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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB\A-1
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
Commission File Number: 0-27862
REALITY INTERACTIVE, INC.
MINNESOTA 41-1781991
State of Incorporation I.R.S. Employer Identification Number
Suite 115
6121 Baker Road
Minnetonka, MN 55345
(612) 253-4700
Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK,
$.01 PAR VALUE
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such 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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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulations S-B contained herein, and no disclosure will be contained, to the
best of registrants 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.
/X/
The Company's revenues for the Fiscal Year Ended December 31, 1998 totaled
$744,221.
As of February 26, 1999, the Company had 4,677,407 shares of Common Stock
outstanding. The aggregate market value of the 2,826,282 shares of Common Stock
held by non-affiliates of the Company was $310,891, based on the closing bid
price on February 26, 1999 on the Over The Counter Bulletin Board.
Transitional small business disclosure format: Yes No X
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FORM 10-KSB\A-1 INDEX
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PART III
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Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act............................................................. 3
Item 10. Executive Compensation........................................................................ 5
Item 11. Security Ownership of Certain Beneficial Owners and Management................................ 6
Item 12. Certain Relationships and Related Transactions................................................ 7
SIGNATURES.................................................................................................. 8
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SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Amendment to the Annual Report on Form 10-KSB may contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements involve risks and uncertainties
that may cause the Company's actual results to differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, doubt as to the Company's
ability to continue as a going concern, the uncertainty in growth of the
Company's revenues; limited growth of the market for multimedia education and
training products; lack of market acceptance of the Company's products;
inability of the Company to expand its marketing capability; inability of the
Company to diversify its product offerings; failure of the Company to respond to
evolving industry standards and technological changes; inability of the Company
to meet its future additional capital requirements; inability of the Company to
compete in the business education and training industry; loss of key management
personnel; inability to retain subject matter experts; failure of the Company to
secure adequate protection for the Company's intellectual property rights; and
the Company's exposure to product liability claims. The forward-looking
statements are qualified in their entirety by the cautions and risk factors set
forth in Exhibit 99.1, under the caption "Cautionary Statement," contained
within the Annual Report on Form 10-KSB for the year ended December 31, 1998.
2
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS
Information regarding the Directors of the Company is set forth below:
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Name Age Offices
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Paul J. Wendorff * 45 Chairman of the Board, President and
Chief Executive Officer
Ronald E. Eibensteiner (1)
James A. Bernards (2)
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* Denotes the only member of the Compensation and Audit Committees.
PAUL J. WENDORFF has served as the Company's Chairman of the Board,
President and Chief Executive Officer since the Company's inception in May 1994.
From December 1990 to May 1994, he served as Director of Strategic Markets for
Fourth Shift Corporation. From November 1983 to December 1990, he was Manager of
Mid Range Software for Management Science America, Inc. Prior to that he served
in various sales management positions for the American Hospital Supply
Corporation between December 1976 and November 1983.
(1) Resigned as a member of the Board of Directors in July 1998.
(2) Resigned as a member of the Board of Directors in May 1998.
MEETINGS OF THE BOARD OF DIRECTORS AND CERTAIN COMMITTEES
During the fiscal year ended December 31, 1998, the Board of Directors
met two times. All of the incumbent directors attended at least 75% of the
meetings of the Board of Directors and meetings of the committees on which they
served. The Board of Directors and its committees also act from time to time by
written consent in lieu of meetings.
The Board of Directors of the Company has standing audit and
compensation committees which have a current membership as indicated in the
foregoing section. The Board of Directors has no standing nominating committee.
The Audit Committee makes recommendations as to the selection of
auditors and their compensation, and reviews with the auditors the scope of the
annual audit, matters of internal control and procedure and the adequacy
thereof, the audit results and reports and other general matters relating to the
Company's accounts, records, controls and financial reporting. There was no
formal meeting of the Audit Committee during fiscal 1998.
The Compensation Committee reviews and recommends to the Board of
Directors the compensation guidelines for executive officers. There was no
formal meeting of the Compensation Committee during fiscal 1998.
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Outside directors did not receive compensation during 1998 for serving
on the Board of Directors. Directors who are also employees of the Company do
not receive any additional compensation for serving on the Board of Directors.
EXECUTIVE OFFICERS
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Name Age Offices
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Paul J. Wendorff 45 President, Chief Executive Officer
Wesley W. Winnekins 37 Chief Financial Officer, Vice President of Operations
Andrew R. Keith 42 Vice President of Marketing
Bruce W. Fischer 53 Director of Product Management
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See the biographical information for Mr. Wendorff under the section
"Directors."
WESLEY W. WINNEKINS, a certified public accountant, has served as the
Company's Chief Financial Officer since June 1995. From June 1993 to May 1995,
he was the Director of Operations/Controller at Ruth Stricker's Fitness
Unlimited, Inc. From November 1991 to June 1993, he served as the Accounting
Manager for Fourth Shift Corporation, and from September 1990 to October 1991,
he served as the Corporate Controller for Authorware, Inc. From June 1985 to
September 1987, he served as an auditor for Arthur Andersen & Co.
ANDREW R. KEITH has served as the Company's Director of Marketing since
May 1995. From October 1992 to April 1995, he served as National Marketing
Manager for Ideal Learning/Lifetouch Inc. ("Lifetouch"). From May 1992 to
October 1992, he was a principal and co-founder of Mediapros Ltd., a company
subsequently acquired by Lifetouch, and from December 1989 to April 1992, he was
Product Marketing Manager for Authorware, Inc. From September 1984 to November
1989, he was Manager of Marketing Communications for Crossfield News Publishing
Systems.
BRUCE W. FISCHER has served as the Company's Director of Business
Development Since June 1994. From December 1989 to June 1994, he served as a
marketing Product Manager for Fourth Shift Corporation. From September 1987 to
December 1989, he was a manager at Options Group, Inc., and from January 1981 to
September 1987, he was Senior Industry Consultant for Management Science
America.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors and persons who beneficially own more than 10% of the
Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC"). Such
persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms they file.
The Company believes that all Section 16(a) filing requirements were
met in a timely manner for the fiscal year ending December 31, 1998.
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ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to or earned in
fiscal years 1996, 1997 and 1998 by the Company's Chief Executive Officer. No
other executive officer of the Company earned salary and bonus in excess of
$100,000 during 1998.
SUMMARY COMPENSATION TABLE
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Long-Term
Annual Compensation Compensation
Fiscal ----------------------- -------------
Name Year Salary (1) Bonus Options (2)
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Paul J. Wendorff 1998 $129,938 -- 100,000
President and Chief Executive Officer 1997 125,000 -- 105,000
1996 115,333 $15,000 75,000
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(1) The current annual salary of Mr. Wendorff is $121,500.
(2) In 1996, Mr. Wendorff was granted an option to purchase 75,000 shares of
Common Stock at an exercise price of $4.54 per share. This option was
canceled in March 1997 and, simultaneously, an option to purchase 75,000
shares of Common Stock at an exercise price of $0.89 per share was granted
to Mr. Wendorff. This option shall become 100% vested on the fifth
anniversary of the date of grant, but may vest earlier if certain
performance objectives are achieved. In addition, an option granted in
1995 to purchase 30,000 shares of Common Stock at an exercise price of
$1.98 per share was cancelled in December 1997 in connection with a Board
of Director approved repricing of stock options. Simultaneously, an option
to purchase 30,000 shares of Common Stock at an exercise price of $1.00
per share was granted to Mr. Wendorff. This option shall vest in equal
monthly installments during the four years following the date of grant. In
February 1998, Mr. Wendorff was granted an option to purchase 100,000
shares of Common Stock at an exercise price of $0.75 per share. This
option shall become 100% vested on the fifth anniversary of the date of
grant, but may vest earlier if certain performance objectives are
achieved. As of December 31, 1998, none of the options associated with the
achievement of certain performance objectives had vested.
The following table summarizes the options granted to the executive
officer named in the Summary Compensation Table in 1998.
OPTION GRANTS IN 1998
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Number of Securities Percent of Total Options
Underlying Options Granted to Employees Exercise Expiration
Name Granted in Fiscal 1997 Price Date
- ---- ----------------------- --------------------------- ---------- -------------
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Paul J. Wendorff 100,000 56% $0.75 2/2/03
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No options were exercised by the executive officer named in the Summary
Compensation Table during fiscal year 1998.
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The following table summarizes the number of unexercised options held
by the executive officer named in the Summary Compensation Table as of December
31, 1998.
OPTION VALUES AT DECEMBER 31, 1998
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Number of Unexercised Value of Unexercised
Options at End of In-the-Money Options
Fiscal 1998 At End of Fiscal 1998 (1)
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Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
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Paul J. Wendorff 15,000 220,000 $-- $--
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(1) Value is based on the difference between the closing price of the
Company's Common Stock of $0.09 on December 31, 1998 and the option
exercise price per share multiplied by the number of shares subject to
the option. No options were in-the-money as of December 31, 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of February 26, 1999 by:
(i) each director of the Company, (ii) each executive officer of the Company
named in the Summary Compensation Table, (iii) all directors and executive
officers of the Company as a group and (iv) each person or entity known by the
Company to own beneficially more than 5% of the Company's Common Stock. Unless
noted below, the address of each of the following shareholders is the same as
the Company.
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Beneficial Ownership (1)
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Name Shares Percent
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Perkins Capital Management, Inc.(2)................ 901,800 17.4%
730 E. Lake Street
Wayzata, Minnesota 55391
Paul J. Wendorff (3)................................ 599,964 12.8
The Perkins Opportunity Fund(4)..................... 550,000 11.1
730 E. Lake Street
Wayzata, Minnesota 55391
Ronald E. Eibensteiner(5)........................... 475,788 10.0
Suite 1860, Midwest Plaza
801 Nicolett Mall
Minneapolis, Minnesota 55402
Brightstone Funds(6)................................ 253,195 5.3
7200 Metro Blvd.
Edina, Minnesota 55439
James A. Bernards(7)................................ -- --
All directors and executive officers
as a group (4 persons)(8)........................ 690,289 14.5
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(1) Shares of Common Stock subject to options or warrants currently
exercisable or exercisable within 60 days of February 26, 1999 are deemed
to be outstanding for purposes of computing the percentage of shares
beneficially owned by the person holding such options or warrants, but
are not deemed to be outstanding for purposes of computing such
percentage for any other person. Except as indicated by footnote, the
persons named in the table above have the sole voting and investment
power with respect to all shares of Common Stock shown as beneficially
owned by them.
(2) Includes 502,650 shares of Common Stock subject to warrants. (3) Includes
15,000 shares of Common Stock subject to options.
(4) Includes 275,000 shares of Common Stock subject to warrants. Perkins
Capital Management, Inc. serves as investment advisor to The Perkins
Opportunity Fund, and holds voting and dispositive power over such
shares. Perkins Capital Management, Inc. disclaims beneficial ownership
in such shares.
(5) Includes 375,600 shares of Common Stock and 100,188 shares of Common
Stock subject to warrants owned by Wyncrest Capital, Inc., an investment
fund controlled by Mr. Eibensteiner.
(6) Includes 111,111 shares of Common Stock held by Brightstone Fund V;
68,975 shares of Common Stock and 43,109 shares of Common Stock subject
to warrants held by Brightstone Fund VI; and 30,000 shares of Common
Stock subject to options held by Brightstone Capital, Ltd. Brightstone
Capital, Ltd. is the general partner of Brightstone Fund V and
Brightstone Fund VI.
(7) Excludes an aggregate of 253,195 shares held by Brightstone Capital,
Ltd., Brightstone Fund V and Brightstone Fund VI. See Note 5 above. Mr.
Bernards is the President of Brightstone Capital, Ltd. Mr.
Bernards disclaims beneficial ownership of such shares.
(8) See Notes 2 through 7 above. Includes an additional 36,325 shares of
Common Stock and 54,000 shares of Common Stock subject to options held by
officers not listed in the above table.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NONE.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
REALITY INTERACTIVE, INC.
Dated: April 29, 1999 By /s/ WESLEY W. WINNEKINS
------------------------
Wesley W. Winnekins
Chief Financial Officer
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.
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Name Title Date
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/s/ Paul J. Wendorff Chairman, Chief Executive Officer,
------------------------- President and Director
Paul J. Wendorff (Principal Executive Officer) April 29, 1999
/s/ Wesley W. Winnekins Chief Financial Officer and Secretary
------------------------- (Principal Financial and Accounting Officer) April 29, 1999
Wesley W. Winnekins
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