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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from _____________ to _____________
Commission File Number 0-12969
NET/GUARD TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
DELAWARE 33-0707961
------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
12465 LEWIS ST., SUITE 101,
GARDEN GROVE, CALIFORNIA 92840-8702
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number including Area Code): (714) 703-2880
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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-KSB or any amendment to
this Form 10-KSB. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 31, 1997 COMMON STOCK, PAR VALUE OR $.001 PER SHARE -
$8,866,184 based upon the closing bid price for the Company's common stock at
March 31, 1997.
The issuer's revenues for the year ended March 31, 1997 were $171,928.
The number of shares outstanding of the registrant's classes of common stock as
of March 31, 1997: COMMON STOCK, PAR VALUE OF $.001 PER SHARE - 9,975,000
SHARES.
DOCUMENTS INCORPORATED BY REFERENCE: None
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PART I
This Annual Report on Form 10KSB contains forward-looking statements
that involve risks and uncertainties. NET/GUARD Technologies, Inc's ("NET/GUARD"
or the "Company") actual future results could differ materially from those
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those factors discussed in Item 1, "Business" and
elsewhere in this Report.
ITEM 1. BUSINESS
General
NET/GUARD primarily develops and manufactures PC network file server
fault-tolerant add-on sub-systems, used to reduce overall network downtime
attributed to failures of the network's file server. The Company's SERVivor(TM)
family of fault-tolerant add-on sub-systems are comprised of SCSI switch
hardware, proprietary monitoring software, and interface drivers. SERVivor's
hardware component is compatible with file servers platforms from most major
server grade PCs such as those manufactured by IBM, Hewlett Packard, Compaq, ALR
Research, and Dell. SERVivor's monitoring software will monitor network activity
on all network topology such as Ethernet, Token-ring, and Star. SERVivor's
interface drivers function with all present releases of Novell's NetWare and
Microsoft's Windows NT network operating systems.
The Company markets its products domestically primarily through
Personal Computer (PC) network Value Added Resellers (VARs) for resale to
network end users. The Company's primary sales and marketing efforts during the
fiscal year ending March 31, 1997 were directed at increasing demand for
products at the end user sales level and increasing the number of VARs that
carry the Company's products. Such efforts have included using outside
representatives to present the Company's products to VAR's employees, and using
end user conferences and trade shows to increase the awareness of the end user.
Organized in May 1996, the Company is a Delaware corporation whose
principal executive offices are located at 12465 Lewis Street, Suite 101, Garden
Grove, California, 9284, and its telephone number is (714) 703-2880.
INDUSTRY OVERVIEW
During the last decade the networked personal computer (PC) has moved
to become the principal information system (IS) of choice for business and
government. Technological advances and increased functionality, combined with
lower pricing have made networked PCs common in business and governmental
agencies of all sizes. These networks of PCs are now integral to the profitable
or on-budget operation of the network users. A market for sophisticated network
downtime reduction sub-systems has evolved in response to the dependency of the
user's operation on the availability of their network's file server. In
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addition, each major change of the operating system which runs a particular PC
network may lead to demand for even higher availability of a new operating
system.
STRATEGY
The Company's strategy is to leverage the technological advances and
increased functionality of the network operating systems to expand its position
as a developer and manufacturer of quality fault-tolerant products for use in
businesses. Key elements of the Company's business strategy are as follows:
CAPITALIZE ON BRAND NAME RECOGNITION. The Company intends to leverage
its brand name recognition to introduce new products into its VAR channel which
supplies the business and retail market. The Company's merchandising strategy is
intended to introduce allied network products to augment the Company's product
lines by allowing VARs to achieve relatively high revenues and margins from the
Company's products.
TARGET TELECOMMUNICATIONS CUSTOMERS. In February, 1997, the Company
established a Telecommunications Sales Unit to sell products manufactured by
others which enable both networked and stand alone PC access to private and
public networks at data rates of 33.6KB and 56KB which are current standards.
PURSUE STRATEGIC ALLIANCES AND ACQUISITIONS. The Company is seeking
strategic alliances that, through the addition of development, distribution, or
financial resources, would allow the Company to develop, and market network
fault-tolerant products into broader markets. The Company currently has targeted
strategic alliance prospects that are industry leaders with VAR and OEM channels
into which they distribute non-competitive but complimentary products.
Additionally, management anticipates that the Company will seek to accelerate
growth through strategic acquisition of complementary businesses, products, or
technologies. See "Acquisition of NetPage Communications" below.
To date the Company has generated limited revenues and incurred a net
loss of more than $1,121,000. See "Management Discussion and Analysis of
Financial Condition" below in Item 6 and "Financial Statements" below in Item 7.
The Company has not been profitable to date, has had negative cash flows from
operations and the report of its independent auditors reflects that the
Company's financial statements "have been prepared assuming that the Company
will continue as a going concern." See Note 1 of Notes to Financial Statements.
No assurance can be given that the Company's strategy will prove successful or
that any of its products will be accepted in the market place.
PRODUCTS
The following table sets forth selected products currently offered by
the Company:
Product Name: NSI 7000
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The NSI 7000 is a Fault-Tolerant subsystem used to reduce the downtime of
networked file servers utilizing Novell NetWare. The NSI 7000 protects the
network file server from many types of hardware or software failure which would
otherwise result in file server network downtime. The NSI 7000 is a system made
up of both hardware and software. The disk drives which contain all the software
needed to operate the network are mounted in the NSI 7000 along with NET/GUARD's
proprietary SCSI switch. The NSI software monitors the network's operation and
when a failure within the network is detected the NSI 7000 automatically
switches from the failed file server to a designated standby file server. The
NSI 7000 is tailored to the network user with mirrored / duplexed disk
configurations.
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Product Name: NSI 5000
- ------------- --------
The NSI 5000 is a Fault-Tolerant subsystem used to reduce the downtime of
network file servers utilizing Novell NetWare. The NSI 5000 protects the network
file server from many types of hardware or software failure which would
otherwise result in file server or network downtime. The NSI 5000 is a system
made up of both hardware and software. NSI 5000 is 19" rack-mount configuration
cabinet which contains the Company's proprietary SCSI switch. The NSI software
monitors the network's operation and when a failure is detected the NSI 5000
automatically switches from the failed file server to a standby file server. The
NSI 5000 is tailored to the network user with RAID disk configurations.
Product Name: SERVivor
- ------------- --------
The SERVivor is a low cost systems fault tolerant product which increases file
server availability for PC networks utilizing Novell NetWare or Microsoft
Windows NT software. SERVivor is a ISA form factor computer board that is
mounted in a standby server and with simple cable connections and monitoring
software protects the network from file server downtime that could be caused by
any hardware or software failure. The Company has designed SERVivor so that it
can interface with file servers that use either mirrored or RAID disk
configurations.
PRODUCT DEVELOPMENT
The Company believes that significant investment in research and
development is required in order to remain competitive, accelerate the rate of
product introductions, incorporate new technologies, and sustain the quality of
its products. In addition to engineering and quality assurance, the Company's
research and development activities include the identification and validation of
a product's potential commercial success, as well as the incorporation of new
technologies in new products. The Company incurs significant expense in
preparing market research information and reviewing product specifications. In
addition, the Company works closely with hardware and software manufacturers to
anticipate user problems with new hardware and software. These efforts and the
resulting "core" technology are critical in enabling the Company to be
competitive, improve quality and consistency, and bring products to market
quickly.
The product planning and development process begins with research and
analysis by both the marketing and research and development groups. The project
team typically may consist of two to three or more persons, including employees
and consultants. These products require varying degrees of development time
which frequently depend on general complexity of the product. Prior to release,
each product will undergo careful quality assurance testing that will involve
usability testing with external evaluators and a technical review of each
component of the final product and testing on various hardware platforms. The
Company endeavors, with the assistance of personal computer hardware, software,
and peripheral suppliers, to identify potential conflicts and other factors that
could lead to problems with personal computers due to incompatibility with
evolving technology. The Company then will adapt its "core" technology to
develop products, or enhance existing ones,
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designed to assist the user in resolving the problem or adapting to new
technological environments. The Company's strategy for developing products
compatible with Novell NetWare, and future versions of Windows NT, is
substantially dependent on its ability to gain pre-release access to, and
develop expertise in, such versions.
The Company's products are highly dependent on the continued widespread
use of Microsoft's Windows NT and Novell's NetWare operating system for
networked personal computers. Although NetWare and Windows NT operating systems
are currently used by many networked personal computer users, other companies,
including International Business Machines Corporation, have developed or are
developing other operating systems which compete and will compete with Novell's
NetWare and Microsoft's Windows NT. In the event that any of these alternative
operating systems become widely accepted in the personal computer marketplace,
demand for the Company's Windows-based products could be adversely affected,
thereby also affecting the Company's operating results. Microsoft announced
earlier in 1997 a new fault-tolerant facility for its operating system, Windows
NT. The Company is attempting to determine whether Microsoft's fault-tolerant
sub-systems, named Wolfpack, for networked personal computers using Windows NT
will have an adverse effect on the Company's products and market penetration.
The costs associated with planning, researching, developing and testing
new products and services are substantial and no assurance can be given that the
Company will have adequate resources for such purposes.
ACQUISITION OF NETPAGE COMMUNICATIONS, INC.
Effective April 30, 1997, the Company acquired 80% of NetPage
Communications, ("NetPage") for stock and cash. The Company's chief executive
officer currently acts as the chief executive officer of NetPage and is actively
involved in strategic planning and the day to day operations of NetPage. NetPage
has agreed to pay the Company a monthly management fee of $20,000. Through July
15, 1997, the Company loaned NetPage approximately $160,000 for three years at
an interest rate of 10% per annum. NET/GUARD has the right to elect a majority
of NetPage's Board of Directors.
NETPAGE'S PRODUCTS
NetPage's mission is to provide a complete Internet solution to the
small business environment. NetPage's products are offered in three models,
Standard, Gold and Platinum. Each model includes a computer (either desktop or
notebook), a custom Internet Web site created by NetPage specifically for the
client, electronic mail service, unlimited full time access to the entire
Internet and World Wide Web for each client, computer operating systems,
Internet browsing software, and a submission of each client's Web site to more
than 100 Internet search and registration services. In addition to the three
base models NetPage offers optional and add-on products and services including
various peripherals and more advanced web pages which may extend additional
capability and allow more business functions to be carried out in the new
e-commerce arena.
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NETPAGE'S SALES AND MARKETING
NetPage markets a "Complete Internet Solution" nationally through
Internet consultants, dealers and master dealers. NetPage recruits master
dealers using various electronic and print media. Each master dealer purchases a
set of sales and marketing tools and pays a tuition to NetPage for a five-day
training program. Upon completion of the training program a master dealer is
authorized to enlist dealers and/or Internet consultants in a nonspecific
geographical territory. Dealers and Internet consultants offer the Complete
Internet Solution to small businesses ranging from professionals, such as
lawyers and doctors, and other service providers to retailers, wholesalers and
manufacturers. The Complete Internet Solution is sold or may be leased, through
unaffiliated leasing companies arranged by NetPage to end user clients,
generally on a thirty-nine (39) month lease.
DISTRIBUTION, SALES AND MARKETING
The Company markets its fault-tolerant products domestically through
VARs for resale to end users. The Company's reseller customers generally offer
products of several different companies, including products which may compete
with those of the Company. Accordingly, there is a risk that these resellers may
give higher priority to products of other suppliers and reduce their efforts to
sell the Company's products. In addition, any special distribution arrangements
and product pricing arrangements that the Company may implement in one or more
distribution channels for strategic purposes could adversely affect gross profit
margins for its products.
In February 1997, NET/GUARD established a telecommunications sales unit
to expand the promotion of products to its present VAR channel. These
telecommunications products are mainly high speed modems which enable both
networked and stand-alone PC access to private and public networks at data rates
above the current generally available rate of 28,800 bits per second.
The Company also uses media advertising, direct mail, attendance at
industry trade shows, press releases, and direct contacts through its marketing
and sales force as other means of generating new sales.
The Company's sales force at July 11, 1997 consists of four people
based in the Company's office who receive salaries, commissions, and/or
incentive bonus compensation. In addition, the Company maintains an in-house
marketing department that handles most of the design and development of the
Company's product packaging, advertisements, and promotional items.
DUPLICATION, FABRICATION AND PACKAGING
The Company's product manuals are printed by an unaffiliated commercial
printer, whose primary service is reproduction of manuals and brochures.
Substantially all of the Company's products are duplicated and packaged by Disk
Duplication Corporation, a software
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manufacturing operation. The hardware component is assembled by CalQuality a
contract assembly operation. The Company believes its relations with these
suppliers are good. Although the Company believes that alternative resources
exist or can be obtained, a disruption of the Company's relationship with any of
these third-party contractors could adversely affect the Company's results of
operations until replacement sources are established. In addition, any material
changes in product and service quality and pricing by these outside resources
could adversely affect the Company's results of operations. The Company has
attempted to mitigate the risk of any such disruption by maintaining certain
levels of "safety stock" inventories and the limited use of "second source"
vendors.
COMPETITION
The network fault-tolerant industry is intensely competitive. Consumer
demand for particular products may be adversely affected by the increasing
number of competitive products. The Company is aware of other companies which
have developed or are in the process of developing products which may compete in
whole or in part with the Company's products, including Microsoft, Novell,
Vinca, LanTegrity, Octopus, ApCon, and others. In addition, there exist a number
of large, well-capitalized software development firms that could, should they
choose to do so, provide products in direct competition with the Company, as
well as a number of large companies which may be in the process of developing
products which compete, in whole or in part, with the Company's products. Each
of these firms and certain of the Company's existing competitors have
substantially greater financial, technical, and marketing resources than the
Company. Moreover, there are no proprietary barriers to entry that could keep
competitors from developing and selling competing products in the Company's
markets. There is no assurance that the Company may be able to compete with such
concerns. Increased competition may result in loss of VARs and reduction in
consumer demand, any of which will have a material adverse effect on the
Company's operating results.
In addition, the Company may face increasing pricing pressures from
current and future competitors and, accordingly, no assurance can be given that
competitive pressures will not require the Company to reduce its prices and
thereby adversely effect gross profit margins. In particular, over time, the
average selling prices for the Company's products may decline as the market for
these products becomes more competitive. Any material reduction in the price of
the Company's products would negatively affect gross margins and would require
the Company to increase unit sales in order to maintain historic levels of
sales. In addition, to the extent that Microsoft or other companies incorporate
applications comparable, or perceived as comparable, to those offered by the
Company into Novell, Windows NT, or other products (or separately offer such
products), sales of the Company's products could be materially adversely
affected, and there can be no assurance that any such action by Microsoft or
others would not render the Company's Windows NT or Novell based products
noncompetitive or obsolete. There can be no assurance that such competitors will
not develop products that are superior to the Company's products or that achieve
greater market acceptance, all of which may allow them to research, develop,
introduce and support new products more quickly and effectively than the
Company.
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The Company believes that competition in the network fault-tolerant
market is somewhat fragmented, and largely based on adaptation to a particular
market segment, availability of an integrated set of products, relationships
with distributors and retailers, and selection of appropriate distribution
channels.
PROPRIETARY RIGHTS
The Company regards its SCSI switch hardware, monitoring software, and
operating systems drivers as proprietary and relies primarily on a combination
of copyright, trademark and trade secret laws, employee confidentiality and
nondisclosure agreements and third-party nondisclosure agreements, and other
methods of protection common in the industry. Despite these precautions, it may
be possible for an unauthorized third party to copy or reverse- engineer certain
portions of the Company's products or to obtain and use information that the
Company regards as proprietary.
Under existing law, software products have been difficult to patent,
and copyright laws offer limited protection. The Company has filed and received
federal trademark registrations for the Company's stylized logo and although the
Company may file copyright applications with respect to programs developed for
the Company's software products, there can be no assurance that any such
copyrights will provide meaningful protection to the Company or that the Company
will be able to afford the expense of any litigation which might be necessary to
enforce its rights. However, the Company believes that trademark and copyright
protection are less significant to the Company's success than factors such as
knowledge, ability, and experience of the Company's personnel, research and
development, brand name recognition, and product loyalty. In addition, the laws
of some foreign countries do not protect the Company's proprietary rights to the
same extent as do the laws of the United States.
The Company believes that its products, trademarks and other
proprietary rights do not infringe on the proprietary rights of third parties.
As the number of fault tolerant products in the industry increases and the
functionality of these products further overlaps, software/hardware developers
may become increasingly subject to infringement claims. There can be no
assurances that third parties will not assert infringement claims against the
Company in the future with respect to current or future products or that any
such assertion may not require the Company to enter into royalty arrangements or
result in costly litigation.
EMPLOYEES
As of July 31, 1997, the Company had seven full time employees and four
part time. None of the Company's employees is covered by a collective bargaining
agreement. The Company considers its relationship with its employees to be good.
As of July 11, 1997 NetPage had 16 full time employees, of whom three are
executives engaged in administrative, marketing and sales, five in
accounting/leasing, and the balance in technical, customer support and clerical.
ITEM 2. PROPERTIES
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The Company currently leases approximately 3400 square feet of office
space in Garden Grove, California under a lease expiring in March 1998. The
annual rent payments under this lease are currently $48,500.
ITEM 3. LEGAL PROCEEDINGS
To its knowledge, NET/GUARD has no current legal proceedings pending or
threatened.
NetPage is currently a defendant in an action, brought by a former
consultant in Orange County, California, alleging that NetPage owes him $18,000
for services rendered. NetPage believes this suit to be without merit and
believes, based on current knowledge, that this action will not have any
material adverse effect on the financial condition of NetPage.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended March 31, 1997, no matters were submitted for
vote to NET/GUARD's common stockholders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's securities have been traded on the over-the-counter
Bulletin Board since about February 12, 1996. The Company's securities are
reported under the symbol "NTGD."
In 1997 and 1996, the high and low bid prices quoted for a share of
common stock were:
<TABLE>
<CAPTION>
1997 LOW HIGH
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<S> <C> <C>
Quarter ended June 30, 1997 $1.875 $3.00
Quarter ended March 31, 1997 2.875 3.00
1996
- ----
Quarter ended December 31, 1996 2.75 2.875
Quarter ended September 30, 1996 2.125 2.375
Quarter ended June 30, 1996 2.00 2.00
Quarter ended March 31, 1996 2.00 2.00
</TABLE>
These market quotations reflect inter-dealer prices without retail
mark-up,mark-down, or commission and may not necessarily represent actual
transactions. The stock markets have experienced extreme price and volume
fluctuations during certain periods. These broad market fluctuations, and other
factors, may adversely affect the market price of the Company's Common Stock.
Any shortfall in revenue or earnings from levels expected by securities analysts
could have an immediate and significant adverse effect on the trading price
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of the Company's common stock in any given period. Additionally, the Company may
not learn of such shortfalls until late in the fiscal quarter, which could
result in an even more immediate and adverse effect on the trading price of the
Company's stock. Finally, the Company participates in a highly dynamic industry,
which often results in significant volatility of the Company's common stock
price.
As of March 31, 1997 and July 15, 1997, there were approximately 42 and
64 holders of record, respectively, of NET/GUARD's common stock, including
common stock held by affiliates and excluding an undetermined number of
shareholders whose shares are held in "street" or "nominee" names.
NET/GUARD has not paid cash dividends on its common stock since its
inception. NET/GUARD intends to employ all available funds for the development
of its business, and, accordingly, does not intend to declare or pay any cash
dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
NET/GUARD is principally engaged as a developer and manufacturer of PC
network file server fault-tolerant add-on sub-systems used to reduce overall
network downtime attributed to failures of the network's file server. The
Company's SERVivor family of fault-tolerant add-on sub-systems are comprised of
SCSI switch hardware, monitoring software, and interface drivers. SERVivor's
hardware component is compatible with file servers platforms from most major
server grade PCs such as IBM, Hewlett Packard, Compaq, ALR Research, and Dell.
SERVivors monitoring software will monitor network activity on all network
topology such as Ethernet, Token-ring, and Star. SERVivor's interface drivers
function with all present releases of Novell's NetWare and Microsoft's Windows
NT network operating systems.
The Company markets its products domestically primarily through
personal computer (PC) network value added resellers (VARs) for resale to
network end users. The Company's primary sales and marketing efforts in fiscal
year 1997 were directed at increasing demand for products at the end user sales
level and increasing the number of VARs that carry the Company's products. Such
efforts have included using outside representatives to present the Company's
products to VAR's employees, and using end user conferences and trade shows to
increase the awareness of the end user.
In September 1994 NetGuard Systems, Inc. (a predecessor of the Company
hereinafter referred to as "Systems") entered into an investment agreement with
a capital investment group, whereby that group committed to provide $2,000,000
to Systems. These funds were never delivered and as a result, Systems continued
to experience severe cash shortages which materially and adversely negatively
impacted Systems' operations. In May 1996, Systems received an initial
investment of $500,000 from persons not then affiliated with the Company.
Systems was dissolved and on May 9, 1996 NET/GUARD Technologies, Inc.
("Technologies")
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was formed to acquire the assets of and to operate substantially the same fault
tolerant operations as the predecessor.
In October 1996 Rollo Entertainment, Inc. ("Rollo") effected a reverse
acquisition of Technologies, caused the then principal shareholders of Rollo to
return 2,890,000 shares of the Company's common stock and transferred Rollo's
entertainment-related assets to such shareholders. Thereafter Rollo changed its
name to NET/GUARD Technologies, Inc. in accordance with an amended Certificate
of Incorporation filed with the Secretary of State of Delaware in November 1996
(which amended the Certificate of Incorporation and also increased the number of
Company authorized shares of common stock from 10,000,000 to 20,000,000 shares).
See Note 1 of Notes to Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data for
the period from inception (May 9, 1996) to the year ended March 31, 1997 and for
period from April 1, 1996 to May 8, 1996 and the year ended March 31, 1996 of
the predecessor.
<TABLE>
<CAPTION>
Successor Predecessor
----------------- -------------------------------
May 9, 1996 April 1, 1996
to March 31, 1997 to May 8, 1996 March 31, 1996
----------------- -------------- --------------
<S> <C> <C> <C>
Net sales............................................ $ 171,928 $ 132,900
Cost of sales ........................................ 157,850 9,403 68,565
----------- ----------- -----------
Gross Profit (loss) ............................. 14,078 (9,403) 64,335
Selling, general, and administrative expenses ........ 1,112,993 -- 1,400,223
----------- ----------- -----------
Loss from operations ............................ (1,098,915) (9,409) (1,335,888)
Other Income (expense)
Interest income ................................. 6,205 -- --
Interest expense ................................ (27,891) -- (102,529)
Other expense ................................... -- -- (841)
IRS forgiveness ................................. -- -- 19,735
----------- ----------- -----------
Total other income (expense) ................. (21,686) -- (83,635)
----------- ----------- -----------
Loss before provision for income taxes ............... (1,120,501) (9,403) (1,419,523)
Provision for income taxes (Note 5) .................. 800 800 800
----------- ----------- -----------
Net loss ............................................. $(1,121,401) $ (10,203) $(1,420,323)
----------- ----------- -----------
</TABLE>
The following is a discussion of the operating results for the period
from inception (May 9, 1996) to the year ended March 31, 1997, for the Company
compared to the year ended March 31, 1996 for Systems, the predecessor.
Gross revenues from inception to March 31, 1997 were $171,928 as
compared to $132,900 for the year ended March 31, 1996. The increase of 29% is
attributed to the Company's ability to secure the necessary investment to form
NetGuard Technologies, Inc. and resume operations in May 1996.
Gross profit was $14,078 and $64,335 for the periods ended March 31,
1997 and 1996, respectively. As a percentage of net sales, the gross profit
margins for the period ended March 31, 1997 and 1996 were 8.2% and 48.4%,
respectively. The decrease in gross profit is attributed to a $70,000 write down
of the predecessor's inventory that was acquired by the Company on May 9, 1996.
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Sales, general and administrative expenses were $1,112,993 and
$1,400,223 for the periods ended March 31, 1997 and 1996, respectively. As a
percentage of gross sales, expenses were 647% and 1053% for the periods ended
March 31, 1997 and 1996, respectively. The decreases in expenses were attributed
to the Company's reduction in payroll expenses. Also incurred was $96,000 in
legal expenses to secure the additional capital necessary for the initial
funding of NetGuard Technologies, Inc.
The Company incurred a net loss of $1,121,401 from inception to the
period ended March 31, 1997 compared to a net loss of $1,420,323 for the year
ended March 31, 1996. The losses for the period from inception to March 31, 1997
are attributed to insufficient sales to cover the start-up costs of the new
operation and the write downs of old inventory of the predecessor. The losses
for the year ended March 31, 1996 are attributed to a lack of funding to
sufficiently market the Company's products and to salaries that were accrued but
not paid by the predecessor.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had $523,530 in cash and cash
equivalents. The Company does not currently have any available lines of credit.
Since inception, the Company has financed its operations through the issuance of
notes to stockholders and the sale of common stock.
Net cash of $1,210,816 was used in operating activities during the
period from inception (May 9, 1996) to the year ended March 31, 1979 and was
primarily attributed to the start-up costs of the new corporation.
Net cash provided by the sale of common stock from inception (May 9,
1996) to March 31, 1997 was $1,779,712. Additionally the Company received loans
from stockholders in the amount of $115,400. See Note 4 of Notes to Financial
Statements.
The Company's principal executive offices are located at 12465 Lewis
Street, Suite 101, Garden Grove, California 92840-4658, and its telephone number
is (714) 703-2880.
ITEM 7. FINANCIAL STATEMENTS PAGE
Index to Financial Statements:
1. Report of Independent Certified 15
Public Accountants
2. Financial Statements: 16
-14-
<PAGE> 14
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
NET/GUARD Technologies, Inc.
We have audited the accompanying balance sheet of NET/GUARD Technologies, Inc.
("Successor Company") as of March 31, 1997, and the related statements of
operations, stockholders' equity (deficiency), and cash flows for the period
from commencement of operations (May 9, 1996) through March 31, 1997, and the
statements of operations, stockholders' equity (deficiency), and cash flows of
NetGuard Systems, Inc. ("Predecessor Company" as described in Note 1 of notes to
financial statements) for the period from April 1, 1996 to May 8, 1996 and for
the year ended March 31, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
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 Successor Company's financial statements referred to above
present fairly, in all material respects, the financial position of NET/GUARD
Technologies, Inc. as of March 31, 1997, and the results of its operations and
cash flows for the period from commencement of operations (May 9, 1996) through
March 31, 1997, in conformity with generally accepted accounting principles.
Further, in our opinion, the Predecessor Company's financial statements referred
to above present fairly, in all material respects, the results of operations and
cash flows of the Predecessor Company for the period April 1, 1996 to May 8,
1996, and for the year ended March 31, 1996, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $1,121,401 for the period from Inception to
March 31, 1997 and had negative cash flows from operations. These factors among
others as discussed in Note 1 to the financial statements, raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
June 2, 1997
-15-
<PAGE> 15
NET/GUARD TECHNOLOGIES, INC.
(FKA NETGUARD SYSTEMS, INC.)
BALANCE SHEET
AS OF MARCH 31,
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents (Notes 1 and 2) $ 523,530
Accounts receivable 28,831
Inventory (Note 1) 111,750
Employee advances 18,041
Other current assets 5,284
-----------
Total current assets 687,436
FURNITURE AND EQUIPMENT, net (Notes 1 and 3) 70,479
-----------
OTHER ASSETS
Trademark, net of accumulated amortization of $1,350 11,150
Deposits 18,639
-----------
Total other assets 29,789
-----------
TOTAL ASSETS $ 787,704
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable - stockholder (Note 4) $ 206,333
Accounts payable 32,036
Accrued expenses 47,068
-----------
Total current liabilities 285,437
NOTES PAYABLE - STOCKHOLDER, net of current portion above (Note 4) 260,556
-----------
Total liabilities 545,993
-----------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock, $.0001 par value
20,000,000 shares authorized
9,975,000 shares issued and outstanding 998
Additional paid-in capital 1,362,114
Accumulated deficit (1,121,401)
-----------
Total stockholders' equity (deficit) 241,711
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 787,704
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-16-
<PAGE> 16
NET/GUARD TECHNOLOGIES, INC.
(FKA NETGUARD SYSTEMS, INC.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31,
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
<TABLE>
<CAPTION>
Successor Predecessor
------------ ---------------------------
May 9, 1996 April 1, 1996 Year Ended
to March 31, to May 8, March 31,
1997 1996 1996
------------- ----------- -----------
<S> <C> <C> <C>
NET SALES $ 171,928 $ -- $ 132,900
COST OF SALES 157,850 9,403 68,565
----------- ----------- -----------
GROSS PROFIT (LOSS) 14,078 (9,403) 64,335
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 1,112,993 -- 1,400,223
----------- ----------- -----------
LOSS FROM OPERATIONS (1,098,915) (9,403) (1,335,888)
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 6,205 -- --
Interest expense (27,891) -- (102,529)
Other expense -- -- (841)
IRS forgiveness (Note 1) -- -- 19,735
----------- ----------- -----------
Total other income (expense) (21,686) -- (83,635)
----------- ----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (1,120,601) (9,403) (1,419,523)
PROVISION FOR INCOME TAXES (Note 6) 800 800 800
----------- ----------- -----------
NET LOSS $(1,121,401) $ (10,203) $(1,420,323)
=========== =========== ===========
NET LOSS PER SHARE $ (0.11) $ (0.00) $ (0.46)
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 8,520,835 3,116,176 3,116,176
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-17-
<PAGE> 17
NET/GUARD TECHNOLOGIES, INC.
(FKA NETGUARD SYSTEMS, INC.)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED MARCH 31,
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
---------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY
Balance, March 31, 1995 3,116,176 $ 802,000 $ -- $(2,137,659) $(1,335,659)
Additional capital
contributions (Note 1) 268,406 268,406
Net loss (1,420,323) (1,420,323)
---------- ----------- --------------- ----------- -----------
Balance, March 31, 1996 3,116,176 1,070,406 -- (3,557,982) (2,487,576)
Net loss for period April 1,
1996 to May 8, 1996 (10,203) (10,203)
---------- ----------- --------------- ----------- -----------
BALANCE, MAY 15, 1996 3,116,176 $ 1,070,406 $ -- $(3,568,185) $(2,497,779)
========== =========== =============== =========== ===========
</TABLE>
================================================================================
<TABLE>
<CAPTION>
Common Stock Additional
--------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
--------- -------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
SUCCESSOR COMPANY
Balance, May 9, 1996 -- $ -- $ -- $ -- $ --
Issuance of common stock 9,975,000 998 1,778,714 1,779,712
Purchase of technology
from related party (416,600) (416,600)
Net loss for period May 9,
1996 to March 31, 1997 (1,121,401) (1,121,401)
--------- -------- ------------ ----------- -----------
BALANCE, MARCH 31, 1997 9,975,000 $ 998 $ 1,362,114 $(1,121,401) $ 241,711
========= ======== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-18-
<PAGE> 18
NET/GUARD TECHNOLOGIES, INC.
(FKA NETGUARD SYSTEMS, INC.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31,
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
<TABLE>
<CAPTION>
Successor Predecessor
----------- ------------------------------
May 9, 1996 April 1, 1996 Year Ended
to March 31, to May 8, March 31,
1997 1996 1996
------------ ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,121,401) $ (10,203) $(1,420,323)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 14,026 - 13,379
(Increase) decrease in
Accounts receivable (28,831) - 8,875
Inventory (111,750) - 76,138
Employee advance (18,041) - 4,329
Prepaid expenses - - 365
Deposits (18,639) - 1,555
Other current assets (5,284) - -
Increase (decrease) in
Accounts payable 32,036 (2,168) 81,012
Accrued expenses 47,068 10,203 435,910
----------- --------- ------------
Net cash used in operating activities (1,210,816) (2,168) (798,760)
----------- --------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (83,155) - -
Purchase of trademark (12,500) - -
----------- --------- ------------
Net cash used in investing activities (95,655) - -
----------- --------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of notes payable
to stockholders 115,400 - 520,568
Principal payments on note payable to
stockholders (65,111) - -
Proceeds from the sale of common stock and
other capital contributions 1,779,712 - 268,406
----------- --------- ------------
Net cash provided by financing activities 1,830,001 - 788,974
----------- --------- ------------
Net increase (decrease) in cash and
cash equivalents 523,530 (2,168) (9,786)
----------- --------- ------------
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR - 2,168 11,954
----------- --------- ------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 523,530 $ - $ 2,168
=========== ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-19-
<PAGE> 19
NET/GUARD TECHNOLOGIES, INC.
(FKA NETGUARD SYSTEMS, INC.)
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED MARCH 31,
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
<TABLE>
<CAPTION>
Successor Predecessor
------------- ------------------------------
May 9, 1996 April 1, 1996 Year Ended
to March 31, to May 8, March 31,
1997 1996 1996
------------- ------------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
INTEREST PAID $ 27,891 $ - $ 4,192
============= ============= ==========
TAXES PAID$ $ - $ - $ -
============= ============= ==========
</TABLE>
During the year ended March 31, 1996, the Company issued notes payable in the
amount of $98,338 in lieu of interest.
During the period from May 9, 1996 to March 31, 1997, the Company acquired the
technology developed by NetGuard Systems, Inc. from a stockholder of NetGuard
Systems, Inc. for $416,600. The historical cost of this technology recorded by
NetGuard Systems, Inc. was $0; therefore, the Company valued this technology at
$0 and recorded the $416,600 paid to the stockholder as a reduction to
additional paid-in capital.
The accompanying notes are an integral part of these financial statements.
-20-
<PAGE> 20
NET/GUARD TECHNOLOGIES, INC.
(FKA NETGUARD SYSTEMS, INC.)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business and Organization
NetGuard Technologies, Inc., (the "Company" or "NetGuard"), a California
corporation, was incorporated on May 8, 1996 as the successor company to
NetGuard Systems, Inc. ("Systems"). The Company continued the business
operations of Systems with the same officers and directors as well as
the same stockholder base. The accompanying financial statements present
the Company ("Successor") from Inception to March 31, 1997 and Systems
("Predecessor") from April 1, 1995 to May 8, 1996.
On October 22, 1996, Rollo Entertainment, Inc. ("Rollo"), a
publicly-traded, development stage company incorporated in the State of
Delaware, acquired all of the outstanding stock of NetGuard. For
accounting purposes, the acquisition has been treated as a
recapitalization of NetGuard, with NetGuard as the acquirer (reverse
acquisition). Rollo subsequently changed its name to NET/GUARD
Technologies, Inc., a Delaware corporation (hereafter referred to as the
"Company" or "NET/GUARD"). On May 1, 1997, NetGuard Technologies, Inc.,
a California corporation was dissolved. Prior to the acquisition, Rollo
did not have any significant operations.
The Company designs, manufactures, and sells fault-tolerant systems
aimed at the Novell NetWare and Microsoft Windows NT file server market.
NET/GUARD's products are combinations of both hardware and software that
monitor the activity of the file server. When a failure of the server
occurs, NET/GUARD's system is designed to automatically switch server
operations to a standby server and reboot the operating system.
NET/GUARD's systems are designed to reduce network downtime attributed
to file server failure. NET/GUARD systems are sold through a chain of
both domestic and international network re-sellers.
In September 1994, Systems entered into an Investment Agreement with an
investment banker in which the investment banker would invest $3,000,000
into Systems. The investment banker completed a technical and financial
audit during the subsequent few months. The investment banker disclosed
to Systems that there would be a short delay in the closing date of the
investment. In order to keep the sales, support, and engineering team on
track, Systems' management made a decision to delay payment of the
federal tax deposits until the time that the investment banker actually
made the investment. The delay from the investment banker continued much
longer than originally anticipated. On June 30, 1995, the Internal
Revenue Service ("IRS") visited Systems and placed a lien against the
Company. The Company worked closely with the IRS over the next few
months while the investment banker worked around the problem that caused
his investment delay. In October 1995, the IRS foreclosed on Systems. A
Systems investor and stockholder acquired the assets of Systems at the
IRS's auction. The stockholder successfully bid in excess of $35,000 for
the Systems assets at the IRS auction held on October 28, 1995.
-21-
<PAGE> 21
NET/GUARD TECHNOLOGIES, INC.
(FKA NETGUARD SYSTEMS, INC.)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Business and Organization (Continued)
This bid amount satisfied the non-trust fund portion of the unpaid
Internal Revenue taxes. The stockholder subsequently contributed the
assets back to Systems. Certain officers of Systems personally assumed
the financial responsibility for the trust fund and penalty portions of
the unpaid Internal Revenue taxes which totaled $69,235, of which the
IRS made an agreement to accept $49,500. The $49,500 was paid in full to
the IRS on April 27, 1997, and the remaining balance of $19,735 was
forgiven. Systems continued to operate until May 8, 1996 at which date
the corporation was dissolved.
Since the assets seized by the IRS were subsequently contributed back to
the Company by the stockholder, the amount paid for the assets by the
stockholder has been shown as a capital contribution in the accompanying
financial statements. In addition, the $49,500 liability assumed by
certain officers of the Company has also been shown as a capital
contribution.
Basis of Presentation
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles which contemplate
continuation of the Company as a going concern. During the period from
Inception to March 31, 1997, the Company had a net loss of $1,121,401
and had negative cash flows from operations. The Company's ability to
generate positive cash flows depends on its ability to maintain a level
of revenues sufficient to meet its obligations and sustain its
operations. The Company has had limited sales to date and has sustained
substantial operating losses since inception due to its inability to
generate a sufficient level of revenues. These factors, among others,
raise substantial doubt about the Company's ability to continue as a
going concern.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts shown in
the accompanying balance sheet is dependent upon continued operations of
the Company, which in turn is dependent upon the Company's ability to
continue to meet its financing requirements and to succeed in its future
operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or amounts and classification of liabilities that might be
necessary should the Company be unable to continue in existence.
Management has successfully raised capital through the sale of its
common stock and plans to raise additional capital through the sale of
common stock as needed to fund operations or acquisitions. Further, as
more fully described in Note 7, the Company has acquired a majority
interest in NetPage Communications, Inc.
-22-
<PAGE> 22
NET/GUARD TECHNOLOGIES, INC.
(FKA NETGUARD SYSTEMS, INC.)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three
months or less to be cash equivalents.
Inventory
Inventory, which consists primarily of finished goods, is stated at the
lower of cost (first-in, first-out method) or market.
Furniture and Equipment
Furniture and equipment are stated at cost. The Company provides for
depreciation using the accelerated and straight-line methods over the
estimated useful lives of five years as follows:
<TABLE>
<S> <C>
Computers 5 years
Furniture and fixtures 5 years
Office equipment 5 years
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred while renewals and betterments are capitalized. Gains or losses
on the sale of furniture and equipment are reflected in the statements
of operations.
Revenue Recognition
Revenue is recognized upon the shipment of products to the customer.
Concentrations of Credit Risk
The Company sells its products to customers throughout the United
States. The Company's sales are not materially dependent on a single
customer or small group of customers. The Company performs ongoing
credit evaluations of its customers. The Company maintains reserves for
potential credit losses based on historical credit write-offs.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes."
Net Loss Per Share
Net loss per share is based on the weighted average number of common and
common equivalent shares outstanding during each year.
-23-
<PAGE> 23
NET/GUARD TECHNOLOGIES, INC.
(FKA NETGUARD SYSTEMS, INC.)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
Company's financial instruments, including cash, accounts payable, and
accrued expenses, the carrying amounts approximate fair value due to
their short maturities. The amounts shown for notes payable also
approximate fair value because current interest rates offered to the
Company for notes payable of similar maturities are substantially the
same.
Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - CASH
The Company maintains its cash balances in one bank located in southern
California. The balances are insured by the Federal Deposit Insurance
Corporation up to $100,000. As of March 31, 1997, the uninsured portion
of these balances held at the bank aggregated to $480,384.
NOTE 3 - FURNITURE AND EQUIPMENT
Furniture and equipment at March 31, 1997 consist of the following:
<TABLE>
<S> <C>
Computers $ 35,995
Furniture and fixtures 41,456
Office equipment 5,704
---------
83,155
Less accumulated depreciation 12,676
---------
TOTAL $ 70,479
=========
</TABLE>
-24-
<PAGE> 24
NET/GUARD TECHNOLOGIES, INC.
(FKA NETGUARD SYSTEMS, INC.)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
NOTE 4 - NOTES PAYABLE - STOCKHOLDER
As of March 31, 1997, notes payable - stockholder consisted of the
following:
<TABLE>
<S> <C>
6% note payable to stockholder, payable in
monthly installments of $13,028 plus
interest. Debt matures November 15, 1999. $ 416,889
10% note payable to stockholder, payable in
semi-annual payments of interest only, due
on July 10, 1997. 50,000
----------
466,889
Less current portion 206,333
----------
LONG-TERM PORTION $ 260,556
==========
</TABLE>
As of March 31, 1997, scheduled maturities of notes payable -
stockholder are as follows:
<TABLE>
<CAPTION>
Year ending
March 31,
-----------
<S> <C>
1998 $ 206,333
1999 156,333
2000 94,223
-----------
TOTAL $ 456,889
===========
</TABLE>
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain facilities for its corporate and operations
office under a non-cancelable lease agreement. The agreement, dated
October 1, 1996, expires March 31, 1998 and provides for monthly rent
payments of $4,042. For the period from Inception to March 31, 1997 and
for the year ended March 31, 1996, total rent expense was $24,252 and
$45,428, respectively.
-25-
<PAGE> 25
NET/GUARD TECHNOLOGIES, INC.
(FKA NETGUARD SYSTEMS, INC.)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Leases (Continued)
The following is a schedule by years of future minimum rental payments
required under this long-term lease agreement:
<TABLE>
<CAPTION>
Year ending
March 31,
-----------
<S> <C>
1998 $48,504
-------
TOTAL $48,504
=======
</TABLE>
NOTE 6 - INCOME TAXES
Income tax expense was $800 for both the period from Inception to March
31, 1997 and the year ended March 31, 1996 and consists of the minimum
State of California franchise taxes.
Income tax expense for the period from Inception to March 31, 1997 and
the year ended March 31, 1996 differs from the amounts computed by
applying a United States Federal income tax rate of 34% to pretax loss
as a result of the following:
<TABLE>
<CAPTION>
Inception to Year Ended
March 31, March 31,
1997 1996
----------- -------------
(Successor) (Predecessor)
<S> <C> <C>
Computed "expected" tax benefit $(381,004) $(482,638)
Reduction in income taxes resulting from
Change in the valuation allowance for
deferred tax assets allocated to
income tax expense 381,004 482,638
State income taxes 800 800
--------- ---------
TOTAL $ 800 $ 800
========= =========
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets at March 31, 1997 and 1996 are
presented below. Deferred tax liabilities at March 31, 1997 and 1996 are
not significant.
-26-
<PAGE> 26
NET/GUARD TECHNOLOGIES, INC.
(FKA NETGUARD SYSTEMS, INC.)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
================================================================================
NOTE 6 - INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
Inception to Year Ended
March 31, March 31,
1997 1996
----------- -------------
(Successor) (Predecessor)
<S> <C> <C>
Deferred tax assets
Inventory, principally due to allowance
for inventory obsolescence $ - $ 10,825
Net operating loss carryforwards 414,918 1,365,967
-------- ----------
Total gross deferred tax assets 414,918 1,376,792
Less valuation allowance 414,918 1,376,792
-------- ----------
NET DEFERRED TAX ASSETS $ - $ -
======== ==========
</TABLE>
At March 31, 1997, the Company had net operating loss carryforwards of
approximately $1,100,000 and $550,000 for federal and state tax
purposes, respectively, which if not utilized to offset future taxable
income, will expire in 2005 and 2012, respectively.
NOTE 7 - SUBSEQUENT EVENT
On April 30, 1997, the Company entered into an Agreement of Purchase and
Sale of Stock with NetPage Communications, Inc. ("NetPage"), whereby the
Company purchased 147,784,000 shares of NetPage common stock, which
represents 80% of NetPage's issued and outstanding common stock, for
$362,000 in cash and 200,003 shares of the Company's common stock.
-27-
<PAGE> 27
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In connection with the reverse acquisition referenced in Item 6 above,
the Company ceased to engage in entertainment-related activities and moved its
operations from the East Coast to Garden Grove, California. In this process it
ceased to utilize the services of Bederson & Co., Rollo's independent auditors,
and thereafter in 1997 secured the services of its current independent auditors,
Singer Lewak Greenbaum & Goldstein LLP.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, AND KEY EMPLOYEES
The directors and executive officers of the Company at March 31, 1997
are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
William L. Van Liere 78 Chairman of the Board
E. Blaine Mansfield 54 Chief Executive Officer, President, and Director
Donald Ackerman 58 Vice President, Secretary, and Director
Victor V. Vurpillat, PhD 64 Director
Oleg Batrachenko 32 Director
</TABLE>
Mr. Van Liere has served as Chairman of the Company's Board of
Directors since the Company was founded in May 1996. Mr. Van Liere is a retired
chemical industry executive and private investor.
Mr. Mansfield has served as Chief Executive Officer and President of
the Company since the Company was founded in May of 1996. From December 1992 to
April 1996 Mr. Mansfield was Chairman, Chief Executive Officer and President of
NetGuard Systems Inc. For more than the five years prior thereto Mr. Mansfield
has been engaged as an investor and consultant to various high technology
companies.
Mr. Ackerman has served as Vice President and Secretary of the Company
since the Company was founded in May 1996. From December 1992 to April 1996 Mr.
Ackerman was Vice President of Sales of NetGuard Systems Inc.
Dr. Vurpillat has served as a Director of the Company since the Company
was founded in May 1996. From January 1997 to the present Dr. Vurpillat has
served has Chief Executive Officer of Spanworks in Fremont, California. Dr.
Vurpillat served as Chief Technology Officer
-28-
<PAGE> 28
of Safeguard Scientific, a venture capital firm from January 1974 to December
1991. He serves on the boards of directors of several other high technology
companies.
Oleg Batratchenko has since April 1995 been Vice President of Research
at Berkshire International Finance, Inc. ("Berkshire"), a New York corporate
finance and investment banking boutique which has assisted the Company in
various corporate and financing matters. Mr. Batratchenko has been managing the
activities of Berkshire's equity research department and providing analytical
support for the process of banking clients selection, monitoring and deals
structuring. A generalist specializing in small cap firms, Mr. Batratchenko
provides comprehensive analytical coverage for over 20 U.S. and European growth
companies, mostly in the high-tech, biomedical, environmental, computer and
electronics sectors. From 1993 to 1995 Mr. Batratchenko was a research analyst
with Safian Investment Research, Inc., a White Plains, New York, financial
research and money management firm, where he was engaged in the analysis of
international markets on both macro and microeconomic levels. Prior to that Mr.
Batratchenko worked as a Performance Analyst with Neuberger and Berman, a major
New York money management firm. Mr. Batratchenko has a B.A. in Economics from
Moscow State University, a Russian MBA equivalent. Between 1987 and 1990 Mr.
Batratchenko was a Research Associate at the Moscow Institute of World Economy
and International Relations, where he completed a Master's program in Economics
and was involved in a number of high profile research projects being conducted
by this leading Russian think tank for the Kremlin. Mr. Batratchenko also has a
Master Degree in International Political Economy from New York University and is
an Associate member of the Financial Analysts - Money Managers Society (New
York).
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10 percent of
the Company's common stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission (SEC). Officers, directors, and
greater than 10 percent shareholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding compensation for
services in all capacities paid or accrued for the fiscal years indicated by the
Company to its Chief Executive Officer and Executive Vice President. No other
executive officer received compensation in excess of $100,000 for the fiscal
year ended March 31, 1997.
<TABLE>
<CAPTION>
Name and Position Held Annual Compensation
---------------------- -------------------
<S> <C>
E. Blaine Mansfield $ 137,500(1)
Chief Executive Officer and
President
Donald Ackerman $ 137,500(2)
Executive Vice President
</TABLE>
- --------------
(1) Excludes $2,764 reimbursed to Mr. Mansfield for automobile expense.
(2) Excludes $1,951 reimbursed to Mr. Ackerman for automobile expense.
-29-
<PAGE> 29
BOARD OF DIRECTORS
During 1997, the Company's Board of Directors held seven regular and
special meetings and, otherwise took action by written consent. The Board has
not established any audit, executive, compensation or nominating committees.
Rather, the Board of Directors meets as a whole to determine the compensation of
corporate officers and nominate the individuals to be proposed by the Board of
Directors for election as directors of the Company.
EMPLOYMENT AGREEMENTS
In May 1996 the Company entered into employment agreements with each of
its two principal executive officers, Mr. Mansfield and Mr. Ackerman. Each of
the agreements provides for (i) a term of employment for three years, subject to
earlier termination under certain conditions; (ii) salary or $150,000 per year
payable in semi-monthly installments; (iii) a bonus equal to two percent of the
Company's net sales payable quarterly; and (iv) adjustments to annual salary
based on increases, if any, to a cost of living index for Los Angeles - Orange
County Areas as published by the United States Department of Labor. Each
employee has also been granted an incentive stock option to purchase 300,000
shares of the Company's Common stock at $1.50 per share, for six years. Each
employee may exercise these options only to the extent that the Company achieves
the following cumulative earnings: $1,000,000 - $100,000 shares; $2,000,000 -
200,000 shares; and $3,000,000 - 300,000 shares. The Company has also agreed to
provide each employee with disability benefits, vacation and medical benefits
and whole-life policy of insurance in the amount of $500,000 with the
beneficiary to be designated by the employee.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1997, certain
information concerning ownership of the Company's common stock by each director
and all officers and directors as a group. At March 31, 1997, no other person
nor entity owns more than 5% of the Company's outstanding shares, as indicated
by the Company's securities transfer agent.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OWNED (*) OF CLASS
- ------------------- ------------------ ------------
<S> <C> <C>
William L. Van Liere 2,687,500(1) 26.94%
10 Stirrup Road
Rancho Palos Verdes, California 90274
E. Blaine Mansfield 1,543,750(2) 15.48%
12465 Lewis Street
Suite 101
Garden Grove, California 92840
Donald Ackerman 1,043,750(3) 10.46%
12465 Lewis Street
Suite 101
Garden Grove, California 92840
All Officers and Directors 5,275,000 52.88%
As a Group (3 persons)
</TABLE>
- ------------------------
(1) Excludes 400,000 shares of common stock owned by adult children and grand-
children of William L. Van Liere, as to which shares Mr. Van Liere disclaims
any ownership.
(2) Includes 150,000 shares of common stock owned of record by children of Mr.
Mansfield.
(3) Excludes 500,000 shares of Common Stock owned of record by adult children
and grandchildren of Mr. Ackerman, as to which shares Mr. Ackerman
disclaims any ownership.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of March 31, 1997, the Company was indebted to its principal
shareholder in the approximate amount of $466,890. The Company and its
predecessor have borrowed money from time to time from its principal
shareholder on terms which the Company deems to be favorable. See Note 1 and
Note 4 of Notes to Financial Statements.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED WITH REPORT
1. Financial Statements. The financial statements listed in the index
to financial statements at Item 7 are filed as part of this report.
-30-
<PAGE> 30
2. Exhibits. The Exhibits listed on the accompanying Index to Exhibits
are filed as part of this report.
(b) REPORTS ON FORM 8-K
1. Item reported: Item 4 - Change of Accountants
(c) EXHIBITS See Item 13 (a) 2 above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NET/GUARD Technologies, Inc.
By /s/ E. BLAINE MANSFIELD
---------------------------------------
Chief Financial Officer, and Director
(Principal Accounting Officer)
Dated: August 8, 1997
Pursuant to the requirements of the Securities 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.
August 11, 1997 /s/ WILLIAM L. VAN LIERE
-----------------------------------------
Chairman of the Board
August 11, 1997 /s/ E. BLAINE MANSFIELD
-----------------------------------------
Chief Executive Officer, President
and Director
August 11, 1997 /s/ DONALD ACKERMAN
-----------------------------------------
Vice President, Secretary and Director
August 11, 1997 /s/ VICTOR V. VURPILLAT
-----------------------------------------
Victor V. Vurpillat, Phd., Director
August 11, 1997 /s/ OLEG BATRACHENKO
-----------------------------------------
Oleg Batrachenko, Director
-31-
<PAGE> 31
NET/GUARD Corporation
INDEX TO EXHIBITS
3.1 Certificate of Incorporation of Registrant. (1)
3.2 By-Laws of Registrant. (1)
3.3 Certificate of Amendment of Certificate of Incorporation.
10.1 Employment Agreement dated May 1, 1996 between Registrant and
E. Blaine Mansfield.
10.2 Employment Agreement dated May 1, 1996 between Registrant and
Donald Ackerman.
10.3 Agreement of Purchase and Sale of Stock dated as of April 30, 1997
by and among NetPage Communications, Inc., its shareholders and
Registrant.
21. Subsidiaries of the Registrant.
27. Financial Data Schedule.
(1) Incorporated by reference to the Exhibits to the Registration Statements on
Form SB-2, as amended, as filed with the Securities and Exchange Commission.
-20-
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Rollo Entertainment Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, at a meeting duly
held, adopted resolutions proposing and declaring advisable the following
amendments to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of Rollo Entertainment
Inc. be amended by changing the First Article thereto so that, as amended, said
Article shall be and read as follows:
"FIRST: The name of the corporation (hereinafter called the
"Corporation") is NET/GUARD Technologies, Inc."
RESOLVED, that the Certificate of Incorporation of Rollo Entertainment
Inc. be amended by changing the Fourth Article thereto so that, as amended, said
Article shall be and read as follows:
"FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is Twenty Million (20,000,000). The par
value of each of such shares is $.0001. All such shares are of one class
and are shares of common stock without cumulative voting rights and
without any preemptive rights."
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given written consent to said amendments in accordance with
the provisions of Section 228 of the General Corporation Law of the State of
Delaware and written notice of the adoption of the amendments has been given as
provided in Section 228 of the General Corporation Law of the State of Delaware
to every stockholder entitled to such notice.
THIRD: That the aforesaid amendments were duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General Corporation Law
of the State of Delaware.
1
<PAGE> 2
FOURTH: That this Certificate of Amendment of the Certificate of
Incorporation shall be effective immediately upon filing.
IN WITNESS WHEREOF, said Rollo Entertainment Inc. has caused this
certificate to be signed by E. Blaine Mansfield, its President, and attested by
Cynthia L. Hoek, its Acting Secretary, this 15th day of November, 1996.
ROLLO ENTERTAINMENT INC.
/s/ E. BLAINE MANSFIELD
----------------------------------------
E. Blaine Mansfield, President
ATTEST:
/s/ CYNTHIA L. HOEK
- ------------------------------------
Cynthia L. Hoek, Acting Secretary
2
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT ("Agreement") is made as of this 1st day of
May 1996 between NETGUARD TECHNOLOGIES, a California corporation, with its
principal office at 3020 Old Ranch Parkway, Suite 300, Seal Beach, California
90740-2751 (hereinafter referred to as "Employer"), and E. BLAINE MANSFIELD,
residing at 1495 La Perla, Long Beach, California 90815 (hereinafter referred
to as "Employee").
SECTION 1.00 EMPLOYMENT DUTIES
------------------------------
1.01 In consideration of the mutual promises and agreements herein
contained, Employer hereby employs Employee, and Employee hereby accepts
employment, upon the terms and conditions hereinafter set forth.
1.02 Employee shall serve as President, Chief Officer and Chief
Financial Officer of Employer under the supervision and direction of Employer's
Board of Directors.
1.03 The term of this Agreement shall commence as of the first day of
May 1996, and shall continue for a period of three (3) years thereafter,
subject to earlier termination as provided below:
A. This agreement shall immediately terminate on the
occurrence of any of the following events: (i) circumstances which make it
impossible or impracticable for the business of Employer to be carried on; (ii)
Employer becoming insolvent, filing a petition in bankruptcy or a similar
proceeding, having a receiver appointed, being reorganized or declared a
bankrupt, or making a general assignment for the benefit of creditors; or (iii)
the death of Employee.
B. Employer may at any time upon notice of termination to
Employee terminate this Agreement for cause. The term "cause" as used herein
shall mean willful and persistent inattention by Employee to the Employee's
duties hereunder or any act or acts by Employee amounting to gross negligence
to the substantial detriment of Employer; Employee intentionally engaging in
any activity which is in direct conflict with the business interests of
Employer; willful or serious misconduct on the part of Employee to the
substantial detriment of Employer; or any other substantial willful breach of
any term or provision of this Agreement by Employee.
C. In the event Employee becomes temporarily or permanently
disabled because of sickness, or physical or mental disability, or any other
reason, so that it reasonably appears that he will be unable to perform his
duties under this Agreement, Employer shall have the option to terminate this
Agreement by giving notice of termination to Employee; provided, however, that
any such termination shall not affect Employee's right to receive payments
under any insurance coverage provided by Employer pursuant to Section 3.05 and
6.08 hereof and Employee shall be entitled to full salary and other benefits
hereunder during the period of any physical or mental disability through the
termination date.
<PAGE> 2
1.04 Termination of this Agreement pursuant to any of the provisions
of Section 1.03 hereof shall be without prejudice to any right or remedy which
either party hereto may be entitled either at law, in equity, or under this
Agreement. Except as otherwise provided herein, in the event of termination of
this Agreement, the Employee shall be entitled to the compensation earned by
him prior to the date of termination as provided for in this Agreement computed
pro rata up to and including that date and Employee shall be entitled to no
further compensation as of the date of termination.
1.05 Employee agrees that to the best of his ability and experience he
will at all times loyally and conscientiously perform all duties and
obligations either expressly or implicitly required of him by the terms of this
Agreement and will devote to the performance of such duties full working time,
attention and energies.
1.06 Upon expiration or earlier termination of this Agreement for any
reason, including, without limitation, termination for "cause" as provided in
Section 1.03B hereof, Employer agrees to indemnify and hold harmless Employee
for and against all suits, claims, liabilities, losses, damages, costs and
expenses (including legal expenses) allege, charged or otherwise asserted
against or suffered or incurred by Employee in respect of any debts,
obligations, financial commitments or other liabilities of Employer or any of
its subsidiaries or affiliates which at the time of such expiration or
termination had been endorsed, guaranteed or secured by Employee, acting in his
personal capacity, or by any of Employee's personal assets.
SECTION 2.00 COMPENSATION
-------------------------
2.01 As compensation for services rendered under this Agreement,
Employee shall be entitled to receive from Employer a salary of One Hundred
Fifty-Thousand Dollars ($150,000) per year payable in semi-monthly or other
convenient installments during the period of employment, prorated for any
partial employment period. Employee agrees that for the first six (6) months of
employment that Employer may accrue $4,000 a month of the Employee's salary.
This accrual will be paid to Employee starting in the seventh month and will be
paid in six monthly installments. In addition to the above salary, the employee
shall be paid two (2%) of the net sales of the company, paid quarterly, on such
further terms and conditions as Employer and Employee shall agree in writing
within thirty days of the date of this Agreement. The Employer agrees to
provide to Employee an Incentive Stock Option in the amount of 300,000 shares
of common stock, on such general terms and conditions as set forth herein and
such further terms and conditions as Employer and Employee shall agree in
writing within thirty days of the date of this Agreement. Said option will be a
six (6) year option exercisable at one dollar and fifty-cents ($1.50) per
share. If Employer has cumulative earnings (EBITDA) of $1,000,000 then the
Employee may exercise 100,000 shares. If Employer has cumulative earnings
(EBITDA) of $2,000,000 the employee may exercise an additional 100,000 shares
and if Employer has cumulative earnings (EBITDA) of $3,000,000 Employee may
exercise all options. The options will allow for customary provisions relating
to anti-dilution, piggy-back registration rights on Form S-8 for the underlying
shares.
2.02 The basic salary provided in Section 2.01 hereof shall be
adjusted annually to
Employment Agreement 2 of 8
<PAGE> 3
reflect the increase, if any, in the cost of living by adding to such basic
salary an amount obtained by multiplying the basic salary by the percentage by
which the level of the Consumer Price Index for all Urban Consumers, Los
Angeles-Orange County Area. All items average (1996 = 1000 (or, if such Index
is not published, by an equivalent Index), as reported for the last day of the
applicable twelve (12) month period from the effective date of this Agreement
by the Bureau of Labor Statistics of the United States Department of Labor, has
increased over its level as of the day preceding the commencement of said
twelve (12) month period; but, in any event, no adjustment to the basic annual
salary shall be made unless such adjustment would equal to exceed fifteen
percent (15%).
2.03 Employee shall be paid such additional compensation, if any, from
Employer for services rendered hereunder as may be determined in the sole
discretion of Employer as and for bonuses and/or merit increases based on
Employer's evaluation of Employee's performance under this Agreement.
SECTION 3.00 BENEFITS
---------------------
3.01 Employee shall be entitled to a vacation of four (4) weeks with
full pay during each twelve (12) month period during the term hereof. Such
vacation shall be taken at a time selected by Employee, work permitting. In
addition, Employee shall be entitled to up to twenty (20) days during each
twelve (12) month period during the term hereof as sick leave with pay.
Additional sick leave with pay may be granted at the discretion of Employer.
Employee shall be further entitled to eleven (11) holidays during each twelve
(12) months period during the term hereof. Employer may select up to six (6)
fixed holidays and the rest may be taken by Employee at any time work
permitting.
3.02 If Employee for any reason whatsoever becomes temporarily or
permanently disabled, so that he is unable to perform his duties hereunder and
this Agreement is terminated by Employer as provided in Section 1.03C hereof,
Employer agrees to pay him one hundred percent (100%) of his annual salary and
fringe benefits hereunder, for a period of twelve (12) months, payable in the
same manner as his salary, and for an additional twelve (12) months, at fifty
percent (50%) of his annual salary and one hundred percent (100%) of fringe
benefits, payable in the same manner as his salary. After said period, he shall
be entitled to whatever disability income benefits are payable under Section
3.06 hereof, and said benefits under the policy shall be fully assigned to him
in the event of permanent disability. "Permanent disability" for this purpose
shall be as defined under the disability income policy provided for Employee by
Employer.
3.03 In the event that Employee shall die during the term hereof,
Employee agrees to immediately pay three (3) years' basic salary in effect at
the death of said Employee, payable in thirty-six (36) equal monthly
installments, to Employee's surviving spouse, provided they are legally
married and living together at the date of Employee's death. If Employee does
not have such a wife surviving, and sum shall be payable to his estate, or
otherwise if Employee in writing shall designate the person or persons to
receive same in a written instrument delivered to Employer prior to Employee's
death in such portions designated. If no such written
Employment Agreement 3 of 8
<PAGE> 4
designation shall be on file, the entire sum be payable to the Employee's
estate. Employer shall maintain a life insurance policy on Employee in such
amount as to provide Employer funds to meet its obligation under this Section
3.03.
3.04 Employer shall provide Employee with the use of a mutually
agreeable automobile with optional equipment of Employee's selection. Such
automobile shall at no time be older than two (2) years. Employer shall pay all
operating expenses of auto and shall procure and maintain an automobile
liability policy, with such coverage as Employer shall reasonably desire, for
personal liability and property damage.
3.05 Employer agrees to include Employee in the hospital, surgical,
and medical benefit plan adopted by Employer and agrees under a supplemental
medical reimbursement plan to reimburse Employee for all medial, dental and
hospital bills incurred by Employee for himself and for his wife and those of
his children qualifying as his dependents under the Internal Revenue Code of
1986, as amended, up to a total sum of Twenty-Five Thousand Dollars ($25,000)
per calendar year or pro rata portion thereof. Employer further agrees to pay
such bills directly, rather than to reimburse Employee for payment, on demand by
Employee but only if the bills are submitted in advance to Employer for its
approval; provided, however, that all such reimbursements or direct payments by
Employer shall be limited to the portion of such bills, if any, which will not
be paid by insurance under Employer's plan or covered by Employee under an
individual plan. However, if Employee has an individual plan and pays premiums
thereunder, he shall be entitled to reimbursement under this plan for such
premiums which shall be included in said maximum of Twenty-Five Thousand
Dollars ($25,000) per year. There shall be no carryover of amounts not
reimbursed to any subsequent year or years.
3.06 Employer, in recognition of the loyalty of Employee, agrees to
provide a disability income plan to purchase policy or policies of disability
of Employee beyond one (1) year, in the amount of Ten Thousand Dollars
($10,000) per month, with such exclusionary periods up to one (1) year as
Employer shall desire. In the event of permanent disability under the terms of
said policy or policies and the termination of this Agreement Employer shall
assign the policies and the benefits thereunder to Employee. Otherwise, the
benefits shall be payable to Employer to fund the temporary disability benefits
to Employee up to one (1) year under Section 3.02 hereof.
3.07 Employer, in recognition of the loyalty of Employee, agrees to
provide a Five Hundred Thousand Dollar ($500,000) whole life insurance policy,
to pay premiums on said policy, with the beneficiary being the designee of
Employee. In the event Employee leaves the Employer for any reason the policy
shall be fully paid for six (6) months from his termination date. Upon Employee
leaving the employ of Employer, Employer shall assign the policy and the
benefit thereunder to Employee.
3.08 Employer will promptly reimburse Employee for all reasonable
business expenses incurred by Employee in promoting the business of Employer,
including expenditures for entertainment, gifts, and travel, provided that: (i)
each such deduction is of the nature qualifying it as a proper deduction for
federal and state income tax returns of Employer; and (ii) Employee furnishes
Employer adequate records and other documentary evidence required by federal
and
Employment Agreement 4 of 8
<PAGE> 5
state statutes and regulations issued by appropriate taxing authorities for the
substantiation of each such expenditure as an income tax deduction.
Notwithstanding the above, Employer shall retain the right to establish its own
rules and regulations, from time to time, as to business expenses which are
reimbursable by Employer.
SECTION 4.00 PROPERTY RIGHTS OF THE PARTIES
4.01 Employee agrees: (i) to disclose promptly in writing and assign to
Employer all inventions, improvements, developments, and discoveries, whether or
not patentable or copyrightable, which he may make or conceive either solely or
jointly with others during the period of his employment with Employer,
(including but not limited to any period prior to the date of this Agreement),
whether or not made or conceived during his working hours, that will relate
directly or indirectly to any aspect of Employer's business, including but not
limited to any system, machine, process, device, composition of matter or
ornamental design which Employee now or hereafter during the period of his
employment may make, use or sell or which are made or conceived with the use of
Employer's time, materials or facilities; (ii) to execute and deliver such
documents and to take such action, during and subsequent to his employment by
Employer, at his expense but without charge by him to Employer, necessary to
assist Employer in every way to obtain and defend letters patent for said
inventions in any and all countries and to vest title thereto in Employer, and
its successors or assigns; (iii) that any invention which he may disclose to
anyone within six (6) months after the termination of his employment or for
which he may file application for letters patent within six (6) months after
termination of his employment shall be presumed to have been made or conceived
during the period of his employment hereunder; provided that if he, in fact,
makes or conceives any such invention subsequent to his employment, then such
invention shall belong to him and shall be his sole property. Employee assumes
the responsibility of establishing that he made or conceived any such invention
after the termination of his employment; (iv) in the event that he is assigned
by Employer to work for any other company or organization, such employment shall
be deemed to be employment by Employer for the purposes of this Agrement; (v) as
a matter of record, Employee has given on a separate sheet of paper a complete
list of all patentable inventions including a line of description thereof, which
he has made or conceived prior to this Agreement and which are not included in
this agreement; and (vi) render to Employer a true account of all business done
by him for Employer and of all moneys received by him on the account of Employer
and pay forthwith all moneys so received to Employer without deduction therefrom
except as authorized by Employer.
4.02 During the term of this Agreement and at all times thereafter,
Employee will keep confidential and will not directly or indirectly divulge to
anyone nor use or otherwise appropriate for Employee's own benefit, or on behalf
of any other person, firm, partnership or corporation by whom Employee might
subsequently be employed or otherwise associated or affiliated with, any and all
customer lists, arrangements with distributors, marketing information or
strategies, trade secrets or other confidential information of any kind, nature
or description concerning any matters affecting or relating to the business of
Employer, any affiliate of Employer or a customer of Employer.
Employment Agreement 5 of 8
<PAGE> 6
4.03 During the term of this Employment Agreement, Employee agrees that
(i) he will not, directly or indirectly, own an interest in, operate, join,
control or participate in, or be connected as an officer, employee, agent,
independent contractor, partner, shareholder or principal of any corporation,
partnership, proprietorship, firm, association, person or other entity providing
services and/or products or a combination thereof which directly or indirectly
compete with Employer's business, and he will not undertake planning for or
organization of any business activity competitive with Employer's business or
combine or conspire with other employees or representatives of Employer's
business for the purpose of organizing any such competitive business activity,
except the purchase of less than ten percent (10%) of the stock of a publicly
traded company which is not affiliated with the Employer; (ii) he will not,
directly or indirectly, either for himself or for any other person, firm or
corporation, divert or take away or attempt to divert or take away (and after
the term of this Employment Agreement, call on or solicit or attempt to call on
or solicit) any of Employer's customers or distributors, including but not
limited to, those upon whom Employee called or whom Employee solicited or
serviced or with whom Employee became acquainted while engaged as an employee in
Employer's business; and (iii) he will not, directly or indirectly or by action
in concert with others, induce or influence, or seek to induce or influence,
(and after the term of this Employment Agreement, call on or solicit or attempt
to call on or solicit) any person who is engaged (as an employee, agent,
independent contractor or otherwise) by Employer to terminate his or her
employment or engagement.
4.04 Employee acknowledges that, as a key management employee, the
Employee will be involved, on a high level, in the development, implementation
and management of the business strategies and plans of Employer which shall also
consist of such other business, units, divisions, subsidiaries or other entities
of Employer as Employer shall determine in its sole discretion from time to time
(the "Business"). By virtue of the Employee's unique and sensitive position and
special background, employment of the Employee by a competitor of Employer
represents a serious competitive danger to Employer and the Business, and the
use of the Employee's talent and knowledge and information about Employer or the
Business can and would constitute a valuable competitive advantage over Employer
and the Business. In view of the foregoing, the Employee covenants and agrees
that, if the Employee's employment with Employer is terminated for any reason at
any time, for a period of three years after the date of such termination, the
Employee will not engage or be engaged, in any capacity, directly or indirectly,
including but not limited as employee, agent, consultant, manager, executive,
owner or stockholder (except as a passive investor holding less than a 1% equity
interest in any enterprise the securities of which are publicly traded) in any
business entity doing business in the United States engaged in competition with
any business conducted by Employer on the date of termination. This covenant not
to compete shall survive the termination or expiration of the other provisions
of this Employment agreement. if any court determines that this covenant not to
compete, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its reduced
form, such provision shall then be enforceable.
SECTION 5.00 OBLIGATIONS OF EMPLOYER
Employment Agreement 6 of 8
<PAGE> 7
5.01 During the term of this Agreement, Employer shall furnish Employee
with all proper equipment, offices, stenographic help, and other usual
equipment and supplies necessary to perform his duties hereunder.
5.02 Employer shall indemnify Employee for losses sustained by Employee
in direct consequence of the good faith performance of his duties hereunder to
the extent permitted under the California General Corporation Law as said
statute may from time to time be amended.
SECTION 6.00 GENERAL PROVISIONS
6.01 Any notices to be given hereunder by either party to the other may
be effected either by personal delivery in writing or by mail, registered or
certified postage prepaid with return receipt requested. Mailed notices shall
be addressed to the parties at the addresses appearing in the introductory
paragraph of this Agreement, but each party may change his address by written
notice in accordance with this paragraph. Notices delivered personally shall be
deemed communicated as of actual receipt; mailed notices shall be deemed
communicated as of one day after mailing.
6.02 This Agreement supersedes any and all other agreements either oral
or in writing, between the parties hereto with respect to the employment of
Employee by Employer and contains all of the covenants and agreements between
the parties with respect to such employment in any manner whatsoever. Each
party to this Agreement acknowledged that no representations, inducements,
promises, or agreements, orally or otherwise, have been made by any party, or
anyone acting on behalf of any party, which are not embodied herein, and that
no other agreement, statement, or promise not contained in this Agreement shall
be valid or binding. Any modification of this Agreement will be effective only
if it is in writing signed by the party to be charged.
6.03 If any provision of this Agreement is held by a court of competent
jurisdiction to be invalid, void, or unenforceable, the remaining provisions
shall nevertheless continue in full force without being impaired or invalidated
in any way.
6.04 This Agreement shall be governed by and construed in accordance
with the laws of the State of California.
6.05 If Employee dies prior to the expiration of the term of
employment, any moneys that may be due him from Employer under this Agreement
as of the date of his death shall be paid to his executors, administrators,
heirs, personal representative, successor and assigns, provided, however,
Employee may attach, as Exhibit "A" hereto, a Designated Survivor of said
benefits, and if a designated survivor is other than the surviving spouse, if
she survives Employee, then said designation shall be consented to in writing
by said spouse.
6.06 The failure by either party to enforce at any time any of the
provisions of this Agreement or to require at any time performance by the other
party of any of the provisions
Employment Agreement 7 of 8
<PAGE> 8
hereof shall in no way be construed to be a waiver of such provisions or to
affect either the validity of this Agreement, or any part hereof, or the right
of either party thereafter to enforce each and every provision in accordance
with the terms of this Agreement.
6.07 The rights and obligations of Employer under this Agreement shall
inure to the benefit of and shall be binding upon the successors and assigns of
Employer.
6.08 Employer may elect to purchase Key Man term insurance upon the
Employee in the amount of One Million Dollars ($1,000,000) with Employer as
beneficiary under such policy. Such insurance would not effect 6.05 hereinabove.
EMPLOYER: EMPLOYEE:
NETGUARD TECHNOLOGIES, INC.
By: /s/ DONALD ACKERMAN /s/ E. BLAINE MANSFIELD
----------------------------------------- --------------------------------
Donald Ackerman, Executive Vice President E. Blaine Mansfield
Employment Agreement 8 of 8
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made as of this 1st day of
May 1996 between NETGUARD TECHNOLOGIES, a California corporation, with its
principal office at 3020 Old Ranch Parkway, Suite 300, Seal Beach, California
90740-2751 (hereinafter referred to as "Employer"), and DONALD ACKERMAN,
residing at 755 South Quail Circle, Anaheim, CA 92807 (hereinafter referred to
as "Employee").
SECTION 1.00 EMPLOYMENT DUTIES
1.01 In consideration of the mutual promises and agreements herein
contained, Employer hereby employs Employee, and Employee hereby accepts
employment, upon the terms and conditions hereinafter set forth.
1.02 Employee shall serve as Executive Vice-President of Employer
under the supervision and direction of Employer's CEO and Board of Directors.
Employee shall be responsible for the marketing and sales of Employer.
1.03 The term of this Agreement shall commence as of the first day of
May 1996, and shall continue for a period of three (3) years thereafter, subject
to earlier termination as provided below:
A. This agreement shall immediately terminate on the
occurrence of any of the following events: (i) circumstances which make it
impossible or impracticable for the business of Employer to be carried on; (ii)
Employer becoming insolvent, filing a petition in bankruptcy or a similar
proceeding, having a receiver appointed, being reorganized or declared a
bankrupt, or making a general assignment for the benefit of creditors; or (iii)
the death of Employee.
B. Employer may at any time upon notice of termination to
Employee terminate this Agreement for cause. The term "cause" as used herein
shall mean willful and persistent inattention by Employee to the Employee's
duties hereunder or any act or acts by Employee amounting to gross negligence to
the substantial detriment of Employer; Employee intentionally engaging in any
activity which is in direct conflict with the business interest of Employer;
willful or serious misconduct on the part of Employee to the substantial
detriment of Employer; or any other substantial willful breach of any term or
provision of this Agreement by Employee.
C. In the event Employee becomes temporarily or permanently
disabled because of sickness, or physical or mental disability, or any other
reason, so that it reasonably appears that he will e unable to perform his
duties under this Agreement, Employer shall have the option to terminate this
Agreement by giving notice of termination to Employee; provided, however, that
any such termination shall not affect Employee's right to receive payments under
any insurance coverage provided by Employer pursuant to Sections 3.05 and 6.08
hereof and Employee shall be entitled to full salary and other benefits
hereunder during the period of any physical or mental disability through the
termination date.
<PAGE> 2
1.04 Termination of this Agreement pursuant to any of the provisions of
Section 1.03 hereof shall be without prejudice to any right or remedy which
either party hereto may be entitled either at law, in equity, or under this
Agreement. Except as otherwise provided herein, in the event of termination of
this Agreement, the Employee shall be entitled to the compensation earned by
him prior to the date of termination as provided for in this Agreement computed
pro rata up to and including that date and Employee shall be entitled to no
further compensation as of the date of termination.
1.05 Employee agrees that to the best of his ability and experience he
will at all times loyally and conscientiously perform all duties and
obligations either expressly or implicitly required of him by the terms of this
Agreement and will devote to the performance of such duties full working time,
attention and energies.
1.06 Upon expiration or earlier termination of this Agreement for any
reason, including, without limitation, termination for "cause" as provided in
Section 1.03B hereof, Employer agrees to indemnify and hold harmless Employee
for and against all suits, claims, liabilities, losses, damages, costs and
expenses (including legal expenses) allege, charged or otherwise asserted
against or suffered or incurred by Employee in respect of any debts,
obligations, financial commitments or other liabilities of Employer or any of
its subsidiaries or affiliates which at the time of such expiration or
termination had been endorsed, guaranteed or secured by Employee, acting in his
personal capacity, or by any of Employee's personal assets.
SECTION 2.00 COMPENSATION
2.01 As compensation for services rendered under this Agreement,
Employee shall be entitled to receive from Employer a salary of One Hundred
Fifty-Thousand Dollars ($150,000) per year, payable in semi-monthly or other
convenient installments during the period of employment, prorated for any
partial employment period. Employee agrees that for the first six (6) months of
employment that Employer may accrue $4,000 a month of the Employee's salary.
This accrual will be paid to Employee starting in the seventh month and will be
paid in six monthly installments. In addition to the above salary, the employee
shall be paid two (2%) of the net sales of the company, paid quarterly, on such
further terms and conditions as Employer and Employee shall agree in writing
within thirty days of the date of this Agreement. The Employer agrees to provide
to Employee an Incentive Stock Option in the amount of 300,000 shares of common
stock, on such general terms and conditions as set forth herein and such further
terms and conditions as Employer and Employee shall agree in writing within
thirty days of the date of this Agreement. Said option will be a six (6) year
option exercisable at one dollar and fifty-cents ($1.50) per share. If Employer
has cumulative earnings (EBITDA) of $1,000,000 then the Employee may exercise
100,000 shares. If Employer has cumulative earnings (EBITDA) of $2,000,000 the
employee may exercise an additional 100,000 shares and if Employer has
cumulative earnings (EBITDA) of $3,000,000 Employee may exercise all options.
The options will allow for customary provisions relating to anti-dilution,
piggy-back registration rights on Form S-8 for the underlying shares.
Employment Agreement 2 of 8
<PAGE> 3
2.02 The basic salary provided in Section 2.01 hereof shall be adjusted
annually to reflect the increase, if any, in the cost of living by adding to
such basic salary an amount obtained by multiplying the basic salary by the
percentage by which the level of the Consumer Price Index for all Urban
Consumers, Los Angeles-Orange County Area, All items average (1996 = 1000 (or,
if such Index is not published, by an equivalent Index), as reported for the
last day of the applicable twelve (12) month period from the effective date of
this Agreement by the Bureau of Labor Statistics of the United States
Department of Labor, has increased over its level as of the day preceding the
commencement of said twelve (12) month period; but, in any event, no adjustment
to the basic annual salary shall be made unless such adjustment would equal or
exceed fifteen percent (15%).
2.03 Employee shall be paid such additional compensation, if any, from
Employer for services rendered hereunder as may be determined in the sole
discretion of Employer as and for bonuses and/or merit increases based on
Employer's evaluation of Employee's performance under this Agreement.
SECTION 3.00 BENEFITS
3.01 Employee shall be entitled to a vacation of four (4) weeks with
full pay during each twelve (12) month period during the term hereof. Such
vacation shall be taken at a time selected by Employee, work permitting. In
addition, Employee shall be entitled to up to twenty (20) days during each
twelve (12) month period during the term hereof as sick leave with pay.
Additional sick leave with pay may be granted at the discretion of Employer.
Employee shall be further entitled to eleven (11) holidays during each twelve
(12) months period during the term hereof. Employer may select up to six (6)
fixed holidays and the rest may be taken by Employee at any time work
permitting.
3.02 If Employee for any reason whatsoever becomes temporarily or
permanently disabled, so that he is unable to perform his duties hereunder and
this Agreement is terminated by Employer as provided in Section 1.03C hereof,
Employer agrees to pay him one hundred percent (100%) of his annual salary and
fringe benefits hereunder, for a period of twelve (12) months, payable in the
same manner as his salary, and for an additional twelve (12) months, at fifty
percent (50%) of his annual salary and one hundred percent (100%) of fringe
benefits, payable in the same manner as his salary. After said period, he shall
be entitled to whatever disability income benefits are payable under Section
3.06 hereof, and said benefits under the policy shall be fully assigned to him
in the event of permanent disability. "Permanent disability" for this purpose
shall be as defined under the disability income policy provided for Employee by
Employer.
3.03 In the event that Employee shall die during the term hereof,
Employer agrees to immediately pay three (3) years' basic salary in effect at
the death of said Employee, payable in thirty-six (36) equal monthly
installments, to Employee's surviving spouse, provided they are legally married
and living together at the date of Employee's death. If Employee does not have
Employment Agreement
3 of 8
<PAGE> 4
such a wife surviving, said sum shall be payable to his estate, or otherwise if
Employee writing shall designate the person or persons to receive same in a
written instrument delivered to Employer prior to Employee's death in such
portions designated. If no such written designation shall be on file, the
entire sum shall be payable to the Employee's estate. Employer shall maintain a
life insurance policy on Employee in such amount as to provide Employer funds
to meet its obligation under this Section 3.03.
3.04 Employer shall provide employee with the use of a mutually
agreeable automobile with optional equipment of Employee's selections. Such
automobile shall at no time be older than two (2) years. Employer shall pay all
operating expenses of auto and shall procure and maintain an automobile
liability policy, with such coverage as Employer shall reasonably desire, for
personal liability and property damage.
3.05 Employer agrees to include Employee in the hospital, surgical,
and medical benefit plan adopted by Employer and agrees under a supplemental
medical reimbursement plan to reimburse Employee for all medical, dental and
hospital bills incurred by Employee for himself and for his wife and those of
his children qualifying as his dependents under the Internal Revenue Code of
1986, as amended, up to a total sum of Twenty-Five Thousand Dollars ($25,000)
per calendar year or pro rata portion thereof. Employer further agrees to pay
such bills directly, rather than to reimburse Employee for payment, on demand
by Employee but only if the bills are submitted in advance to Employer for its
approval; provided, however, that all such reimbursements or direct payments by
Employer shall be limited to that portion of such bills, if any, which will not
be paid by insurance under Employer's plan or covered by Employee under an
individual plan. However, if Employee has an individual plan and pays premiums
thereunder, he shall be entitled to reimbursement under this plan for such
premiums which shall be included in said maximum of Twenty-Five Thousand
Dollars ($25,000) per year. There shall be no carryover of amounts not
reimbursed to any subsequent year or years.
3.06 Employer, in recognition of the loyalty of Employee, agrees to
provide a disability income plan to purchase policy or policies of disability
of Employee beyond one (1) year, in the amount of Ten Thousand Dollars
($10,000) per month, with such exclusionary periods up to one (1) year as
Employer shall desire. In the event of permanent disability under the terms of
said policy or policies and the termination of this Agreement Employer shall
assign the policies and the benefits thereunder to Employee. Otherwise, the
benefits shall be payable to Employer to fund the temporary disability benefits
to Employee up to one (1) year under Section 3.02 hereof.
3.07 Employer, in recognition of the loyalty of Employee, agrees to
provide a Five Hundred Thousand Dollar ($500,000) whole life insurance policy,
to pay premiums on said policy, with the beneficiary being the designee of
Employee. In the event Employee leaves the Employer for any reason the policy
shall be fully paid for six (6) months from his termination date. Upon Employee
leaving the employ of Employer, Employer shall assign the policy and the
benefit thereunder to Employee.
Employment Agreement 4 of 8
<PAGE> 5
3.08 Employer will promptly reimburse Employee for all reasonable
business expenses incurred by Employee in promoting the business of Employer,
including expenditures for entertainment, gifts, and travel, provided that: (i)
each such deduction is of the nature qualifying it as a proper deduction for
federal and state income tax returns of Employer; and (ii) Employee furnishes
Employer adequate records and other documentary evidence required by federal and
state statutes and regulations issued by appropriate taxing authorities for the
substantiation of each such expenditure as an income tax deduction.
Notwithstanding the above, Employer shall retain the right to establish its own
rules and regulations, from time to time, as to business expenses which are
reimbursable by Employer.
SECTION 4.00 PROPERTY RIGHTS OF THE PARTIES
4.01 Employee agrees: (i) to disclose promptly in writing and assign to
Employer all inventions, improvements, developments, and discoveries, whether or
not patentable or copyrightable, which he may make or conceive either solely or
jointly with others during the period of his employment with Employer,
(including but not limited to any period prior to the date of this Agreement),
whether or not made or conceived during his working hours, that will relate
directly or indirectly to any aspect of Employer's business, including but not
limited to any system, machine, process, device, composition of matter or
ornamental design which Employee now or hereafter during the period of his
employment may make, use or sell or which are made or conceived with the use of
Employer's time, materials or facilities; (ii) to execute and deliver such
documents and to take such action, during and subsequent to his employment by
Employer, at his expense but without charge by him to Employer, necessary to
assist Employer in every way to obtain and defend letters patent for said
inventions in any and all countries and to vest title thereto in Employer, and
its successors or assigns; (iii) that any invention which he may disclose to
anyone within six (6) months after the termination of his employment or for
which he may file application for letters patent within six (6) months after
termination of his employment shall be presumed to have been made or conceived
during the period of his employment hereunder; provided that if he, in fact,
makes or conceives any such invention subsequent to his employment, then such
invention shall belong to him and shall be his sole property. Employee assumes
the responsibility of establishing that he made or conceived any such invention
after the termination of his employment; (iv) in the event that he is assigned
by Employer to work for any other company or organization, such employment shall
be deemed to be employment by Employer for the purposes of this Agreement; (v)
as a matter of record, Employee has given on a separate sheet of paper a
complete list of all patentable inventions including a line of description
thereof, which he has made or conceived prior to this Agreement and which are
not included in this agreement; and (vi) render to Employer a true account of
all business done by him for Employer and of all moneys received by him on the
account of Employer and pay forthwith all moneys so received to Employer without
deduction therefrom except as authorized by Employer.
4.02 During the term of this Agreement and at all times thereafter,
Employee will keep confidential and will not directly or indirectly divulge to
anyone nor use or otherwise appropriate
Employment Agreement 5 of 8
<PAGE> 6
for Employee's own benefit, or on behalf of any other person, firm,partnership
or corporation by whom Employee might subsequently be employed or otherwise
associated or affiliated with, any and all customer lists, arrangements with
distributors, marketing information or strategies, trade secrets or other
confidential information of any kind, nature or description concerning any
matters affecting or relating to the business of Employer, any affiliate of
Employer or a customer of Employer.
4.03 During the term of this Employment Agreement, Employee agrees
that (i) he will not, directly or indirectly, own an interest in, operate, join,
control or participate in, or be connected as an officer, employee, agent,
independent contractor, partner, shareholder or principal of any corporation,
partnership, proprietorship, firm, association, person or other entity providing
services and/or products or a combination thereof which directly or indirectly
compete with Employer's business, and he will not undertake planning for or
organization of any business activity competitive with Employer's business or
combine or conspire with other employees or representatives of Employer's
business for the purpose of organizing any such competitive business activity,
except the purchase of less than ten percent (10%) of the stock of a publicly
traded company which is not affiliated with the Employer; (ii) he will not,
directly or indirectly, either for himself or for any other person, firm or
corporation, divert or take away or attempt to divert or take away (and after
the term of this Employment Agreement, call on or solicit or attempt to call on
or solicit) any of Employer's customers or distributors, including but not
limited to, those upon whom Employee called or whom Employee solicited or
serviced or with whom Employee became acquainted while engaged as an employee in
Employer's business; and (iii) he will not, directly or indirectly or by action
in concert with others, induce or influence, or seek to induce or influence,
(and after the term of this Employment Agreement, call on or solicit or attempt
to call on or solicit) any person who is engaged (as an employee, agent,
independent contractor or otherwise) by Employer to terminate his or her
employment or engagement.
4.04 Employee acknowledges that, as a key management employee, the
Employee will be involved, on a high level, in the development, implementation
and management of the business strategies and plans of Employer which shall
also consist of such other business, units, divisions, subsidiaries or other
entities of Employer as Employer shall determine in its sole discretion from
time to time (the "Business"). By virtue of the Employee's unique and sensitive
position and special background, employment of the Employee by a competitor of
Employer represents a serious competitive danger to Employer and the Business,
and the use of the Employee's talent and knowledge and information about
Employer or the Business can and would constitute a valuable competitive
advantage over Employer and the Business. In view of the foregoing, the
Employee covenants and agrees that, if the Employee's employment with Employer
is terminated for any reason at any time, for a period of three years after the
date of such termination, the Employee will not engage or be engaged, in any
capacity, directly or indirectly, including but not limited as employee, agent,
consultant, manager, executive, owner or stockholder (except as a passive
investor holding less than a 1% equity interest in any enterprise the
securities of which are publicly traded) in any business entity doing business
in
Employment Agreement
6 of 8
<PAGE> 7
the United States engaged in competition with any business conducted by
Employer on the date of termination. This covenant not to compete shall survive
the termination or expiration of the other provisions of this Employment
Agreement. If any court determines that this covenant not to compete, or any
part thereof, is unenforceable because of the duration or geographic scope of
such provision, such court shall have the power to reduce the duration or scope
of such provision, as the case may be, and, in its reduced form, such provision
shall then be enforceable.
SECTION 5.00 OBLIGATIONS OF EMPLOYER
5.01 During the term of this Agreement, Employer shall furnish
Employee with all proper equipment, offices, stenographic help, and other usual
equipment and supplies necessary to perform his duties hereunder.
5.02 Employer shall indemnify Employee for losses sustained by
Employee in direct consequence of the good faith performance of his duties
hereunder to the extent permitted under the California General Corporation Law
as said statute may from time to time be amended.
SECTION 6.00 GENERAL PROVISIONS
6.01 Any notices to be given hereunder by either party to the other
may be effected either by personal delivery in writing or by mail, registered
or certified postage prepaid with return receipt requested. Mailed notices
shall be addressed to the parties at the addresses appearing in the
introductory paragraph of this Agreement, but each party may change his address
by written notice in accordance with this paragraph. Notices delivered
personally shall be deemed communicated as of actual receipt; mailed notices
shall be deemed communicated as of one day after mailing.
6.02 This Agreement supersedes any and all other agreements either
oral or in writing, between the parties hereto with respect to the employment
of Employee by Employer and contains all of the covenants and agreements
between the parties with respect to such employment in any manner whatsoever.
Each party to this Agreement acknowledged that no representations, inducements,
promises, or agreements, orally or otherwise, have been made by any party, or
anyone acting on behalf of any party, which are not embodied herein, and that
no other agreement, statement, or promise not contained in this Agreement shall
be valid or binding. Any modification of this Agreement will be effective only
if it is in writing signed by the party to be charged.
6.03 If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid, void, or unenforceable, the remaining
provisions shall nevertheless continue in full force without being impaired or
invalidated in any way.
Employment Agreement 7 of 8
<PAGE> 8
6.04 This Agreement shall be governed by and construed in accordance
with the laws of the State of California.
6.05 If Employee dies prior to the expiration of the term of
employment, any moneys that may be due him from Employer under this Agreement as
of the date of his death shall be paid to his executors, administrators, heirs,
personal representative, successor and assigns, provided, however, Employee may
attach, as Exhibit "A" hereto, a Designated Survivor of said benefits, and if a
designated survivor is other than the surviving spouse, if she survives
Employee, then said designation shall be consented to in writing by said spouse.
6.06 The failure by either party to enforce at any time any of the
provisions of this Agreement or to require at any time performance by the other
party of any of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this Agreement, or
any part hereof, or the right of either party thereafter to enforce each and
every provision in accordance with the terms of this Agreement.
6.07 The rights and obligations of Employer under this Agreement shall
inure to the benefit of and shall be binding upon the successors and assigns of
Employer.
6.08 Employer may elect to purchase Key Man term insurance upon the
Employee in the amount of One Million Dollars ($1,000,000) with Employer as
beneficiary under such policy. Such insurance would not effect 6.05 hereinabove.
EMPLOYER: EMPLOYEE:
NETGUARD TECHNOLOGIES, INC.
By: /s/ E. BLAINE MANSFIELD /s/ DONALD ACKERMAN
----------------------- -------------------
E. Blaine Mansfield, Donald Ackerman
Chief Executive Officer
Employment Agreement 8 of 8
<PAGE> 1
EXHIBIT 10.3
AGREEMENT OF PURCHASE AND SALE OF STOCK
This agreement is made as of April 30, 1997, by and among NET/GUARD
Technologies, Inc., a Delaware corporation ("Buyer"), having its principal
office at 12465 Lewis Street, Suite 101, Garden Grove, California 92840, NetPage
Communications, Inc., an Illinois corporation (the "Corporation"), having its
principal office at 17752 Mitchell, Suite C, Irvine, California 92614, and the
current shareholders of the Corporation whose addresses are set forth next to
their names below (the "Shareholders"). Corporation and the Shareholders are
sometimes, collectively, referred to herein as the NetPage Parties.
Buyer desires to purchase from the Corporation and the Corporation desires
to sell to Buyer 147,784,000 shares of Common Stock of the Corporation, no par
value per share, (the "New NetPage Shares"), which will represent 80% of all of
the issued and outstanding shares of Common Stock of the Corporation. The
Shareholders desire that this transaction be consummated. It is the intention of
Buyer and the NetPage Parties that the New NetPage Shares and the Existing
Shares (as hereinafter defined) will, collectively, represent 100% of the issued
and outstanding shares of Common Stock of the Corporation.
In consideration of the mutual covenants, agreements, representations, and
warranties contained in this agreement, the parties agree as follows:
ARTICLE 1
PURCHASE AND SALE OF SHARES
1.1 Subject to the terms and conditions set forth in this agreement,
prior to the date hereof, the Shareholders have amended the Articles of
Incorporation of the Corporation to increase its authorized number of shares
from 100,000,000 shares to 300,000,000 shares of Common Stock.
1.2 Concurrent with the execution and delivery of this agreement and
subject to the terms and conditions set forth herein, the NetPage Parties shall
cause the Corporation to issue and deliver the New NetPage Shares to Buyer, and
Buyer shall acquire and accept the New NetPage Shares from the Corporation.
1.3 As consideration for the New NetPage Shares, Buyer will deliver the
following:
(a) To the Corporation, the purchase price of $362,000 as follows:
(i) Concurrent with Buyer's receipt of the New NetPage
Shares (the "Delivery Date"), a check, payable to the order of the Corporation,
in an amount which, when added to all amounts already paid by Buyer to the
Corporation, will equal the sum of at least $200,000.00;
(ii) Approximately 30 days, but no later than 35 days,
after the Delivery Date, a check, made payable to the order of the Corporation,
in the amount of $75,000.00 (the "Second Payment"); and
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<PAGE> 2
(iii) 60 days after the Delivery Date, a check, made
payable to the order of the Corporation, in the amount of $87,000.00 (the "Final
Payment").
(iv) Buyer may at its election deliver from time to time
all or a portion of the Second Payment and Final Payment before the dates on
which such payments are due and in such event Buyer shall be obligated to pay
the balance then owing of the Second Payment or Final Payment.
(b) To the Shareholders, pro rata to the respective interests of
the Shareholders in the Corporation, evidence satisfactory to the Shareholders
that 200,003 shares of restricted Common Stock of Buyer (the "Restricted
Shares") will be issued by Buyer and delivered to the Shareholders by Buyer's
transfer agent no later than five (5) business days after the date hereof. The
share certificates evidencing the Restricted Shares shall bear an appropriate
legend to the effect that the Restricted Shares have not been registered under
the Securities Act of 1933, as amended, and that the subsequent resale or
transfer of the Restricted Shares would be limited accordingly (the "Legend").
1.4 From and after the date hereof, the board of directors of the
Corporation shall consist of Michael H. Crane ("Crane"), Victor Vurpillat, Scott
Walker ("Walker") and E. Blaine Mansfield ("Mansfield"). All other directors
shall resign as of such date. In the event the number of authorized directors is
increased to five persons by an amendment to the Bylaws of the Corporation,
Buyer shall have the right to appoint two persons to fill the vacancies created
by such amendment. However, for so long as the Shareholders own, in the
aggregate, 20% of all of the issued and outstanding Common Stock of the
Corporation, the following actions must be approved by a vote of more than 80%
of the issued and outstanding Common Stock of the Corporation:
(a) a merger of the Corporation with another entity, unless the
Corporation is the surviving entity; or
(b) the liquidation or dissolution of the Corporation; or
(c) the sale of substantially all of the assets of the Corporation.
1.5 Concurrent with the execution and delivery of this agreement, Crane
shall resign as the Chief Executive Officer of the Corporation and Mansfield
shall be elected to such office. The Corporation and Mansfield shall enter into
an employment agreement (the "Employment Agreement"), providing that, among
other things, it is anticipated that Mansfield will devote a significant
portion, but not 100%, of his time and effort on behalf of the Corporation, as
its Chief Executive Officer, for so long as Mansfield and a majority of the
board of directors consider it to be in the best interests of the Corporation to
maintain such arrangement.
1.6 Concurrent with the execution and delivery of this agreement, the
Corporation shall issue to Walker, for the purchase price of $1000.00, a warrant
substantially in the form attached hereto as Exhibit A allowing Walker to
purchase an additional 38,893,846 shares
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<PAGE> 3
of Common Stock of the Corporation (the "Warrant"). The Warrant shall entitle
Walker to purchase such shares of Common Stock of the Corporation at a price of
$0.001 per share and may only be exercised if the Corporation achieves gross
pretax profit of $8,000,000 (the "Profit Trigger") through the period commencing
January 1, 1997 and ending December 31, 1998. Notwithstanding the foregoing, if
the Corporation attains at least 80% of the Profit Trigger by the end of such
period, Walker may exercise the Warrant in proportion to the gross profits
actually attained. If the Corporation fails to achieve at least 80% of the
Profit Trigger prior to the period ending December 31, 1 998 then the Warrant
shall expire and have no further force or effect.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF NETPAGE PARTIES
The NetPage Parties, jointly and severally, represent and warrant that:
2.1 The Corporation is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Illinois, has all necessary
corporate powers to carry on its business as now owned and operated by it, and
is duly qualified to do intrastate business and is in good standing in
California.
2.2 The authorized capital stock of the Corporation consists of
300,000,000 shares of Corporation Common Stock, of which, prior to the issuance
of the New NetPage Shares pursuant to paragraph 1.2, above, 36,946,000 shares
(the "Existing Shares") were issued and outstanding to the Shareholders. The
Existing Shares are validly issued, fully paid, and nonassessable, and such
shares have been so issued in full compliance with all federal and state
securities laws. The New NetPage Shares upon delivery according to the terms of
this agreement are (i) duly authorized, validly issued, fully paid and
nonassessable, and (ii) when delivered in accordance with the terms of this
agreement, free and clear of any and all liens, security interests, pledges,
claims, charges, voting trusts, shareholder agreements and encumbrances of any
kind whatsoever (except for state and federal securities laws of general
applicability). There are no outstanding subscriptions, options, rights,
warrants, convertible securities, or other agreements or commitments obligating
the Corporation to issue or to transfer from treasury any additional shares of
its Common Stock or granting the rights to participate in the profits of the
Corporation, with the exception of the Warrant being issued pursuant to
paragraph 1.6, above.
2.3 The Shareholders are the owners, beneficially and of record, of the
Existing Shares and have the power to amend the Articles of Incorporation to
increase the authorized capitalization of the Corporation and to cause the
Corporation to issue the New NetPage Shares to Buyer without obtaining the
consent or approval of any other person or governmental authority other than the
Secretary of State of the State of Illinois.
2.4 The Corporation does not own, directly or indirectly, any interest or
investment (whether equity or debt) in any corporation, partnership, business,
trust, or other entity.
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2.5 Section 2.5 of the Disclosure Schedule sets forth the unaudited balance
sheets, including statements of income and retained earnings, of the
Corporation, dated within 30 days hereof and certified by the chief financial
officer of the Corporation as accurately reflecting the financial condition of
the Corporation. To the actual knowledge of Crane, the financial statements have
been prepared in accordance with generally accepted accounting principles
consistently followed by the Corporation and fairly present the financial
position of the Corporation as of the date of the balance sheet and the results
of its operations for such period.
2.6 To the actual knowledge of Crane and except as set forth in Section
2.6 of the Disclosure Schedule or as contemplated hereby, since the date of the
balance sheet referred to paragraph 2.5, above, there has not been any:
(a) Transaction by the Corporation except in the ordinary course of
business as conducted on that date;
(b) Capital expenditure by the Corporation exceeding $10,000;
(c) Material adverse change in the financial condition,
liabilities, assets, business, or prospects of the Corporation;
(d) Destruction, damage to, or loss of any asset of the Corporation
(whether or not covered by insurance) that materially and adversely affects the
financial condition, business, or prospects of the Corporation;
(e) Change in accounting methods or practices (including, without
limitation, any change in depreciation or amortization policies or rates) by the
Corporation;
(f) Revaluation by the Corporation of any of its assets;
(g) Declaration, setting aside, or payment of a dividend or other
distribution in respect to the capital stock of the Corporation, or any direct
or indirect redemption, purchase, or other acquisition by the Corporation of any
of its shares of Common Stock;
(h) Increase in the salary or other compensation payable or to
become payable by the Corporation to any of its officers, directors, or
employees, or the declaration, payment, or commitment or obligation of any kind
for the payment by the Corporation of a bonus or other additional salary or
compensation to any such person;
(i) Sale or transfer of any asset of the Corporation, except in the
ordinary course of business;
(j) Amendment or termination of any contract, agreement, or license
to which the Corporation is a party, except in the ordinary course of business;
(k) Loan by the Corporation to any person or entity, or guaranty by
the Corporation of any loan;
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<PAGE> 5
(l) Mortgage, pledge, or other encumbrance of any asset of the
Corporation;
(m) Waiver or release of any right or claim of the Corporation,
except in the ordinary course of business;
(n) Commencement or notice or threat of commencement of any civil
litigation or any governmental proceeding against or investigation of the
Corporation or its affairs;
(o) Labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(p) Issuance or sale by the Corporation of any shares of its
capital stock or any other of its securities;
(q) Agreement by the Corporation to do any of the things described
in the preceding clauses (a) through (q); or
(r) Other event or condition of any character that has or might
have a material and adverse effect on the financial condition, business, assets,
liabilities, or prospects of the Corporation.
2.7 Except as set forth in Section 2.7 or 2.6 of the Disclosure Schedule,
since the date of the balance sheets referred to in paragraph 2.5, above, there
has not been any change in the financial condition or operations of the
Corporation, except changes in the ordinary course of business, which changes
have not in the aggregate been materially adverse.
2.8 To the actual knowledge of Crane, the Corporation does not have any
debt, liability, or obligation of any nature, whether accrued, absolute,
contingent, or otherwise, and whether due or to become due, that is not
reflected or reserved against in the Corporation's financial statements as set
forth in Section 2.5 and/or 2.6 of the Disclosure Schedule.
2.9 Section 2.9 of the Disclosure Schedule is a complete and accurate list
of all real property owned by or leased to the Corporation, together with an
accurate brief description of each property. Section 2.9 of the Disclosure
Schedule also sets forth brief descriptions of all buildings and other major
improvements located on these properties.
2.10 To the actual knowledge of Crane, Section 2.10 of the Disclosure
Schedule is a schedule of all trade names, trademarks, service marks, and
copyrights and their registrations, owned by the Corporation or in which it has
any rights or licenses, together with a brief description of each. To the actual
knowledge of Crane, there has been no infringement or alleged infringement by
others of any trade name, trademark, service mark, or copyright owned by the
Corporation. To the actual knowledge of Crane, the Corporation has not
infringed, and is not now infringing, on any trade name, trademark, service
mark, or copyright belonging to any other person, firm, or corporation. To the
actual knowledge of Crane, except as set forth in Schedule 2.10 of the
Disclosure Schedule, the Corporation is not a party to any license, agreement,
or arrangement, whether as licensor, licensee, franchisor, franchisee, or
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otherwise, with respect to any trademarks, service marks, trade names, or
applications for them, or any copyrights.
2.11 Section 2.11 of the Disclosure Schedule is a description of all
insurance policies held by the Corporation concerning its businesses and
properties. The Corporation has maintained and now maintains (i) insurance on
all of its assets and businesses of a type customarily insured, covering
property damage and loss of income by fire or other casualty, and, to the actual
knowledge of Crane (ii) adequate insurance protection against all liabilities,
claims, and risks against which it is customary to insure. To the actual
knowledge of Crane, the Corporation is not in default with respect to payment of
premiums on any such policy. A brief description of all pending claims, if any,
is also set forth in said Section 2.11.
2.12 To the actual knowledge of Crane, the Corporation has not received
notice of any violation of any applicable federal, state, or local statute, law,
or regulation (including, without limitation, any applicable building, zoning,
environmental protection, or other law, ordinance, or regulation) affecting its
properties or the operation of its business; and to the actual knowledge of
Crane, there are no such violations.
2.13 To the actual knowledge of Crane, except as set forth in Section 2.13
of the Disclosure Schedule, there is not pending, or, to the best actual
knowledge of the Shareholders and the Corporation, threatened, any suit, action,
arbitration, or legal, administrative, or other proceeding, or governmental
investigation against or affecting the Corporation or any of its businesses,
assets or financial condition.
2.14 All necessary corporate proceedings of NetPage have been taken to
authorize the execution, delivery and performance by NetPage of this agreement.
This agreement has been duly and validly authorized, executed and delivered by
the NetPage Parties and is a valid and binding obligation of the NetPage
Parties, enforceable against them in accordance with their respective terms. The
consummation of the transactions contemplated by this agreement will not result
in or constitute any of the following: (i) a breach of any term or provision of
this agreement; (ii) a default or an event that, with notice or lapse of time or
both, would be a default, breach, or violation of the Articles of Incorporation
or the Bylaws of the Corporation or any material lease, license, promissory
note, conditional sales contract, commitment, indenture, mortgage, deed of
trust, or other material agreement, instrument, or arrangement to which the
Corporation is a party or by which its property and/or other assets may be
bound; or (iii) an event that would permit any party to terminate any agreement
material to the business of the Corporation.
2.15 The NetPage Parties have the right, power, legal capacity, and
authority to enter into, and perform their respective obligations under this
agreement, including, but not limited to, the issuance of the New NetPage
Shares; and no approvals or consents of any persons other than the NetPage
Parties are necessary in connection with it, other than the consent of Secretary
of State of the State of Illinois to the authorization of the New NetPage
Shares. The execution and delivery of this agreement and the issuance of the New
NetPage Shares by the Corporation has been duly authorized by all necessary
corporate action.
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<PAGE> 7
2.16 The Corporation has furnished to Buyer, if so requested by Buyer for
its examination, (i) copies of the Articles of Incorporation and Bylaws of the
Corporation; (ii) the minute book of the Corporation, containing all records
required to be set forth of all proceedings, consents, actions, and meetings of
the shareholders and boards of directors of the Corporation; (iii) all permits,
orders, and consents issued by the Secretary of State of the State of Illinois
with respect to the Corporation's capital stock; and (4) the stock transfer book
of the Corporation setting forth all stock transfers.
2.17 When used herein, "to the actual knowledge" means the actual
knowledge of the individual without inquiry or investigation. None of the
representations and warranties made by the Shareholders or the Corporation, or
made in any certificate or memorandum furnished or to be furnished by any of
them or on their behalf, contains or will contain any untrue statement of a
material fact, or omits to state any material fact necessary to make the
statements made, in the light of the circumstances under which they were made,
not misleading.
2.18 Each of the Shareholders (i) is an "accredited investor" within the
meaning of the federal securities laws, (ii) acknowledges that he has no need
for liquidity in the investment evidenced by the Restricted Shares, (iii) has
been advised that the Restricted Shares are speculative securities subject to
high risk, (iv) understands fully that the Buyer has not granted the
Shareholders, or any of them, "registration rights" with respect to the
Restricted Shares, and accordingly, each of the Shareholders may have to bear
indefinitely the economic risk of owning Restricted Shares, and (v) is aware
that the shares of Common Stock of the Buyer trade on the Nasdaq Bulletin Board
but Buyer has informed the Shareholders that no assurance can be given that such
trading market will continue, and that if such trading market does continue, it
is likely that sales or the expectation of sales of substantial numbers of
shares of Common Stock in the public market, whether by the Shareholders or
other stockholders of Buyer, will adversely affect prevailing market prices for
Common Stock of the Buyer.
2.19 Each of the Shareholders acknowledges that certificates evidencing
the Restricted Shares will have a legend prominently affixed to each certificate
substantially in the following form:
"THE SHARES OF COMMON STOCK EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND
THEY MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, SIGNED OR
TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE
ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE
SHARES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER
THE ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN
OPINION OF COUNSEL TO THE COMPANY, OR OTHER COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION IS CONSISTENT
WITH ALL APPLICABLE PROVISIONS OF THE ACT AS WELL AS ANY APPLICABLE
"BLUE SKY" OR SIMILAR STATE SECURITIES LAW."
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ARTICLE 3
BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants that:
3.1 Buyer is a corporation duly organized, existing, and in good standing
under the laws of Delaware. The execution and delivery of this agreement and the
consummation of this transaction by Buyer have been duly authorized, and no
further corporate authorization is necessary on the part of Buyer.
3.2 The authorized capital stock of Buyer consists of 20,000,000 shares of
Common Stock, of which 10,675,000 shares are issued and outstanding as of April
25, 1997 (excluding the Restricted Shares). Buyer has the right, power, legal
capacity, and authority to enter into, and perform its obligations under this
agreement, including, but not limited to, the issuance of the Restricted Shares;
and no approvals or consents of any persons or entities other than Buyer are
necessary in connection with it, except that Buyer has not qualified the
issuance and delivery of the Restricted Shares with any state authority nor has
Buyer registered the Restricted Shares under the Securities Act of 1933 as
amended. The execution and delivery of this agreement and the issuance of the
Restricted Shares by Buyer has been duly authorized by all necessary corporate
action. The Restricted Shares upon delivery according to the terms of this
agreement are (i) duly authorized, validly issued, fully paid and nonassessable,
and (ii) when delivered in accordance with the terms of this agreement, are free
and clear of any and all liens, security interests, pledges, claims, charges,
voting trusts, shareholder agreements and encumbrances of any kind whatsoever
(except for state and federal securities laws of general applicability).
3.3 Section 3.3 of the Disclosure Schedule is a description of the
business of Buyer. The information set forth in said Section 3.3, as
supplemented by any additional information that Buyer's representatives may
furnish under this paragraph 3.3, will not contain any untrue statement of a
material fact, or omit any material fact necessary to make the statements made,
in the light of the circumstances under which they were made, not misleading.
3.4 No consent, approval, or authorization of, or declaration, filing, or
registration with, any United States federal or state governmental or regulatory
authority is required to be made or obtained by Buyer in connection with the
execution, delivery, and performance of this agreement and the consummation of
the transactions contemplated by this agreement. The NetPage Parties have been
informed that the issuance and delivery of the Restricted Shares have not been
qualified under the laws of any state, nor have the Restricted Shares been
registered under the Securities Act of 1933, as amended, as set forth in 3.2
above.
3.5 To the actual knowledge of Buyer and except as set forth in Section
3.5 of the Disclosure Schedule, since the date of any financial statements
provided to the NetPage Parties, there has not been any:
(a) Capital expenditure by the Buyer exceeding $10,000;
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<PAGE> 9
(b) Material adverse change in the financial condition,
liabilities, assets, business, or prospects of the Buyer;
(c) Destruction, damage to, or loss of any asset of the Buyer
(whether or not covered by insurance) that materially and adversely affects the
financial condition, business, or prospects of the Buyer;
(d) Material change in accounting methods or practices (including,
without limitation, any material change in depreciation or amortization policies
or rates) by the Buyer;
(e) Revaluation by the Buyer of any of its assets;
(f) Declaration, setting aside, or payment of a dividend or other
distribution in respect to the capital stock of the Buyer, or any direct or
indirect redemption, purchase, or other acquisition by the Buyer of any of its
shares of Common Stock;
(g) Sale or transfer of any asset of the Buyer, except in the
ordinary course of business;
(h) Mortgage, pledge, or other encumbrance of any asset of Buyer;
(i) Waiver or release of any material right or claim of the Buyer,
except in the ordinary course of business;
(j) Commence or notice or threat of commencement of any civil
litigation or any governmental proceeding against or investigation of the Buyer
or its affairs;
(k) Labor trouble or claim of wrongful discharge or other unlawful
labor practice or action; and
(l) Agreement by Buyer to do any of the things described in the
preceding clauses (a) through (m); or
(m) Other event or condition of any character that has or might
have a material and adverse effect on the financial condition, business, assets,
liabilities, or prospects of the Buyer.
3.6 None of the representations and warranties made by Buyer, or made in
any certificate or memorandum furnished or to be furnished by any of it or on
its behalf, contains or will contain any untrue statement of a material fact, or
omits to state any material fact necessary to make the statements made, in the
light of the circumstances under which they were made, not misleading.
3.7 All necessary corporate proceedings of the Buyer have been taken to
authorize the execution, delivery and performance by the Buyer of this
agreement. This agreement has been duly and validly authorized, executed and
delivered by the Buyer and is a valid and binding obligation of the Buyer,
enforceable against it in accordance with its respective terms.
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<PAGE> 10
The consummation of the transactions contemplated by this agreement will not
result in or constitute any of the following: (i) a breach of any term or
provision of this agreement; (ii) a default or an event that, with notice or
lapse of time or both, would be a default, breach, or violation of the
Certificate of Incorporation or the Bylaws of the Buyer or any material lease,
license, promissory note, conditional sales contract, commitment, indenture,
mortgage, deed of trust or other material agreement, instrument, or arrangement
to which the Buyer is a party or by which its property and/or other assets may
be bound; or (iii) an event that would permit any party to terminate any
agreement material to the business of the Buyer.
ARTICLE 4
CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
4.1 The obligations of Buyer to purchase the New NetPage Shares are
subject to the satisfaction, concurrent with or prior to the execution of this
agreement, of all the conditions set forth in this Article 4. Buyer may, at its
option, waive any or all of these conditions in whole or in part without prior
notice; provided, however, that no such waiver of a condition shall constitute a
waiver by Buyer of any of its other rights or remedies, at law or in equity, if
the Shareholders or the Corporation shall be in default of any of their
representations, warranties, or covenants under this agreement.
4.2 The execution and delivery of this agreement by the NetPage Parties,
and the performance of their covenants and obligations under it, shall have been
duly authorized by all necessary corporate action, and Buyer shall have received
copies of all resolutions pertaining to that authorization, certified
respectively by the secretary of the Corporation.
4.3 All necessary agreements and consents of any parties to the
consummation of the transactions contemplated by this agreement, or otherwise
pertaining to the matters covered by it, shall have been obtained by the NetPage
Parties and delivered to Buyer.
4.4 The form and substance of all certificates, instruments and other
documents delivered to Buyer under this agreement shall be satisfactory in all
reasonable respects to Buyer and its counsel.
4.5 Buyer shall have received from the firm of Burke, Warren & MacKay,
P.C., counsel to the NetPage Parties, an opinion, in form and substance
substantially in the form of Exhibit B, hereof, and satisfactory to Buyer and
its counsel.
ARTICLE 5
CONDITIONS PRECEDENT TO NETPAGE PARTIES' PERFORMANCE
5.1 The obligations of the NetPage Parties to issue the New NetPage Shares
are subject to the satisfaction, concurrent with or prior to the execution of
this agreement, of all of the conditions set forth in this Article 5. The
Shareholders may, at their option and on behalf of the Corporation and
themselves, waive any or all of these conditions in whole or in part without
prior notice; provided, however, that no such waiver of a condition shall
constitute a waiver by either the Shareholders or the Corporation of any of
their rights or
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<PAGE> 11
remedies, at law or in equity, if Buyer should be in default of any of its
representations, warranties, or covenants under this agreement.
5.2 The execution and delivery of this agreement by Buyer, and the
performance of their covenants and obligations under it, shall have been duly
authorized by all necessary corporate action, and the NetPage Parties shall have
received copies of all resolutions pertaining to that authorization, certified
respectively by the secretary of Buyer.
5.3 All necessary agreements and consents of any parties to the
consummation of the transactions contemplated by this agreement, or otherwise
pertaining to the matters covered by it, shall have been obtained by Buyer and
delivered to the NetPage Parties.
5.4 The form and substance of all certificates, instruments and other
documents delivered to the NetPage Parties under this agreement shall be
satisfactory in all reasonable respects to the NetPage Parties and its counsel.
5.5 Buyer shall have received from the firm of Resch Polster Alpert &
Berger LLP, counsel to Buyer, an opinion, in form and substance substantially in
the form of Exhibit C, hereof, and satisfactory to the NetPage Parties and their
counsel.
ARTICLE 6
NETPAGE PARTIES' OBLIGATIONS AFTER CLOSING
6.1 The NetPage Parties jointly and severally shall indemnify, defend,
and hold harmless Buyer against and in respect of any and all claims, demands,
losses, costs, expenses, obligations, liabilities, damages, recoveries, and
deficiencies, including interest, penalties, and reasonable attorneys' fees,
that they shall incur or suffer, which arise, result from, or relate to any
breach of, or failure by the NetPage Parties to perform, any of their
representations, warranties, covenants, or agreements in this agreement or in
any schedule, certificate, exhibit, or other instrument furnished or to be
furnished by the NetPage Parties under this agreement unless the Buyer as of the
date of this agreement, had actual knowledge of any misrepresentation, breach or
failure (with the burden of proving such actual knowledge upon the NetPage
Parties). Notwithstanding anything to the contrary contained herein, the
liability of the NetPage Parties pursuant to this Article 6 shall not commence
until Buyer or the Corporation has experienced losses (i) in excess of $5,000,
net of insurance recoveries and tax benefits allocable to such loss, and then
only to the extent such losses exceed $5,000, and (ii) exceed in the aggregate
of $5,000, net of insurance and tax benefits allocable to such loss provided
that the total amount of such indemnity shall not exceed $362,000 in the
aggregate.
6.2 Buyer shall promptly notify the NetPage Parties of the existence of
any claim, demand, or other matter to which the NetPage Parties' indemnification
obligations would apply and shall give them a reasonable opportunity to defend
the same at their own expense and with counsel of their own selection; provided
that Buyer shall at all times also have the right to fully participate in the
defense at its own expense. If the NetPage Parties shall, within a reasonable
time after this notice, fail to defend, Buyer shall have the right, but not the
obligation, to undertake the defense of, and to compromise or settle (exercising
reasonable
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<PAGE> 12
business judgment), the claim or other matter on behalf, for the account, and at
the risk, of the NetPage Parties.
6.3 (a) The NetPage Parties and each of them agree that they will not,
at any time within the three-year period commencing as of the date hereof,
directly or indirectly engage in, or have any interest in any person, firm,
corporation, or business (whether as an employee, officer, director, agent,
security holder, creditor, consultant, or otherwise) except that nothing set
forth herein shall prohibit any of the NetPage Parties from having an ownership
of publicly traded securities which amounts to less than three percent (3%) of
any such entity's issued and outstanding securities that engages in, any
activity in the United States, which activity is the same as, similar to, or
competitive with any activity now engaged in by the Corporation (or any
successor or successors of either) in any of these counties or cities so long as
Corporation, or any successor or assign of Corporation, shall engage in this
activity in such county or city.
(b) The parties intend that the covenant contained in the preceding
portion of this section shall be construed as a series of separate covenants,
one for each county and city specified. Except for geographic coverage, each
such separate covenant shall be deemed identical in terms to the covenant
contained in subparagraph (a), above. If, in any judicial proceeding, a court
shall refuse to enforce any of the separate covenants deemed included in this
paragraph, then this unenforceable covenant shall be deemed eliminated from
these provisions for the purpose of those proceedings to the extent necessary to
permit the remaining separate covenants to be enforced.
6.4 The Shareholders agree not to divulge, communicate, use to the
detriment of the Corporation or Buyer or for the benefit of any other person or
persons, or misuse in any way, any confidential information or trade secrets of
the Corporation, including personnel information, secret processes, know-how,
customer lists, recipes, formulas, or other technical data. The Shareholders
acknowledge and agree that any information or data it has acquired on any of
these matters or items was received in confidence and as a fiduciary of the
Corporation.
ARTICLE 7
BUYER'S OBLIGATIONS AFTER CLOSING
7.1 Buyer shall indemnify, defend, and hold harmless the NetPage Parties
against and in respect of any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries, and deficiencies, including
interest, penalties, and reasonable attorneys' fees, that they shall incur or
suffer, which arise, result from, or relate to any breach of, or failure by
Buyer to perform, any of their representations, warranties, covenants, or
agreements in this agreement or in any schedule, certificate, exhibit, or other
instrument furnished or to be furnished by Buyer under this agreement unless the
NetPage Parties as of the date of this agreement, had actual knowledge of any
misrepresentation, breach or failure (with the burden of proving such actual
knowledge upon Buyer). Notwithstanding anything to the contrary contained
herein, the liability of the Buyer to the NetPage Parties pursuant to this
Article 7 shall not commence until the NetPage Parties have experienced losses
in excess
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of $5,000, provided that the total amount of such indemnity of the Buyer to the
NetPage Parties shall not exceed $362,000 in the aggregate.
7.2 The NetPage Parties shall promptly notify Buyer of the existence of
any claim, demand, or other matter to which Buyer's indemnification obligations
would apply and shall give it a reasonable opportunity to defend the same at
their own expense and with counsel of its own selection; provided that the
NetPage Parties shall at all times also have the right to fully participate in
the defense at their own expense. If Buyer shall, within a reasonable time after
this notice, fail to defend, the NetPage Parties shall have the right, but not
the obligation, to undertake the defense of, and to compromise or settle
(exercising reasonable business judgment), the claim or other matter on behalf,
for the account, and at the risk, of Buyer.
ARTICLE 8
PUBLICITY
All notices to third parties and all other publicity concerning the
transactions contemplated by this agreement shall be jointly planned and
coordinated by and between Buyer and the NetPage Parties. No party shall act
unilaterally in this regard without the prior written approval of the others;
however, this approval shall not be unreasonably withheld.
ARTICLE 9
COSTS
9.1 Each party represents and warrants that it has dealt with no broker or
finder in connection with any transaction contemplated by this agreement, and,
as far as it knows, no broker or other person is entitled to any commission or
finder's fee in connection with any of these transactions. The NetPage Parties
and Buyer each agree to indemnify and hold harmless one another against any
loss, liability, damage, cost, claim, or expense incurred by reason of any
brokerage, commission, or finder's fee alleged to be payable because of any act,
omission, or statement of the indemnifying party.
9.2 Each party shall pay all costs and expenses incurred or to be incurred
by it in negotiating and preparing this agreement and in closing and carrying
out the transactions contemplated by this agreement.
ARTICLE 10
FORM OF AGREEMENT
10.1 The subject headings of the Articles of this agreement are included
for convenience only and shall not affect the construction or interpretation of
any of its provisions.
10.2 This agreement constitutes the entire agreement between the parties
pertaining to the subject matter contained in it and supersedes all prior and
contemporaneous agreements, representations, and understandings of the parties.
No supplement, modification, or amendment of this agreement shall be binding
unless executed in writing by all the parties.
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No waiver of any of the provisions of this agreement shall be deemed, or shall
constitute, a waiver of any other provision, whether or not similar, nor shall
any waiver constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver.
10.3 This agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
ARTICLE 11
PARTIES
11.1 Nothing in this agreement, whether express or implied, is intended
to confer any rights or remedies under or by reason of this agreement on any
persons other than the parties to it and their respective successors and
assigns, nor is anything in this agreement intended to relieve or discharge the
obligation or liability of any third persons to any party to this agreement, nor
shall any provision give any third persons any right of subrogation or action
over against any party to this agreement.
11.2 This agreement shall be binding on, and shall inure to the benefit
of I the parties to it and their respective heirs, legal representatives,
successors, and assigns; provided, however, that Buyer may not assign any of its
rights under this agreement, except to a wholly owned subsidiary corporation of
Buyer. No such assignment by Buyer to its wholly owned subsidiary shall relieve
Buyer of any of its obligations or duties under this agreement.
ARTICLE 12
REMEDIES
12.1 Any controversy or claim arising out of, or relating to, this
agreement, or the making, performance, or interpretation of it, shall be settled
by arbitration in Orange County, California under the commercial arbitration
rules of the American Arbitration Association then existing, and judgment on the
arbitration award may be entered in any court having jurisdiction over the
subject matter of the controversy. Arbitrators shall be persons experienced in
negotiating, making, and consummating stock acquisition agreements.
12.2 Each party's obligation under this agreement is unique. If any
party should default in its obligations under this agreement, the parties each
acknowledge that it would be extremely impracticable to measure the resulting
damages; accordingly, the nondefaulting party or parties, in addition to any
other available rights or remedies, may sue in equity for specific performance,
and the parties each expressly waive the defense that a remedy in damages will
be adequate. Notwithstanding any breach or default by any of the parties of any
of their respective representations, warranties, covenants, or agreements under
this agreement, since the purchase and sale contemplated hereunder are, for the
most part, being consummated concurrent with the execution and delivery of this
agreement, each of the parties waives any rights that it or they may have to
rescind this agreement or the transactions being consummated by it; provided,
however, that this waiver shall not affect any other rights or remedies
available to the parties under this agreement or under the law.
-14-
<PAGE> 15
12.3 If any legal action or any arbitration or other proceeding is brought
for the enforcement of this agreement, or because of an alleged dispute, breach,
default, or misrepresentation in connection with any of the provisions of this
agreement, the successful or prevailing party or parties shall be entitled to
recover reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
ARTICLE 13
NATURE AND SURVIVAL OF REPRESENTATIONS AND OBLIGATIONS
No representations or warranties whatever are made by any party, except as
specifically set forth in this agreement, or in an instrument, certificate or
other writing provided for in this agreement. All statements contained in any of
these instruments, certificates or other writings shall be deemed to be
representations and warranties under this agreement. The representations,
warranties, and indemnities made by the parties in this agreement or in
instruments, certificates or other writings provided shall be deemed to be
continuing and surviving from and after date hereof for a period of 365 days
(the "Survival Period"), unless a specific claim in writing with respect to
these matters shall have been made, or an action at law or in equity shall have
been commenced or filed, before the expiration of the Survival Period. Nothing
in this Article 1 3 shall affect the obligations and indemnities of the parties
with respect to covenants and agreements contained in this agreement that are
permitted to be performed, in whole or in part, after the date hereof.
ARTICLE 14
NOTICES
All notices, requests, demands, and other communications under this
agreement shall be in writing and shall be deemed to have been duly given on the
date of service if served personally on the party to whom notice is to be given,
or on the second day after mailing if mailed to the party to whom notice is to
be given, by first class mail, registered or certified, postage prepaid, and
properly addressed as follows:
To the Corporation at: NetPage Communications, Inc.
17752 Mitchell, Suite C
Irvine, California 92614
With a copy to: Burke, Warren & MacKay, P.C.
Attention: Stephen C. Voris, Esq.
22nd Floor, IBM Plaza
330 North Wabash Avenue
Chicago, Illinois 60611-3607
To the Shareholders at: The addresses set forth below.
-15-
<PAGE> 16
To Buyer at: NET/GUARD Technologies, Inc.
Attn: E. Blaine Mansfield,
President 12465 Lewis Street
Suite 101
Garden Grove, California 92840
With a copy to: Resch Polster Alpert & Berger LLP
Attn: Aaron A. Grunfeld, Esq. 10390
Santa Monica Boulevard Fourth Floor
Los Angeles, California 90025
Any party may change its address for purposes of this Article 14 by giving the
other parties written notice of the new address in the manner set forth above.
ARTICLE 15
GOVERNING LAW
This agreement shall be construed in accordance with, and governed by, the
laws of the State of California as applied to contracts that are executed and
performed entirely in California.
ARTICLE 16
SEVERABILITY
If any provision of this agreement is held invalid or unenforceable by
any court of final jurisdiction, it is the intent of the parties that all other
provisions of this agreement be construed to remain fully valid, enforceable,
and binding on the parties.
ARTICLE 17
SIGNATURES
IN WITNESS WHEREOF, the parties to this agreement have duly executed it on
the day and year first above written.
BUYER: NET/GUARD TECHNOLOGIES, INC.,
a Delaware corporation
By
-------------------------------------
E. Blaine Mansfield, President,
Chief Executive Officer and Chief
Financial Officer
-16-
<PAGE> 17
CORPORATION: NETPAGE COMMUNICATIONS, INC.,
an Illinois corporation
By
-------------------------------------
[signature; typed name below]
President or Chief Executive
Officer
By
-------------------------------------
[signature; typed name below]
Secretary or Chief Financial
Officer
<TABLE>
<CAPTION>
Number of Net/Guard
Number of NetPage Restricted Shares
SHAREHOLDERS: Shares Owned to be Received
------------ --------------
<S> <C> <C>
------------------------------------ 7,500,000 40,600
Michael H. Crane
1066 Mt. Pleasant
Winnetka, Illinois 60093
------------------------------------ 7,500,000 40,600
Scott J. Walker
19 Presidio
Irvine, California 92714
------------------------------------ 2,000,000 10,827
Stephen C. Voris
1212 Cherry Street
Winnetka, Illinois 60093
------------------------------------ 5,000,000 27,067
Richard Axilrod
10 Pine Craft Road
Greenwich, CT 06830
</TABLE>
-17-
<PAGE> 18
<TABLE>
<CAPTION>
Number of Net/Guard
Number of NetPage Restricted Shares
SHAREHOLDERS: Shares Owned to be Received
------------ --------------
<S> <C> <C>
------------------------------------ 500,000 2,707
Christopher Beacom
4030 Arbor Lane #201
Northfield, Illinois 60093
------------------------------------ 500,000 2,707
Stephen F. Crane
1021 Spruce Street
Winnetka, Illinois 60093
------------------------------------ 2,500,000 13,533
Wayne J. Friedman
726 Thorngate
Riverwoods, Illinois 60015
------------------------------------ 312,500 1,692
Robert Lamey
946 Michigan Avenue
Evanston, Illinois 60202
------------------------------------ 500,000 2,707
James Sapiro
359 Hillcrest Road
Englewood, New Jersey 07631
------------------------------------ 1,030,000 5,576
242 South Crawford Canyon
Apartment No. 7
Orange, California 92669
------------------------------------ 312,500 1,692
David VanBussum
285 Brookside Court
Boulder, Colorado 80302
</TABLE>
-18-
<PAGE> 19
<TABLE>
<CAPTION>
Number of Net/Guard
Number of NetPage Restricted Shares
SHAREHOLDERS: Shares Owned to be Received
------------ --------------
<S> <C> <C>
------------------------------------ 312,500 1,692
Robert Davis
1112 Cleveland
Evanston, Illinois 60202
------------------------------------ 312,500 1,692
Aunrie Dash
322 Atlantic Avenue
Brooklyn, New York 11201
------------------------------------ 500,000 2,707
Brian Snediker
2127 Glen Oak Drive
Glenview, Illinois 60025
------------------------------------ 1,000,000 5,413
Douglas Marzoni
600 Steamboat Road
Greenwich, Connecticut 06830
------------------------------------ 2,500,000 13,533
Steven Scari
22 Moore Road
Wayland, Massachusetts 01778
------------------------------------ 500,000 2,707
Matthew Conlon
3750 North Lake Shore Drive
Chicago, Illinois 60613
------------------------------------ 2,500,000 13,533
James B. Malloy
22 West Brentmoor Park
St. Louis, Missouri 63105
</TABLE>
-19-
<PAGE> 20
<TABLE>
<CAPTION>
Number of Net/Guard
Number of NetPage Restricted Shares
SHAREHOLDERS: Shares Owned to be Received
------------ --------------
<S> <C> <C>
------------------------------------ 500,000 2,707
Carol Malloy
22 West Brentmoor Park
St. Louis, Missouri 63105
------------------------------------ 1,000,000 5,413
Mark Levin
2571 Palmer Court
Riverwoods, Illinois 60015
------------------------------------ 100,000 541
Stephen S. Crane
438 Birch Street
Winnetka, Illinois 60093
------------------------------------ 66,000 357
Bas Mulder
c/o NetPage Communications
17752 Mitchell Drive, Suite C
Irvine, California 92714
TOTAL: 36,946,000 200,003
</TABLE>
-20-
<PAGE> 21
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "ROLLO ENTERTAINMENT INC.", CHANGING ITS NAME FROM "ROLLO ENTERTAINMENT INC."
TO "NET/GUARD TECHNOLOGIES, INC.", FILED IN THIS OFFICE ON THE EIGHTEENTH DAY OF
NOVEMBER, A.D. 1996, AT 9:05 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ EDWARD J. FREEL
[SEAL] --------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8199469
DATE: 11-19-96
<PAGE> 1
EXHIBIT 21
Exhibit 21
to Form 10-KSB
of
Net/Guard Technologies, Inc.
Subsidiaries of Registrant
NetPage Communications, Inc.,
an Illinois corporation
(See Item 1, "Business - Acquisition of NetPage
Communications, Inc.")
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> MAY-09-1996
<PERIOD-END> MAR-31-1997
<CASH> 523,530
<SECURITIES> 0
<RECEIVABLES> 51,061
<ALLOWANCES> 22,230
<INVENTORY> 111,750
<CURRENT-ASSETS> 687,436
<PP&E> 83,155
<DEPRECIATION> 12,676
<TOTAL-ASSETS> 787,704
<CURRENT-LIABILITIES> 285,437
<BONDS> 0
0
0
<COMMON> 998
<OTHER-SE> 240,713
<TOTAL-LIABILITY-AND-EQUITY> 787,704
<SALES> 171,928
<TOTAL-REVENUES> 171,928
<CGS> 157,850
<TOTAL-COSTS> 1,112,993
<OTHER-EXPENSES> (6,205)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,891
<INCOME-PRETAX> (1,120,601)
<INCOME-TAX> 800
<INCOME-CONTINUING> (1,121,401)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,121,401)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
