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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
Viatech Communications Group, Inc.
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(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Delaware 65-0683539
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1499 W. Palmetto Park Road, Suite 310 33486
Boca Raton, Florida --------------------------------
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
ISSUER'S TELEPHONE NUMBER (561) 394-7855
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SECURITIES TO BE REGISTERED UNDER SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
None
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.0001 par value
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(TITLE OF CLASS)
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(TITLE OF CLASS)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Business Development.
The Company was incorporated in Delaware on March 26, 1996 to act as a
holding company for Psychic Discovery Network, Inc., a Florida corporation
("PDN") and Web Star Inc., a Florida corporation ("WSI"). The Company completed
the acquisitions of PDN and WSI on May 20, 1996 when the Articles of Merger
between the Company and each subsidiary were filed with the Florida Secretary of
State. PDN was incorporated on November 29, 1993 and WSI was incorporated on
January 22, 1996. American Psychic Network, Inc., a Florida corporation ("APN")
was merged with and into PDN, with PDN as the surviving corporation, pursuant to
Articles of Merger filed with the Florida Secretary of State on May 20, 1996. On
October 18, 1996, On-Line Management, Inc., a Florida corporation ("On-Line"),
was merged with and into PDN, with PDN as the surviving corporation, pursuant to
Articles of Merger filed with the Florida Secretary of State. Both APN and
On-Line were owned by the principal shareholders of the Company and their
operations were related to the business of the Company. The mergers were
effected as part of an overall strategy to consolidate related operations.
On August 21, 1996, the Company completed the acquisition by merger of
Gadwall Book Co Inc., a Delaware corporation ("GBCI"). GBCI had limited assets
and approximately 418 shareholders of record and was acquired by the Company in
order to increase its shareholder base. GBCI had no active operations at the
time of the merger with the Company.
The Company's principal executive office is located at 1499 W. Palmetto
Park Road, Suite 310, Boca Raton, Florida 33486 and its telephone number is
(561) 394-7855.
Business of the Issuer.
The Company, through its wholly-owned subsidiary, PDN, is engaged in
developing, marketing and providing telephone entertainment services, consisting
primarily of live psychic consultations and prerecorded messages. The Company's
entertainment services are accessed by dialing 900 telephone numbers which are
billed on a per minute basis. The Company also offers theme related club
membership.
WSI has had limited operations to date. WSI provides Internet-related
services, including direct access, intranet and development and marketing of
home pages on the Internet's World Wide Web. The Company completed one
acquisition of an existing Internet service provider ("ISP") in order to
establish a customer base upon which to build its operations. The Company's
current ISP customer base is approximately 1,000, which number includes
approximately 700 Internet service customers which the Company acquired in its
recent acquisition of an ISP. The Company is also negotiating the acquisition of
additional ISP assets and customers. The Company anticipates that planned
acquisitions will result in the addition of 20,000 customers over the next six
months. See "Products and Services -- Web Star" below.
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PRODUCTS AND SERVICES
Telephone Entertainment Services. The Company's telephone entertainment
services consist primarily of live psychic consultations and prerecorded
messages designed to capitalize on the current popularity of "new age" themes.
"New age" refers to astrological and psychic phenomena which can be explained
through the use of horoscopes, tarot card and psychic readings and
prognostications. The Company currently markets three 900 number entertainment
services, each offering programs with unique features.
The Company's live psychic entertainment services permit callers to
engage in live one-on-one conversations with psychic operators and to receive
personalized information responsive to their requests. The Company's live
conversation 900 entertainment services are currently billed at rates of $3.49
to $3.99 per minute.
The Company's prerecorded entertainment services currently include
"Look to the Stars" (a horoscope program) and the Crystal Goddess Line (which
focuses on the power of crystals). These services contain interactive features
which permit callers to access a variety of information by responding to
prerecorded messages. The Company's prerecorded 900 entertainment services are
currently billed at a rate of $.99 to $2.99 per minute.
The Company solicits consumers for its 900 number services by providing
access to toll-free 800 numbers for an introduction to the Company's 900
services. The Company's entertainment services are available by calling
designated 900 numbers from any telephone, provided that 900 blocking has not
been ordered or imposed for such services. The Company's per-minute rates on
telephone services are subject to applicable limitations imposed by carriers,
including the limitation currently imposed by AT&T, the Company's primary long
distance carrier, of $10 per minute.
Membership Clubs. In April 1995, the Company introduced its first
membership club, the American Psychic Club ("APC"), which provides approximately
30,000 current members with a variety of astrological and psychic related
entertainment services for a monthly fee (currently $9.95). APC members receive
a free monthly (three-minute) live psychic reading, access to certain of the
Company's 900 services at special "members only" rates, club newsletters and a
variety of membership gifts, as well as information relating to the Company's
other services. The Company provides consumer access to toll-free 800 number
service for club enrollment. Membership fees are billed on a monthly basis by
regional Bell operating companies. In addition to monthly membership fees, the
Company generates revenue from club members who access the Company's 900
telephone entertainment services. APC membership is currently increasing at the
rate of approximately 3,000 members per month.
Web Star. WSI, which has had limited operations to date, provides
Internet-related services, including direct access, intranet and development and
marketing of home pages on the Internet's World Wide Web. The Company completed
one ISP acquisition to establish an initial customer base for WSI and
anticipates execution of a definitive agreement for the acquisition of the
assets and customers of a second ISP in order to expand WSI's customer base
within approximately thirty (30) days. The Company anticipates acquiring
additional Internet-related businesses to increase WSI's customer base.
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Pursuant to an Agreement for Purchase and Sale of Assets, the Company
acquired substantially all of the assets, properties, rights and commercial
business of Internet Paradise, Inc., a Georgia corporation ("Internet
Paradise"), in July 1996. Internet Paradise, which was originally established in
1994, operated as a provider of the following Internet services: dial-up
Internet access, Integrated Services Digital Network ("ISDN") access to the
Internet, web page design and web page hosting services and "Web-phone" sales
services. As a result of the acquisition, the Company acquired approximately 700
Internet service customers in the Atlanta, Georgia and Miami, Florida regions.
The purchase price paid in connection with the acquisition consisted of (i) a 24
month promissory note in the original principal amount of $100,000 bearing
interest at the rate of eight percent (8%) per annum, (ii) 50,000 shares of the
Company's common stock, $.0001 par value, all of which are "restricted shares"
as defined under the Securities Act of 1933 (the "Act"), and (iii) the right to
receive additional shares of Common Stock in the event that the market price of
the Common Stock does not reach certain targeted appreciation levels. In
connection with the foregoing acquisition, the Company also assumed certain of
the liabilities of Internet Paradise totaling $21,000. In addition, pursuant to
the terms of purchase agreement, the Company entered into an employment
agreement with Robert Castles, the founder of Internet Paradise. Pursuant to the
terms of the employment agreement, the Company agreed to employ Mr. Castles in a
management capacity with the Company for a three (3) year period. Mr. Castles'
base compensation is $50,000 per year during the term of the contract.
The Company anticipates execution of a definitive agreement for the
purchase of the assets and business of Cyberdrive, LLC, an Ohio limited
liability company ("Cyberdrive") within approximately the next thirty (30) days.
Cyberdrive is an ISP with approximately 2,000 customers in the northern Ohio
region. It provides the following Internet services: dial-up Internet access,
ISDN access to the Internet, web page design and web page hosting services and
electronic publishing retailed via the Internet through a joint venture
arrangement with Overdrive Systems. The purchase price payable by the Company in
connection with this acquisition is expected to consist of (i) 500,000 shares of
the Company's common stock, $.0001 par value, all of which are "restricted
shares" as defined under the Act, and (ii) the right to receive additional
shares of Common Stock in the event that the market price of the Common Stock
does not reach certain targeted appreciation levels. The Company and WSI will
also assume certain liabilities of Cyberdrive. In connection with this
transaction, Cyberdrive will be entitled to appoint two (2) members of the board
of directors of the Company.
DISTRIBUTION AND MARKETING
The Company intends to actively pursue a strategy of growth by
expanding both its club membership base and its general consumer markets,
primarily through the use of telemarketing, direct mail and infomercials and
other television advertising. Consistent with its aggressive growth strategy,
the Company intends to produce new commercials, re-edit an existing infomercial
for re-release and expand its telemarketing and direct mail marketing programs
targeting existing and potential customers and club members.
Advertising and Promotion. The Company's principal direct marketing
methods include the use of television infomercials and commercials designed to
achieve a high level of consumer awareness and appeal. The Company believes that
consumer awareness and demand for telephone entertainment services has been
increasing due principally to the use of television commercials and
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infomercials. Infomercials typically feature in-depth interviews and information
designed to motivate viewers to place telephone calls to access services or join
clubs. Infomercials generally take approximately six weeks to write and produce,
and the costs generally range from approximately $10,000 to $250,000. The
Company's ability to efficiently produce and air an infomercial is essential to
its marketing strategy.
To date, the Company has produced one (1) infomercial. This infomercial
features programs intended to encourage viewers to call the Company's 900
numbers to access live psychic operators or astrology-related information. The
Company has also created and produced ten (10) commercials in connection with
the promotion of 900 number services and APC club membership.
The Company believes that the quality of media time purchased by the
Company will be a critical element in a successful direct marketing effort.
Accordingly, as available funds increase, the Company will seek to purchase
blocks of quality broadcast and cable television media in order to assure
meaningful coverage of its infomercials and commercials in selected time slots
and geographic markets, through media-purchasing agencies.
Telemarketing. The Company currently utilizes its independent
contractor psychics to perform inbound telemarketing activities. This strategy
effectively provides an aggregate of approximately 1,200 persons to respond to
incoming telephone calls from viewers of the Company's infomercials and
commercials who are interested in club enrollment or are inquiring about
membership clubs. The Company believes that an integral part of inbound
telemarketing is the opportunity to increase revenues by offering or introducing
additional or selected services, such as 900 number services, with a club
enrollment.
Direct Mail and Print Advertising. The Company also engages in direct
mail and print advertising campaigns designed to promote entertainment services
and APC themes, consisting of notifications, promotions, periodicals and
membership kits.
COMPETITION
Telephone Entertainment Services and Membership Clubs. The Company
faces intense competition in the marketing of its telephone entertainment
services and membership clubs. The Company competes primarily on the basis of
media placements on television and through direct mail solicitations. The
Company's telephone entertainment services and membership clubs compete for
consumer recognition with services which have achieved significant, national,
regional and local consumer loyalty. Many of these entertainment services are
marketed by companies which are well-established, have reputations for success
in the development and marketing of services, have extensive experience in
creating and producing infomercials and commercials featuring high profile
celebrities, and have significantly greater financial, marketing, distribution,
personnel and other resources than the Company. These financial and other
capabilities permit such companies to implement extensive advertising and
promotional campaigns, both generally and in response to efforts by additional
competitors to enter into new markets and introduce new services.
Certain of the Company's entertainment service competitors, including
Inphomation Inc. and Gold Coast Media, dominate the industry and have the
financial resources to enable them to withstand substantial price competition,
which is expected to increase. Inphomation Inc. is the
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operator of the "Psychic Friends Network," a highly successful 900 telephone
entertainment service marketed through frequently broadcast infomercials and
commercials featuring Dionne Warwick. Gold Coast Media is also the operator of a
highly successful 900 number psychic related telephone entertainment service
marketed through infomercials and commercials featuring Kenny Kingston.
In addition, because the telephone entertainment services industry has
no substantial barriers to entry, competition from smaller competitors in the
Company's target markets and from direct response marketing companies not
currently offering telephone entertainment services and clubs are also expected
to continue to increase significantly. The Company expects that direct marketing
companies that have developed or are developing new marketing strategies, as
well as other companies that have the expertise that would encourage them to
seek to develop direct marketing capabilities, may attempt to enter the
telephone entertainment services industry or develop membership clubs which
would compete with the Company's services or clubs. The Company is also aware of
other companies, including Quintel Entertainment, Inc., that have developed and
introduced or are developing 900 number programs with a club concept, certain of
which are psychic related. It is also possible for a small company to introduce
a service or program with limited financial and other resources through the use
of third-party agencies. Any such company having the potential for success may
achieve rapid and significant growth as a result of the success of a single
infomercial.
The Company's 900 number services and APC membership club also compete
with numerous other services and products which provide similar entertainment
value, such as in-person psychic consultation and tarot card readings,
newspapers, magazines, books and audio and video cassettes featuring "new age"
themes, on-line computer programs and various other forms of entertainment which
may be less expensive or provide other advantages to consumers. There can be no
assurance that the Company will be able to continue to compete successfully,
particularly as it seeks to enter into new markets.
Internet Service Providers. The Internet access market in which the
Company operates is extremely competitive. There are no substantial barriers to
entry in either the Internet access or in Internet site development markets in
which the Company competes. The Company expects competition in these markets to
intensify in the future.
The Company's current and prospective competitors include many large
companies that have substantially greater market presence and financial,
technical, marketing and other resources than the Company. The Company's
Internet access business competes or expects to compete directly of indirectly
with the following categories of companies: (i) national and regional commercial
Internet service providers, (ii) established on-line services that offer
Internet access, such as America Online, Inc., CompuServe Incorporated and
Prodigy Services Company, (iii) computer hardware and software and other
technology companies, such as IBM and Microsoft Corporation, (iv) national
long-distance telecommunications carriers, such as AT&T Corp., which has
announced its entry into the Internet access market, and MCI Communications
Corporation and Sprint Corporation, which offer electronic messaging services,
(v) regional Bell operating companies such as Pacific Bell, which has announced
a service to provide Internet access, (vi) cable operators, such as Comcast
Corporation, Tele-Communications, Inc. and Time Warner, Inc. which have recently
begun, on an experimental basis, to offer on-line services, and (vii) nonprofit
or educational Internet service providers.
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The ability of these competitors or others to bundle services and
products with Internet connectivity services could place the Company at a
significant competitive disadvantage. In addition, certain of the Company's
competitors that are telecommunications companies may be able to provide
customers with reduced communications costs in connection with their Internet
access services, reducing the overall costs of their Internet access solution
and significantly increasing price pressures on the Company. There can be no
assurance that the Company will be able to offset the effects of any price
reductions with an increase in the number of its customers, higher revenue from
enhanced services, cost reductions or otherwise.
The Company believes that its ability to compete successfully in the
markets described above depends upon a number of factors, including market
presence; the capacity, reliability and security of its network infrastructure;
the adequacy of the Company's customer support services; the pricing policies of
its competitors and suppliers; the timing of introductions of new services by
the Company and its competitors; the Company's ability to support existing and
emerging industry standards; and industry and general economic trends. There can
be no assurance that the Company will have the financial resources, technical
expertise or marketing and support capabilities to continue to compete
successfully.
SERVICE BUREAUS
The Company has engaged West Interactive Corporation ("West"), Enhanced
Services Billing, Inc. ("ESBI") and International Telemedia Associates, Inc.
("ITA") to provide billing and collection services and accounts receivable
financing in connection with the Company's 900 number services and membership
clubs. The Company is dependent upon West, ESBI and ITA to provide quality
services on a timely basis and on favorable terms. Failure by West, ESBI or ITA
to provide such services could result in material interruptions in the Company's
operations.
Substantially all of the Company's accounts receivable represent funds
due under accounts receivable financing arrangements with the following
companies: (i) West, which services the Company's 900 number services; (ii)
ESBI, which services the Company's APC membership business; and (iii) ITA, which
also services APC membership business. West, ESBI and ITA withhold a portion of
settled accounts receivable as a cash reserve as security for potential consumer
charge backs which may occur subsequent to the settlement cycle (generally 60 to
120 days) for receivables. The Company's arrangement with West provides for the
advance of 50% of settled accounts receivable on a weekly basis up to
$1,000,000. The Company's arrangement with ESBI provides for the advance of 40%
of settled accounts receivable on a weekly basis up to $500,000. The Company's
arrangement with ITA provides for the advance of approximately 65% of settled
accounts receivables. Delays in collection or uncollectability of accounts
receivable by third-party carriers or service bureaus, over which the Company
has no control, could result in increased cash reserves held by service bureaus,
adversely affecting the Company's liquidity and working capital position.
INSURANCE
The Company may be subject to substantial liability as a result of
claims made by consumers arising out of services provided by the Company's
independent contractors and employees. The Company is aware that claims have
been made against other companies engaged in providing
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telephone entertainment services on the basis of advice or prognostications
disseminated through such services. The Company carries general liability
insurance with a $1,000,000 per occurrence and $2,000,000 aggregate limit. In
addition, the Company is seeking errors and omissions insurance with equivalent
coverage. Management anticipates that such insurance will be in place before
December 31, 1996. There can be no assurance that such insurance will be
sufficient to cover potential claims or that an adequate level of coverage will
be available in the future at a reasonable cost. The Company seeks to limit any
such potential liability by providing disclaimers in connection with its
services and regards its 900 services and membership clubs as "entertainment."
There can be no assurance, however, that the Company will not face claims
resulting in substantial liability for which the Company is partially or
completely uninsured. A partially or completely uninsured claim against the
Company, if successful and of sufficient magnitude, would have a material
adverse effect on the Company.
TRADEMARK
On September 20, 1996, the Company filed a Trademark/Service Mark
Application with the Patent and Trademark Office of United States Department of
Commerce to request the registration of the service mark "WEB-STAR." The Company
also has a Internet domain registration of "Web-Star.net."
GOVERNMENT REGULATION
Telephone Entertainment Services Industry. The telephone entertainment
services industry is subject to extensive, stringent and frequently changing
federal, state and local laws and substantial regulation under these laws by
governmental agencies, including the Federal Communications Commission ("FCC"),
the Federal Trade Commission ("FTC"), the Department of Justice, the United
States Postal Service, various state Attorneys General and state and local
consumer protection agencies. Regulations applicable to carriers and providers
of telephone entertainment services are interpreted and enforced by regulatory
authorities with broad discretion and impose significant compliance burdens and
risks on the Company.
The FCC regulates carriers that transmit calls and bill and collect
charges, as well as the broadcast and cable television industry, including
networks and stations that carry the Company's infomercials and commercials. The
FTC, which is the regulatory authority with primary jurisdiction over the
advertising of 900 number services, is responsible for enforcing various federal
laws intended to protect consumers against deceptive trade practices, including
misleading advertising, and has promulgated regulations governing, among other
things, program content and advertising and promotional disclosures for
telephone entertainment services and infomercials. In response to substantial
complaints by consumers regarding fraudulent telemarketing activities, the FTC
has recently enacted additional regulations governing telemarketing activities
which, among other things, enable the FTC to impose substantial penalties for
fraudulent telemarketing activities and, require the telemarketer to disclose
the product or service being offered, the cost of such product or service, any
restrictions that may apply before asking for a credit card or bank information
and, if there is a no refund policy, to disclose such policy. Such regulations
also restrict telemarketing calls from being placed between 9:00 p.m. and 8:00
a.m. without the prior consent of the person being called. In addition, the FTC
has empowered state Attorneys General to seek injunctions in federal courts
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for fraudulent telemarketing activities. The Department of Justice and the
United States Postal Service also enforce various federal laws intended to
prevent the use of wires or mail for fraudulent or deceptive purposes.
The principal federal regulation governing pay-per-call operations is
the Telephone Disclosure and Dispute Resolution Act of 1992 ("TDDRA"). Among
other things, TDDRA provides guidelines with respect to pricing and marketing of
telephone entertainment services, including services offered through 800 and 900
numbers. Pending regulations and legislation, if adopted, would require that
billing authorization for 800 number service be in writing and specifically
provide pricing information, information relating to the provider, a provider's
agreement to notify the customer of changes in billing rates in advance,
customer payment options, as well as the customer's signature to create an
obligation to pay for 800 number service. The Company utilizes toll-free 800
numbers in connection with club member enrollment and consumer solicitation and
believes that currently proposed regulations, if adopted, would not be
applicable to the Company's operations. There can be no assurance, however, that
such regulations, if adopted, would not be interpreted by carriers or regulatory
authorities to be applicable to the Company, which could prevent the Company
from continuing to market its membership clubs and enroll members in the manner
currently conducted.
The Company believes that it is in substantial compliance with all
material federal and state laws and regulations governing its provision of 800
and 900 number entertainment services, all of its billing and collection
practices and the advertising of its services and has obtained or is in the
process of obtaining all licenses and permits necessary to engage in
telemarketing activities. In addition, the Company believes that its advertising
materials relating to its 900 number services are in substantial compliance with
the applicable provisions of TDDRA and the rules promulgated by the FTC pursuant
thereto, specifically applicable to the advertising of 900 number services, and
are also in substantial compliance with the applicable provisions of those state
laws and regulations specifically regulating the advertising of 900 number
services, as such laws and regulations have been interpreted and enforced as of
the date hereof. Although the Company from time to time receives requests for
information from, or is forwarded consumer complaints by, regulatory
authorities, the Company has not been subject to any enforcement actions by any
regulatory authority, nor, to its knowledge, is any such action threatened or
contemplated. Nevertheless, amendments to or interpretations and enforcement of
existing statutes and regulations, adoption of new statutes and regulations and
the Company's expansion into new jurisdictions and 900 services could require
the Company to continually alter methods of operations, modify the content or
use of its services or the manner in which it markets it services, which could
result in material interruptions in its operations. There can be no assurance
that the Company will be able, for financial or other reasons, to comply with
applicable laws and regulations or that regulatory authorities will not take
action to limit or prevent the Company from advertising, marketing or promoting
its services and membership clubs or otherwise require the Company to
discontinue or substantially modify the content of its services. Failure to
comply with applicable laws and regulations could subject the Company to civil
remedies, including substantial fines, penalties and injunctions, as well as
possible criminal sanctions, which would have a material adverse effect on the
Company.
Internet Access and Service Provider Industry. Data network access
providers are generally not regulated under the laws and regulations governing
the telecommunications industry. Accordingly, except for regulations governing
the ability of the Company to disclose the contents
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of communications by its customers, there are no government imposed limitations
or guidelines pertaining to customer privacy or the pricing, service
characteristics or capabilities, geographic distribution or quality control
features of Internet access services. There exists, however, the risk that a
U.S. governmental policy for the data network access industry could be
implemented by executive order, legislation or administrative order. If such a
policy is adopted, it could have a material adverse effect on the Company. The
Company cannot predict the impact, if any, that future regulation or regulatory
changes may have on its Internet access business. The Telecommunications Act of
1996 (the "1996 Telecommunications Act"), which became effective on February 8,
1996, imposes criminal liability on persons sending or displaying in a manner
available to minors indecent material on an interactive computer service such as
the Internet. The 1996 Telecommunications Act also imposes criminal liability on
an entity knowingly permitting facilities under its control to be used for such
activities. Entities solely providing access to facilities not under their
control (including transmissions, downloading, intermediate storage, access
software and other incidental capabilities) are exempt from liability, as are
service providers that take good faith, reasonable, effective and appropriate
actions to restrict access by minors to the prohibited communications. The
constitutionality of these provisions is being challenged in federal court, and
the interpretation and enforcement of them are uncertain. This legislation may
decrease demand for Internet access, chill the development of Internet content,
or have other adverse effects on Internet access providers such as the Company.
In addition, in light of the uncertainty attached to interpretation and
application of this law, there can be no assurance that the Company would not
have to modify its operations to comply with the statute, including prohibiting
users from maintaining home pages on the World Wide Web.
In January 1995, the FCC ruled that telephone companies must charge a
separate subscriber line charge for each derived channel available in an ISDN
bundle. An ISDN bundle generally provides from three to 24 channels. This ruling
may result in increased cost being imposed on the Company and, consequently,
could adversely affect the Company's business, financial condition or results of
operations.
EMPLOYEES
The Company currently employs 70 people, a majority of whom are
customer service and production personnel for the Company's telephone
entertainment service business. None of the Company's employees are represented
by a union. The Company believes that its relations with its employees are good.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
LIQUIDITY AND CAPITAL RESOURCES
Six Months Ended June 30, 1996. During the six month period ended June
30, 1996, the Company continued to expand its psychic telephone entertainment
service and club operations. The Company's cash position increased from -0- to
$108,606 and working capital increased by $643,609 to $1,004,309 during the six
month period ended June 30, 1996. The improvement in the Company's working
capital position was primarily attributable to the sale of common stock by the
Company pursuant to a private offering resulting in gross proceeds of $612,500
and increases
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in accounts receivable. Accounts receivable increased from $638,695 at December
31, 1995 to $880,475 at June 30, 1996. This $241,780 increase was primarily
attributable to increasing revenues and slower reimbursements from service
bureaus. In order to support its expanding operations, the Company also made
capital expenditures for furniture and equipment in the amount of $96,502 during
the six month period ended June 30, 1996.
Management anticipates that its expansion strategy for WSI will require
significant expenditures for furniture and equipment, as well as increased
general and administrative expenses primarily due to the hiring of additional
personnel and advertising expenses related to WSI operations. These expenditures
are expected to be funded by revenues from operations as well an approximately
$500,000 bank credit facility which management is currently negotiating. The
Company may also sell equity securities to fund expansion activities. Selling,
general and administrative expenses are also expected to increase in future
periods due to the increased legal and accounting expenses incurred by the
Company in order to maintain its reporting status with the Securities and
Exchange Commission. Management believes that cash flow from operations will be
sufficient to fund these expenditures.
Fiscal 1995 Compared to Fiscal 1994. The Company commenced active
operations in April 1995. During fiscal 1994 and the first quarter of 1995, the
Company's operations were limited. The Company's working capital position
improved from ($56,674) at December 31, 1994 to $360,700 at December 31, 1995.
This improvement was primarily attributable to the exponential growth of the
Company's business in fiscal 1995 as compared to fiscal 1994. Accounts
receivable increased from $0 at December 31, 1994 to $638,695 at December 31,
1995. Inventory, which consists of promotional packages used in connection with
psychic club operations, increased from $0 to $52,095 at December 31, 1994 and
1995, respectively. The Company also acquired $9,835 of computer equipment to
support its operations during the year ended December 31, 1995.
The growth in operations was financed through a combination of equity
and long and short term debt. In February 1995, the Company completed a private
placement of units consisting of shares of common stock and debentures
generating net proceeds of $135,000. The holders of the debentures subsequently
elected to convert the debentures and accrued interest to sixteen (16) month
promissory notes. At December 31, 1995, $129,130 remained outstanding on these
promissory notes. The Company also obtained short term advances from certain
principal stockholders and officers with no set maturity date or specified rate
of interest. An aggregate of $117,000 was outstanding on these obligations at
December 31, 1995.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30,
1995. Revenues for the six months ended June 30, 1996 increased by $2,397,206
(420.5%) as compared to the six months ended June 30, 1995. This increase is
attributable to growth in operations as well as the fact that the prior year's
period included only approximately three months of active operations. The
Company's gross profit margin decreased from 51.6% during the six months ended
June 30, 1995 to 38.79% during the six months ended June 30, 1996. This decrease
is primarily attributable to (i) lesser gross profit margins attributable to the
telephone entertainment services and membership club fulfillment which the
Company provides on a contract basis to other companies and (ii) increased bad
debt reserves and chargebacks. Selling, general and administrative expenses
increased from $111,944 to $838,132 during the six month periods ended June 30,
1995 and 1996,
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<PAGE> 12
respectively. Selling, general and administrative expenses also increased as a
percentage of revenue from 19.6% to 28.2% during the respective periods. This
increase is attributable to the increased level of operations of the Company as
well as investment in additional personnel and facilities necessary to support
continued growth.
Fiscal 1995 Compared to Fiscal 1994. Revenues for fiscal 1995
increased by $2,590,023 (840.6%) as compared to fiscal 1994. This increase is
attributable to growth in operations as well as the fact that the prior year
included only approximately nine months of active operations. The Company's
gross profit margin increased from 1.02% during the year ended December 31, 1994
to 45.04% during the Year ended December 31, 1995. This increase is primarily
attributable to the Company's increased level of revenues. Selling, general and
administrative expenses increased from $59,107 to $554,942 during the years
ended December 31, 1994 and 1995, respectively. Selling, general and
administrative expenses decreased slightly as a percentage of revenue from
19.18% to 19.15% during the respective periods.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company leases approximately 4,200 square feet of space in Boca
Raton, Florida, all of which is currently used for the Company's principal
executive offices. The lease for such premises expires on February 28, 1998. The
current monthly base rent is $4,500, which amount will be increased to $4,725
per month commencing on February 28, 1997 for the remainder of the term of the
lease. The Company also occupies approximately 7,200 square feet of office space
in Deerfield Beach, Florida, pursuant to a lease which commenced in July 1996
and continues for a twenty-six (26) month period thereafter with rent payable in
accordance with the following monthly base rental schedule: $4,200 per month for
the first twelve (12) months; $4,410 per month for the next twelve (12) months;
and $4,630.50 per month during the last two (2) months. In addition, the Company
leases approximately 800 square feet of office space in Atlanta, Georgia, for
its ISP operations at a rent of $850 per month under a six (6) month lease which
commenced August 1, 1996. The Company believes that its current facilities are
satisfactory for its present needs.
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<PAGE> 13
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the
ownership of the Company's common stock, $.0001 par value ("Common Stock") as of
October 23, 1996, (i) by each person who is known by the Company to be the
beneficial owner of more than 5% of its Common Stock; (ii) by each of the
Company's directors and officers; and (iii) by all of the Company's directors
and officers as a group:
<TABLE>
<CAPTION>
Shareholder(1) No. of Shares Percentage
- ----------- ------------- ----------
<S> <C> <C>
Richard C. Peplin, Jr.(2) 1,190,650 19.5%
David Russell, Jr 759,000 12.9%
Edward D. Arioli(3) 737,740 12.4%
Theodore Farnsworth 746,500 12.7%
Apportum Consulting Corp.(4) 848,047 13.3%
Bloomfield Micro Cap Bridge(5) 375,000 6.4%
Fund, LLC
Charles Spina 315,914 5.4%
All officers and directors as a 3,433,890 55.5%
group (4 persons)
</TABLE>
- --------------------
(1) The addresses of these shareholders are as follows: Richard C. Peplin,
Jr.: 25100 Detroit Road, Westlake, Ohio 44145; David Russell, Jr.; 1499
W. Palmetto Park Rd., Suite 310, Boca Raton, Florida 33486; Edward
Arioli: 1499 W. Palmetto Park Rd., Suite 310, Boca Raton, Florida
33486; Theodore J. Farnsworth: 1499 W. Palmetto Park Rd., Suite 310,
Boca Raton, Florida 33486. Apportum Consulting Corp.: 90 Park Avenue,
16th Floor, New York, New York 10016; Bloomfield Micro Cap Bridge Fund,
LLC, 33 Bloomfield Hills Parkway, Suite 15, Bloomfield Hills, Michigan
48304; Charles Spina: One World Trade Center, Suite 8929, New York, New
York 10048.
(2) Includes warrants to purchase an aggregate of 247,163 shares of Common
Stock issued in consideration of certain advances made to the Company
and the cancellation of certain Company indebtedness as follows: (i) a
warrant issued to Mr. Peplin to purchase 142,900 shares of the
Company's Common Stock at an exercise price of $1.00 per share and
exercisable at any time during the three (3) year period commencing
June 6, 1996; and (ii) a warrant to purchase 104,263 shares of the
Company's Common Stock issued to Lakewood Mfg. Co. P/S Trust FBO
Richard C. Peplin, Jr., at an exercise price of $1.00 per share and
exercisable at any time during the three (3) year period commencing
June 6, 1996. Also includes 104,263 shares held by Lakewood Mfg. Co.
P/S Trust FBO Richard C. Peplin, Jr. (See "Item 7. Certain
Relationships and Related Transactions" and "Item 8. Description of
Securities" below.)
(3) Includes a warrant to purchase 69,370 shares of Common Stock issued to
Mr. Arioli in consideration for the cancellation of certain
indebtedness owed by the Company to said shareholder, at an exercise
price of $1.00 per share and exercisable at any time during the three
(3) year period commencing June 6, 1996. The warrants carry piggy-back
registration rights. (See "Certain Relationships and Related
Transactions" and "Description of Securities.")
(4) Includes 337,880 shares held of record by Apportum Consulting Corp.
("Apportum") and 10,167 shares held of record by Invest L'Inc. Bridge
Fund, LLC, an affiliate of Apportum. Also includes (i) warrants to
purchase 250,000 shares of Common Stock, $.0001 par value, at an
exercise price of $1.00 per share, expiring July 1, 2001, held by
Invest L'Inc. Partners, LLC, a consultant to the Company and an
affiliate of Apportum and (ii) warrants to purchase 250,000 shares of
Common Stock, $.0001 par value, at an exercise price of $1.00 per
share, expiring July 1, 2001, held by River Capital, Inc., a consultant
to the Company and an affiliate of Invest L'Inc. Partners LLC. None of
Apportum, Invest L'Inc. Bridge Fund, LLC, Invest L'Inc. Partners, LLC,
or River Capital, Inc., or any of their respective shareholders or
beneficiaries, are officers, directors or affiliates of the Company.
(See "Description of Securities.")
(5) Includes 87,500 shares held by Michael J. Feldman, a manager of
Bloomfield Micro Cap Bridge Fund, LLC ("Bloomfield") and 87,500 shares
held by Robert S. Gigliotti, another manager of Bloomfield.
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<PAGE> 14
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Directors and Executive Officers.
The directors and executive officers of the Company are as follows:
Name Age Position
---- --- --------
Richard C. Peplin, Jr. 38 Chairman of the Board of Directors, Chief
Executive Officer and President
David Russell, Jr. 30 Vice President, Secretary, Treasurer and Director
Edward D. Arioli 55 Director
Theodore Farnsworth 34 Director
Elliott Dworkin 47 Nominee
Sidney Dworkin 75 Nominee
All directors serve a term of one year or until their successors have
been duly elected and qualified.
RICHARD C. PEPLIN, JR. has served as Chairman, Chief Executive Officer
and President of the Company since its March 1996 inception, and prior thereto
served as a director of PDN beginning in January 1996 and as a consultant to PDN
since June 1995. Mr. Peplin devotes approximately sixty (60) hours per week of
his time to the Company. From 1987 to the present Mr. Peplin has served as
president of Lakewood Mfg. Co., a defense contractor and supplier of metal parts
and assemblies to numerous OEM's and the U.S. Department of Defense, which has
annual sales of over $7,000,000 and more than 90 employees. In addition, from
1986 to the present Mr. Peplin has served as vice president of Talan Products,
Inc., a metal stamping supplier which he co-founded. Originally capitalized with
only $10,500, Talan Products had 1995 sales of $6.8 million and employs over 50
persons. Mr. Peplin has also been involved in several other business ventures,
including Medquest Management, Inc., a home health care provider, which was sold
to Abbey Healthcare in 1993.
DAVID RUSSELL, JR. has served as Vice President, Secretary, Treasurer
and a Director of the Company since its March 1996 inception, and prior thereto
served as PDN's secretary and a director since inception. From 1990 to March
1996, he served as a vice president and director of Cannon Marketing Group, Inc.
Mr. Russell has also served as an independent consultant to various audiotext
(pay per call) companies since 1993. From 1987 to 1989 he served as vice
president of sales and marketing for Automotive Remanufacturing Wholesale
Componentry Co., a company engaged in sales of service contract agreements.
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<PAGE> 15
EDWARD D. ARIOLI has served as a Director of the Company since its
March 1996 inception and prior thereto served as PDN's vice president, treasurer
and a director since inception. Mr. Arioli also serves as an officer and
director of Cannon Marketing Group, Inc. From 1986 to 1996, Mr. Arioli has
served as the president of Americorp Financial, a company involved in the
leasing of medical equipment, which had 1995 sales of approximately $20 million.
Mr. Arioli sold his interest in Americorp Financial and resigned as its chairman
in August, 1996. From 1975 through 1982 he owned and operated a medical
equipment rental company. This company was then merged with Foster Medical Corp.
which was subsequently purchased by Avon Products Corp. From 1984 to 1986 Mr.
Arioli served as vice president of business development for the medical division
of Avon. While at Foster Medical and Avon, Mr. Arioli oversaw the acquisition of
approximately 100 home health care providers. Mr. Arioli then left Avon and
formed Medquest Management, Inc., a home health care provider, which was
subsequently sold to Abbey Healthcare in 1993. Mr. Arioli remains an active
investor and consultant.
THEODORE FARNSWORTH has served as a Director of the Company since its
March 1996 inception and prior thereto served as PDN's president and as a
director. He has been involved in various aspects of the 900 telephone number
field since 1990. In 1992, Mr. Farnsworth produced a 30 minute infomercial
featuring Latoya Jackson and a psychic 900 telephone network. Since 1992 Mr.
Farnsworth has served as the president of Cannon Marketing Group, Inc. From 1990
to 1992, Mr. Farnsworth served as president of Pepi Communications.
The following persons have been nominated to serve as members
of the Company's Board of Directors in connection with the proposed acquisition
of Cyberdrive. They will be appointed to fill vacancies on the board effective
upon the closing of the Cyberdrive acquisition. See "Item 1. Description of
Business -- Products and Services -- Web Star."
ELLIOTT DWORKIN has been nominated to serve as a Director of the
Company. From February 20, 1986, Mr. Dworkin has been the President of
Cyberdrive. From September 1972 to October, 1984, Mr. Dworkin was the Senior
Vice President of Revco Discount Drug Stores. He has over 25 years of marketing
and advertising experience at both the local and national levels. Mr. Dworkin
obtained his Bachelor of Arts Degree in Economics from Oakland University in
1972.
SIDNEY DWORKIN has been nominated to serve as a Director of the Company
since October 21, 1996. Mr. Dworkin founded Revco Discount Drug Stores with four
stores in 1956 and was thereafter responsible for adding an additional 2,000
stores prior to his retirement from Revco in 1987. He currently sits on the
board of directors of numerous public corporations including Viragen, Northern
Instruments, Comtrex Systems and Cosmetic Corp. of America. Mr. Dworkin obtained
his Bachelors Degree in Accounting from Wayne State University in 1941. Sidney
Dworkin is the father of Elliott Dworkin.
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<PAGE> 16
ITEM 6. EXECUTIVE COMPENSATION.
Compensation of Officers.
No executive officer of the Company was paid cash or non-cash
compensation in excess of $100,000 during the fiscal years ended December 31,
1994 or December 31, 1995. The following table sets forth the compensation paid
by the Company to its chief executive officer for services rendered during
fiscal 1993, 1994 and 1995. The Company did not employ any other executive
officer whose total annual salary and bonus exceeded $100,000 during fiscal
1993, 1994 or 1995 or is expected to exceed $100,000 in fiscal 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------------
OTHER ANNUAL
COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)
- -------------------------------------------- -------- ------------- ----------- -----------------
<S> <C> <C> <C> <C>
Richard C. Peplin, Jr., Chairman of ........ 1993 $ -0- $ -0- $ -0-
the Board of Directors, Chief .............. 1994 $ -0- $ -0- $ -0-
Executive Officer and President............. 1995 $ -0- $ -0- $ -0-
</TABLE>
Mr. Peplin received $31,442.15 in total compensation from January 1,
1996 to September 30, 1996. Mr. Peplin's total annual salary and bonus is
expected to total $65,000 during fiscal 1996.
Compensation of Directors.
Directors receive no compensation for their services as such.
Employment Agreement.
The Company does not have an employment agreement with Mr. Peplin or
any other executive officer.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On July 1, 1996, Richard C. Peplin, Jr., the Chief Executive Officer
and a Director of the Company, as the holder of a promissory note made by
Psychic Discovery Network, Inc. dated May 1995, in the original principal amount
of $7,756.75, agreed to cancel and extinguish the principal amount and $799.25
of accrued interest in exchange for 8,556 shares of the Company's Common Stock
all in accordance with the terms of a Cancellation of Indebtedness Certificate
dated July 1, 1996. Similarly, on July 1, 1996, Lakewood Mfg. Co. P/S Trust FBO
Richard C. Peplin, Jr. ("Lakewood"), as the holder of a promissory note made by
Psychic Discovery Network, Inc. dated August 8, 1995, in the original principal
amount of $94,900, agreed to cancel and extinguish the principal amount and
$9,363 of accrued interest in exchange for 104,263 shares of the Company's
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<PAGE> 17
Common Stock all in accordance with the terms of a Cancellation of Indebtedness
Certificate dated July 1, 1996.
Edward D. Arioli, a Director of the Company, as the holder of a
promissory note made by Psychic Discovery Network, Inc. dated July 20, 1995, in
the original principal amount of $62,000, agreed to cancel and extinguish the
principal amount and $7,370 of accrued interest in exchange for 69,370 shares of
the Company's Common Stock all in accordance with the terms of a Cancellation of
Indebtedness Certificate dated July 1, 1996.
On June 6, 1996, warrants to purchase Shares of the Company's Common
Stock were issued in consideration of certain advances made to the Company and
the agreement to cancel certain Company indebtedness as follows: (i) warrants to
purchase 142,900 shares of Common Stock were issued to Mr. Peplin with an
exercise price of $1.00 per share and expiring June 6, 1999; (ii) warrants to
purchase 69,370 Shares of Common Stock were issued to Mr. Arioli with an
exercise price of $1.00 per share and expiring June 6, 1999; and (iii) warrants
to purchase 104,263 Shares of Common Stock were issued to Lakewood Mfg. Co. P/S
Trust FBO Richard C. Peplin, Jr., with an exercise price of $1.00 per share and
expiring June 6, 1999. In each case, the warrants carry piggy-back registration
rights.
The Company entered into Business Consultant Agreement dated as of
March 6, 1996 (the "Consulting Agreement"), with Invest L'Inc. Partners, LLC
("ILP") and River Capital, Inc. ("River" and, together with ILP, the
"Consultants"). The Consultants, including their affiliates, are the beneficial
owners of approximately 13.3% of the Company's Common Stock, inclusive of
certain warrants described below (see "Item 4. Security Ownership of Certain
Beneficial Owners and Management"). The Consultants provide financial consulting
and public relations services to the Company. The Consulting Agreement has a 24
month term and provides for the reimbursement of the Consultants' expenses. The
Consulting Agreement also provides for the issuance to each of ILP and River, or
their designee(s), warrants to purchase 250,000 shares of the Company's Common
Stock at an exercise price of $1.00 per share. These warrants are exercisable
for a period of five (5) years from July 1, 1996 and are transferable only in
compliance with applicable federal and state securities laws. The shares of
Common Stock issuable upon exercise of the warrants carry piggyback registration
rights which entitle the holder to elect to have his or her shares registered
under the Securities Act of 1933, as amended, in the event that the Company
files a registration statement under such act, subject to certain limitations.
Historically, the Company's operations were conducted by a group of
affiliated entities, including Psychic Discovery Network, Inc. ("PDN"), American
Psychic Network, Inc. ("APN"), On-Line Management, Inc. ("On-Line") and Cannon
Marketing Group, Inc. ("Cannon"). On March 29, 1996, PDN acquired assets related
to the Company's operations from Cannon in a non-cash transaction. On May 20,
1996, APN was merged into PDN and PDN became a wholly-owned subsidiary of the
Company. On October 18, 1996, On-Line was merged into PDN, completing the
consolidation of the Company's operations. The Company's financial statements
reflect historical transactions between these now consolidated entities and
operations.
The Company believes that all of the transactions entered into by it
were fair and reasonable, and intends that all future transactions, if any, with
affiliates will be on terms no less favorable than could be obtained from
unaffiliated parties.
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<PAGE> 18
ITEM 8. DESCRIPTION OF SECURITIES.
Common Stock
The authorized capital stock of the Company consists of 20,000,000
shares of common stock, $.0001 par value ("Common Stock"), of which, as of
October 23, 1996, 5,872,518 shares of Common Stock were issued and outstanding
and held of record by approximately 512 persons. Each holder of record of shares
of the Company's Common Stock is entitled to receive such dividends as may be
declared by the Company's Board of Directors from funds legally available
therefore. Each holder of record of the Company's Common Stock is entitled to
one vote per share in the election of the Company's directors and all other
matters submitted to a vote of shareholders and to share ratably in all assets
available for distribution to holders of record of Common Stock upon liquidation
or dissolution. Cumulative voting is not permitted in the election of directors.
There are no preemptive rights to subscribe for any of the Company's securities
and there are no conversion rights or sinking fund provisions applicable to the
Company's Common Stock. The Company does not intend to pay any dividends on its
Common Stock in the foreseeable future.
Common Stock Purchase Warrants
Certain of the Company's shareholders and/or their affiliates have
received, as consideration for advances made to the Company and the cancellation
of certain indebtedness owed by the Company, warrants to purchase an aggregate
of 316,533 shares of Common Stock at an exercise price of $1.00 per share (see
"Item 7. Certain Relationships and Related Transactions" above). These warrants
are exercisable at any time during the three (3) year period commencing June 6,
1996. The shares of Common Stock issuable upon exercise of the warrants carry
piggyback registration rights which entitle the holder to elect to have his or
her shares registered under the Securities Act of 1933 in the event the Company
files a registration statement under such act, subject to certain limitations.
In connection with a Consulting Agreement, warrants to purchase 250,000
shares of Common Stock were issued to each of Invest L'Inc. Partners, LLC and
River Capital, Inc. (see "Item 7. Certain Relationships and Related
Transactions" above). The warrants have an exercise price of $1.00 per share and
expire July 1, 2001. The shares of Common Stock underlying these warrants carry
piggyback registration rights which entitle the holder to elect to have his or
her shares registered under the Securities Act of 1933 in the event that the
Company files a registration statement under such act, subject to certain
limitations.
Transfer Agent
The Transfer Agent for the Company's Common Stock will be American
Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
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<PAGE> 19
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS.
To date, there has been no trading activity in the Company's Common
Stock. The Common Stock has not been listed on an exchange or quoted on NASDAQ.
Because of the lack of any public trading market, the Company is unable to
present historical information with respect to its Common Stock.
As of October 23, 1996, there were approximately 512 record holders of
the Company's Common Stock.
The Company has not paid any cash dividends since its inception and
does not contemplate paying dividends in the foreseeable future. It is
anticipated that earnings, if any, will be retained for the operation of the
Company's business.
ITEM 2. LEGAL PROCEEDINGS.
There are no pending legal proceedings to which the Company or the
property of the Company are subject. In addition, no proceedings are known to be
contemplated by a governmental authority against the Company or any officer or
director of the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Inapplicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
From February to June 1995, Psychic Discovery Network, Inc., now a
subsidiary of the Company, conducted a private placement of 5.5 units, with each
unit consisting of twenty-five (25) shares of common stock and a $25,000
debenture. Psychic Discovery Network, Inc. raised gross proceeds of $137,500 in
its private offering, of which $25,000 was sold after May 6, 1995. Sales in the
private offering were made in reliance on the exemptions from registration
afforded by Sections 3(b) and 4(2) of the Securities Act of 1933 and Rules 504
and 506 of Regulation D promulgated thereunder.
Between May 6, 1996 and June 30, 1996, the Company conducted a private
offering of shares of its Common Stock at an offering price of $1.00 per share.
The Company raised gross proceeds of $612,500 in the private offering. Sales in
the private offering were made in reliance on the exemption from registration
afforded by Section 3(b) of the Securities Act of 1933 and Rule 504 of
Regulation D promulgated thereunder.
On July 1, 1996, in consideration for the cancellation of certain
indebtedness owed by the Company to certain individuals and/or entities, the
Company issued shares of its Common Stock,
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<PAGE> 20
pursuant to Section 4(2) of the Securities Act of 1933, as follows: (i) 8,556
shares to Mr. Peplin; (ii) 104,263 shares to Lakewood Mfg. Co. P/S Trust FBO
Richard C. Peplin, Jr.; and (iii) 69,370 shares to Mr. Arioli. See "Part I, Item
7. Certain Relationships and Related Transactions."
Pursuant to an Agreement for Purchase and Sale of Assets, the Company
acquired substantially all of the assets, properties, rights and commercial
business of Internet Paradise, Inc., a Georgia corporation, in July 1996. The
purchase price included 50,000 shares of the Company's Common Stock issued in
reliance on the exemption from registration afforded by 4(2) of the Securities
Act of 1933. See "Part I, Item 1. Description of Business - Business of the
Issuer - Products and Services - Web Star."
On August 21, 1996, Gadwall Book Co Inc., a Delaware corporation
("GBCI"), was merged with and into the Company. In connection with this merger,
the Company issued an aggregate of 1,027,922 shares of its Common Stock to the
shareholders of GBCI. The exchange ratio was negotiated between the Company and
GBCI in the first quarter of 1996, prior to the private offering of shares of
Common Stock described above. The value of all of the outstanding shares of
GBCI, based upon a contemporaneous sale of GBCI common stock in a bona fide
sale, was approximately $55,625. Common Stock was issued by the Company to the
shareholders of GBCI in reliance on the exemption from registration afforded by
Section 3(b) of the Securities Act of 1933 and Rule 504 of Regulation D
promulgated thereunder.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Delaware Statutes.
Section 145 of the Delaware General Corporation Law, as amended,
provides for the indemnification of the Company's officers, directors, employees
and agents under certain circumstances as follows:
"(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the
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<PAGE> 21
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
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<PAGE> 22
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees). (Last amended by Ch.261,L.'94,eff.7-1-94.)"
Certificate of Incorporation.
The Company's Certificate of Incorporation provides that the directors
of the Company shall be protected from personal liability to the fullest extent
permitted by law. The Company's Bylaws also contain a provision for the
indemnification of the Company's directors (see "Indemnification of Directors
and Officers - Bylaws" below).
Bylaws.
The Company's Bylaws provide for the indemnification of the Company's
directors, officers, employees, or agents under certain circumstances as
follows:
"7.1 Authorization For Indemnification. The Corporation may indemnify,
in the manner and to the full extent permitted by law, any person (or the
estate, heirs, executors, or administrators of any person) who was or is a party
to, or is threatened to be made a party to any threatened,
-21-
<PAGE> 23
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation), by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, that he had
reasonable cause to believe that his conduct was unlawful.
7.2 Advance of Expenses. Costs and expenses (including attorneys' fees)
incurred by or on behalf of a director or officer in defending or investigating
any action, suit, proceeding or investigation may be paid by the Corporation in
advance of the final disposition of such matter, if such director or officer
shall undertake in writing to repay any such advances in the event that it is
ultimately determined that he is not entitled to indemnification. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board deems appropriate. Notwithstanding the
foregoing, no advance shall be made by the Corporation if a determination is
reasonably and promptly made by the Board by a majority vote of a quorum of
disinterested directors, or (if such a quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs) by independent legal
counsel in a written opinion, or by the stockholders, that, based upon the facts
known to the Board or counsel at the time such determination is made, (a) the
director, officer, employee or agent acted in bad faith or deliberately breached
his duty to the Corporation or its stockholders, and (b) as a result of such
actions by the director, officer, employee or agent, it is more likely than not
that it will ultimately be determined that such director, officer, employee or
agent is not entitled to indemnification.
7.3 Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise or as a member of any committee or similar
body against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article or applicable law.
7.4 Non-exclusivity. The right of indemnity and advancement of expenses
provided herein shall not be deemed exclusive of any other rights to which any
person seeking indemnification or advancement of expenses from the Corporation
may be entitled under any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office. Any agreement for
indemnification of or advancement of expenses to any director, officer, employee
or other person may provide rights of indemnification or advancement of expenses
which are broader or otherwise different from those set forth herein."
-22-
<PAGE> 24
PART F/S
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors ..................................... F-1
Consolidated Balance Sheet as of December 31, 1995 ................. F-2
Consolidated Statements of Operations for the Years
Ended December 31, 1994 and December 31, 1995 ................... F-3
Consolidated Statement of Stockholders' Equity for the Years
Ended December 31, 1994 and December 31, 1995 ................... F-4
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1994 and December 31, 1995 ................... F-5
Notes to Consolidated Financial Statements ......................... F-6
Accountants Report ................................................. F-15
Unaudited Consolidated Balance Sheet as of June 30, 1996 ........... F-16
Unaudited Consolidated Statements of Operations for the Three And
Six Month Periods Ended June 30, 1995 and 1996 ............... F-17
Unaudited Consolidated Statements of Stockholders' Equity for
The Six Month Period Ended June 30, 1996 ........................ F-18
Unaudited Consolidated Statements of Cash Flows for the Six
Month Periods Ended June 30, 1995 and 1996 ...................... F-19
Notes to Unaudited Consolidated Financial Statements ............... F-20
<PAGE> 25
DASZKAL, BOLTON & MANELA
CERTIFIED PUBLIC ACCOUNTANTS
A PARTNERSHIP OF PROFESSIONAL ASSOCIATIONS
240 W. PALMETTO PARK ROAD, SUITE #300 - BOCA RATON, FLORIDA 33432
TELEPHONE (561)367-1040 FAX (561)750-3236
JEFFREY A. BOLTON, CPA, P.A. MEMBER OF THE AMERICAN INSTITUTE
MICHAEL I. DASZKAL, CPA, P.A. OF CERTIFIED PUBLIC ACCOUNTANTS
ROBERT A. MANELA, CPA, P.A.
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Viatech Communications Group, Inc.
We have audited the accompanying consolidated balance sheet of Viatech
Communications Group, Inc. and subsidiaries as of December 31, 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1994 and 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Viatech
Communications Group, Inc. and subsidiaries at December 31, 1995, and the
results of their operations and their cash flows for the years ended December
31, 1994 and 1995, in conformity with generally accepted accounting principles.
Boca Raton, Florida
June 28, 1996
F-1
<PAGE> 26
VIATECH COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
Current assets:
<S> <C>
Accounts receivable $ 638,695
Subscriptions receivable 850
Due from affiliate 103,689
Other receivables 16,791
Inventories 52,095
Prepaid expenses 2,292
-----------
Total Current Assets 814,412
-----------
Property and equipment 9,835
Less accumulated depreciation (1,901)
-----------
Property and Equipment, net 7,934
-----------
Other assets:
Deferred advertising costs 372,976
-----------
Total Assets $ 1,195,322
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 112,835
Accrued expenses 48,970
Due to affiliate 20,365
Payroll taxes payable 18,078
Notes and loans payable 152,750
Current portion of long-term debt 100,714
-----------
Total Current Liabilities 453,712
-----------
Long-term debt 28,416
-----------
Stockholders' equity:
Common stock, .0001 par value; authorized shares
- 20,000,000, issued and outstanding - 3,159,139 316
Additional paid in capital 684
Retained earnings 712,194
-----------
Total Stockholders' Equity 713,194
-----------
Total Liabilities and Stockholders' Equity $ 1,195,322
===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 27
VIATECH COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1994 1995
---- ----
<S> <C> <C>
Revenues $ 308,126 $ 2,898,149
Cost of service 304,992 1,592,856
----------- -----------
Gross profit 3,134 1,305,293
Selling, general and administrative expenses 59,107 554,942
----------- -----------
Operating income (loss) (55,973) 750,351
----------- -----------
Other income (expense):
Interest income 211 637
Interest expense (1,025) (15,411)
Other income -- 34,091
----------- -----------
Other, net (814) 19,317
----------- -----------
Net income (loss) $ (56,787) $ 769,668
=========== ===========
Net income (loss) per common share $ (.02) $ .24
=========== ===========
Proforma data (unaudited):
Income before proforma provision
for income taxes 769,668
Proforma provision for income taxes 261,687
-----------
Proforma net income $ 507,981
===========
Proforma net income per share $ .16
===========
Weighted average common shares
outstanding 2,527,312 3,159,139
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 28
VIATECH COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 2,527,312 $ 253 $ 547 $ (687) $ 113
Net Loss -- -- -- (56,787) (56,787)
--------- --------- --------- --------- ---------
Balance, December 31, 1994 2,527,312 253 547 (57,474) (56,674)
Issuance of Common Stock 631,827 63 137 -- 200
Net Income -- -- -- 769,668 769,668
--------- --------- --------- --------- ---------
Balance, December 31, 1995 3,159,139 $ 316 $ 684 $ 712,194 $ 713,194
========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 29
VIATECH COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1994 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (56,787) $ 769,668
Reconciliation of net income (loss) to net
cash provided by (used in) operations:
Depreciation -- 1,901
Amortization -- 10,538
Bad debt reserve 182,039 641,954
Changes in operating assets and liabilities:
Accounts receivable (182,039) (1,280,649)
Other receivables (1,463) (129,605)
Inventories -- (52,095)
Prepaid expenses 5,952 (2,292)
Deferred expenses -- (372,976)
Accounts payable 19,271 82,042
Accrued expenses -- 48,790
Other liabilities 28,144 10,299
----------- -----------
Net cash used in operating activities (4,883) (272,425)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment -- (9,835)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock and notes -- 200,200
Proceeds of notes payable -- 199,500
Repayment of notes payable -- (117,440)
----------- -----------
Net cash provided by financing activities -- 282,260
----------- -----------
Net decrease in cash (4,883) --
CASH AT BEGINNING OF PERIOD 4,883 --
----------- -----------
CASH AT END OF PERIOD $ -- $ --
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 30
VIATECH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
The Company
Viatech Communications Group, Inc. (the "Company"), through its wholly-owned
subsidiary Psychic Discovery Network, Inc. ("PDN"), is engaged in the marketing
and development of telephone entertainment services, consisting primarily of
live psychic consultations and pre-recorded messages. The Company's
entertainment services are accessed via 900 telephone numbers and are billed on
a per minute basis to the customer on their telephone bill. The Company markets
its entertainment services through television commercials, direct mail
advertisements, and print advertisements. The Company uses independent
contractor psychics to provide the services. Calls are routed to these
contractors at their own home or place of business through the Company's service
bureau. The Company also offers a membership club known as the "American Psychic
Club". For a monthly fee, club members are provided with access to special 900
numbers billed at "members only" rates, a limited number of minutes of free
psychic consultation per month, club newsletters and a variety of membership
gifts. All fees for the Company's entertainment services are billed to the
consumer on their telephone bills. The Company contracts with independent
service bureaus for collection of these revenues. The Company also provides
psychic contract labor, promotional packages, and membership administration for
an unrelated third party.
In addition, the Company is beginning to position itself for entry into the
Internet service provider field through its Web Star, Inc. subsidiary.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, Psychic Discovery Network, Inc. and Web Star, Inc., both of
which are wholly-owned. Significant intercompany accounts and transactions have
been eliminated in consolidation.
Merger Transaction
The Company was organized on March 26, 1996 to act as a holding company for
Psychic Discovery Network, Inc. (PDN) and Web Star, Inc. (WSI). PDN, American
Psychic Network, Inc. (APN) and WSI were all under common control prior to a
series of tax free reorganizations under the Internal Revenue Code of 1986
effected on May 20, 1996 whereby APN merged with PDN. PDN and WSI were acquired
by the Company as wholly-owned subsidiaries. There was no interruption in the
business or operations of PDN, APN, or WSI as a result of their consolidation.
PDN was organized in November 1993 but had limited operations until April 1995.
APN was organized and commenced active operations in April 1995. WSI was formed
in January 1996 and commenced operations in June 1996.
F-6
<PAGE> 31
VIATECH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the date of acquisition, to be cash equivalents.
Inventories
Inventories, which consist of promotional packages and their contents including
such items as tarot cards, crystals, horoscopes, lottery promotions and costume
jewelry, are carried at cost using the first-in, first-out method.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed primarily
using the straight-line method over the estimated useful lives of the assets.
Income Taxes
The stockholders of the Company elected to be treated as a Sub Chapter S
Corporation under the Internal Revenue Code effective January 1, 1995. As a
result, taxable income for the year ending December 31, 1995 is included in the
taxable income of the individual stockholders and no income tax provision is
recorded.
A proforma income tax adjustment has been included in the Statement of
Operations for the year ended December 31, 1995 as if the Company had been a
taxable entity during that period.
The Company's S Corporation status automatically terminated effective May 20,
1996, the date of the merger transaction described in Note 1.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures during the reporting periods.
Actual results could differ from those estimates.
NOTE 3 - MERGER
On May 20, 1996, American Psychic Network, Inc. was merged into Psychic
Discovery Network, Inc. by issuing an aggregate of 12.5 shares of $1.00 par
value common stock of PDN to the shareholders of American Psychic Network, Inc.
with Psychic Discovery Network, Inc. as the surviving corporation.
F-7
<PAGE> 32
VIATECH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - MERGER (CONTINUED)
On May 20, 1996, a wholly-owned subsidiary of Viatech Communications Group,
Inc., PDV Merger Subsidiary, Inc., was merged with Psychic Discovery Network,
Inc. Pursuant to the merger agreement, Viatech Communications Group, Inc. issued
3,159,139 shares of $.0001 par value stock in exchange for the stock of Psychic
Discovery Network, Inc., in an exchange that qualified as a pooling of interest.
Also on May 20, 1996, a wholly owned subsidiary of Viatech Communications Group,
Inc., WSV Merger Subsidiary, Inc., was merged with Web Star, Inc. Pursuant to
the merger agreement, Viatech Communications Group, Inc. issued 840,864 shares
of $.0001 par value stock in exchange for the stock of Web Star, Inc., in an
exchange that qualified as a pooling of interest. The accompanying consolidated
financial statements include the combined results of operations from the date
Psychic Discovery Network, Inc., and Web Star, Inc. commenced operations. Prior
to the combination, the companies entered into certain intercompany transactions
and all material intercompany transactions have been eliminated in the
accompanying financial statements.
The following is a summary of the results of operations of the previously
separate companies from January, 1995 through December 31, 1995.
<TABLE>
<CAPTION>
PSYCHIC
DISCOVERY WEB STAR,
NETWORK, INC. INC.
------------- ---------------
<S> <C> <C>
Gross Profit $1,305,293 $ --
========== ===============
Net Income $ 769,668 $ --
========== ===============
</TABLE>
The assets and liabilities of the previously separate companies at December 31,
1995, were:
<TABLE>
<CAPTION>
PSYCHIC
DISCOVERY WEB STAR,
NETWORK, INC. INC.
------------- ---------------
<S> <C> <C>
Current Assets $ 814,412 $ --
Property and Equipment 7,934 --
Other Assets 372,976 --
---------- ---------------
Total Assets $1,195,322 $ --
========== ===============
Current Liabilities $ 453,712 $ --
Long-term Debt 28,416
---------- ---------------
Total Liabilities $ 482,128 $ --
========== ===============
</TABLE>
F-8
<PAGE> 33
VIATECH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - MERGER (CONTINUED)
The following is a summary of the results of operations of the previously
separate companies from January 1, 1994 through December 31, 1994.
<TABLE>
<CAPTION>
PSYCHIC
DISCOVERY WEB STAR,
NETWORK, INC. INC.
------------- -------------
<S> <C> <C>
Gross Profit $ 3,134 $ --
============= =============
Net Income (Loss) $ (56,787) $ --
============= =============
</TABLE>
The assets and liabilities of the previously separate companies at December 31,
1994, were:
<TABLE>
<CAPTION>
PSYCHIC
DISCOVERY WEB STAR,
NETWORK, INC. INC.
------------- -------------
<S> <C> <C>
Current Assets $ 2,263 $ --
Property and Equipment -- --
Other Assets -- --
------------- -------------
Total Assets $ 2,263 $ --
============= =============
Current Liabilities $ 58,937 $ --
Long-term Debt -- --
------------- -------------
Total Liabilities $ 58,937 $ --
============= =============
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<S> <C>
Computer Equipment $ 9,835
Less Accumulated Depreciation (1,901)
-------
Property and Equipment, net $ 7,934
=======
</TABLE>
F-9
<PAGE> 34
VIATECH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are presented net of an allowance for doubtful accounts. Bad
debts are provided on the allowance method based on past experience and
management's evaluation of outstanding accounts receivable. The allowance for
doubtful accounts was $677,783 at December 31, 1995.
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<S> <C>
Notes - Stockholders $ 129,130
Less current portion (100,714)
---------
Long-term debt $ 28,416
=========
</TABLE>
The Company issued debentures in the amount of $137,500 in conjunction with
stock issued in a private placement memorandum dated February 8, 1995 as
described in Note 12. These debentures called for repayment of principal and
interest at 10% per annum by August 31, 1995. The stockholders opted to convert
the debentures and accrued interest to promissory notes which require monthly
payments over a period of sixteen months with the same rate of interest.
NOTE 7 - NOTES AND LOANS PAYABLE
Notes and loans payable consists of short term advances from stockholders and a
note from Phase Four, a vendor, which was issued for advertising services.
NOTE 8 - CREDIT ARRANGEMENTS
The Company has an agreement with Enhanced Services Billing, Inc. (ESBI),
whereby ESBI performs the collection process on accounts it services for the
Company. ESBI accomplishes this through billing and collection agreements with
the Local Telephone Exchange Companies. In conjunction with their collection
services, ESBI advances funds to the Company for accounts receivable. Upon
funding, ESBI acquires all rights, including a first lien security interest, in
those accounts receivable. Funding to the Company is net of ESBI fees and a
financing charge of prime, as published in the Wall Street Journal, plus 6%.
ESBI funds an amount equal to 40% of these accounts receivable, not to exceed a
maximum advance amount of $500,000.
F-10
<PAGE> 35
VIATECH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - CREDIT ARRANGEMENTS (CONTINUED)
The Company also has a similar funding arrangement in place with West
Interactive Corporation. West Interactive advances funds to the Company for
certain assigned telephone customer accounts receivable. West Interactive
Corporation acquires all rights in those accounts receivable, including a first
lien security interest, upon funding of them. West Interactive Corporation will
fund an amount equal to 50% of these accounts receivable, up to a maximum amount
of $1,000,000. In addition, West Interactive performs the collection process on
accounts it services for the Company through agreements with the Local Telephone
Exchange Companies. West Interactive receives a financing fee of prime, as
published in the Wall Street Journal, plus 3%.
NOTE 9 - RELATED PARTY TRANSACTIONS
In addition to the promissory notes detailed above, the Company has received
advances with no set maturity date or specified rates of interest from officers
and stockholders. The advances from stockholders included in notes and loans
payable was $117,000 as of December 31, 1995.
The major stockholders of the Company are also the major stockholders of another
company to which the Company paid $279,983 for media purchases in 1995.
The Company had revenue of $235,220 for contract labor for 1995 from affiliated
companies.
NOTE 10 - LEASES
The Company leases its office facilities as well as a copier and mailing
equipment. The rent for the office facilities is paid monthly to a corporation
owned, in-part, by certain of the Company stockholders. Future minimum lease
payments for the noncancelable office equipment operating leases are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
<S> <C>
1996 $ 17,277
1997 24,422
1998 24,422
1999 -
2000 -
Thereafter -
----------
Total $ 66,121
==========
</TABLE>
Rental expense for the years ended December 31, 1994 and 1995, was $10,970 and
$25,444, respectively.
F-11
<PAGE> 36
VIATECH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially expose the Company to concentrations of
credit risk, as defined by Statement of Financial Accounting Standards No. 105,
consists primarily of cash and trade receivables. The Company places its cash
and temporary investments with high credit quality financial institutions. At
times, such bank account balances may be in excess of the FDIC insurance limit.
Accounts receivable are subject to charge back adjustments by the local
telephone exchanges and because of the nature of the 900 business these charge
backs are sizeable each month.
The Company operated in a single business segment, the telecommunications
industry, until its acquisition of Internet Paradise, Inc., as described in Note
13. This acquisition expanded the Companies operations and it now is positioning
to be an Internet service provider in addition to Psychic Discovery Network
operations. The Company is subject to the changing environment of the
telecommunications industry.
NOTE 12 - STOCKHOLDERS' EQUITY
In February 1995, Psychic Discovery Network, Inc. completed a private placement
of 5.5 units, with each unit consisting of 25 shares of unregistered common
stock and a $25,000 debenture. Proceeds of this private placement were $137,500,
including debentures.
NOTE 13 - SUBSEQUENT EVENTS
On May 20, 1996, the Company entered into a definitive agreement and plan of
merger providing for the acquisition by merger of Gadwall Book Co., Inc., a
Delaware corporation, with Viatech Communications Group, Inc. being the
surviving corporation and the separate existence of Gadwall Book Co., Inc. being
terminated. This agreement calls for the exchange of one share of common stock
of Viatech Communications Group, Inc. for each ten shares of Gadwall Book Co.,
Inc. on the effective date of the merger. The Company will issue 1,027,922
shares of its common stock to the stockholders of Gadwall Book Co., Inc. The
merger is expected to close in August 1996.
The Company has issued warrants to certain current stockholders and other
entities for cancellation of indebtedness and performance of services. These
warrants, issued between May 20, 1996 and June 30, 1996, in the aggregate amount
of 816,533, are exercisable on a basis of one share for each warrant at a
price of $1.00 per share. These warrants are to expire between May 20, 1999 and
July 1, 2001. Of these warrants, 500,000 are issued to two business consulting
firms pursuant to a consulting agreement. The actual allocation of warrants to
the business consultants will be determined by the services performed by the
parties.
F-12
<PAGE> 37
VIATECH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - SUBSEQUENT EVENTS (CONTINUED)
On March 29, 1996, the Company acquired various assets from Cannon Marketing
Group, Inc. valued at $75,500 in a non-cash transaction. The assets of Cannon
were transferred to Psychic Discovery Network, Inc. to reduce the amount owed by
Cannon Marketing Group to Psychic Discovery Network, Inc. The assets acquired
are as follows:
<TABLE>
<S> <C>
Film library $40,000
Contracts 10,000
Furniture and computer equipment 14,500
Rent deposit 6,000
Other assets 5,000
-------
Total $75,500
=======
</TABLE>
In June 1996, Viatech Communications Group, Inc. completed a private placement
of 612,500 shares of unregistered common stock. Gross proceeds from this private
placement were $612,500, with associated placement costs of $16,736.
In July 1996, the Company acquired Internet Paradise, Inc. by purchase. The
value of the assets acquired in this transaction are not significant to the
December 31, 1995 Consolidated Balance Sheet, therefore, no proforma financial
information has been presented.
In August 1996, the Company began the process of acquiring On-Line Management,
Inc., an affiliated company, by merger into Psychic Discovery Network, Inc. The
assets of On-Line Management, Inc. are not significant to the December 31, 1995
Consolidated Balance Sheet, therefore, no proforma financial information has
been presented.
NOTE 14 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The following table sets forth the supplemental disclosures of cash flow
information.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------
1994 1995
---- ----
Cash paid for:
<S> <C> <C>
Interest $ -- $ 4,236
============ ============
Income taxes $ -- $ --
============ ============
</TABLE>
F-13
<PAGE> 38
VIATECH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - NET INCOME (LOSS) PER SHARE
Primary net income (loss) per share has been computed by dividing net income by
the weighted average number of common shares and equivalents outstanding.
NOTE 16 - DEFERRED ADVERTISING COSTS
In accordance with the provisions of Statement of Position ("SOP") 93-7, which
provides guidance on financial reporting of advertising costs, the costs
incurred to elicit memberships from individuals responding to a specific
advertisement are deferred and charged to operations over a sixteen month period
beginning the month such costs are incurred. These costs include the
advertisement, the line fee of the 800 response number, and the labor related to
placing the advertisement. Deferred advertising costs were reported as an asset
in the amount of $372,976 at December 31, 1995.
F-14
<PAGE> 39
DASZKAL, BOLTON & MANELA
CERTIFIED PUBLIC ACCOUNTANTS
A PARTNERSHIP OF PROFESSIONAL ASSOCIATIONS
240 W. PALMETTO PARK ROAD, SUITE #300 - BOCA RATON, FLORIDA 33432
TELEPHONE (561)367-1040 FAX (561)750-3236
JEFFREY A. BOLTON, CPA, P.A. MEMBER OF THE AMERICAN INSTITUTE
MICHAEL I. DASZKAL, CPA, P.A. OF CERTIFIED PUBLIC ACCOUNTANTS
ROBERT A. MANELA, CPA, P.A.
ACCOUNTANTS' REPORT
Board of Directors and Stockholders
Viatech Communications Group, Inc.
We have compiled the accompanying consolidated balance sheet of Viatech
Communications Group, Inc. and subsidiaries as of June 30, 1996 and the related
consolidated statements of operations for the three and six months and statement
of cash flows for the six months ended June 30, 1995 and 1996, in accordance
with Statements on Standards for Accounting and Review Services issued by the
American institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
Boca Raton, Florida
August 6, 1996
F-15
<PAGE> 40
VIATECH COMMUNICATIONS GROUP, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
ASSETS
------
<TABLE>
<S> <C>
Current assets
Cash $ 108,606
Accounts receivable 880,482
Subscriptions receivable 188,475
Due from affiliate 110,683
Inventories 73,386
Prepaid expenses 77,912
Other receivables 32,850
-----------
Total Current Assets 1,472,394
-----------
Property and equipment 106,337
Less accumulated depreciation (10,140)
-----------
Property and Equipment, net 96,197
-----------
Other assets
Deferred advertising costs 494,920
Security deposits 19,687
-----------
Total Other Assets 514,607
-----------
Total Assets $ 2,083,198
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 141,013
Accrued expenses 80,473
Due to affiliate 26,508
Payroll taxes payable 1,319
Notes and loans payable 141,073
Current portion of long-term debt 77,699
-----------
Total Current Liabilities 468,085
-----------
Stockholders' equity
Common stock, .0001 par value; authorized shares
20,000,000 issued and outstanding -- 4,612,503 461
Additional paid in capital 596,343
Retained earnings 1,018,309
-----------
Total Stockholders' Equity 1,615,113
-----------
Total Liabilities and Stockholders' Equity $ 2,083,198
===========
</TABLE>
See accompanying notes and accountants' report.
F-16
<PAGE> 41
VIATECH COMMUNICATIONS GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
6/30/95 6/30/96 6/30/95 6/30/96
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 542,549 $ 1,621,697 $ 570,100 $ 2,967,306
Cost of service 242,169 952,172 275,942 1,816,341
----------- ----------- ----------- -----------
Gross profit 300,380 669,525 294,158 1,150,965
Selling, general and
administrative expenses 86,276 498,680 111,944 858,517
----------- ----------- ----------- -----------
Operating income 214,104 170,845 182,214 292,448
----------- ----------- ----------- -----------
Other income (expense):
Interest income 198 520 238 564
Interest expense (4,320) (3,533) (5,130) (9,663)
Other income -- -- -- 22,766
----------- ----------- ----------- -----------
Other, net (4,122) (3,013) (4,892) 13,667
----------- ----------- ----------- -----------
Income before income
taxes 209,982 167,832 177,322 306,115
Provision for income
tax expense (benefit) -- -- -- --
----------- ----------- ----------- -----------
Net income $ 209,982 $ 167,832 $ 177,322 $ 306,115
=========== =========== =========== ===========
Proforma data (unaudited):
Income (loss) before
proforma provision
for income taxes $ 209,982 $ 167,832 $ 177,322 $ 306,115
Proforma provision for
income taxes 65,143 48,705 52,405 102,635
----------- ----------- ----------- -----------
Proforma net income $ 144,839 $ 119,127 $ 124,917 $ 203,480
=========== =========== =========== ===========
Per share proforma net
income $ .05 $ .03 $ .04 $ .06
=========== =========== =========== ===========
Weighted average common
shares outstanding 2,889,280 3,541,510 2,889,280 3,541,510
=========== =========== =========== ===========
</TABLE>
See accompanying notes and accountants' report.
F-17
<PAGE> 42
VIATECH COMMUNICATIONS GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------- ----------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1995 3,159,139 $ 316 $ 684 $ 712,194 $ 713,194
Issuance of Common
Stock 1,453,364 145 595,659 -- 595,804
Net Income -- -- -- 306,115 306,115
---------- ---------- ---------- ---------- ----------
Balance,
June 30, 1996 4,612,503 $ 461 $ 596,343 $1,018,309 $1,615,113
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes and accountants' report.
F-18
<PAGE> 43
VIATECH COMMUNICATIONS GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX SIX
MONTHS MONTHS
ENDED ENDED
6/30/95 6/30/96
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 177,322 $ 306,115
Reconciliation of net income to net cash
provided by (used in) operations:
Depreciation -- 8,239
Bad debt reserve 73,795 (457,294)
Changes in operating assets and liabilities:
Accounts receivable (282,025) 215,507
Other receivables (13,831) (210,678)
Inventories (32,865) (21,291)
Prepaid expenses (250) (75,620)
Deferred expenses (179,648) (121,944)
Other assets -- (19,687)
Accounts payable 12,442 28,179
Accrued expenses 20,980 31,503
Other liabilities (20,878) (10,616)
--------- ---------
Net cash used in operating activities (244,958) (327,587)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment (2,583) (96,502)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock and notes 137,700 595,803
Proceeds of notes payable 138,592 113,900
Repayment of notes payable -- (177,008)
--------- ---------
Net cash provided by financing activities 276,292 532,695
--------- ---------
Net increase in cash 28,751 108,606
CASH AT BEGINNING OF PERIOD -- --
--------- ---------
CASH AT END OF PERIOD $ 28,751 $ 108,606
========= =========
</TABLE>
See accompanying notes and accountants' report.
F-19
<PAGE> 44
VIATECH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1995 AND 1996, AND FOR THE
SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996, IS UNAUDITED)
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
The Company
Viatech Communications Group, Inc. (the "Company"), through its wholly-owned
subsidiary Psychic Discovery Network, Inc. ("PDN"), is engaged in the marketing
and development of telephone entertainment services, consisting primarily of
live psychic consultations and pre-recorded messages. The Company's
entertainment services are accessed via 900 telephone numbers and are billed on
a per minute basis to the customer on their telephone bill. The Company markets
its entertainment services through television commercials, direct mail
advertisements, and print advertisements. The Company uses independent
contractor psychics to provide the services. Calls are routed to these
contractors at their own home or place of business through the Company's service
bureau. The Company also offers a membership club known as the "American Psychic
Club". For a monthly fee, club members are provided with access to special 900
numbers billed at "members only" rates, a limited number of minutes of free
psychic consultation per month, club newsletters and a variety of membership
gifts. All fees for the Company's entertainment services are billed to the
consumer on their telephone bills. The Company contracts with independent
service bureaus for collection of these revenues. The Company also provides
psychic contract labor, promotional packages, and membership administration for
an unrelated third party.
In addition, the Company is beginning to position itself for entry into the
Internet service provider field through its Web Star, Inc. subsidiary.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, Psychic Discovery Network, Inc. and Web Star, Inc., both of
which are wholly-owned. Significant intercompany accounts and transactions have
been eliminated in consolidation.
Merger Transaction
The Company was organized on March 26, 1996 to act as a holding company for
Psychic Discovery Network, Inc. ("PDN") and Web Star, Inc. ("WSI"). PDN,
American Psychic Network, Inc. ("APN") and WSI were all under common control
prior to a series of tax free reorganizations under the Internal Revenue Code of
1986 effected on May 20, 1996 whereby APN merged with PDN. PDN and WSI were
acquired by the Company as wholly-owned subsidiaries. There was no interruption
in the business or operations of PDN, APN, or WSI as a result of their
consolidation. PDN was organized in November 1993, but had limited operations
until April 1995. APN was organized and commenced active operations in April
1995. WSI was formed in January 1996 and commenced operations in June 1996.
F-20
<PAGE> 45
VIATECH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1995 AND 1996, AND FOR THE
SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996, IS UNAUDITED)
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS (CONTINUED)
Interim Financial Information
The financial information as of June 30, 1995 and 1996 and for the six month
periods ended June 30, 1995 and 1996, is unaudited but includes all adjustments
(consisting only of normal recurring accruals) that the Company considers
necessary for a fair presentation of the financial position as of such dates and
the operating results and cash flow for those periods. Operating results for the
six months ended June 30, 1996 are not necessarily indicative of the results
that may be expected for the entire year.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the date of acquisition, to be cash equivalents.
Inventories
Inventories, which consist of promotional packages and their contents including
such items as tarot cards, crystals, horoscopes, lottery promotions and costume
jewelry, are carried at cost using the first-in, first-out method.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed primarily
using the straight-line method over the estimated useful lives of the assets.
Income Taxes
The stockholders of the Company elected to be treated as a Sub Chapter S
Corporation under the Internal Revenue Code effective January 1, 1995. As a
result, taxable income for the six months ended June 30, 1995, is included in
the taxable income of the individual stockholders and no income tax provision is
recorded.
A proforma income tax adjustment has been included in the Statement of
Operations for the six month periods ended June 30, 1995 and 1996, as if the
Company had been a taxable entity during those periods presented.
The Company's S Corporation status has been automatically terminated effective
May 20, 1996, the date of the merger transaction described in Note 1.
F-21
<PAGE> 46
VIATECH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1995 AND 1996, AND FOR THE
SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996, IS UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures during the reporting periods.
Actual results could differ from those estimates.
NOTE 3 - MERGER
On May 20, 1996, American Psychic Network, Inc. was merged into Psychic
Discovery Network, Inc. by issuing an aggregate of 12.5 shares of $1.00 par
value common stock of PDN to the shareholders of American Psychic Network, Inc.
with Psychic Discovery Network, Inc. as the surviving corporation.
On May 20, 1996, a wholly-owned subsidiary of Viatech Communications Group,
Inc., PDV Merger Subsidiary, Inc., was merged with Psychic Discovery Network,
Inc. Pursuant to the merger agreement, Viatech Communications Group, Inc. issued
3,159,139 shares of $.0001 par value stock in exchange for the stock of Psychic
Discovery Network, Inc., in an exchange that qualified as a pooling of interest.
Also on May 20, 1996, a wholly owned subsidiary of Viatech Communications Group,
Inc., WSV Merger Subsidiary, Inc., was merged with Web Star, Inc. Pursuant to
the merger agreement, Viatech Communications Group, Inc. issued 840,864 shares
of $.0001 par value stock in exchange for the stock of Web Star, Inc., in an
exchange that qualified as a pooling of interest. The accompanying consolidated
financial statements include the combined results of operations from the date
Psychic Discovery Network, Inc., and Web Star, Inc. commenced operations. Prior
to the combination, the companies entered into certain intercompany transactions
and all material intercompany transactions have been eliminated in the
accompanying financial statements.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------
1995 1996
---- ----
<S> <C> <C>
Furniture and Fixtures $ -- $ 1,273
Computer Equipment 2,583 50,064
Film Library -- 40,000
Other -- 15,000
--------- ---------
Total Property and Equipment 2,583 106,337
Less Accumulated Depreciation -- (10,140)
--------- ---------
Property and Equipment, net $ 2,583 $ 96,197
========= =========
</TABLE>
F-22
<PAGE> 47
VIATECH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1995 AND 1996, AND FOR THE
SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996, IS UNAUDITED)
NOTE 5 - ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are presented net of an allowance for doubtful accounts. Bad
debts are provided on the allowance method based on past experience and
management's evaluation of outstanding accounts receivable. The allowance for
doubtful accounts was $73,795 and $220,489, at June 30, 1995, and 1996,
respectively.
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1995 1996
---- ----
<S> <C> <C>
Notes - Stockholders $ 137,500 $ 77,699
Less current portion (137,500) (77,699)
--------- --------
Long-term debt $ -- $ --
========= =========
</TABLE>
The Company issued debentures in the amount of $137,500 in conjunction with
stock issued in a private placement memorandum dated February 8, 1995 as
described in Note 12. These debentures called for repayment of principal and
interest at 10% per annum by August 31, 1995. The stockholders opted to convert
the debentures and accrued interest to promissory notes which require monthly
payments over a period of sixteen months with the same rate of interest.
NOTE 7 - NOTES AND LOANS PAYABLE
Notes and loans payable consist of notes and short term advances from
stockholders and a note from Phase Four, a vendor, which was issued for
advertising services.
NOTE 8 - CREDIT ARRANGEMENTS
The Company has an agreement with Enhanced Services Billing, Inc. (ESBI),
whereby ESBI performs the collection process on accounts it services for the
Company. ESBI accomplishes this through billing and collection agreements with
the Local Telephone Exchange Companies. In conjunction with their collection
services, ESBI advances funds to the Company for accounts receivable. Upon
funding, ESBI acquires all rights, including a first lien security interest, in
those accounts receivable. Funding to the Company is net
F-23
<PAGE> 48
VIATECH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1995 AND 1996, AND FOR THE
SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996, IS UNAUDITED)
NOTE 8 - CREDIT ARRANGEMENTS (CONTINUED)
of ESBI fees and a financing charge of prime, as published in the Wall Street
Journal, plus 6%. ESBI funds an amount equal to 40% of these accounts
receivable, not to exceed a maximum advance amount of $500,000.
The Company also has a similar funding arrangement in place with West
Interactive Corporation, dated March 16, 1996. West Interactive advances funds
to the Company for certain assigned telephone customer accounts receivable. West
Interactive Corporation acquires all rights in those accounts receivable,
including a first lien security interest, upon funding of them. West Interactive
Corporation will fund an amount equal to 50% of these accounts receivable, up to
a maximum amount of $1,000,000. In addition, West Interactive performs the
collection process on accounts it services for the Company through agreements
with the Local Telephone Exchange Companies. West Interactive receives a
financing fee of prime, as published in the Wall Street Journal, plus 3%. This
arrangement is also secured by a note from the Company with a due date of March
16, 1997.
NOTE 9 - RELATED PARTY TRANSACTIONS
In addition to the promissory notes detailed above, the Company has received
advances with no set maturity date or specified rates of interest from officers
and stockholders. The advances from stockholders included in notes and loans
payable was $124,628 at June 30, 1996.
Certain of the Company's stockholders received consulting fees for performing
management advisory services for the Company, in the amount of $20,200, for the
six month period ended June 30, 1996.
The Company had revenue from affiliated companies for contract labor of $35,321
and $304,695 for the six month periods ended June 30, 1995, and 1996,
respectively.
NOTE 10 - LEASES
The Company leases its office facilities as well as a copier and mailing
equipment. The rent for the office facilities is paid monthly to a corporation
owned, in-part, by certain of the Company stockholders. Rental expense for the
six months ended June 30, 1995, and June 30, 1996, was $9,562, and $53,077,
respectively.
F-24
<PAGE> 49
VIATECH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1995 AND 1996, AND FOR THE
SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996, IS UNAUDITED)
NOTE 11 - CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially expose the Company to concentrations of
credit risk, as defined by Statement of Financial Accounting Standards No. 105,
consists primarily of cash and trade receivables. The Company places its cash
and temporary investments with high credit quality financial institutions. At
times such bank account balances may be in excess of the FDIC insurance limit.
Accounts receivable are subject to charge back adjustments by the local
telephone exchanges and because of the nature of the 900 business these charge
backs are sizeable each month.
The Company operated in a single business segment, the telecommunications
industry, until its acquisition of Internet Paradise, Inc., as described in Note
13. This acquisition expanded the Companies operations and it now is positioning
to be an Internet service provider in addition to Psychic Discovery Network
operations. The Company is subject to the changing environment of the
telecommunications industry.
NOTE 12 - STOCKHOLDERS' EQUITY
Private Placement of Stock and Notes
In February 1995, Psychic Discovery Network, Inc. completed a private placement
of 5.5 units, with each unit consisting of 25 shares of unregistered common
stock and a $25,000 debenture. Proceeds of this private placement were $137,500,
including debentures.
In June 1996, Viatech Communications Group, Inc. completed a private placement
of 612,500 shares of unregistered common stock. Proceeds from this private
placement were $612,500, with associated placement costs of $16,736.
Warrants
The Company has issued warrants to certain current stockholders and other
entities for cancellation of indebtedness and performance of services. These
warrants, issued between May 20, 1996 and June 30, 1996, in the aggregate amount
of 816,533, are exercisable on a basis of one share for each warrant at a price
of $1.00 per share. These warrants expire between May 20, 1999 and July 1, 2001.
Of these warrants, 500,000 are to be issued to two business consulting firms
pursuant to their consulting agreements. The actual allocation of warrants to
the business consultants will be determined by the services performed by the
parties.
F-25
<PAGE> 50
VIATECH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1995 AND 1996, AND FOR THE
SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996, IS UNAUDITED)
NOTE 13 - SUBSEQUENT EVENTS
On May 20, 1996, the Company entered into a definitive agreement and plan of
merger providing for the acquisition by merger of Gadwall Book Co., Inc., a
Delaware corporation, with Viatech Communications Group, Inc. being the
surviving corporation and the separate existence of Gadwall Book Co., Inc. being
terminated. This agreement calls for the exchange of one share of common stock
of Viatech Communications Group, Inc. for each ten shares of Gadwall Book Co.,
Inc. on the effective date of the merger. The Company will issue 1,027,922
shares of its common stock to the stockholders of Gadwall Book Co., Inc. The
merger is expected to close in August 1996.
In July 1996, the Company acquired Internet Paradise, Inc. by purchase. The
value of the assets acquired in this transaction are not significant to the June
30, 1996 Consolidated Balance Sheet, therefore, no proforma financial
information has been presented.
In August 1996, the Company began the process of acquiring On-Line Management,
Inc., an affiliated company, by merger into Psychic Discovery Network, Inc. The
assets of On-Line Management, Inc. are not significant to the June 30, 1996
Consolidated Balance Sheet, therefore, no proforma financial information has
been presented.
NOTE 14 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
SIX SIX
MONTHS MONTHS
ENDED ENDED
6/30/95 6/30/96
----- -----
<S> <C> <C>
Cash paid for:
Interest $ -- $10,844
========== =======
Income taxes $ -- $ --
========== =======
</TABLE>
On March 29, 1996, the Company acquired various assets from Cannon Marketing
Group, Inc. for $75,500 in a non-cash transaction. The assets of Cannon were
transferred to Psychic Discovery Network, Inc. to reduce the amount owed by
Cannon Marketing Group to Psychic Discovery Network, Inc. The assets acquired
are as follows:
<TABLE>
<S> <C>
Film library $40,000
Contracts 10,000
Furniture and computer equipment 14,500
Rent deposit 6,000
Other assets 5,000
-------
Total $75,500
=======
</TABLE>
F-26
<PAGE> 51
VIATECH COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1995 AND 1996, AND FOR THE
SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996, IS UNAUDITED)
NOTE 15 - NET INCOME (LOSS) PER SHARE
Primary net income (loss) per share has been computed by dividing net income by
the weighted average number of common shares and equivalents outstanding.
NOTE 16 - DEFERRED ADVERTISING COSTS
In accordance with the provisions of Statement of Position ("SOP") 93-7, which
provides guidance on financial reporting of advertising costs, the costs
incurred to elicit memberships from individuals responding to a specific
advertisement are deferred and charged to operations over a sixteen month period
beginning the month such costs are incurred. These costs include the
advertisement, the line fee of the 800 response number, and the labor related to
placing the advertisement. Deferred advertising costs were reported as an asset
in the amount of $494,920 at June 30, 1996.
F-27
<PAGE> 52
PART III
ITEM 1. INDEX TO EXHIBITS.
Page
----
2.1 Certificate of Incorporation of the Company, as amended
2.2 Bylaws of the Company, as amended
3.1 Specimen Common Stock Certificate
21.1 List of Subsidiaries of the Company
27.1 Financial Data Schedule
ITEM 2. DESCRIPTION OF EXHIBITS.
Inapplicable.
<PAGE> 53
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
VIATECH COMMUNICATIONS GROUP, INC.
Date: October 31, 1996 By: /s/ RICHARD C. PEPLIN, JR.
---------------------------------
Richard C. Peplin, Jr., President
<PAGE> 1
Exhibit 2.1
CERTIFICATE OF INCORPORATION
VIATECH COMMUNICATIONS GROUP, INC.
FIRST: The name of this Delaware corporation is:
Viatech Communications Group, Inc.
SECOND: The name and address of the Corporation's Registered Agent is:
Corporate Creations Enterprises, Inc.
686 North Dupont Boulevard #302
Milford, DE 19963
Kent County
THIRD: The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under Delaware law.
FOURTH: The Corporation shall have the authority to issue 20,000,000 shares of
common stock, par value $.0001 per share.
FIFTH: The directors shall be protected from personal liability to the fullest
extent permitted by law.
SIXTH: The name and address of the incorporator is:
Corporate Creations International Inc.
401 Ocean Drive, Suite 312, Door Code #125
Miami Beach, FL 33139-6629
The undersigned incorporator through its authorized representative executed this
Certificate of Incorporation on March 26, 1996.
CORPORATE CREATIONS INTERNATIONAL INC.
By: /s/ LUIS A. URIARTE
---------------------------
Name: Luis A. Uriarte
Its: Vice President
<PAGE> 1
Exhibit 2.2
BYLAWS
OF
VIATECH COMMUNICATIONS GROUP, INC.
A Delaware Corporation
ARTICLE I
OFFICE
1.1 Registered Office. The registered office of Viatech Communications
Group, Inc., a Delaware corporation (hereinafter called the "Corporation"), in
the State of Delaware shall be at 686 North Dupont Boulevard #302 in the City of
Milford, County of Kent, and the name of the registered agent in charge thereof
shall be Corporate Creations Enterprises, Inc..
1.2 Principal Office. The principal office for the transaction of the
business of the Corporation shall be 1499 West Palmetto Road, Suite 310, Boca
Raton, Florida 33486. The Board of Directors (hereinafter called the "Board") is
hereby granted full power and authority to change the principal office from one
location to another.
1.3 Other Offices. The Corporation may also have an office or offices
at such other place or places, either within or without the State of Delaware,
as the Board may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 Annual Meetings. Annual meetings of the stockholders of the
Corporation for the purpose of electing directors and for the transaction of
such other business as may properly come before such meetings in accordance with
Section 2.11 of these Bylaws may be held at such time, date and place as the
Board shall determine by resolution.
2.2 Special Meetings. A special meeting of the stockholders for the
transaction of any proper business may be called at any time by the Board, the
Chief Executive Officer (Chairman of the Board), the President or one or more
stockholders holding shares in the aggregate entitled to cast not less than ten
percent (10%) of the votes at that meeting.
2.3 Place of Meetings. All meetings of the stockholders shall be held
at such places within or without the State of Delaware, as may from time to time
be designated by the person or persons calling the respective meeting and
specified in the respective notices or waivers of notice thereof.
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2.4 Notice of Meetings.
(a) Except as otherwise required by law, written notice of
each meeting of the stockholders, whether annual or special, shall be given not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder of record entitled to vote at such meeting. If mailed,
notice is given when deposited in the United States mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
Corporation. Except as otherwise expressly required by law, no publication of
any notice of a meeting of the stockholders shall be required. Every notice of a
meeting of the stockholders shall state the place, date and hour of the meeting,
and in the case of a special meeting, shall also state the purpose or purposes
for which the meeting is called. Notice of any meeting of stockholders shall not
be required to be given to any stockholder who shall have waived such notice and
such notice shall be deemed waived by any stockholder who shall attend such
meeting in person or by proxy, except as a stockholder who shall attend such
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Except as otherwise expressly required by law, notice of any adjourned
meeting of the stockholders need not be given if the time and place thereof are
announced at the meeting at which the adjournment is taken.
(b) Whenever notice is required to be given to any stockholder
to whom (i) notice of two consecutive annual meetings, and all notices of
meetings or of the taking of action by written consent without a meeting to such
person during the period between such two consecutive annual meetings, or (ii)
all, and at least two, payments (if sent by first class mail) of dividends or
interest on securities during a twelve-month period, have been mailed addressed
to such person at his address as shown on the records of the Corporation and
have been returned undeliverable, the giving of such notice to such person shall
not be required. Any action or meeting which shall be taken or held without
notice to such person shall have the same force and effect as if such notice had
been duly given. If any person shall deliver to the Corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
Corporation is such as to require the filing of a certificate under any of the
other sections, the certificate need not state that notice was not given to
persons to whom notice was not required to be given pursuant to this section.
2.5 Quorum. Except as provided by law, the holders of record of a
majority in voting interest of the shares of stock of the Corporation entitled
to be voted thereat, present in person or by proxy, shall constitute a quorum
for the transaction of business at any meeting of the stockholders of the
Corporation or any adjournment thereof. The stockholders present at a duly
called or held meeting at which a quorum is present may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum, and by any greater number of shares otherwise required to
take such action by applicable law or the Certificate of Incorporation. In the
absence of a quorum at any meeting or any adjournment thereof, a majority in
voting interest of the stockholders present in person or by proxy and
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entitled to vote thereat or, in the absence therefrom of all the stockholders,
any officer entitled to preside at, or to act as secretary of, such meeting may
adjourn such meeting from time to time. At any such adjourned meeting at which a
quorum is present any business may be transacted which might have been
transacted at the meeting as originally called.
2.6 Voting.
(a) Each stockholder shall, at each meeting of the
stockholders, be entitled to vote in person or by proxy each share or fractional
share of the stock of the Corporation having voting rights on the matter in
question and which shall have been held by him and registered in his name on the
books of the Corporation:
(i) on the date fixed pursuant to Section 2.10 of these
Bylaws as the record date for the determination of stockholders entitled to
notice of and to vote at such meeting, or
(ii) if no such record date shall have been so fixed,
then (A) at the close of business on the day next preceding the day on which
notice of the meeting shall be given or (B) if notice of the meeting shall be
waived, at the close of business on the day next preceding the day on which the
meeting shall be held.
(b) Voting shall in all cases be subject to the provisions of
the Delaware General Corporation Law and to the following provisions:
(i) Subject to Section 2.6(b)(vii), shares held by an
administrator, executor, guardian, conservator, custodian or other fiduciary may
be voted by such holder either in person or by proxy, without a transfer of such
shares into the holder's name; and shares standing in the name of a trustee may
be voted by the trustee, either in person or by proxy, but no trustee shall be
entitled to vote shares held by such trustee without a transfer of such shares
into the trustee's name.
(ii) Shares standing in the name of a receiver may be
voted by such receiver; and shares held by or under the control of a receiver
may be voted by such receiver without the transfer thereof into the receiver's
name if authority to do so is contained in the order of the court by which such
receiver was appointed.
(iii) Subject to the provisions of the Delaware General
Corporation Law, and except where otherwise agreed in writing between the
parties, a stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
(iv) Shares standing in the name of a minor may be
voted and the Corporation may treat all rights incident thereto as exercisable
by the minor, in person or by proxy, whether or not the Corporation has notice,
actual or constructive, of the non-age,
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unless a guardian of the minor's property has been appointed and written notice
of such appointment given to the Corporation.
(v) Shares standing in the name of another corporation,
domestic or foreign, may be voted by such officer, agent or proxyholder as the
bylaws of such other corporation may prescribe or, in the absence of such
provision, as the Board of Directors of such other corporation may determine or,
in the absence of such determination, by the chairman of the board, president or
any vice president of such other corporation, or by any other person authorized
to do so by the board, president or any vice president of such other
corporation. Shares which are purported to be executed in the name of a
corporation (whether or not any title of the person signing is indicated) shall
be presumed to be voted or the proxy executed in accordance with the provisions
of this subdivision, unless the contrary is shown.
(vi) Shares of its own stock belonging to the Corporation
or to another corporation, if a majority of the shares entitled to vote in the
election of directors in such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes.
(vii) Shares held by the Corporation in a fiduciary
capacity, and shares of the Corporation held in a fiduciary capacity by any
subsidiary, shall not be entitled to vote on any matter, except to the extent
that the settlor or beneficial owner possesses and exercises a right to vote or
to give the Corporation binding instructions as to how to vote such shares.
(viii) If shares stand of record in the names of two or
more persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, husband and wife as community property, tenants by the
entirety, voting trustees, persons entitled to vote under a stockholder voting
agreement or otherwise, or if two or more persons (including proxyholders) have
the same fiduciary relationship respecting the same shares, unless the Secretary
of the Corporation is given written notice to the contrary and is furnished with
a copy of the instrument or order appointing them or creating the relationship
wherein it is so provided, their acts with respect to voting shall have the
following effect:
(A) If only one votes, such act binds all;
(B) If more than one vote, the act of the
majority so voting binds all;
(C) If more than one vote, but the vote is
evenly split on any particular matter, each
fraction may vote the securities in question
proportionately. If the instrument so filed
or the registration of the shares shows that
any such tenancy is held in unequal
interests, a majority or even split for the
purpose of this section shall be a majority
or even split in interest.
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(c) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by his proxy appointed by an instrument in
writing, subscribed by such stockholder or by his attorney thereunto authorized
and delivered to the secretary of the meeting. A validly executed proxy which
does not state that it is irrevocable shall continue in full force and effect
unless revoked by the person executing it, prior to the vote pursuant thereto,
by a writing delivered to the Corporation stating that the proxy is revoked or
by a subsequent proxy executed by, or attendance at the meeting and voting in
person by the person executing the proxy; provided, however, that no such proxy
shall be valid after the expiration of three (3) years from the date of such
proxy, unless otherwise provided in the proxy. The revocability of a proxy that
states on its face that it is irrevocable shall be governed by the provisions of
the Delaware General Corporation Law.
(d) At any meeting of the stockholders all matters, except as
otherwise provided in the Certificate of Incorporation, in these Bylaws or by
law, shall be decided by the vote of a majority in voting interest of the
stockholders present in person or by proxy and entitled to vote thereat and
thereon, a quorum being present.
(e) The vote at any meeting of the stockholders on any
question need not be written ballot, unless so directed by the chairman of the
meeting; provided, however, that any election of directors at any meeting must
be conducted by written ballot upon demand made by any stockholder or
stockholders present at the meeting before the voting begins. On a vote by
ballot each ballot shall be signed by the stockholder voting, or by his proxy,
if there be such proxy, and it shall state the number of shares voted.
2.7 Action Without a Meeting. Any action which is required to be taken
or which may be taken at any annual or special meeting of stockholders may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken, is signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take that action at a meeting at which
all shares entitled to vote on that action were present and voted and shall be
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
In the case of election of directors, such a consent shall be effective only if
signed by the holders of all outstanding shares entitled to vote for the
election of directors; provided, however, that a director may be elected at any
time to fill a vacancy on the Board that has not been filled by the directors,
by the written consent of the holders of a majority of the outstanding shares
entitled to vote for the election of directors. All such consents shall be filed
with the Secretary of the Corporation and shall be maintained in the corporate
records.
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered in the manner required by this section to
the Corporation, written consents signed by a sufficient
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number of holders or members to take action are delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to a Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. In the event that the action which is consented
to is such as would have required the filing of a certificate under any other
section of this title, if such action had been voted on by stockholders at a
meeting thereof, the certificate filed under such other section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written consent has been given in accordance with this
section, and that written notice has been given as provided in this section.
2.8 List of Stockholders. The Secretary of the Corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
2.9 Judges. If at any meeting of the stockholders a vote by written
ballot shall be taken on any question, the chairman of such meeting may appoint
a judge or judges to act with respect to such vote. Each judge so appointed
shall first subscribe an oath faithfully to execute the duties of a judge at
such meeting with strict impartiality and according to the best of his ability.
Such judges shall: (i) decide upon the qualification of the voters; (ii) report
the number of shares represented at the meeting and entitled to vote on such
question; (iii) conduct the voting and accept the votes; and (iv) when the
voting is completed, ascertain and report the number of shares voted
respectively for and against the question. Reports of judges shall be in writing
and subscribed and delivered by them to the Secretary of the Corporation. The
judges need not be stockholders of the Corporation, and any officer of the
Corporation may be a judge on any question other than a vote for or against a
proposal in which he shall have a material interest.
2.10 Fixing Date for Determination of Stockholders of Record.
(a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, a record date, which record date shall not precede the
date upon which the resolution fixing the
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record date is adopted by the Board, and which record date shall not be more
than sixty (60) nor less than ten (10) days before the date of such meeting.
(b) In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board, and which date shall not be more than ten days after the date upon which
the resolution fixing the record date is adopted by the Board. If no record date
has been fixed by the Board, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting, when no
prior action by the Board is required, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board and prior action by the Board is
required, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board adopts the resolution relating thereto.
If no record is fixed by the Board, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board may fix a new record date for the adjourned meeting.
2.11 Stockholder Proposals at Annual Meetings.
(a) Business may be properly brought before an annual meeting
by a stockholder only upon the stockholder's timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than thirty (30) days nor more than sixty (60) days prior
to the meeting as originally scheduled; provided,
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however, that in the event that less than forty (40) days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth (10th) day following the day on which such notice
of the date of the annual meeting was mailed or such public disclosure was made.
For purposes of this Section 2.11, any adjournment(s) or postponement(s) of the
original meeting shall be deemed for purposes of notice to be a continuation of
the original meeting and no business may be brought before any reconvened
meeting unless such timely notice of such business was given to the Secretary of
the Corporation for the meeting as originally scheduled. A stockholder's notice
to the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (i) a brief description of the business desired
to be brought before the annual meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class and number of shares of the
Corporation which are beneficially owned by the stockholder, and (iv) any
material interest of the stockholder in such business. Notwithstanding the
foregoing, nothing in this Section 2.11 shall be interpreted or construed to
require the inclusion of information about any such proposal in any proxy
statement distributed by, at the direction of, or on behalf of the Board.
(b) The chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section
2.11, and if the chairman should so determine, the chairman shall so declare to
the meeting and any such business not properly brought before the meeting shall
not be transacted.
2.12 Notice of Stockholder Nominees.
(a) Nominations of persons for election to the Board of the
Corporation shall be made only at a meeting of stockholders and only (i) by or
at the direction of the Board or (ii) by any stockholder of the Corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 2.12. Such nominations, other
than those made by or at the direction of the Board, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than thirty (30) days
nor more than sixty (60) days prior to the meeting; provided, however, that in
the event that less than forty (40) days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be received not later than the close of business
on the tenth (10th) day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. For purposes of this
Section 2.12, any adjournment(s) or postponement(s) of the original meeting
shall be deemed for purposes of notice to be a continuation of the original
meeting and no nominations by a stockholder of persons to be elected directors
of the Corporation may be made at any such reconvened meeting unless pursuant to
a notice which was timely for the meeting on the date originally scheduled. Such
stockholder's notice shall set forth: (i) as to each person whom the stockholder
proposes to nominate for election or re-election as a director, all information
relating to such person that is required to be disclosed in
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solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to the Securities Exchange Act of 1934, as amended,
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); and (ii) as to the
stockholder giving the notice (A) the name and address, as they appear on the
Corporation's books, of such stockholder, and (B) the class and number of shares
of the Corporation which are beneficially owned by such stockholder.
Notwithstanding the foregoing, nothing in this Section 2.12 shall be interpreted
or construed to require the inclusion of information about any such nominee in
any proxy statement distributed by, at the discretion of, or on behalf of the
Board.
(b) The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by this Section 2.12, and if the
chairman should so determine, the chairman shall so declare to the meeting and
the defective nomination shall be disregarded.
ARTICLE III
BOARD OF DIRECTORS
3.1 General Powers. The property, business and affairs of the
Corporation shall be managed by or under the direction of the Board.
3.2 Number and Term of Office. The number of directors shall be no
less than three (3) and no more than seven (7) or such other number as may be
fixed by the stockholders at any annual meeting or special meeting or by the
Board at any regular or special meeting, subject in either case to the
provisions of the Certificate of Incorporation. Directors need not be
stockholders. The initial number of directors shall be four (4). Each director
shall hold office until the next annual meeting and until a successor has been
elected and qualified, or he resigns, or he is removed in a manner consistent
with these Bylaws.
3.3 Election of Directors. The directors shall be elected annually
by the stockholders of the Corporation and the persons receiving the greatest
number of votes in accordance with the system of voting established by these
Bylaws shall be the directors.
3.4 Resignation and Removal of Directors. Any director of the
Corporation may resign at any time by giving written notice to the Corporation.
Any such resignation shall take effect at the time specified therein, or, if the
time be not specified, it shall take effect immediately upon its receipt; and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective. Any or all of the directors may be removed
with or without cause if such removal is approved by the affirmative vote of a
majority of the outstanding shares entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director before his term of office expires.
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3.5 Vacancies. Except as otherwise provided in the Certificate of
Incorporation, any vacancy in the Board, whether because of death, resignation,
disqualification, an increase in the number of directors or any other cause, may
be filled by a majority of the remaining directors, though less than a quorum.
Each director so chosen to fill a vacancy shall hold office until his successor
shall have been elected and qualified or until he shall resign or shall have
been removed in the manner hereinafter provided.
The stockholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
3.6 Place of Meeting, Etc. The Board may hold any of its meetings
at such place or places within or without the State of Delaware as the Board may
from time to time by resolution designate or as shall be designated by the
person or persons calling the meeting or in the notice or a waiver of notice of
any such meeting. Directors may participate in any regular or special meeting of
the Board by means of conference telephone or similar communications equipment
pursuant to which all persons participating in the meeting of the Board can hear
each other, and such participation shall constitute presence in person at such
meeting.
3.7 First Meeting. The Board shall meet as soon as practicable
after each annual election of directors and notice of such first meeting shall
not be required.
3.8 Regular Meetings. Regular meetings of the Board may be held at
such times as the Board shall from time to time by resolution determine. If any
day fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting shall be held at the same hour and place
on the next succeeding business day not a legal holiday. Except as may be
required by law or specified herein, notice of regular meetings need not be
given.
3.9 Special Meetings. Special meetings of the Board shall be held
whenever called by the Chairman of the Board, the President or any two or more
directors. Except as otherwise provided by law or by these Bylaws, notice of the
time and place of each such special meeting shall be mailed to each director,
addressed to him at his residence or usual place of business, at least five (5)
days before the day on which the meeting is to be held, or shall be sent to him
at such place by telegraph or cable or be delivered personally not less than
forty-eight (48) hours before the time at which the meeting is to be held.
Except where otherwise required by law or by these Bylaws, notice of the purpose
of a special meeting need not be given. Notice of any meeting of the Board shall
not be required to be given to any director who is present at such meeting,
except a director who shall attend such meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
3.10 Quorum and Manner of Acting. Except as otherwise provided in
these Bylaws, in the Certificate of Incorporation or by law, the presence of a
majority of the authorized number of directors shall be required to constitute a
quorum for the transaction of business,
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at any meeting of the Board, and all matters shall be decided at any such
meeting, a quorum being present, by the affirmative votes of a majority of the
directors present. A meeting at which a quorum is initially present may continue
to transact business notwithstanding the withdrawal of directors, provided any
action taken is approved by at least a majority of the required quorum for such
meeting. In the absence of a quorum, a majority of directors present at any
meeting may adjourn the same from time to time until a quorum shall be present.
Notice of an adjourned meeting need not be given. The directors shall act only
as a Board, and the individual directors shall have no power as such.
3.11 Action by Consent. Any action required or permitted to be
taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
3.12 Compensation. The directors shall receive only such
compensation for their services as directors as may be allowed by resolution of
the Board. The Board may also provide that the Corporation shall reimburse each
such director for any expense incurred by him on account of his attendance at
any meetings of the Board or Committees of the Board. Neither the payment of
such compensation nor the reimbursement of such expenses shall be construed to
preclude any director from serving the Corporation or its subsidiaries in any
other capacity and receiving compensation therefor.
3.13 Committees of Directors.
(a) The Board may, by resolution passed by a majority of the
whole Board, designate one or more committees, each committee to consist of one
or more of the directors of the Corporation. Any such committee, to the extent
provided in the resolution of the Board and except as otherwise limited by law,
shall have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it;
provided, however, that no such committee shall have the power or authority to
act on behalf of the Board with regard to:
(i) the approval of any action which, under the Delaware
General Corporation Law, also requires stockholders' approval or approval of the
outstanding shares;
(ii) the filling of vacancies on the Board of Directors
or in any committees;
(iii) the fixing of compensation of the directors for
serving on the Board or on any committee;
(iv) the amendment or repeal of Bylaws or the adoption of
new Bylaws;
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(v) the amendment or repeal of any resolution of the
Board of Directors which by its express terms is not so amendable or repealable;
(vi) a distribution to the stockholders of the
Corporation, except at a rate or in a periodic amount or within a price range
determined by the Board of Directors; or
(vii) the appointment of any other committees of the Board
of Directors or the members thereof.
(b) Meetings and action of committees shall be governed by,
and held and taken in accordance with, the provisions of these Bylaws dealing
with the place of meetings, regular meetings, special meetings and notice,
quorum, waiver of notice, adjournment, notice of adjournment and action without
meeting, with such changes in the context of these Bylaws as are necessary to
substitute the committee and its members for the Board of Directors and its
members, except that the time or regular meetings of committees may be
determined by resolutions of the Board of Directors. Notice of special meetings
of committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The Board of Directors or a
committee may adopt rules for the government of such committee not inconsistent
with the provisions of these Bylaws.
Any such committee shall keep written minutes of its meetings and
report the same to the Board at the next regular meeting of the Board. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board to act at the meeting in the place of any such absent or disqualified
member.
3.14 Other Committees. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more non-employee directors and one or more other
disinterested persons, who need not be directors, for the purpose of providing
advice to the Board regarding any matter, including but not limited to the
compensation of officers and other key employees. For the purposes of this
Section, a "disinterested person" means any person having no significant
interest in the actions of the committee, as determined by the Board. Any such
committee, to the extent provided in the resolution of the Board and except as
otherwise limited by law, shall assist the Board in exercising its powers and
authority in the management of the business and affairs of the Corporation, but
shall not itself exercise such powers and authority. Any such committee shall
keep written minutes of its meetings and report the same to the Board at the
next regular meeting of the Board. In the absence or disqualification of a
member of any such committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint any disinterested person to act at the meeting
in the place of any such absent or disqualified member. The compensation and
reimbursement of expenses of the members of any such committee shall be
determined by resolution passed by a majority of the whole
-12-
<PAGE> 13
Board. Neither the payment of such compensation nor the reimbursement of such
expenses shall be construed to preclude any such member from serving the
Corporation or its subsidiaries in any other capacity and receiving compensation
therefor.
3.15 Certain Transactions. In the absence of fraud, no contract or
other transaction between the Corporation and any other corporation, and no act
of the Corporation, shall in any way be affected or invalidated by the fact that
any of the directors of the Corporation are financially or otherwise interested
in, or are directors or officers of, such other corporations; and, in the
absence of fraud, any director, individually, or any firm of which any director
may be a member, may be a party to, or may be financially or otherwise
interested in, any contract or transaction of the Corporation; provided, in any
case, that the fact that he or such firm is so interested shall be disclosed or
shall have been known to the Board of Directors or committee. Any director of
the Corporation who is also a director or officer of any such other corporation
or who is so interested may be counted in determining the existence of a quorum
at any meeting of the Board of Directors of the Corporation that shall authorize
any such contract, act or transaction, and may vote thereat to authorize any
such contract, act or transaction, with full force and effect as if he were not
such director or officer of such other corporation or not so interested.
ARTICLE IV
OFFICERS
4.1 Corporate Officers.
(a) The officers of the Corporation shall be a Chief Executive
Officer (Chairman of the Board), a President, one or more Vice Presidents (the
number thereof and their respective titles to be determined by the Board), a
Secretary, Chief Financial Officer (Treasurer) and such other officers as may be
appointed at the discretion of the Board in accordance with the provisions of
Section 4.1(b).
(b) In addition to the officers specified in Section 4.1(a),
the Board may appoint such other officers as the Board may deem necessary or
advisable, including one or more Assistant Secretaries and one or more Assistant
Treasurers, each of whom shall hold office for such period, have such authority
and perform such duties as the Board may from time to time determine. The Board
may delegate to any officer of the Corporation or any committee of the Board the
power to appoint, remove and prescribe the duties of any officer provided for in
this Section 4.1(b).
(c) Any number of offices may be held by the same person.
4.2 Election, Term of Office and Qualifications. The officers of
the Corporation, except such officers as may be appointed in accordance with
Sections 4.1(b) or 4.5, shall be appointed annually by the Board at the first
meeting thereof held after the election of the Board. Each officer shall hold
office until such officer shall resign or shall be removed by
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<PAGE> 14
the Board (either with or without cause) or otherwise disqualified to serve, or
the officer's successor shall be appointed and qualified.
4.3 Removal. Any officer of the Corporation may be removed, with or
without cause, at any time at any regular or special meeting of the Board by a
majority of the directors of the Board at the time in office or, except in the
case of an officer appointed by the Board, by any officer of the Corporation or
committee of the Board upon whom or which such power of removal may be conferred
by the Board.
4.4 Resignations. Any officer may resign at any time by giving
written notice of his resignation to the Board, the President or the Secretary
of the Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time is not specified, upon receipt thereof by the Board,
President or Secretary, as the case may be; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
4.5 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or other cause may be filled for the unexpired portion
of the term thereof in the manner prescribed in these Bylaws for regular
appointments or elections to such office.
4.6 Chief Executive Officer (Chairman of the Board). The Chief
Executive Officer (Chairman of the Board) of the Corporation shall be the chief
executive officer of the Corporation, unless otherwise determined by the Board,
and shall have, subject to the control of the Board, general and active
supervision and management over the business of the Corporation and over its
several subordinate officers, assistants, agents and employees. The Chief
Executive Officer shall preside at all meetings of the stockholders and at all
meetings of the Board.
4.7 President. The President shall have, subject to the control of
the Board and/or the Chief Executive Officer (Chairman of the Board), general
and active supervision and management over the business of the Corporation and
over its several subordinate officers, assistants, agents and employees. The
President shall have such other powers and duties as may from time to time be
assigned to him by the Chief Executive Officer (Chairman of the Board), the
Board or as prescribed by the Bylaws. At the request of the Chief Executive
Officer (Chairman of the Board), or in the case of the absence or inability to
act of the Chief Executive Officer (Chairman of the Board) upon the request of
the Board, the President shall perform the duties of the Chief Executive Officer
(Chairman of the Board) and when so acting, shall have all the powers of, and be
subject to all the restrictions upon, the Chief Executive Officer (Chairman of
the Board).
4.8 Vice Presidents. Each Vice President shall have such power and
perform such duties as the Board may from time to time prescribe. At the request
of the President, or in the case of the President's absence or inability to act
upon the request of the Board, a Vice President shall perform the duties of the
President and when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the President.
-14-
<PAGE> 15
4.9 Chief Financial Officer (Treasurer). The Chief Financial Officer
(Treasurer) shall supervise, have custody of, and be responsible for all funds
and securities of the Corporation. The Chief Financial Officer (Treasurer) shall
deposit all such funds in the name of the Corporation in such banks, trust
companies or other depositories as shall be selected by the Board or in
accordance with authority delegated by the Board. The Chief Financial Officer
(Treasurer) shall receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever. The Chief Financial Officer (Treasurer)
shall exercise general supervision over expenditures and disbursements made by
officers, agents and employees of the Corporation and the preparation of such
records and reports in connection therewith as may be necessary or desirable.
The Chief Financial Officer (Treasurer) shall, in general, perform all other
duties incident to the office of Chief Financial Officer (Treasurer) and such
other duties as from time to time may be assigned to the Chief Financial Officer
(Treasurer) by the Board.
4.10 Secretary. The Secretary shall have the duty to record the
proceedings of all meetings of the Board, of the stockholders, and of all
committees of which a secretary shall not have been appointed in one or more
books provided for that purpose. The Secretary shall see that all notices are
duly given in accordance with these Bylaws and as required by law; shall be
custodian of the seal of the Corporation and shall affix and attest the seal to
all documents to be executed on behalf of the Corporation under its seal; and,
in general, he shall perform all the duties incident to the office of Secretary
and such other duties as may from time to time be assigned to him by the Board.
4.11 Compensation. The compensation of the officers of the Corporation
shall be fixed from time to time by the Board. None of such officers shall be
prevented from receiving such compensation by reason of the fact that he is also
a director of the Corporation. Nothing contained herein shall preclude any
officer from serving the Corporation, or any subsidiary corporation, in any
other capacity and receiving proper compensation therefor.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS,
BANK ACCOUNTS, ETC.
5.1 Execution of Contracts. The Board, except as in these Bylaws
otherwise provided, may authorize any officer or officers, agent or agents, to
enter into any contract or execute any instrument in the name of and on behalf
of the Corporation, and such authority may be general or confined to specific
instances; and unless so authorized by the Board or by these Bylaws, no officer,
agent or employee shall have any power or authority to bind the Corporation by
any contract or engagement or to pledge its credit or to render it liable for
any purpose or in any account.
5.2 Checks, Drafts, Etc. All checks, drafts or other orders for
payment of money, notes or other evidence of indebtedness, issued in the name of
or payable to the Corporation, shall be signed or endorsed by such person or
persons and in such manner as,
-15-
<PAGE> 16
from time to time, shall be determined by resolution of the Board. Each such
person shall give such bond, if any, as the Board may require.
5.3 Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board may select, or as may
be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the purpose
of collection for the account of the Corporation, the Chief Executive Officer,
President, any Vice President or the Chief Financial Officer, (or any other
officer or officers, assistant or assistants, agent or agents or attorney or
attorneys of the Corporation who shall from time to time be determined by the
Board), may endorse, assign and deliver checks, drafts and other orders for the
payment of money which are payable to the order of the Corporation.
5.4 General and Special Bank Accounts. The Board may from time to
time authorize the opening and keeping of general and special bank accounts with
such banks, trust companies or other depositories as the Board may select or as
may be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. The Board may make such special rules and
regulations with respect to such bank accounts, not inconsistent with the
provisions of these Bylaws, as it may deem expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
6.1 Certificates for Stock.
(a) The shares of the Corporation shall be represented by
certificates, provided that the Board may provide by resolution or resolutions
that some or all of any or all classes or series of its stock shall be
uncertificated shares. Any such resolution shall not apply to shares represented
by a certificate until such certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board, every holder of
stock represented by certificates and upon request every holder of
uncertificated shares shall be entitled to have a certificate, in such form as
the Board shall prescribe, signed by, or in the name of, the Corporation by the
Chief Executive Officer (Chairman of the Board), or the President or Vice
President, and by the Chief Financial Officer (Treasurer) or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the Corporation
representing the number of shares registered in certificate form. Any of or all
of the signatures on the certificates may be a facsimile. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon, any such certificates, shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, such certificate
may nevertheless be issued by the Corporation with the same effect as though the
person who signed such certificate, or whose facsimile signature shall have been
placed thereupon, were such officer, transfer agent or registrar at the date of
issue.
-16-
<PAGE> 17
(b) A record shall be kept of the respective names of the
persons, firms or corporations owning the stock represented by such
certificates, the number and class of shares represented by such certificates,
respectively, and the respective dates thereof, and in case of cancellation, the
respective dates of cancellation. Every certificate surrendered to the
Corporation for exchange or transfer shall be cancelled, and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so cancelled, except in cases provided
for in Section 6.4.
6.2 Transfers of Stock. Transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by such holder's attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary, or with a transfer clerk or
a transfer agent appointed as provided in Section 6.3, and upon surrender of the
certificate or certificates for such shares properly endorsed and the payment of
all taxes thereon. The person in whose name shares of stock stand on the books
of the Corporation shall be deemed the owner thereof for all purposes as regards
the Corporation. Whenever any transfer of shares shall be made for collateral
security, and not absolutely, such fact shall be so expressed in the entry of
transfer if, when the certificate or certificates shall be presented to the
Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.
6.3 Regulations. The Board may make such rules and regulations as it
may deem expedient, not inconsistent with these Bylaws, concerning the issue,
transfer and registration of certificates for shares of the stock of the
Corporation. It may appoint, or authorize any officer or officers to appoint,
one or more transfer clerks or one or more transfer agents and one or more
registrars, and may require all certificates for stock to bear the signature or
signatures of any of them.
6.4 Lost, Stolen, Destroyed and Mutilated Certificates. In any case
of loss, theft, destruction or mutilation of any certificate of stock, another
may be issued in its place upon proof of such loss, theft, destruction or
mutilation and upon the giving of a bond of indemnity to the Corporation in such
form and in such sum as the Board may direct; provided, however, that a new
certificate may be issued without requiring any bond when, in the judgment of
the Board, it is proper to do so.
6.5 Payment for Shares. Certificates for shares may be issued prior
to full payment under such restrictions and for such purposes as the Board may
provide; provided, however, that on any certificate issued to represent any
partly paid shares, the total amount of the consideration to be paid therefor
and the amount paid thereon shall be stated.
ARTICLE VII
INDEMNIFICATION
7.1 Authorization For Indemnification. The Corporation may
indemnify, in the manner and to the full extent permitted by law, any person (or
the estate, heirs, executors, or administrators of any person) who was or is a
party to, or is threatened to be made a
-17-
<PAGE> 18
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation), by reason of the fact that such person
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, that he had
reasonable cause to believe that his conduct was unlawful.
7.2 Advance of Expenses. Costs and expenses (including attorneys'
fees) incurred by or on behalf of a director or officer in defending or
investigating any action, suit, proceeding or investigation may be paid by the
Corporation in advance of the final disposition of such matter, if such director
or officer shall undertake in writing to repay any such advances in the event
that it is ultimately determined that he is not entitled to indemnification.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board deems appropriate. Notwithstanding
the foregoing, no advance shall be made by the Corporation if a determination is
reasonably and promptly made by the Board by a majority vote of a quorum of
disinterested directors, or (if such a quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs) by independent legal
counsel in a written opinion, or by the stockholders, that, based upon the facts
known to the Board or counsel at the time such determination is made, (a) the
director, officer, employee or agent acted in bad faith or deliberately breached
his duty to the Corporation or its stockholders, and (b) as a result of such
actions by the director, officer, employee or agent, it is more likely than not
that it will ultimately be determined that such director, officer, employee or
agent is not entitled to indemnification.
7.3 Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise or as a member of any committee or similar
body against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article or applicable law.
7.4 Non-exclusivity. The right of indemnity and advancement of
expenses provided herein shall not be deemed exclusive of any other rights to
which any person
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<PAGE> 19
seeking indemnification or advancement of expenses from the Corporation may be
entitled under any agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office. Any agreement for indemnification of
or advancement of expenses to any director, officer, employee or other person
may provide rights of indemnification or advancement of expenses which are
broader or otherwise different from those set forth herein.
ARTICLE VIII
MISCELLANEOUS
8.1 Seal. The Board shall provide a corporate seal, which shall be in
the form of a circle and shall bear the name of the Corporation and words and
figures showing that the Corporation was incorporated in the State of Delaware
and the year of incorporation.
8.2 Waiver of Notices. Whenever notice is required to be given by
these Bylaws or the Certificate of Incorporation or by law, the person entitled
to said notice may waive such notice in writing, either before or after the time
stated therein, and such waiver shall be deemed equivalent to notice. Attendance
of a person at a meeting (whether in person or by proxy in the case of a meeting
of stockholders) shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of any regular or special meeting of the stockholders, directors
or members of a committee of directors need be specified in any written waiver
of notice.
8.3 Amendments. The original or other Bylaws of the Corporation may
be adopted, amended or repealed by the incorporators, by the initial directors
if they were named in the Certificate of Incorporation, or, before the
Corporation has received any payment for any of its stock, by its Board. After
the Corporation has received any payment for any of its stock, the power to
adopt, amend or repeal Bylaws shall be in the stockholders entitled to vote;
provided, however, the Corporation may, in its Certificate of Incorporation,
confer the power to adopt, amend or repeal Bylaws upon the directors. The fact
that such power has been so conferred upon the directors shall not divest the
stockholders of the power, nor limit their power to adopt, amend or repeal
Bylaws.
8.4 Representation of Other Corporations. The Chief Executive Officer
(Chairman of the Board), President, any Vice President or the Secretary of this
Corporation is authorized to vote, represent and exercise on behalf of this
Corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this Corporation. The authority herein
granted to said officers to vote or represent on behalf of this Corporation any
and all shares held by this Corporation in any other corporation or corporations
may be exercised either by such officers in person or by any person authorized
to do so by proxy or power of attorney duly executed by said officers.
-19-
<PAGE> 20
8.5 Stock Purchase Plans. The Corporation may adopt and carry out a
stock purchase plan or agreement or stock option plan or agreement providing for
the issue and sale for such consideration as may be fixed of its unissued
shares, or of issued shares acquired or to be acquired, to one or more of the
employees or directors of the Corporation or of a subsidiary or to a trustee on
their behalf and for the payment for such shares in installments or at one time,
and may provide for aiding any such persons in paying for such shares by
compensation for services rendered, promissory notes, or otherwise.
Any stock purchase plan or agreement or stock option plan or agreement
may include, among other features, the fixing of eligibility for participation
therein, the class and price of shares to be issued or sold under the plan or
agreement, the number of shares which may be subscribed for, the method of
payment therefor, the reservation of title until full payment therefor, the
effect of the termination of employment and option or obligation on the part of
the Corporation to repurchase the shares, the time limits of and termination of
the plan and any other matters, not in violation of applicable law, as may be
included in the plan as approved or authorized by the Board or any committee of
the Board.
8.6 Construction and Definitions. Unless the context requires
otherwise, the general provisions, rules of construction and definitions in the
Delaware General Corporation Law shall govern the construction of these Bylaws.
Without limiting the generality of this provision, the singular number includes
the plural, the plural number includes the singular, and the term "person"
includes both a corporation and a natural person.
-20-
<PAGE> 21
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of
Viatech Communications Group, Inc., a Delaware corporation; and
2. That the foregoing Bylaws, comprising twenty (20) pages,
constitute the Bylaws of said Corporation as duly adopted and approved by the
directors of said Corporation by unanimous written consent effective as of March
26, 1996.
IN WITNESS WHEREOF, I have hereunto subscribed my name and
affixed the seal of said Corporation effective as of March 26, 1996.
/s/ DAVID RUSSELL, JR.
----------------------------------
David Russell, Jr., Secretary
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<PAGE> 1
EXHIBIT 3.1
Incorporated under the Laws 1996 of the State of Delaware
[SEAL] [SEAL] [SEAL]
VIATECH COMMUNICATIONS GROUP, INC.
Authorized Capital Stock: 20,000,000 Shares - Par Value $.0001 Per Share
This Certifies that______________________________________________________is the
registered holder of_____________________________________________________Shares
transferable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this_______________day of___________________________A.D. 19__
- --------------------------------- --------------------------------------
SECRETARY PRESIDENT
<PAGE> 2
FOR VALUE RECEIVED________________________HEREBY SELL, ASSIGN AND TRANSFER UNTO
- -----------------------------
- --------------------------------------------------------------------------------
Please Insert Social Security
or Other Identifying
Number of Assignee
________________________________________________________________________________
______________________________________________________________SHARES REPRESENTED
BY THE WITHIN CERTIFICATE AND DO HEREBY IRREVOCABLY CONSTITUTE AND
APPOINT_________________________________________________________________ATTORNEY
TO TRANSFER THE SAID SHARES ON THE SHARE REGISTER OF THE WITHIN NAMED
CORPORATION, WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED_______________________19__
IN PRESENCE OF____________________________ ____________________________________
__________________________________________ ____________________________________
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE. IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY
CHANGE WHATEVER.
<PAGE> 1
Exhibit 21.1
LIST OF SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Name Under Which the
Name of Subsidiary State of Incorporation Subsidiary does Business
- ------------------ ---------------------- ------------------------
<S> <C> <C>
Psychic Discovery Psychic Discovery
Network, Inc. Florida Network, Inc.
Web Star Inc. Florida Web Star Inc.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<EXCHANGE-RATE> 1 1
<CASH> 0 108,606
<SECURITIES> 0 0
<RECEIVABLES> 638,695 880,482
<ALLOWANCES> 0 0
<INVENTORY> 52,095 73,386
<CURRENT-ASSETS> 814,412 1,472,394
<PP&E> 9,835 106,337
<DEPRECIATION> 1,901 10,140
<TOTAL-ASSETS> 1,195,322 2,083,198
<CURRENT-LIABILITIES> 453,712 468,085
<BONDS> 0 0
0 0
0 0
<COMMON> 316 461
<OTHER-SE> 712,878 1,614,652
<TOTAL-LIABILITY-AND-EQUITY> 1,195,322 2,083,198
<SALES> 2,898,149 2,967,306
<TOTAL-REVENUES> 2,898,149 2,967,306
<CGS> 1,592,856 1,816,341
<TOTAL-COSTS> 554,942 858,517
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 15,411 9,663
<INCOME-PRETAX> 769,668 306,115
<INCOME-TAX> 261,687 0
<INCOME-CONTINUING> 507,981 306,115
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 507,981 306,115
<EPS-PRIMARY> .16 .06
<EPS-DILUTED> .16 .06
</TABLE>
