with a manufacturer already in the first month after starting, i.e. in July 2004.

It could also be summer 2005... if we have trouble finding a manufacturer that will give us a reasonable deal. ISC generally say that they will continue looking for manufacturers for 24 months with no extra pay. Their incentive is a 20% share of the resulting royalties of the agreement they can get us - but we have no obligation to accept what they suggest - we can make our own agreement with any manufacturer we can find ourselves...

This lead me to think of about a year to be a reasonable estimate for the time we need from starting to having an agreement.

Then the manufacturer needs to make the designs and the production planning - plus the marketing. I know from my personal experience in the corporate manufacturing industry that this will take at least 4 months, more likely 6-8. Before sales actually start to come in, we are looking at another couple of months...

My way of looking at it is that I would set my expectations of a return of the investment to happen in the beginning of 2006 - and I would be happy if we could make it in the beginning of 2005. But I would consider it unrealistic to see it in 2004.

(Note: I did not mention the establishment of the corporation as a major time factor - because it isn't. I know how to do this, and it will not take more than about 3 weeks - usually less.)

"How often, thereafter, will dividends be paid out?"

Standard is once a year - but we can change that if we want. We could even make monthly payments. It will only take a quorum at a shareholder meeting to make that decision, and I do not see why any shareholder should resist that, when it is possible to do it at no significant extra cost. (BTW shareholder meetings can be held by telephone as well as in person).

"What happens if you don't make the target for funds required for the next stage (by today)?"

The entire process gets delayed until we have raised the funds. Your part ownership of the invention is not altered. The current shareholders are obliged to sell the 200 shares for that purpose, so your ownership does not get diluted. The specific action we will take, however, will depend on what the options are - with the funds that have been raised.

"Are the dividends tax free?"

Yes - and no. It depends. They are tax-free for the International Business Corporation (IBC), and if you want your dividends paid out to yourself personally, then your government will consider such money "taxable income" which you should include on your tax return - if they know about it.

However: The IBC has no obligation to keep any records of the payout and no obligation to inform any government (including the one in the country it is set up in) whatsoever about any of its financial transactions, being it income or expense. Your government will thus have only one single source of this information: YOU.

I have to point out here that the IBC does have a legal responsibility to report to the individual shareholders and any shareholder can demand access to the corporate books. You will have to sign a confidentiality agreement in order to do so, and you will only be given access to information that pertains to your own shares. You must respect the privacy of the other shareholders, as much as you expect them to respect yours.

The IBC can offer to shareholders that dividends are paid out on anonymous debit cards that do not hold your name or require your signature for use.

If you want to take the process one step further and make this legally impossible for the government to nail you on, even if you should tell them by accident that you received this money, then you should consider transferring your shares to an Offshore Trust and have the Trust become the payee for your dividends. From the Trust, you can invest the money in anything you like - with no tax obligations whatsoever. (this can not be just any offshore trust though, if you want to know more, contact Novasol Judicare Inc.)

Now, this entire tax game is not what your government wants you to do. However, if you do not have any assets they can seize, there is nothing they can do to hurt you. But, if you have assets that can be made subject to confiscation because they are registered with you as the legal owner, then you need to exercise some caution with this. The reason is that, when you sign your tax return, you waive your constitutional rights to be considered innocent until proven guilty, in all cases of dispute between you and your government over your taxable income. This means that the government can force you to pay any taxes they think you owe - and leave it up to you to prove them wrong.. This might take you 2-4 years - and in the meantime, your assets are gone...

(This is a very short version of an asset protection package that I help people set up - so do not be discouraged if you feel a little confused... My personal opinion is that you can play this tax game to win - if you know the rules and don't do stupid things that can put you in trouble, not because they are illegal, but because you have given the government the upper hand to act on suspicion alone - they do not need proof... In my personal opinion, this game is only to be played if you also take solid measures to protect your assets. Leaving your assets with yourself as the legal owner and playing games with offshore income is equivalent to playing a trumpet in the den of a sleeping dragon.)

So, the true conclusion of this is that the dividends are tax-free if you want them to be tax-free and they are taxable income if you want to pay taxes on them. It is 100% up to you, as your receiving the dividends will not be reported to any government agency anywhere in the world, unless you ask the funds to go to a personal bank account of yours, then your bank is obligated to report this transaction to your government.

"What percentage of the dividends does each share represent?"

Each share represents 0.2% of the total ownership. There are a total of 500 shares in the IBC:

"What happens if additional funds are required to complete the next stage (do our shares lose their value)?"

Yes and no. Until the 200 shares allocated from the current investors to finance this stage of the project are sold, there will be no need for diluting anyone's ownership.

However, there could be a scenario where it turns out to be impossible to get the price required for those shares. This would make everybody's shares valueless, as the project then would stall....

If this truly should turn out to be the case, then there is an option available for the IBC (if enough shareholders can agree) that additional shares be sold from the company itself to new investors, at a lower price. Let's say we, at some point, are unable to move ahead because we cannot sell those 200 shares at the price of $120/share, then we can speed up the process by selling the remaining shares at a reduced price. This puts everybody in the same trouble. It would give everybody a strong incentive to promote those shares to friends and relatives - so maybe we could find the investors we need. If not, we would all have to consider the possibility of not being able to go ahead - which would mean a loss of everybody's investment.

Instead of incurring this loss, we could agree to issue new shares, say 500 additional shares, and sell them at $20 each. That would raise $10,000 - which could be just what we needed to move ahead. This would also mean that we all suffered a 50% dilution of our ownership, as we now made the total cake twice as big, but your piece and my piece did not change. This will result in us getting only half the dividends we otherwise would have been entitled to - but at least we move ahead instead of wasting our investment, so, although apparently an unpleasant decision, it could be very wise indeed, if we should run into such trouble.

So, there is no guarantee - but the way the principle is built gives both you and me a lot of possibilities for finding alternatives before we have to bite such a bullet. As far as I am concerned (and based on my experience in the corporate world), you cannot get any better protection of your interest. But we are still talking about venture capital - so we are all the time facing the possibility of losing everything we put in. It is a gamble - I will not deny that. But it is a gamble where we all have the same interest in making things work, and there are no ways you can get shafted to lose without everybody, me included, losing exactly as much as you do. We win the same - and we lose the same. We all win if we win, and we all lose if we lose. I cannot think of any stronger reason for teamwork... ;-)

So, until we give up finding investors that will buy the balance of the 200 shares currently for sale, there will be no dilution of your ownership. But if we cannot find those investors, we might chose to accept a dilution of all shares in order to make the project go. An alternative is that we might choose, individually, to sell our shares, either to existing shareholders, or to outside people. It is always an option that a shareholder that does not want to suffer a dilution can choose to sell his/her shares. However, in a situation where dilution is on the agenda, you would not be able to get full price for them. If you could, you could also find an investor that would pay that price for the balance of the 200 shares for sale...

We got this e-mail from a friend:

This issue was addressed at the last conference call, but I feel it is important for everybody to understand why there is only one diligent response to this, and that is "Thank you for sharing"....

At first sight, things like this always make me feel bad - until I dig down into the substance of the matter - and find out that there really isn't any...

Sure, when you do a Google search for "invention" or on any of the invention submission companies you will find by doing that, you can find similar documents about most of them, if not all. Some are really bad, others are like this one.

The first thing that struck me about this one was that the publisher did not want to reveal the names of any one of the complainants....

Next, I generally don't give much for hearing only one side of a story. When I ran my dog handler training school in Vancouver, I was a member of BBB ("Better Business Bureau"), and got numerous complaints... Without a single exception, they were outright ridiculous! Most of the complainants simply tried to screw me, because they did not bother putting in the necessary effort in the training of their own dog as required - and this was all clearly stated at the time of them signing up for my classes. (All students signed a contract when they paid, and that contract left nothing behind in the fog about their results of the training being totally dependent on their own willingness to provide the necessary effort...)

Although I dealt diligently with every single case from BBB and never had any outstanding issues with the BBB about my way of handling the complaints, some of those complainants still found it reasonable to badmouth me and my training school and my trainers in the local newspapers... Freedom of speech is indeed a great thing! But we have no free speech... All my responses to the editors of those newspapers were ignored. All the support I got from a whole little crowd of my students were never published either. It wasn't until I got the BBB to support me with legal help and I could seriously threaten the editors with a lawsuit for libel that I got them to publish one letter of mine in response to all the negative crap they have been bringing to crush my business. And even then, the editor cut the most important parts of my letter out, and published his own comments right next to mine, countering my explanations with ridiculous claims - and never allowed me to respond!

It brought my business to the knees - I think this episode alone was accountable for a loss of revenue that went way above $25,000...

I had a similar thing happening to me in my legal service business that assists business owners getting Asset Protection Trusts and International Business Corporations established in foreign countries. I was threatened by an FBI agent for co-operating with "dubious businesses". This agent sent me a list of 19 accounts where the business partners I was associated with were in "serious trouble with the law"....

I looked into the claims. Many of them were lists like the one about ISC. Some of them were serious accusations that could have been nailed for libel. Others were copies of claims filed in the courts. More than enough to scare a chicken...

However, not one single one of those 19 accounts could "hold water". They were all either outright false, or exclusively representing an opponent's view. All the five law suits were resolved - in favor of my partners! But the judgments were happily ignored - the claims did a better job, obviously, without the judgments....

So, I am kind-of galvanized against these kinds of things...

The ISC complaints are no different. And I can understand why some inventors might be disgruntled when they think (=hope) that there is an easy way to profit from a smart idea, and then they don't read the documents they are to sign (and ISC's document package is quite large - nothing is left unexplained - but if you don't bother reading it, of course, then you are in for a disappointment when the reality knocks on the door...).

The guy that publishes this information referred to in the e-mail above is well known to ISC. He has been trying to hurt their business for at least 10 years, and has not yet been able to get the US Federal Trade Commission to support him...

• Everybody can launch a complaint - when you don't have to have your identity revealed, and you do not bring the other party's side of the story...

• None of those complaints revealed any understanding whatsoever for the complexity of the process. Contracting ISC is not equivalent to "buying a patent" and "purchasing a fat license agreement" with a manufacturer. There are no guarantees for those things, and blaming ISC for it not always happening is plain simply unreasonable.

• The Federal Trade Commission did an investigation of ISC in 1993 - and found nothing they could nail ISC on in regards to unethical business practice. On the contrary, ISC sued the commission for the damage its investigation did to ISC's reputation. The case was settled out-of-court by the FTC accepting ISC's settlement offer that basically called for the FTC publicly announcing that they had no issues with the way ISC was doing business, in return for ISC providing a fund of $1.2 million dollars to cover their possible liability associated with contracts that would remain unfulfilled in case they should go out of business.

Now, the Federal Trade Commission is no charity - it is a very powerful and extremely aggressive government agency that has almost no history of losing cases in court.... Once they hook on some business, this business is generally doomed.

Since 1993, there has been no cases between the Federal Trade Commission and Invention Submissions Corp....

I think this explains enough.