As Filed with the Securities and Exchange Commission on November 22, 1999
Registration No. 333-82585
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM SB-2, REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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Docuport, Inc.
(Name of small business issuer in its charter)
Delaware 3577 22-3649272
(State or other
jurisdiction of (Primary Standard
incorporation Industrial (I.R.S. Employer
or organization) Classification Number) Identification No.)
1155 Rene Levesque West - Suite 3500
P.O. Box 60
Montreal, PQ, H3B 3T6, Canada
(514) 878-0098
(Address and telephone number of
principal executive offices and place of business)
Raja S. Tuli, Chairman of the Board of Directors
Docuport, Inc.
1155 Rene Levesque West - Suite 3500
P.O. Box 60
Montreal, PQ, H3B 3T6, Canada
(514) 878-0098
(514) 866-3630
(Name, address and telephone
number of agent for service)
Copies to:
Frederick M. Mintz, Esq.
Mintz & Fraade, P.C.
488 Madison Avenue
New York, New York 10022
Telephone No.: (212) 486-2500
Facsimile No.: (212) 486-0701
---------------
Approximate date of proposed sale to the public:
As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. |X|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_| ______________________.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<PAGE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
CALCULATION OF REGISTRATION FEE
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Title of Amount to be Proposed Proposed Amount of
securities to registered Maximum Maximum registration fee
be registered Offering Price Aggregate
Per Share(1) Offering Price
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Common Stock,
par value $0.001 1,322,500 $2.00 $2,645,000 $735.31
- --------------------------------------------------------------------------------
Common Stock, 172,500(2) $.10 $17,250 $4.80
par value $0.001
- --------------------------------------------------------------------------------
Common Stock, 83,333(3) $2.00 $166,666 $46.33
par value $0.001
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Common Stock, 50,000(4) $2.00 $100,000 $27.80
par value $0.001
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Total $814.24
Registration Fee
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
(2) Issuable upon exercise of the Common Stock Purchase Warrants included in the
units purchased in the 1996 private offering.
(3) Issuable upon the exercise of options held by an officer of Docuport, Inc.
(4) Issuable upon the exercise of options held by a third-party which introduced
Docuport, Inc. to one of its officers and directors.
This prospectus relates to 1,628,333 shares of our common stock and
includes shares of our common stock underlying common stock purchase warrants
and options owned by the persons named in this prospectus under the caption
"Selling Stockholders." The shares were acquired by the selling stockholders in
various transactions, all of which were exempt from registration under the
Securities Act of 1933. The shares registered by this prospectus may be offered
from time to time by the selling stockholders through ordinary brokerage
transactions in the over-the-counter market, in negotiated transactions or
through other commonly used methods to trade publicly available stock, at market
prices prevailing at the time of sale or negotiated prices. The shares of
<PAGE>
our common stock may be sold directly or through brokers or dealers.
We will receive no part of the proceeds of any sales of our common stock
as a result of this offering. We will bear all the costs and expenses associated
with the preparation and filing of this registration statement.
<PAGE>
SUBJECT TO COMPLETION, DATED November 22, 1999
PROSPECTUS
1,628,333 shares
DOCUPORT, INC
Common Stock
This is the first public offering of our securities. The common stock
available for sale as a result of this prospectus will be sold by currently
existing stockholders. We will not receive any money from the sale of our common
stock as a result of this offering.
Prior to this offering, there has been no public market for the common
stock. We have applied to have the common stock traded on the OTC Bulletin
Board, which is maintained by the National Association of Securities Dealers,
Inc., after this registration statement is declared effective. The shares will
be priced based upon bid and ask quotes submitted by broker-dealers.
------------------------------------------
An investor should read the Risk Factors section of this prospectus,
commencing on page 3 before deciding whether to invest in these securities.
------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is November __, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
Prospectus summary............................................................1
Summary financial information................................................ 2
Risk factors..................................................................3
Use of proceeds...............................................................7
Capitalization................................................................7
Management's discussion and analysis of financial condition
and results of operations...................................................8
Financial condition and results of operations.................................9
Business.....................................................................12
Dividend policy..............................................................18
Employees....................................................................18
Management...................................................................19
Executive compensation.......................................................21
Certain relationships and transactions.......................................22
Principal stockholders.......................................................24
Plan of distribution.........................................................26
Description of the securities................................................30
Shares eligible for future sale..............................................32
Legal matters................................................................33
Experts......................................................................33
Available information........................................................34
Index to financial statements.............................................F - 1
<PAGE>
Summary
Our business
We have developed and intend to market and sell a patented, portable
multi-functional office machine called the Slimfax. The Slimfax provides users
with the ability to act as a fax machine, copier, scanner, data modem and
printer outside the confines of one's office or work area. Additionally, we are
in the process of developing a portable pen-size scanner, with a memory of up to
100 image or text files.
We will not receive any proceeds from the sale of shares of our common
stock by selling stockholders. Prior to this offering, no public market for our
securities existed. A total of up to 1,628,333 shares may be sold based upon
this prospectus by the stockholders listed in the section of this prospectus
entitled plan of distribution.
Our executive offices are located at 1155 Rene Levesque West, Suite 3500,
P.O.Box 60, Montreal, PQ, H3B 3T6, Canada. The telephone number in Canada is
(514) 878-0098 and the facsimile number is (514) 866-3630. Our United States
offices are located at 81 Two Bridges Road, Fairfield, New Jersey 07005. The
telephone number in New Jersey is (973) 882-3177 and the facsimile number is
(973) 882-5340.
For simplicity, we use the terms "we" and "our" to refer both to the
corporation originally founded under the laws of Ontario, Canada in February,
1992 under the name Slimfax, Inc. and the entity that was incorporated in the
State of Delaware on March 24, 1999, whose common stock is the subject of this
prospectus. At times we will refer to Docuport Canada and Docuport Delaware for
purposes of distinguishing the two entities.
1
<PAGE>
Summary financial information
Since the Delaware corporation was formed on March 24, 1999 and we did not
commence operations through Docuport Delaware until after March 31, 1999, the
following data for the 12 months ending December 31, 1997 and 1998 has been
derived from the financial statements of Docuport Canada and should be read in
conjunction with those statements, which are included in this prospectus and
expressed in U.S. dollars. The data, however, does not include shares of our
common stock underlying each common stock purchase warrant held by investors in
the 1996 private offering. The September 30, 1999 financial information reflects
Docuport Delaware's formation and recapitalization and reflects the combined
results of Docuport Delaware and Docuport Canada.
<TABLE>
<CAPTION>
Audited
-------
From inception 12 months ending December 31,
February 1, 1992
through December 31, 1998 1998 1997
<S> <C> <C> <C>
Statement of operations data:
Net revenue ......................... $ 166,509 $ 13,482 $ 93,897
Interest income ..................... $ 11,152 $ 113 $ 6,124
Total expenses ...................... $ 919,843 $ 240,074 $ 423,343
Net loss ............................ $ (742,182) $ (226,479) $ (323,322)
Balance sheet data:
Working capital ..................... $ (621,438) $ (500,610)
Total assets ........................ $ 153,523 $ 173,243
Total liabilities ................... $ 767,894 $ 663,588
Stockholders' equity (deficiency) ... $ (614,371) $ (490,345)
<CAPTION>
Unaudited
---------
From inception 9 months ending September 30,
February 1, 1992 1999 1998
through September 30, 1999
<S> <C> <C> <C>
Statement of operations data:
Net revenue ......................... $ 289,230 $ 122,721 $ 112
Interest income ..................... $ 20,421 $ 9,269 $ 0
Total expenses ...................... $ 2,984,841 $ 2,064,998 $ 116,135
Net loss ............................ $(2,675,190) $(1,933,008) $ (116,247)
Balance sheet data:
Working capital ..................... $ (37,594) $ (60,281)
Total assets ........................ $ 497,828 $ 156,968
Total liabilities ................... $ 1,027,622 $ 733,678
Stockholders' equity (deficiency) ... $ (529,794) $ (576,710)
</TABLE>
2
<PAGE>
Risk factors
An investment in our common stock involves a high degree of risk. If any
of the following risks actually occur, our business, financial condition and
operations will be materially affected.
We do not have an operating history to evaluate our future performance
We have not yet begun operations. As a result, you will not be able to
predict our future financial condition based upon our past performance.
Computer technology is subject to rapid advancement dominated by large and
established companies allowing little room for smaller developmental stage
companies to grow and engage in future product development
Because the computer technology market is highly competitive, you should
be aware of the difficulties we will likely encounter. Computer technology is
subject to significant and rapid change and advancement which results in short
product life cycles and rapid price declines. Therefore our future prospects are
highly dependent upon our ability to increase the functions of our products and
to develop new products which address new technologies and receive market
acceptance. Although management believes that our products and technology are
sufficiently advanced so as to insulate us from technical obsolescence for a
number of years, the market for our computer products is highly competitive with
numerous companies which offer products in the portable peripheral market which
compete directly or indirectly with our products. These competitors have
substantially greater financial and technical resources and production and
marketing capabilities than we do. There can be no assurance that our
competitors will not succeed in developing and marketing comparable products at
a future date which could prove to be equally or more effective than those we
develop or acquire or which could render our products obsolete or
non-competitive. There can be no assurance that we will be able to successfully
compete with such promotions in the future or that we will engage in future
product development.
Our failure to be year 2000 compliant may materially affect our operations
The issue known commonly as "Y2K" refers to the inability of many
computers and computer software to recognize the changing of the millennium to
the year 2000. Thus, date sensitive computers and related software which have
not been properly programmed will recognize the change in years of December 31,
1999 to January 1, 2000 as January 1, 1900. We have reviewed our current systems
and believe that our technology is year 2000 compliant. However, there can be no
assurance that all of our internal systems, devices and applications will be
2000 compliant. Any computer failure to our systems due to Y2K can cause delay
in the production and marketing of our products and cause the need for
additional funds in order to correct any problems that may arise.
3
<PAGE>
The failure of third parties to be year 2000 compliant may materially affect our
operations and product placement
We place a high degree of reliance upon computer systems of third parties,
such as customers, trade suppliers and computer hardware and commercial software
suppliers since we intend to manufacture computer peripherals. Although we are
assessing the readiness of these third parties and preparing contingency plans
if they are not 2000 compliant, there can be no assurance that the failure of
these third parties to modify their systems prior to December 31, 1999, would
not have an adverse effect upon our business by delaying production or delivery
of necessary components.
The problems caused by year 2000 compliance may effect the way in which our
products will work with the customers computer systems
We believe that our products should work effectively with other technology
which may not be 2000 compliant. However, there can be no assurance with respect
to the effect the failure to be year 2000 compliant will have upon our products,
or that our products will not be affected by the year 2000 problem. This may
have an adverse impact on any public perceptions of our product line.
We will need additional financing to continue to develop our products
We will need additional financing to meet our capital requirements. We
currently have no arrangements to obtain additional financing and we will be
dependent upon sources such as:
o future earnings,
o the availability of funds from private sources such as, loans and
additional private placements, and
o the availability of raising funds through an additional public offering.
In view of our lack of an operating history, our ability to obtain additional
funds is limited. Additional financing may only be available, if at all, upon
terms which may not be commercially advantageous. If adequate funds are not
available from operations or additional sources of financing, our business will
be materially adversely affected.
We expect to incur significant losses for the foreseeable future
We expect to incur significant losses on both a quarterly and an annual
basis for the foreseeable future. There can be no assurance that we will ever
achieve profitability. Our revenues and operating results may also fluctuate.
We may be subject to the Security and Exchange Commission's "penny stock" rules
if our common stock is below $5.00 per share
4
<PAGE>
If, after our stock begins to trade, the trading price of our common stock
is below $5.00 per share, trading in our securities would be subject to the
requirements of the Security and Exchange Commission's rules with respect to
securities trading below $5.00, which are referred to as "penny stocks". These
rules require the delivery prior to any transaction of a disclosure schedule
explaining the penny stock market and all associated risks and impose various
sales practice requirements on broker-dealers who sell "penny stocks" to persons
other than established customers and accredited investors, which are generally
defined as institutions or an investor individually or with their spouse, who
has a net worth exceeding $1,000,000 or annual income, individually exceeding
$200,000 or, with their spouse, exceeding $300,000. For these types of
transactions the broker-dealer must make a special suitability determination for
the purchaser and have received the purchaser's written consent to the
transaction prior to the sale. In addition, broker-dealers must disclose
commissions payable to both the broker-dealer and the registered representative
and current quotations for the securities they offer. The additional burdens
imposed upon broker-dealers by such requirements may discourage broker-dealers
from effecting transactions in our common stock which could severely limit its
market price and liquidity.
Our success depends upon the continued employment of both Raja S. Tuli who is
responsible for the technology and development of our products and Norman
Docteroff who is responsible for management, sales and marketing
We substantially depend upon our founder, chairman of the board of
directors, Mr. Raja S. Tuli, for advances in our technology and development of
new products. In addition, we intend to substantially depend upon the continued
services of our president and chief executive officer, Mr. Norman Docteroff, for
management, sales and marketing of the Slimfax. The loss of the services of Mr.
Tuli or Mr. Docteroff would have a material adverse affect upon our business and
our prospects. We have not entered into employment agreements with any of our
key personnel, other than with Mr. Docteroff. We do not maintain "key man" life
insurance on the life of any of our employees. To the extent that the services
of key personnel become unavailable, we will be required to retain other
qualified persons and there can be no assurance that we will be able to employ
qualified persons upon acceptable terms.
The market for our securities is unsure and may be volatile
There is no current market for our securities and there can be no
assurance that a market will exist in the future. In addition, if a trading
market does develop, there can be no assurance that our common stock can be
resold either at or near its original offering prices. We intend to arrange to
list our common stock on the NASD Bulletin Board which is maintained by the
NASD. However, there can be no assurance that we will qualify for such listing.
We have operations in Canada and fluctuations in the exchange rate of the
Canadian dollar can have an adverse affect upon our operating results
We conduct a substantial number of transactions in the Canadian dollar.
Fluctuations in the exchange rates between the United States dollar and the
Canadian dollar, could have an adverse affect
5
<PAGE>
upon our operating results in the future. We may seek to limit our exposure to
the risk of currency fluctuations by engaging in foreign currency transactions
which could expose us to substantial risk of loss. Our management has limited
experience in managing international transactions and have not yet formulated a
strategy to protect us against currency fluctuations. There can be no assurance
that fluctuations in foreign currency exchange rates will not have a significant
adverse impact upon our future operating results.
We do not currently have arrangements for the manufacturing of our product.
Although we may initially manufacture the Slimfax and other products we
may develop, we do not intend to conduct manufacturing operations on a
continuing basis and will be dependent upon independent third parties to
manufacture and ship our products. We expect to continue to be dependent upon
such manufacturers for the foreseeable future. These manufacturers will be
responsible for timely and cost-effective manufacturing which may affect our
ability to cost-effectively compete with other similar products. Therefore, we
are dependent upon the continued viability and financial stability of these
manufacturers. In addition, these third party manufacturers are expected to
produce our products to specifications supplied by us, however, there can be no
assurance that these instructions will be followed by the manufacturers.
Reliance on suppliers, as well as industry supply conditions, generally involves
several risks, including the possibility of defective parts or components,
increase in component costs and reduced control over delivery schedules, any and
all of which would adversely affect our financial results.
6
<PAGE>
Forward looking statements
Statements in this prospectus discuss future expectations and plans which
are considered forward-looking statements as defined by section 27(a) of the
Securities Act of 1933, section 21(e) of the Securities Exchange Act of 1934.
Sentences which incorporate words such as "believes," "intends," "expects,"
"predicts," "may," "will," "should," "contemplates," "anticipates," or similar
statements are based on our beliefs and expectations using the most current
information available to us. However, these statements involve risks and
uncertainties and are subject to change at any time which can cause actual
results to differ materially from the results discussed in such statements.
Use of proceeds
We will not receive any proceeds from the sale of shares of our common
stock by selling stockholders. We have agreed to pay the professional fees and
expenses related to this registration statement, which we estimate to be
approximately $75,000.
Capitalization
In view of the fact that Docuport Delaware was formed on March 24, 1999
and we did not commence operations through the Delaware corporation until after
March 31, 1999, the following table sets forth, as of September 30, 1999, on an
unaudited basis, the consolidated capitalization for Docuport Delaware, which
includes our subsidiary Docuport Canada, expressed in U.S. dollars. The amounts
provided by this table do not include shares of our common stock underlying each
common stock purchase warrant held by investors in the 1996 private offering.
September 30, 1999
------------------
Liabilities:
Current liabilities $502,622
Long-term liabilities $525,000
Stockholders' deficiency:
Common stock,
$.001 par value $6,002
Total
Stockholders' deficiency $(529,794)
Total liabilities and
stockholders' equity $497,828
The following discussion should be read in conjunction with the financial
statements and the
7
<PAGE>
notes to those statements which appear elsewhere in this prospectus. The
following discussion contains forward looking statements which reflect our
plans, estimates and beliefs. Our actual results could differ materially from
those discussed in the forward-looking statements. Factors which could cause or
contribute to such differences include, but are not limited to, those discussed
below and elsewhere in this prospectus.
Management's discussion and analysis
of
financial condition and results of operations
All of our activities, since inception, have been devoted to the
development of the Slimfax and preparation for its introduction into the
marketplace and the raising of operating capital through the solicitation of
funds in private offerings.
Overview
We are principally involved in the planning, design and development of our
two products, the "Slimfax" and the "Pen-Sized Scanner". We anticipate
generating sales revenue from the Slimfax by the end of this year and beginning
the initial start-up activities for manufacturing, marketing and sales for the
Pen-Sized Scanner within the next twelve months.
Our business focuses on creating portable computer peripherals for the
highly-mobile professional. We believe, based on management's analysis of the
portable computer peripherals currently on the market, that our initial product,
the Slimfax, is the smallest multifunctional scanner, printer, copier and fax
machine available; and, as a result, ideally positioned as a portable tool for
mobile executives. The second product, a Pen-Sized Scanner, could be useful to
anyone who desires a portable memory device, which permits scanning and storage
of information, until downloaded or transmitted into a personal computer.
Although we have not begun commercially manufacturing our products and we
have not derived any revenue to date, we have manufactured small quantities for
beta site testing. We expect to have the Slimfax in production, and generating
revenue by the first quarter of the year 2000. We will shortly begin to recruit
management level employees as well as salesmen. The extent of our hiring will
depend upon the extent we manufacture the Slimfax on our own or to what extent
we subcontract its manufacture to third parties.
Government sponsored programs
To date, a portion of our financing has been derived from research and
development grants and reimbursements from the Canadian government. Government
sponsored programs are designed to encourage and support the development and
exploitation of new technologies by providing partial reimbursement to Canadian
businesses for expenses incurred in connection with research and development
activities.
Companies seeking reimbursement must submit applications verifying the
amounts and nature of research and development expenditures incurred for audit
by the Canadian government. Although the Canadian government has reimbursed us
for substantially all amounts requested in each of our
8
<PAGE>
filings, it is not uncommon for the government to significantly reduce the
amount claimed for reimbursement.
We anticipate that financing derived from research and development grants
and reimbursements will account for a decreasing portion of our liquid capital
reserves.
Results of operations
The following table sets forth the percentage of net loss represented by
the line items in the statement of operations. As a result of rounding of the
the line items, in the statement of operations, the total does not equal 100%:
1998 1997
amount percentage amount percentage
------ ---------- ------ ----------
Revenues
R & D grants $ 13,482 6% $ 93,897 29%
Expenses
Amortization 2,948 1% 2,767 0%
Salaries & subcontractors 29,552 13% 155,558 48%
Consulting fees 70,000 31% 0 0%
Materials 17,482 8% 68,423 21%
Foreign exchange loss 32,142 14% 32,021 10%
Professional fees 10,146 4% 5,555 2%
Rent & office 10,735 5% 22,098 7%
Taxes and licenses 535 0% 871 0%
Travel 4,415 2% 19,922 6%
Other income and expenses
Financing fees (3,640) 2% (53,155) 16%
Interest and bank charges (909) 0% (1,330) 0%
Interest income 113 0% 6,124 2%
Interest on long term debt (57,570) 25% (61,373) 19%
Net loss for the year (226,479) 100% (323,322) 100%
Year ending December 31, 1998 compared to year ending December 31, 1997
9
<PAGE>
Expenses: Operating expenses consist primarily of salaries of research and
development engineers, subcontractors in the prototyping and development process
and material purchases. Operating expenses decreased from $307,485 for the year
ending December 31, 1997 to $177,955 for the year ending December 31, 1998. The
decrease in operating expenses was because we reached the final stages of
development for our Slim Fax product. As overall operating expenses decreased in
1998, the interest on the long-term debt, from the 1996 private offering,
decreased by 6% from $61,373 in 1997 to $57,570 in 1998, but resulted in 25% of
the net loss for the year ending December 31, 1998 compared to 19% for the year
ending December 31, 1997. Financing fees for 1998 were 2% while they were 16% of
the net loss of 1997, as no new financing was done in 1998. Salaries and
subcontractors accounted for 13% of the net loss for 1998, compared to 48% for
1997, which was a 81% decrease from $155,558 in 1997 to $29,552 in 1998.
Government Grants and Reimbursements: Referred to as research and development
grants, these grants are available as reimbursements to us, until the stage when
we reach profitability and have taxes payable to the Canadian government. At the
stage when we have taxes payable, these grants are applied to the taxes. The R&D
government grants are available to us as a percentage of research and
development expenses, and are not available for expenses related to currency
exchange losses, financing fees, or other expenses outside of Canada. The R&D
government grants in 1998 were reduced by 86% to $13,482 from $93,897 for the
year ending December 31, 1997.
Interim ending September 30, 1999 Compared to interim ending September 30, 1998
Expenses: Operating expenses consist primarily of salaries of research and
development engineers, subcontractors in the prototyping and development process
and material purchases. Operating expenses increased from $72,812 for the year
ending September 30, 1998 to $791,334 for the year ending September 30, 1999.
The increase in operating expenses was because we reached the final stages of
development for our Slimfax product and began the production and marketing phase
for this product. As overall operating expenses increased in 1999, the interest
on the long-term debt, from the 1996 private offering, remained the same in for
the third quarter of 1999 as the third quarter of 1998, but resulted in 2% of
the net loss for the quarter ending September 30, 1999 compared to 37% for the
quarter ending September 30, 1998. Salaries and subcontractors accounted for 22%
of the net loss for 1999, compared to 21% for 1998, which was a 94% increase
from $24,232 in 1998 to $432,491 in 1999. In addition to operating expenses, we
incurred an expense equal to $1,229,300 deemed to be an expense of $1.90 per
share in connection with our $.10 offering in March, 1999.
Liquidity and capital resources
Historically, we have satisfied our working capital requirements
principally through the issuance of debt and equity securities and government
sponsored research and development grants and reimbursement. As of September 30,
1999 we had working capital of negative $37,594, as compared to negative
$621,438 on December 31, 1998 and negative $500,610 on December 31, 1997.
We believe, based upon our currently proposed plans and assumptions
relating to our operations, including, assumptions with respect to the progress
of research and development and the costs associated with production, marketing
and sale of out products, that our current cash position will be sufficient to
satisfy our contemplated cash requirements for the next ninety days following
the
10
<PAGE>
date of this prospectus. With respect to our liquidity requirements for the next
12 months, we believe that the cash flow generated from our intended future
operations of sales and manufacturing of the Slimfax will complement our current
cash position and we will be able to satisfy any liquidity needs that may arise
by short term financing. We recently borrowed $250,000 for a term of the earlier
to occur of, one year after receipt of the funds or the closing of an equity or
debt financing of $3,000,000 or more. If the need arises, we currently
contemplate seeking additional financing or conducting a public offering in
order to satisfy additional cash requirements and our liquidity obligations.
We currently have obligations under two contracts with third party
companies to provide services to us. A Marketing and Sales Agreement was entered
into with Solutions Plus, Inc. This agreement provides that Solutions Plus, Inc.
will be responsible for our sales and marketing operations on a non-exclusive
basis. A Management and Consulting Agreement was entered into with Rexon
Limited. This agreement provides that Rexon Limited will provide us with
business and financial consultation services. We will satisfy our obligations
under these agreements initially from the proceeds of the March and April
offerings and from additional financing. When production of the Slimfax begins
our intentions are to pay our continuing obligations with cash flow obtained
from operations. However, if there are not sufficient proceeds to meet our
obligations, we intend to obtain funds through additional financing or a public
offering.
If our plans change, or our assumptions change or prove to be incorrect,
or if projected cash flow proves to be insufficient to fund operations, due to
unanticipated expenses, delays, or other problems, we could be required to seek
additional financing sooner than anticipated. We have no current arrangements to
obtain, or sources of, additional financing and it is not anticipated that
existing stockholders will provide any portion of our future financing
requirements. There can be no assurance that additional financing will be
available to us, when needed, on commercially reasonable terms, or at all.
Under SFAS No. 133, "Accounting for Derivatives Instruments and Hedging
Activities" a company is required to record derivatives on the balance sheet as
assets or liabilities, measured at fair market value. Gains or losses resulting
from changes in the values of those derivatives are accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. The key
criterion for hedge accounting is that the hedging relationship must be highly
effective in achieving offsetting changes in fair value or cash flows. SFAS No.
133 is effective for fiscal years beginning after June 15, 2000. Management
believes that the adoption of SFAS No. 133 will have no material effect on its
financial statements.
SOP 98-5, "Reporting on the Costs of Start-Up Activities," requires that
the costs of start-up activities, including organization costs, be expensed as
incurred. This statement is effective for fiscal years beginning after December
15, 1998. Management believes that the requirements of SOP 98-5 have had no
material effect on its financial statements.
The Year 2000 problem is the result of computer programs being written
using two digits, rather than four, to define the applicable years. We are a
development stage company which relies heavily upon computer technologies to
operate our business. We believe that our systems are Year 2000 compliant and
any disruption of computer systems, caused by the Year 2000 problem, to
third-parties will not have a negative impact on our operations. However, we
believe
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that due to the widespread nature of potential Year 2000 issues, any contingency
planning process is an ongoing one which will require further modifications as
we obtain additional information regarding both our internal systems and the
status of third party Year 2000 readiness. Contingency planning for possible
Year 2000 disruptions will continue to be defined, improved and implemented. The
following discussion of the implications of the Year 2000 problem for us
contains numerous forward-looking statements based upon inherently uncertain
information.
We place a high degree of reliance upon our computer systems and those of
third parties, such as customers, product suppliers and computer hardware and
commercial software suppliers. We believe that our products, computer systems
and software are fully year 2000 compliant. However, it is possible that our
computer systems or product suppliers or our customers many not accept input of,
store, manipulate and output dates in the year 2000 or thereafter without error
or interruption. We are investigating our current suppliers' progress in
identifying and addressing problems which their computer systems will face in
correctly processing date information as the year 2000 approaches. Although we
are assessed the readiness of these third parties, there can be no assurance
that the failure of these third parties to modify their systems in advance of
December 31, 1999, would not have a material adverse effect upon us.
If problems are discovered with our current suppliers which cannot be
remedied we intend to seek alternative suppliers who are fully year 2000
compliant. We may, however, be required to make significant expenditures to
address or remedy any year 2000 problems of our vendors which are not identified
in advance, or to satisfy liabilities to which we may become subject as a result
of such problems. An interruption of our ability to conduct business due to a
Year 2000 readiness problem could have a material adverse effect upon us.
Description of business
After Docuport Delaware was incorporated on March 24, 1999, the board of
directors agreed to transfer 4,867,500 shares of common stock together with the
equivalent rights to purchase common stock based upon warrants owned, to the
shareholders of Docuport Canadian in exchange for 3,245,000 common shares and
any warrants held of the Docuport Canadian. This constituted all the issued and
outstanding shares of the Docuport Canada.
Proposed business
We intend to become a leading developer of portable computer peripheral
equipment. We have developed and intend to market a patented, "portable" multi
functional office machine called the Slimfax, which management believes is the
first product of its kind. The Slimfax is a combination:
(1) full page fax machine;
(2) full page scanner;
(3) full page printer,
(4) full page copier; and
(5) fax/data modem,
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with dimensions of 12.5" x 3" x 1.24". Full page means 8.5 inches x any length.
The Slimfax weighs approximately 2.1 lbs. Management knows of no other product
currently on the market which possesses these multifunctional capabilities in
this size and weight.
After five years of research and development, a compact, portable design
was created, for which a United States patent was granted. This patent is based
upon a single roller concept placing a scan head which reads the information fed
into the Slimfax on one side of the roller and print head on the other side of
the roller. A second patent has been refiled after being inadvertently deemed
abandoned by the United States Patent and Trademark Office. This second patent
protects our technology, based upon support arms allowing documents fed through
the Slimfax to pass through the mechanism unobstructed, which is critical in
such a compact design. Two additional patents are pending for a new design for
the Slimfax and related technology.
The research and development expenditures for our fiscal years ending
December 31, 1997 and 1998 were $209,800 and $46,440 respectively.
The Slimfax can be used to create a portable office through its ability to
be used with both conventional telephone land lines or in conjunction with
cellular phones, allowing the Slimfax to be used in any location where a
telephone connection can be established.
Product features
The features of the Slimfax are as follows:
Direct thermal. The Slimfax incorporates a direct thermal printing technology.
We believe that the direct thermal method provides excellent print quality,
removing the need to carry ribbons and cartridges used in larger printers and
allowing for a very compact and portable design.
Facsimile machine - Fax. Portable Fax Machines began entering the market in 1993
and 1994. The Slimfax is a full featured, full size, 8.5 inches x any length,
fax. The Slimfax is capable of printing at a speed of 9600 bps, or bits per
second, on 8.5 inch sheets or rolled paper and has three modes of resolution,
standard, fine and super fine. If the Slimfax is connected to a telephone line
or cellular phone it can transmit and receive hard copy facsimiles. We believe
that because of Slimfax's patented single roller design, the Slimfax is smaller,
more portable and less expensive than those of the competition. Sending a fax
with the Slimfax is done in the same manner as using a stand-alone fax machine,
by inputting the media or file and pressing the corresponding buttons on the
keypad. We believe that the current products in the portable fax market will not
challenge the Slimfax due to the size, price and weight of the Slimfax.
Printer. The Slimfax can print full size documents. It can print letters,
spreadsheets, and drawings at a resolution of up to 200 x 400 dpi, or dots per
inch, and at a speed of up to two pages-per-minute. Since the Slimfax uses
direct-thermal technology, it removes the necessity of cartridges and ribbons.
The method used by printers currently include ink jet, bubble jet, thermal
fusion, thermal ribbon and direct thermal technology. Both the ink jet and the
bubble jet require ink cartridges for printing. Management believes that the
direct thermal method, which is utilized by the Slimfax
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permits a compact design and provides excellent print qualities without
requiring the user of the Slimfax to maintain a supply of ribbons or cartridges.
Scanner. Portable scanners are relatively new to the marketplace. The Slimfax is
a full size, high resolution contact scanner with a resolution of 200 x 400 dpi,
capable of scanning up to two pages-per-minute. Using the Slimfax to scan media
into a computer for recall and printing at the user's convenience removes the
need to carry documents and paperwork.
Copier. The Slimfax has a single roller design which allows full size documents
to be scanned and printed simultaneously. This enables the Slimfax to act as a
copier, with an optical resolution of 200 x 400 dpi and print resolution of 200
x 400 dpi. Copies can be made at a speed of two pages-per-minute. At the present
time there are no portable copiers on the market. Management believes that,
since our competitors copiers, while small, are not easily transportable and
certainly not of such size which would merit being called portable, they will
not be competitive with the Slimfax.
Fax card and modem for laptops and notebooks. The Slimfax can act not only as a
hard copy fax machine, but also utilizes a fax card enabling the user to fax
documents directly from a word processor. Laptops and notebook computers have
facsimile transmission capabilities as part of their software packages, however,
we believe that owners of laptops and notebook computers who only have need for
facsimile transmissions will most likely not purchase the multi-function
Slimfax. The prices of fax cards have generally decreased, even though the cost
of fax cards for notebook computers is still high due to the miniaturization
required. Management believes that, because of the high costs, these products
are not competitive with the Slimfax for end users who desire multiple functions
in conjunction with their computer.
Power supply. The Slimfax's power is supplied by one of three means:
(1) a DC connector which conveniently plugs into any electrical outlet;
(2) a rechargeable Nickel Metal Hydride battery; or
(3) an AC adapter which plugs into the cigarette lighter of a car or boat.
Customer base.
We believe that potential customers of the Slimfax will be end users, who
are individuals purchasing the Slimfax for personal use and companies which will
purchase the Slimfax for distribution to employees who travel as a necessary
element of their employment.
End users will be:
o professionals who travel for business purposes;
o individuals who own laptop, notebook, or subnotebook computers;
o anyone who owns or plans to purchase a portable peripherals for
mobile computing;
o anyone who requires hard copy facsimile transmissions from remote
locations;
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o anyone requiring a transportable scanner and
o anyone needing more space at their desk.
Product strategy
We intend to create unique packaging for the Slimfax in order to create
quick market awareness and product recognition. This will be part of
multi-faceted marketing campaign designed to introduce the Slimfax to the retail
market. We believe the easy to use design of the Slimfax will be a critical
factor in creating quick market acceptance. An example of the Slimfax's user
friendly design is the use of thermal technology which eliminates the need for
toners and cartridges. We believe the Slimfax will have a competitive advantage
based upon its multiple functions, its size/portability and high quality at an
affordable price. We believe that the Slimfax is very practical and efficient,
which is a necessity in today's mobile product environment.
Pricing strategy.
We believe that the Slimfax is the first product of its kind to be
introduced to the portable computer market. Therefore, pricing of the Slimfax
will not be influenced by the retail market for multi-function products, but
upon the retail market for portable single use products of equal size and target
customer base. In this way it will be a more viable purchase option for the
consumer who would normally purchase portable computer peripheral devices. We
therefore intend to compete with the price of other similar products which are
currently in the market which are not portable. Our initial retail pricing of
the Slimfax will be approximately $299.00 for the first year of sales. We
anticipate a reduction to $200.00 in approximately one year after the
commencement of sales, after manufacturing and sales procedures have been in
place and the initial set-up costs have been accounted for and the product is
being manufactured in greater volume.
Distribution strategies.
We are currently negotiating with a large company, for the distribution of
the Slimfax, with the experience and contacts necessary to handle the
introduction of the Slimfax to the market, we have not entered into any
agreements as of the date of this offering.
Retail channels of products similar to the Slimfax include:
o mail order/catalog, superstore/computer/office equipment dealers,
traditional computer store and warehouse/club for multifunctional
products;
o mail order/catalog, superstore/office/computer specialty store,
traditional computer store, mass merchants and retail stores for
personal sheet-federal scanners and
o mail order/catalog, superstores/computer office stores, specialty
store, traditional computer store, mass merchants and retail stores
for portable printers.
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Peripheral Magazine performed an end user study which identified the mail/order
catalog and both computer and office equipment superstores as the two prime
sales channels for products similar to the Slimfax.
We intend to sell the Slimfax through the following distribution channels:
Direct marketing. We intend to mail directly to companies, which fit a
predetermined criteria, information with respect to Slimfax. This will then be
followed by telephone calls and local demonstrations. Our main purpose for
direct sales will be to expeditiously start the first year sales so there is
revenue being generated even if takes the first year or so to develop the
distribution network. We intend to shift the primary focus towards training
dealers on how to sell. We believe that it is important to have a small internal
direct sales force because it will keep us in touch with end users and gives us
better control in directing our retail dealer base.
Dealers/distributors. We intend to target distributors which already carry
scanners, copiers, facsimiles, printers, and multifunctional devices. We believe
that by targeting respected names in the computer distribution market that
already carry related products, it will facilitate distribution resulting in
early retail shelf-space. We are currently negotiating with a company which
already provides wholesale distribution to majors computer retailers, to
distribute to these target retail distributors.
Retail. We intend to focus on retail channels targeting knowledgeable,
well educated, middle to high income, technically knowledgeable professionals
who travel frequently and need to remain in contact with both clients and their
base offices. We believe that these individuals already own or use portable
computers and will have a use for multi-purpose peripheral equipment such as the
Slimfax. The company which we are negotiating with provides electronic products
to various retailers and would distribute the Slimfax to various retail chains.
OEM channels. We believe that, in the long term, this distribution channel
will be extremely important to us. We desire to sell rights to the Slimfax to
established companies with immediate market recognition which can private label,
i.e., put their own name on the Slimfax. On August 12, 1998, we entered into a
non-binding letter of intent with Pentax Technologies to market the Slimfax by
entering into a private label for the purpose of distributing the Slimfax in
this manner. Pentax Technologies intends to privately label the Slimfax based
upon this letter of intent.
System integrators. There are many companies across North America which
sell mobile office solutions. They usually package a special design brief case
which includes a notebook computer, portable printer, and, on occasion, a
sheetfed or hand fed scanner and cellular phone. These are then sold as packages
in volume to governments, real estate companies, insurance companies, and other
business which involve significant travel as a complete mobile office solution.
We believe that companies will have a great interest in the Slimfax since it
will offer them greater mobility, a small product size, and more features
without an increase in cost.
Value added reseller's. These companies are responsible for marketing and
selling the package which system integrators design for end users. We intend to
utilize value added resellers in our second year of operations. We intend to
launch the Slimfax with extensive publicity in several major cities together
with large volume mailings to various target publications. We intend to place
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descriptive articles announcing the introduction of the Slimfax in a large
number of newspapers and trade magazines in the hopes of alleviating the high
cost of private advertising.
Internet - world wide web. Since the Internet has a rapidly increasing
number of users, we intend to design and maintain a webpage for use as a
marketing tool in an attempt to capitalize on the rapidly growing information
highway.
Except for the letter of intent with Pentax Technologies and the
additional company with which we are currently negotiating, we have not entered
into any other agreements or begun negotiations for additional distribution
channels.
Future products
We intend to improve the Slimfax by developing and producing new features
such as infrared data association, color printing, increased printing, copying,
scanning, faxing speed and increased resolution. We believe that these features
are essential to maintain what we believe is the Slimfax's position ahead of
present and future competitors.
Additionally, we are in the process of developing a portable pen-size
scanner. The Pen-Size Scanner is 8.5 inches in length with an outside diameter
of a 1/4" and weighs 2.5 ounces, which enables individuals to keep the unit in
their possession at all times. The Pen-Size Scanner has a color contact-sensor.
It utilizes a power supply of a rechargeable lithium battery which, when fully
charged, is capable of 100 scans. The Pen-Size Scanner has a memory of up to 100
image or text files. Scanning is performed by holding the unit in ones' hand,
across the entire 8.5 inch width of a page and manually pulling the scanner down
the entire length of the page over the image to be scanned which results in an
8.5" x 11" image. In view of the Pen-Sized Scanner's portability, it is ideal
for remote locations.
The Pen-Size Scanner allows the user to save the scanned document, which
can then be downloaded to any computer for viewing or merging into word
processing programs, spreadsheets or graphics design applications such as MS
Word, Excel, Photoshop and Coral Draw.
We intend to complete development of the Pen-Sized Scanner and to
manufacture a prototype within the next 30 days. Within six months following the
initial production, we intend to begin production and beta testing of the
Pen-Sized Scanner.
We are also researching and in the process of developing a Second
Generation Slimfax. Unlike current industry standards which incorporate a
parallel scan-head design for use in personal-sheetfed scanning products, the
Second Generation Slimfax will utilize a traversing scan head and print head.
This traversing scan head and print head will result in the Second Generation
Slimfax being smaller than the Slimfax we initially intend to introduce into the
market. Moreover, we contemplate that the Second Generation Slimfax will be
produced at a lower cost than the Slimfax. We have applied for a U.S. patent to
protect our proprietary rights to this technology. This new product will be
marketed as a single unit or in a modular format for single functions such as a
fax, printer or scanner.
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We are currently negotiating an agreement with a company, to manufacture
the Slimfax, with factories worldwide. This company will be committed to
manufacturing the Slimfax and other products developed by us. This company will
also agree to provide warranty service for the products which they manufacture.
Management believes that the agreement with this company will be entered into
shortly and production should begin by the middle of February, 2000. We plan on
beginning manufacturing of the Slimfax on our own and are in the process of
making arrangements for the Slimfax to be manufactured in China. Production
should begin in the first week in January, 2000 and we intend to begin initial
shipment of the Slimfax soon after.
Dividend policy
To date, we have not paid dividends on our common stock and at the present
time, we intend to retain earnings, if any, for our development and expansion.
There can be no assurance that we will have enough earnings to pay any dividends
on our common stock. Even if we have sufficient earnings, we are not obligated
to declare dividends on our common stock. Our board has sole and absolute
discretion whether to declare any cash or stock dividends. This decision will be
based upon the following:
o earnings;
o capital requirements;
o our financial position;
o general economic conditions; and
o other factors the board may consider.
It is also possible that the terms of any future debt financing may
restrict the payment of dividends.
Employees
We currently employ ten full time employees consisting of three engineers,
four production employees and two clerical/support employees. In addition, Mr.
Norman Docteroff has signed an employment agreement with us which requires him
to work a minimum of 30 hours per week for us. Mr. Raja S. Tuli has orally
agreed to spend 10% percent of his time working for us.
Offices
Our executive offices are currently located at 1155 Rene Levesque West,
Suite 3500, P.O.Box 60, Montreal, PQ, H3B 3T6, Canada. The offices are provided
by Technologie Novimage, a research and development company, of which Raja S.
Tuli, who is our founder and chairman of the board of directors, owns 10% of the
issued and outstanding common stock. We are not charged for use of this office
space. We have also leased an additional office space at 1000 St-Antoine Street,
Suite 700, Montreal, Canada for use as an assembly and manufacturing site and
for additional office space for a term of one year. The premises is comprised of
2,490 square feet for a lease price of
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$9,960 in Canadian dollars per year, which converted to its equivalent United
States dollar value on November 16, 1999 according to the Wall Street Journal is
$6,796.70.
In addition we utilize 2000 square feet of office space provided by
Solutions Plus, Inc., at no cost based upon our Marketing and Sales Agreement,
for our United States operations. These offices are located at 81 Two Bridges
Road, Fairfield, New Jersey, 07004. If the space provided by Solutions Plus,
Inc., at this location is insufficient for our needs, as determined by our board
and Solutions Plus, Inc., we will enter into a lease for office space which
meets our requirements.
Management
Executive officers and directors
The following table sets forth the names and ages of the members of our
board, our executive officers and the positions they each hold.
Name Age Position
- ---- --- --------
Norman Docteroff 65 president, chief executive
officer and director
Raja S. Tuli 33 chairman of the board
of directors
Madan G. Singh 53 director
Lakhbir Tuli 61 director
Melvin Yablon 69 director
Mr. Norman Docteroff has been our president and chief executive officer
since April 15, 1999, upon entering into a three year employment agreement and
has been one of our directors since October 15, 1999. In 1994, Mr. Docteroff
founded and is currently president and a director of Solutions Plus, Inc., which
is wholly owned by his wife Corina Docteroff. Solutions Plus, Inc. specializes
in assisting small companies to market and sell their products. From 1989 to
1994, Mr. Docteroff was employed under a five year management contract by Gemini
Industries, Inc., a business he and an associate started in 1968. Gemini
Industries, Inc., manufactured various audio and video accessories. In 1986, Mr.
Docteroff and his associate sold 75% of the business. The remaining 25% was sold
in 1989. From 1962 to 1968, Mr. Docteroff was the national sales manager of
Manhattan Industries, a major consumer products company. From 1957 to 1961, Mr.
Docteroff owned and operated hardware departments in chain department stores,
which were sold to Modells Department Stores. Mr. Docteroff is a director of
several private companies and of Xceed Corp., a public company engaged in
providing companies with marketing, sales and interactive and network services.
These services focus on the expanding use of the Internet as a retail sales
medium. Xceed trades on the Nasdaq National Market System.
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Raja S. Tuli, our founder, had been our president, chief executive officer
from the inception of our Canadian subsidiary until April 5, 1999. Since our
hiring of a new president and chief executive officer in April 1999, Mr. Tuli
has been serving as our chairman of the board of directors. From 1990 to the
present, Mr. Tuli has been president, chief executive officer and a director of
WideCom Group, Inc. From 1990 to 1993, Mr. Tuli was also Treasurer of WideCom
Group, Inc. From 1987 to 1990 Mr. Tuli was president of CACE Ltd. a family-owned
architectural/construction business. Mr. Tuli received a Bachelor of Science
degree in Computer Engineering in 1988 from the University of Alberta.
Madan G. Singh, an uncle of Raja S. Tuli, has been one of our directors
since the inception of our Canadian subsidiary. He received doctorate degrees
from Cambridge University in England, Toulouse in France and the University of
Waterloo in Canada. Dr. Singh has a B.S. from Exeter University, and a M.S. from
Manchester University. Dr. Singh has been the chairman of the Computer
Department and Chairman of Control Engineering at the University of Manchester
Institute of Science and Technology in Manchester, England since 1979. He was
head of the Post Graduate Department of the University of Manchester from 1981 -
1983 and from 1985 to 1987. In February 1994, he was made a "Chavalier dans
l'ordre des Palmes Academiques", a French academic honor, by a decree signed by
the Prime Minister of France. Dr. Singh edited the ten volume "Encyclopedia of
Systems and Control", coordinated the publication of eight Concise
Encyclopedias, each on a different matter, authored or co-authorized eight books
and over 170 scientific articles and edited or co-edited ten additional books.
Lakhbir Tuli, father of Raja and Suneet Tuli, a brother of Raja S. Tuli
and one of our principal shareholders, has been one of our directors since the
inception of our Canadian subsidiary From 1993 to the present, Mr. Tuli has been
president of Widecom Fax and Plotters, Inc. From 1990 to the present, Mr. Tuli
has been a consultant to WideCom Group, Inc. Mr. Tuli received a M.S.C. science
degree in Civil Engineering from Punjab University in 1961.
Melvin Yablon has been one of our directors since September 24, 1999. From
1990 until 1998, Mr. Yablon was the president and sole shareholder of North
America Intercon, Ltd., a company which imported textiles from Mexico for sale.
From 1977 to the present, Mr. Yablon has been the president and sole shareholder
of First Adjusters, Inc., an insurance adjusting firm.
All of the our directors will serve until the next annual stockholders'
meeting when their successors will be elected and qualify. Officers are elected
at the meeting of the board following the annual stockholders' meeting. None of
the current officers or directors are required or expected to devote all of
their time to our business.
Mr. Raja S. Tuli and Lakhbir Tuli and Suneet Tuli, his father and brother,
respectively, own approximately 58% of our issued and outstanding common stock.
These stockholders have agreed that for a period of five years commencing April
1, 1999, our board will consist of five board members and that two of our
directors will be outside directors, who are directors whom we do not employ. We
have only one outside director as of the date of this prospectus. We anticipate
that a second outside director will soon be elected by our shareholders other
than the Tuli family stockholders who have been indicated above. When the second
outside director is elected the board of directors will consist of six
directors. This agreement also provides that for this five year period the Tuli
family stockholders will not have the right to participate in a vote to elect
the outside
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directors. The outside directors will, therefore be elected by a majority of our
other stockholders. This agreement will remain in effect for five years unless
an underwriter of a future offering of our securities requests that this be
changed. Whether or not to comply with the underwriter's request will be in the
sole and absolute discretion of the Tuli family stockholders. Even though our
outside directors will be elected by stockholders other than the Tuli family
stockholders, the Tuli family stockholders will control our management and
affairs. After the five year period, based upon their present ownership
percentage of our issued and outstanding common stock, the Tuli family
stockholders, will have the power to elect all of our directors.
We will pay each of our outside directors $1,000 for each board meeting
they attend. Each outside director is also entitled to reimbursement for
reasonable expenses incurred with respect to attending each meeting.
Executive compensation
We have entered into a three year employment agreement with Norman
Docteroff, who is our president and chief executive officer. The agreement
provides a salary in the form of options to purchase an aggregate 250,000 shares
of our common stock at an exercise price of $2.00. Each month, a pro rata share
of the options will vest; Mr. Docteroff will earn the right to purchase 6,945
options each month. We can terminate the employment of Mr. Docteroff upon death
or extended disability or for cause as defined in the employment agreement. In
addition, we may terminate his employment agreement for any reason upon 30 days'
notice. If we terminate without cause, the remaining options which have not
vested will immediately vest.
Raja S. Tuli receives an annual salary of $24,000, in Canadian dollars, in
payments of $2,000 per month, which converted to its equivalent United States
dollar value on November 16, 1999 according to the Wall Street Journal is
$16,377.60 annually with monthly payments of $1,364.8. We do not have a written
agreement with Mr. Tuli for his employment.
Stock option plan
We intend to implement a stock option plan in the near future. The purpose
of the plan will be to provide our directors, officers, key employees and
consultants with additional incentives by increasing their ownership interests.
The stock option plan, which we anticipate will incorporate both qualified and
non-qualified options, will contain terms which shall be approved by the board
and submitted to the shareholders for approval.
Indemnification of directors and officers
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
Our certificate of incorporation contains the following provision with
respect to indemnification of our directors and officers:
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The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by the provisions of Section
102(b)(7) of the General Corporation Law of the State of Delaware.
This provision does not eliminate or limit the liability of a director for
violating the following:
o duty of loyalty, which includes a director's obligation to
refrain from self dealing with us improperly competing with us
or usurping our opportunities;
o failing to act in good faith;
o engaging in intentional misconduct or knowingly violating a
law; or
o participating in the payment of a dividend or a stock
repurchase or redemption for himself.
This provision does not affect any director's liability under federal
securities laws or the availability of equitable remedies such as an injunction
or rescission for breach of fiduciary duty.
We intend to purchase directors liability insurance for our officers and
directors. However, there can be no assurance that such insurance will be
available to us at commercially reasonable terms, or at all.
Certain relationships and transactions
From February 1, 1992 until December 31, 1998 we subcontracted software
and various consulting projects to companies controlled by some of our
shareholders. Over this period payments totaling $111,557 were made by us to
Raja Tuli Consulting, Lakhbir Tuli Consulting and Widecom Group, Inc. During
1997 we also subcontracted software consulting projects totaling $64,837 to
these same companies. These companies provided consulting services with respect
to software development. These transactions provided payments in lieu of a
salary to the individuals providing these consulting services.
In December, 1998, we entered into a three year management and consulting
agreement with Rexon Limited, a Swiss based company. The agreement provides that
Rexon will provide us with various management, marketing, business planning an
acquisition strategies. As compensation, Rexon received 23.3% of the then issued
and outstanding shares of the common stock of Docuport Canada. Upon the exchange
of Docuport Canada's shares for ours, Rexon became the beneficial owner of
approximately 1,195,000 shares of our common stock. Subsequently, Rexon
transferred 295,000 shares to Diversified Investors for services rendered to
Rexon and 616,000 shares to other third parties. In addition, we have agreed to
pay Rexon $5,000 per month for a period of two years after we become a publicly
traded company. We have not yet begun to pay Rexon its fees.
In April, 1999, we entered into a three year non-exclusive Marketing and
Sales Agreement with Solutions Plus, Inc., which is wholly owned by Corina
Docteroff, the wife of Norman Docteroff, who, in addition to being our
president, chief executive officer and a director, is the president and a
director of Solutions Plus, Inc. Mr. Docteroff has signed an employment
agreement which requires him to work a minimum of 30 hours per week for us.
Solutions Plus, Inc. specializes in marketing, sales and networking. The
agreement requires Solutions Plus, Inc. to market, sell and provide
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support services with respect to the Slimfax. In addition, Solutions Plus, Inc.
will provide the following services:
o manage our financial records including the billing of customers,
payment of expenses such as insurance policies, leases, bills and
other related administrative matters;
o maintain our employment records;
o maintain account and company records in accordance with generally
accepted accounting standards; and
o maintain an operating account for us for the deposit of funds
generated by product sales and for payment of our operating
expenses.
As part of our marketing agreement, Solutions Plus, Inc. is providing us with
space in their offices for our United States based employees such as our
accounting, sales and marketing staff. In exchange, we agreed to pay Solutions
Plus, Inc. $10,000 per month starting May 1, 1999 and continuing for the
duration of the agreement. Solutions Plus, Inc. will receive 10% of gross sales
which Solutions Plus, Inc. generates of our product, less returns. In addition,
Solutions Plus, Inc. will receive 7.5% of all gross sales of our product to
companies which sell the Slimfax under their own private label, less returns. We
can terminate the marketing and sales agreement if Solutions Plus, Inc. fails to
sell 25,000 Slimfax machines within the first twelve months after the Slimfax
becomes commercially available and an additional 125,000 Slimfax machines during
the second 12 month period after the Slimfax becomes commercially available. If
Solutions Plus, Inc. generates gross sales equal or greater than $25,000,000,
then we have the option to reduce Solutions Plus, Inc.'s commissions to 3% for
the balance of the agreement. If the commission percentage is reduced; however,
Solutions Plus, Inc. will not be obligated to pay for any sales and marketing
costs.
In August, 1999, in consideration for introducing us to Norman Docteroff,
we have granted Millenium Capital Corporation 50,000 options to purchase common
stock of Docuport. These options are fully vested and may be exercised at a
price of $2.00 per share of common stock. These options are being registered and
therefore are being offered pursuant to this public offering. In addition,
Millenium Capital Corporation will receive as compensation 1/4 of 1% of our
sales from Mr. Docteroff and Millenium Capital Corporation will also receive 1/4
of 1% of our sales from us.
We have agreed with Melvin Yablon, one of our directors, that in exchange
for providing consulting services to Docuport, we have granted him 15,000
options to purchase common stock of Docuport. These options are fully vested and
may be exercised at a price of $2.00 per share of common stock. In addition, Mr.
Yablon has received, in consideration for his being appointed as a director of
Docuport, 10,000 options to purchase common stock of Docuport. These options are
fully vested and may be exercised at a price of $4.00 per share of common stock.
These options are not being registered and therefore are not being offered
pursuant to this public offering.
With respect to related party transactions we require that formal
agreements are negotiated and executed between the related party and us. Prior
to execution, any such agreement must be reviewed and approved by the board. All
the agreements discussed above were entered into pursuant to arms length
negotiations between the related party and us.
23
<PAGE>
Principal stockholders
The following table sets forth the number of common stock owned and the
percentage of our outstanding shares of common stock as of November 18, 1999 for
the following:
o all persons who own more than five percent of our outstanding common
stock;
o each officer and director;
o officers and directors as a group.
- --------------------------------------------------------------------------------
AMOUNT OF
BENEFICIAL
NAME OWNERSHIP PERCENTAGE
---- --------- ----------
- --------------------------------------------------------------------------------
Raja S. Tuli
c/o Docuport, Inc.
1155 Rene Levesque West 1,750,000 29.15%
Suite 3500
Montreal, PQ, H3B 3T6,
Canada
- --------------------------------------------------------------------------------
Suneet Tuli(1)
c/o Docuport, Inc.
1155 Rene Levesque West 875,000 14.58%
Suite 3500
Montreal, PQ, H3B 3T6,
Canada
- --------------------------------------------------------------------------------
Lakhbir Tuli
1290 Whiteoaks Avenue
Mississauga, Ontario 875,000 14.58%
L5J 3C1
Canada
- --------------------------------------------------------------------------------
Norman Docteroff
81 Two Bridges Road 48,615(2) .69%
Fairfield, New Jersey 07005
- --------------------------------------------------------------------------------
Melvin Yablon
220 East 57th Street, Apt. 2C 45,000(3) .63%
New York, NY 10022
- --------------------------------------------------------------------------------
Diversified Investors Capital
Services of North America, Inc. 638,750 10.64%
850 Third Avenue
New York, N.Y. 10022
- --------------------------------------------------------------------------------
24
<PAGE>
- --------------------------------------------------------------------------------
Madan Singh 0 0.0%
c/o Docuport, Inc.
1155 Rene Levesque West
Suite 3500
Montreal, PQ, H3B 3T6,
Canada
- --------------------------------------------------------------------------------
Rexon Limited 284,000 4.7%
P.O. Box 2321
1211 Geneva 1
Switzerland
- --------------------------------------------------------------------------------
All Officers and Directors 2,704,170 45.05%
as a group - 5 people
- --------------------------------------------------------------------------------
- ----------
(1) Suneet Tuli is the brother of Raja S. Tuli, who is our chairman of the board
of directors and the son of Lakhbir Tuli, one of our directors.
(2) Includes options to purchase shares of our common stock which were issued to
Mr. Docteroff as compensation in connection with his employment agreement to
serve as our chief executive officer.
(3) Amounts indicated do not include 7,500 shares of our common stock underlying
the common stock purchase warrants held by Mr. Yablon which he received pursuant
to the Extension Agreement entered into, as a promissory note holder in the 1996
private offering, with Docuport. Amounts also do not include 15,000 options to
purchase shares of our common stock which were issued to Mr. Yablon as
compensation as a consultant to Docuport and 10,000 options for serving as a
director.
We believe that each of the persons and entities listed above have the
sole voting power with respect to the shares of common stock beneficially owned
by each of them.
We have entered into an agreement with Mr. Raja S. Tuli with respect to
his ownership of our common stock and our registration of his shares. In
exchange for registering 300,000 of his shares which are the subject of this
registration statement, Mr. Tuli may sell 150,000 shares upon effectiveness of
this registration statement and 150,000 shares at the rate of 50,000 shares per
quarter. The first quarter commences 90 days following this registration
statement becoming effective.
The President, director and sole shareholder of Diversified Investors
Capital Services of North America, Inc., one of our shareholders, is Jake Berg.
Mr. Herman Finesod is a consultant to Diversified Investors Capital Services of
North America, Inc.
The owner of Rexon Limited, one of our shareholders, is Miroslava
Hrncirova. Ms. Nicole Didi is the managing director of Rexon Limited.
25
<PAGE>
Plan of distribution
Prior to this offering, no public market for our securities existed. A
total of up to 1,322,500 shares may be sold pursuant to this prospectus by the
stockholders listed below. This does not include 133,333 options to purchase
common stock which may be sold pursuant to this prospectus and are being
registered and included in the following table. The share total also does not
include 172,500 shares of our common stock underlying each common stock purchase
warrant held by investors from the 1996 private offering which may be sold
pursuant to this prospectus and are being registered and included in the
following table. However, 157,500 shares underlying warrants held by investors
from the 1996 private offering who entered into agreements extending the date
that their promissory notes are due, are not being registered, have not been
included and are not being offered by this prospectus. Except as we have
described above, the stockholders selling our stock have never held any position
or office with us or had any other material relationship with us. We will not
receive any of the proceeds from the sale of our common stock by selling
stockholders.
The selling stockholders may, from time to time sell all or a portion of
their registered shares in negotiated transactions or on any exchange in which
we may list or trade our common stock, at prices then prevailing or related to
the then current market price. The shares will not be sold in an underwritten
public offering, but may be sold either directly or through brokers or dealers.
Brokers or dealers may receive commissions or discounts from selling
stockholders, or if any such broker-dealer acts as agent for the purchaser of
such shares, from the purchaser, in amounts to be negotiated which are not
expected to exceed those customary in the types of transactions involved.
The following list assumes all shares which will be registered based on
the filing of this prospectus are sold by the selling shareholders. The amount
of shares owned by Norman Docteroff prior to this offering represents shares
available to be purchased based on options issued to Mr. Docteroff as
compensation as provided by his employment agreement to serve as our president,
chief executive officer and a director, which provides for the vesting of
options to purchase 6,945 shares of common stock per month commencing April 15,
1999. The number of shares owned by Millenium Capital Corporation prior to this
offering represents shares available to be purchased based on options issued to
Millenium Capital Corporation as consideration for Millenium Capital Corporation
which introduced Norman Docteroff to Docuport. These options are fully vested.
- --------------------------------------------------------------------------------
Percentage
Shares Shares owned of shares
Selling owned prior Shares following following
stockholder to offering registered offering offering
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Raja S. Tuli, 1,750,000 300,000 1,450,000 24.16%
chairman of the
board of directors
- --------------------------------------------------------------------------------
Norman Docteroff 250,000 83,333 166,667 2.78%
- --------------------------------------------------------------------------------
Aarnel Funding 25,000 25,000 0 0%
Corp. Pension Plan
- --------------------------------------------------------------------------------
Abedon, Barbara 30,000 30,000 0 0%
- --------------------------------------------------------------------------------
26
<PAGE>
Artas Corporation 40,000 40,000 0 0%
- --------------------------------------------------------------------------------
Baker, David 6,000 1,000 5,000 .08%
- --------------------------------------------------------------------------------
Barotz, Norman 2,500 1,500 1,000 .02%
- --------------------------------------------------------------------------------
Banque Bruxelles 50,000 30,000 20,000 .33%
Lambert (IP)
- --------------------------------------------------------------------------------
Banque Bruxelles 7,500 7,500 0 0%
Lambert (P)
- --------------------------------------------------------------------------------
Berg, Jake 70,000 20,000 50,000 .83%
- --------------------------------------------------------------------------------
Bouin, Frederic 5,000 5,000 0 0%
- --------------------------------------------------------------------------------
Bowen, Douglas J 6,250 6,250 0 0%
- --------------------------------------------------------------------------------
Bowen, Ellen, & 1,000 1,000 0 0%
Doug
- --------------------------------------------------------------------------------
Brown, Gary 5,000 2,000 3,000 .05%
- --------------------------------------------------------------------------------
Bushong, Heather 13,500 10,500 3,000 .05%
- --------------------------------------------------------------------------------
Caldarola, Eva 7,500 7,500 0 0%
- --------------------------------------------------------------------------------
Calderola, Nancy 3,000 2,000 1,000 .02%
- --------------------------------------------------------------------------------
Castellano, 20,000 12,500 7,500 .13%
Anthony
- --------------------------------------------------------------------------------
Castellano, Jean 15,000 15,000 0 0%
- --------------------------------------------------------------------------------
Chianese, Lawrence 1,000 1,000 0 0%
- --------------------------------------------------------------------------------
Corsalini, Marie 4,500 2,000 2,500 .04%
- --------------------------------------------------------------------------------
Diversified 637,750 369,250 268,500 4.47%
Investors Capital
Services of North
America, Inc.
- --------------------------------------------------------------------------------
DiModica, Joseph 10,000 10,000 0 0%
- --------------------------------------------------------------------------------
Euro 15,000 15,000 0 0%
Pharmaceutical
Distributors
Limited
- --------------------------------------------------------------------------------
Evans, Debra 50,000 30,000 20,000 .33%
- --------------------------------------------------------------------------------
Fam Gindi 5,000 5,000 0 0%
- --------------------------------------------------------------------------------
27
<PAGE>
- --------------------------------------------------------------------------------
Finesod, Ben 5,000 2,000 3,000 .05%
- --------------------------------------------------------------------------------
Forgione, Diane & 2,500 2,500 0 0%
Peter
- --------------------------------------------------------------------------------
Garrison, Mark W 12,500 12,500 0 0%
- --------------------------------------------------------------------------------
Hayhurst, Sandra & 2,000 2,000 0 0%
Walter
- --------------------------------------------------------------------------------
Hazoury, Anandy 25,000 10,000 15,000 .25%
- --------------------------------------------------------------------------------
Henderson, Maria 30,000 30,000 0 0%
- --------------------------------------------------------------------------------
Hersch, Andrew 37,500 12,500 25,000 .42%
- --------------------------------------------------------------------------------
Kaplan, Hilan 500 500 0 0%
Trust, Lovey
Kaplan Trustee
- --------------------------------------------------------------------------------
Kessler, Robert 40,000 25,000 15,000 .25%
- --------------------------------------------------------------------------------
Key Group, Inc. 35,000 35,000 0 0%
- --------------------------------------------------------------------------------
Kramer & Kramer 3,000 1,000 2,000 .03%
- --------------------------------------------------------------------------------
Levi, Benjamin 3,000 3,000 0 0%
- --------------------------------------------------------------------------------
London, Joyce 2,000 1,500 500 .01%
- --------------------------------------------------------------------------------
Mann, Larry 8,500 7,500 1000 .02%
- --------------------------------------------------------------------------------
Mastey, Henri 4,000 2,000 2,000 .03%
- --------------------------------------------------------------------------------
Mastey, Jean Yves 4,000 2,000 2,000 .03%
- --------------------------------------------------------------------------------
Mellis, Lee 3,000 1,000 2,000 .03%
- --------------------------------------------------------------------------------
Merchant Ent. Ltd. 2,000 2,000 0 0%
- --------------------------------------------------------------------------------
Millenium Capital 50,000 50,000 0 0%
Corporation
- --------------------------------------------------------------------------------
Miller, Michael 20,000 20,000 0 0%
- --------------------------------------------------------------------------------
Mintz & Fraade, 15,000 15,000 0 0%
P.C
- --------------------------------------------------------------------------------
MMH Investments, 37,500 12,500 25,000 .42%
Inc.
- --------------------------------------------------------------------------------
Morris, Barbara K 30,000 30,000 0 0%
- --------------------------------------------------------------------------------
Pedrignani, Paolo 10,000 5,000 5,000 .08%
- --------------------------------------------------------------------------------
28
<PAGE>
- --------------------------------------------------------------------------------
Peterson, Brent 1,000 1,000 0 0%
- --------------------------------------------------------------------------------
Regency 9,500 8,500 1,000 .02%
Resources, Inc.
- --------------------------------------------------------------------------------
Rowe, Sandra 1,000 1,000 0 0%
- --------------------------------------------------------------------------------
Rubin, Alan 30,000 30,000 0 0%
- --------------------------------------------------------------------------------
Schattle, Arthur & 30,000 30,000 0 0%
Sheila
- --------------------------------------------------------------------------------
Schuster, Jerome 50,000 15,000 35,000 .58%
- --------------------------------------------------------------------------------
Shapiro, Jane 1,000 1,000 0 0%
- --------------------------------------------------------------------------------
Spellane, Tom 2,000 2,000 0 0%
- --------------------------------------------------------------------------------
Steiner, Jeffery 5,000 2,000 3,000 .05
- --------------------------------------------------------------------------------
Stepniewski, Jackie 7,000 2,000 5,000 .08%
- --------------------------------------------------------------------------------
Stone, Gladys 2,000 2,000 0 0%
- --------------------------------------------------------------------------------
Stone, Lawrence 34,500 34,500 0 0%
- --------------------------------------------------------------------------------
Tamburrini, Vivian 30,000 30,000 0 0%
- --------------------------------------------------------------------------------
Telesnick, Alan 17,000 17,000 0 0%
- --------------------------------------------------------------------------------
Tigrak, Omer 3,000 1,000 2,000 .03%
- --------------------------------------------------------------------------------
Tobias, Barbara 4,000 2,000 2,000 .03%
- --------------------------------------------------------------------------------
Toboroff, Leonard 10,000 5,000 5,000 .08%
- --------------------------------------------------------------------------------
Toboroff, Matthew 500 500 0 0%
- --------------------------------------------------------------------------------
Toth, Francis 5,000 2,000 3,000 .05%
- --------------------------------------------------------------------------------
Tristan, Lucia 2,000 1,000 1,000 .02%
- --------------------------------------------------------------------------------
Vecchio 65,000 65,000 0 0%
Consultants, Inc.
- --------------------------------------------------------------------------------
Weissman, Jody 12,500 9,500 3,000 .05%
- --------------------------------------------------------------------------------
Wells, John 15,000 5,000 10,000 .17%
- --------------------------------------------------------------------------------
Wiech, Christopher 12,500 12,500 0 0%
- --------------------------------------------------------------------------------
M. & Norbet L.
- --------------------------------------------------------------------------------
Wunderlin, 1,000 1,000 0 0%
Rosalind
- --------------------------------------------------------------------------------
29
<PAGE>
- --------------------------------------------------------------------------------
Yablon, Melvin 45,000 30,000 15,000 .25%
- --------------------------------------------------------------------------------
Zion Morally 1,000 1,000 0 0%
- --------------------------------------------------------------------------------
Description of the securities
General
The following description summarizes our authorized and currently
outstanding securities. We are authorized to issue 12,000,000 shares of common
stock, par value $.001 per share and a maximum of 2,000,000 shares of preferred
stock, $.01 per share. There are 6,002,500 shares of common stock issued and
outstanding as of the date of this prospectus. No shares of preferred stock have
been issued.
Common stock
Each holder of shares of our common stock, issued and outstanding, is
entitled to one vote per share held and has the sole right and power to vote
upon all matters upon which a vote of stockholders is taken. Neither our
certificate of incorporation nor our by laws permit our stockholders to vote
their shares cumulatively. Upon liquidation, dissolution, or winding up of our
business, the owners of common stock are entitled to receive our net assets in
proportion to the respective number of shares held by them, following payment to
our preferred stockholders. The holders of common stock do not have any
preemptive right to subscribe for or purchase any shares of any class of stock.
All of our outstanding shares of common stock are fully paid and non-assessable
and not subject to further call or redemption.
To date, we have never paid dividends on any of our common stock and we
intend to reinvest earnings, if any, for the development and expansion of our
business. We do not guarantee that we will have enough earnings to pay any
dividends on our common stock. Even if we have sufficient earnings, we are not
required to declare dividends on our common stock. Whether we should declare
cash or stock dividends will be in the sole and absolute discretion of our board
and will depend on our earnings, capital requirements, financial position,
general economic conditions and other relevant factors. It is also possible that
the terms of any future debt financing may restrict declaration of dividends.
Preferred stock
We are authorized by our certificate of incorporation to issue preferred
stock, in one or more series which may contain rights, privileges and
limitations, including:
o conversion privileges
o dividends
o redemption rights
o liquidation privileges.
Except as specifically provided by the Delaware General Corporation Law
relating to the voting by all classes of stock, holders of preferred stock will
have no voting rights unless specifically
30
<PAGE>
granted by our board. We have not issued any of our preferred stock, as of the
date of this prospectus and currently have no plans to do so.
If any shares of preferred stock are issued, a certificate of designation,
setting forth the series of such preferred stock and the rights, privileges and
limitations of the holders of the preferred stock will be filed with the
Secretary of State of the State of Delaware. This may have the effect of
delaying, deferring or preventing a change in control of our management without
further action by other stockholders and may adversely affect the rights of the
holders of our common stock.
Warrants
Each warrant entitles the holder of record to purchase one share of our
common stock at a price of $.10 per share. A warrant holder may exercise their
rights by surrendering the warrant certificate to us, with the fully completed
and executed subscription form, together with payment of the exercise price.
Commencing upon the date of the purchase, the warrants may be exercised at any
time in whole or part at the applicable exercise price until the warrants
expire. We will not issue fractional shares when the warrants are exercised.
The exercise price and the number of shares of common stock purchased upon
the exercise of the warrants are subject to adjustment if events such as stock
dividends, stock splits, combinations or reclassifications of the common stock
occur. Additionally, an adjustment would be made in the case of a
reclassification or exchange of common stock, or if we were to consolidation or
merge, in order to enable warrant holders to acquire the kind and number of
shares of stock or other securities or property receivable in such event by a
holder of the number of shares of common stock that might have been purchased
upon the exercise of the warrant.
Previous private offerings
On July 11, 1996, we conducted a private offering, under the guidelines
provided by Rule 504 of Regulation D of the Securities Act of 1933. The offering
raised $575,000. Each investor in the 1996 offering purchased a unit, or a
fractional unit, valued at $50,000. Each unit consisted of the following
securities:
o a $50,000 non-negotiable promissory note at 10% interest, due at the
earlier of either two years after the closing of the private placement or
an initial public offering,
o 10,000 shares of our common stock, and
o a warrant to purchase 10,000 shares of our common stock at a purchase
price of $2.50 per share one year following an initial public offering and
expiring five years following the initial public offering.
In February 1999, we were in default of the promissory notes issued to
investors in the 1996 private offering. On February 12, 1999, in order to avoid
continued default, we offered an extension agreement to the investors of the
1996 offering which extended the due date of the promissory notes for which we
were in default. Seventeen of the 18 investors agreed to the extension; we
continue to be in default with respect to the remaining promissory note. As
compensation to the investors who
31
<PAGE>
agreed to the extension, we exchanged for additional warrants equal to 1.5 times
the number of original warrants to adjust for the exchange of shares of common
stock in our Canadian subsidiary for shares of our common stock on a three for
two basis, at a purchase price of $.10 per share. In addition, the original
purchase price of the warrants was reduced from $1.67, as adjusted, to $0.10.
The extension agreement extended the due date for the promissory notes until the
earlier to occur of either (a) August 1, 2000; or (b) the raising an aggregate
of $5,000,000 in financing.
On March 12, 1999 Docuport Delaware, prior to incorporation, commenced a
private offering of shares, under the guidelines provided by Rule 504 of
Regulation D of the Securities Act of 1933, of its common stock, which closed on
April 6, 1999, selling 700,000 shares at a purchase price of $.10 per share. The
shares purchased in the March, 1999 offering are restricted and are not freely
transferrable until the earlier of either one year following purchase of the
shares or registration of the shares with the SEC.
On March 22, 1999 Docuport Delaware commenced an additional private
offering, under the guidelines provided by Rule 504 of Regulation D of the
Securities Act of 1933, of shares of our common stock, which closed on April 6,
1999, selling 435,000 shares at a purchase price of $2.00 per share.
On March 24, 1999, our board and the board of Docuport Canada, authorized
the exchange of all of the issued and outstanding shares and warrants of
Docuport Canada into our shares or warrants to purchase our shares on a 3 for 2
basis. Thus, for every 100 shares of Docuport Canada's common stock, a
stockholder received 150 shares of our common stock. The Docuport Canada
continues in existence as our subsidiary.
Shares eligible for future sale
We currently have outstanding 6,002,500 shares of common stock. Of these
shares 1,322,500, excluding shares underlying options and warrants, will be
registered pursuant to this registration statement and will be freely
transferable without restriction or further registration under the Securities
Act. In addition, we have issued an aggregate of 435,000 shares in private
offerings under Rule 504 of the Securities Act of 1933. These shares, while not
registered with the SEC are freely transferable by their respective owners.
All of the remaining 4,245,000 shares of our outstanding common stock
outstanding are "restricted securities," as that term is defined in Rule 144
promulgated under the Securities Act, and may only be sold based on an effective
registration statement under the Securities Act, or in compliance with the
exemption provisions of Rule 144 or based on another exemption under the
Securities Act.
In general, under Rule 144 as currently in effect, any person, or persons
whose shares are aggregated, who has beneficially owned restricted securities
for at least one year is entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of the issuer's common stock or the average weekly trading volume during
the four calendar weeks preceding such sale, provided that public information
about the issuer as required by Rule 144 is then available and the seller
complies with other requirements. Affiliates may sell unrestricted securities in
compliance with Rule 144, other than the holding period requirement. A
32
<PAGE>
person who is not an affiliate, has not been affiliate within two months prior
to sale, and has beneficially owned the restricted securities for at least two
years, is entitled to sell such shares under Rule 144 without regard to any of
the limitations described above.
Prior to this offering, there has been no public trading market for the
common stock and we cannot predict the effect, if any, that public sales of
shares of common stock or the availability of shares for sale will have on the
market prices of the common stock and warrants. Nevertheless, the possibility
that a substantial amount of common stock or warrants may be sold in the public
market may adversely effect prevailing market prices and could impair our
ability to raise capital through the sale of its equity securities.
Determination of offering price
Prior to this offering of our common stock, there has been no public
market for any of our securities and there can be no assurance that a market
will develop. In recent private offerings of our securities, we have sold our
common stock at prices of $.10 and $2.00. The price of our common stock, when
sold by our stockholders will be determined by broker-dealers and market makers
in negotiated transactions, or trades over the open market where we intend to
list our common stock. Among factors which may be considered by broker-dealers,
market makers and investors to determine the price for our securities in the
public market are:
o estimates of our business potential;
o prevailing market conditions in the U.S. economy and the market in
which we intend to compete;
o an evaluation of other companies comparable to us and their ability
to effectively compete with our product.
Transfer agent
The transfer agent for our common stock is Liberty Transfer Company, 191
New York Avenue, Huntington, New York 11243.
Interest of named experts and counsel
Legal matters
The legality of our common stock has been passed upon on our behalf by
Mintz & Fraade, P.C., New York, New York. Mintz & Fraade, P.C. beneficially owns
15,000 shares of our common stock.
Experts
The financial statements included in this prospectus and in the
registration statement have been audited by BDO Dunwoody, independent chartered
accountants, to the extent and for the periods set forth in their report
appearing elsewhere in this prospectus and in the registration
33
<PAGE>
statement, and are included in reliance upon such reports given upon the
authority of said firm as experts in accounting and auditing.
Legal proceedings
We do not know of any litigation pending, threatened or contemplated, or
unsatisfied judgments, against us, or of any proceeding to which we are a party.
Available information
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act, together with all amendments
and exhibits, for the securities registered by this registration statement. This
prospectus, filed as a part of the registration statement, does not contain all
of the information set forth in, or annexed as exhibits to, the registration
statement, parts of which are omitted in accordance with the rules and
regulations of the commission. For further information about us, please refer to
the registration statement, including its exhibits and schedules, which may be
inspected without charge at the principal office of the commission, 450 Fifth
Street, NW, Washington, D.C. 20549, or at other regional offices of the
commission. Copies of such material may be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, NW, Washington, D.C.
20549, at prescribed rates. To obtain information on the operation of the Public
Reference Room, the Securities and Exchange Commission can be contacted at
1-800-SEC-0330. Such material may also be accessed electronically at the SEC's
home page on the Internet at http://www.sec.gov.
34
<PAGE>
- --------------------------------------------------------------------------------
Docuport, Inc.
1,628,333 shares
--------------
PROSPECTUS
--------------
We have not authorized anyone to give any information or to make any
representations other than those contained in this prospectus. No other
information should be relied upon. The information contained in this prospectus
is current only to the date of this prospectus. This prospectus does not offer
to sell any securities in any jurisdiction where to do so would be unlawful.
----------
Until _______, 1999, 25 days after the date of this prospectus, all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligations of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
______ , 1999
================================================================================
35
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report ................................................F-2
Audited Balance Sheets as of December 31, 1998 .............................F-3
Statements of Operations, for the Period of Inception
Through the Fiscal Year Ended December 31, 1998 .............................F-4
Statements of Stockholders' Deficiency, for the Period of
Inception Through Fiscal Years Ended December 31, 1997
and December 31, 1998........................................................F-5
Statements of Cash Flows, for the Period of Inception
Through Fiscal Years Ended December 31, 1997
and December 31, 1998 .......................................................F-6
Notes to Financial Statements ...............................................F-7
Balance Sheets as of September 30, 1999 (unaudited).........................F-13
Statements of Operation, for the Period of Inception
Through Nine months ended September 30, 1999 and 1998 (unaudited)...........F-14
Statements of Cash Flows, for the Period of Inception
Through Nine months ended September 30, 1999 and 1998 (unaudited)...........F-15
Statements of Shareholders' Deficit, for the Period of Inception
Through Nine months ended September 30, 1999 and 1998 (unaudited)...........F-16
Notes to Unaudited Financial Statements.....................................F-18
36
<PAGE>
================================================================================
Auditors' Report
- --------------------------------------------------------------------------------
To the Directors of
DOCUPORT INC.
We have audited the balance sheets of Docuport Inc. (a development stage
company) as at December 31, 1998 and December 31, 1997 and the statements of
operations, shareholders' deficiency and cash flows for the period from February
1st, 1992, date of inception, through December 31, 1998 and for the years ended
December 31, 1998 and December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1998 and 1997
and the results of its operations and the changes in its cash flow for the
period from February 1st, 1992, date of inception, through December 31, 1998 and
for the years ended December 31, 1998 and December 31, 1997 in accordance with
generally accepted accounting principles in the United States.
Chartered Accountants
Montreal, Quebec
February 12, 1999
F-2
<PAGE>
================================================================================
DOCUPORT INC.
(a development stage company)
Balance Sheets
(Expressed in United States dollars)
December 31 1998 1997
- -------------------------------------------------------------------------------
Assets
Current
Cash and cash equivalents $ 117,899 $ 10,822
Miscellaneous receivable 3,142 2,954
Income tax credits receivable 25,415 145,748
Advance to employee (Note 1) -- 3,454
----------------------
146,456 162,978
Capital assets (Note 2) 7,067 10,265
----------------------
$ 153,523 $ 173,243
===============================================================================
Liabilities and Shareholders' Deficiency
Current
Accounts payable and accrued liabilities $ 167,605 $ 85,134
Due to related parties (Note 3) 25,289 3,454
Current portion of long term debt (Note 4) 575,000 575,000
----------------------
767,894 663,588
----------------------
Shareholders' deficiency
Share capital (Note 5) 4,522 4,522
Additional paid-in capital 70,000 --
Deficit accumulated during the development stage (746,631) (520,152)
Cumulative translation adjustment 57,738 25,285
----------------------
(614,371) (490,345)
----------------------
$ 153,523 $ 173,243
===============================================================================
See accompanying summary of significant accounting policies and notes to these
financial statements.
F-3
<PAGE>
================================================================================
DOCUPORT INC.
(a development stage company)
Statements of Operations
(Expressed in United States dollars)
<TABLE>
<CAPTION>
February 1,
1992 to Year ended Year ended
December 31, December 31, December 31,
1998 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Research and development grants $ 166,509 $ 13,482 $ 93,897
Expenses
Amortization 6,907 2,948 2,767
Consulting fees 70,000 70,000 --
Foreign exchange loss 64,163 32,142 32,021
Materials 107,896 17,482 68,423
Office 36,044 8,284 19,742
Professional fees 19,290 10,146 5,555
Rent 8,802 2,451 2,626
Salaries and employees benefits 155,262 29,552 90,721
Subcontractors 126,221 -- 64,837
Taxes and licences 1,406 535 871
Travel 27,835 4,415 19,922
-----------------------------------------
Operating loss before undernoted (457,317) (164,473) (213,588)
-----------------------------------------
Other income and expenses
Financing fees (155,336) (3,640) (53,155)
Interest and bank charges (2,613) (909) (1,330)
Interest income 11,152 113 6,124
Interest on long term debt (138,068) (57,570) (61,373)
-----------------------------------------
(284,865) (62,006) (109,734)
-----------------------------------------
Net loss $ (742,182) $ (226,479) $ (323,322)
====================================================================================
Loss per common share, basic and diluted $ (0.16) $ (0.05) $ (0.07)
====================================================================================
Weighted average number of shares
outstanding 4,522,500 4,522,500 4,522,500
====================================================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to these
financial statements.
F-4
<PAGE>
================================================================================
DOCUPORT INC.
(a development stage company)
Statements of Shareholders' Deficiency
(Expressed in United States dollars)
For the period from February 1, 1992, date of inception, through December 31,
1998
<TABLE>
<CAPTION>
Accumulated
Common Stock Additionnal Other
------------ Paid-In Comprehensive Comprehensive
Shares Amount Capital Loss Deficit Loss Total
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 1, 1992 -- $ -- $ -- $ -- $ -- $ $ --
Issuance of common stock in 1992
for $ 0.0000251 per share 2,900,000 73 -- -- -- 73
Issuance of common stock in 1996
for nil consideration 115,000 -- -- -- -- --
Recapitalization to effect
the exchange of shares
on reverse acquisition 1,507,500 4,449 -- (4,449) -- --
Comprehensive loss
Net loss for the period -- -- -- -- (192,381) (192,381) (192,381)
Other comprehensive income
Foreign currency
translation adjustments -- -- -- 909 -- 909 909
Comprehensive loss -- -- -- -- (191,472) --
-----------------------------------------------------------------------------------------
Balance, December 31, 1996 4,522,500 4,522 -- 909 (196,830) -- (191,399)
Comprehensive loss
Net loss for the year -- -- -- -- (323,322) (323,322) (323,322)
Other comprehensive income
Foreign currency
translation adjustments -- -- -- 24,376 -- 24,376 24,376
Comprehensive loss -- -- -- -- (298,946) --
-----------------------------------------------------------------------------------------
Balance, December 31, 1997 4,522,500 4,522 -- 25,285 (520,152) -- (490,345)
Comprehensive loss
Net loss for the year -- -- -- -- (226,479) (226,479) (226,479)
Transfer of common stock
from existing shareholders in
exchange for consulting services
for the company -- -- 70,000 -- -- -- 70,000
Other comprehensive income
Foreign currency
translation adjustments -- -- -- 32,453 -- 32,453 32,453
Comprehensive loss -- -- -- -- (194,026)
-----------------------------------------------------------------------------------------
Balance, December 31, 1998 4,522,500 $4,522 $ 70,000 $57,738 $(746,631) $(614,371)
===============================================================================================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to these
financial statements.
F-5
<PAGE>
================================================================================
DOCUPORT INC.
(a development stage company)
Statements of Cash Flows
(Expressed in United States dollars)
<TABLE>
<CAPTION>
February 1,
1992 to Year ended Year ended
December 31, December 31, December 31,
1998 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used in)
Operating activities
Net loss $(742,182) $(226,479) $(323,322)
Add (deduct) items not requiring a cash outlay
Amortization 6,907 2,948 2,767
Foreign exchange loss 64,163 32,142 32,021
Additional paid-in capital 70,000 70,000 --
Net changes in assets
and liabilities related to operations
Accounts receivable (3,142) (188) (913)
Income tax credits receivable (25,415) 120,333 (86,650)
Accounts payable and accrued liabilities 167,605 82,471 60,368
Other assets 250 250 --
-------------------------------------------------
(461,814) 81,477 (315,729)
-------------------------------------------------
Investing activities
Purchase of capital assets (14,224) -- (7,554)
Advances to employee -- 3,454 (3,454)
-------------------------------------------------
(14,224) 3,454 (11,008)
-------------------------------------------------
Financing activities
Due to related parties 25,289 21,835 (194)
Long term debt issued 575,000 -- --
Capital stock issued 4,522 -- --
Effect of recapitalization (4,449) -- --
-------------------------------------------------
600,362 21,835 (194)
-------------------------------------------------
Effect of exchange rate changes on cash (6,425) 311 (4,892)
-------------------------------------------------
Net increase (decrease) in cash during the period 117,899 107,077 (331,823)
Cash and equivalents, beginning of period -- 10,822 342,645
-------------------------------------------------
Cash and equivalents, end of period $ 117,899 $ 117,899 $ 10,822
============================================================================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to these
financial statements.
F-6
<PAGE>
================================================================================
DOCUPORT INC.
(a development stage company)
Summary of Significant Accounting Policies
(Expressed in United States dollars)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
Nature of Business Docuport Inc. (the "Company") was incorporated under the
laws of Ontario in February 1992 and was inactive until
January 1, 1996. The Company is developing and intends
to market a patented portable multifunctional office
machine called the Slimfax. The Company's future
operations is dependent upon successful marketing and
sales of its product and obtaining the necessary
financing to complete the development.
Basis of Financial The accompanying financial statements are stated in
Statements United States dollars, "the reporting currency". The
transactions of the Company have been recorded during
the year in Canadian dollars, "the functional currency".
The translation of Canadian dollars into United States
dollars amounts have been made at the year end exchange
rates for balance sheet items and the average exchange
rate for the year for revenues, expenses, gains and
losses. Translation adjustments to reporting currency
are included in equity.
These financial statements have been prepared by
management in accordance with generally accepted
accounting principles in the United States.
Accounting Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimated.
Capital Assets Management reviews long-lived assets for impairment
whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be
recoverable, and, if deemed impaired, measurement and
recording of an impairment loss is based on the fair
value of the asset.
Capital assets are recorded at cost less accumulated
amortization. Amortization is provided annually at rates
calculated to amortize the assets over their estimated
useful lives as follows:
Furniture and fixtures - 20% declining balance
Computer equipment - 30% declining balance
Cash and Equivalents Cash and cash equivalents include all highly liquid
investments purchased with original maturities of three
months or less.
F-7
<PAGE>
================================================================================
DOCUPORT INC.
(a development stage company)
Summary of Significant Accounting Policies (continued)
(Expressed in United States dollars)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
Recently Issued SFAS No 133, "Accounting for Derivatives Instruments and
Accounting Standards Hedging Activities" requires companies to record
derivatives on the balance sheet as assets or
liabilities, measured at fair market value. Gains or
losses resulting from changes in the values of those
derivatives are accounted for depending on the use of
the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is
that the hedging relationship must be highly effective
in achieving offsetting changes in fair value or cash
flows. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. Management believes that
the adoption of SFAS No. 133 will have no material
effect on its financial statements.
SOP 98-5, "Reporting on the Costs of Start-Up
Activities," requires that the costs of start-up
activities, including organization costs, be expensed as
incurred. This Statement is effective for financial
statements issued for fiscal years beginning after
December 15, 1998. Management believes that the adoption
of SOP 98-5 has no material effect on its financial
statements.
Research and Research and development costs are charged against
Development Costs income in the year of expenditure.
Income Taxes The Company accounts for income taxes under the asset
and liability method as required by SFAS No. 109,
Accounting for Income Taxes. Under the asset and
liability method, deferred income taxes are recognized
for the tax consequences of temporary differences by
applying enacted tax rates applicable to future years to
differences between the financial statements carrying
amounts and the tax bases of existing assets and
liabilities.
Fair Value of The carrying amounts of financial instruments of the
Financial Instruments Company, including cash and cash equivalents, accounts
receivable, and accounts payable approximate fair value
because of their short maturity. The fair value of
advances to and from related parties and long term debt
cannot be readily determined.
Earnings (loss) per Earnings (loss) per common share is based on the
share weighted average number of common shares outstanding
during the period. The effect of common shares
contingently issuable pursuant to outstanding warrants
has not been considered since they are anti-dilutive.
F-8
<PAGE>
================================================================================
DOCUPORT INC.
(a development stage company)
Notes to Financial Statements
(Expressed in United States dollars)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
1. Advance to Employee
The advance is non-interest bearing and without specific terms of
repayment.
- --------------------------------------------------------------------------------
2. Capital Assets
1998 1997
---------------------------------------------
Accumulated Net Book Net Book
Cost Amortization Value Value
Furniture and fixtures $ 1,176 $ 351 $ 825 $ 820
Computer equipment 12,081 5,839 6,242 9,445
---------------------------------------------
$13,257 $6,190 $7,067 $10,265
=============================================
- --------------------------------------------------------------------------------
3. Due to Related Parties and Related Party Transactions
The amounts due to related parties are non-interest bearing with no
specific terms of repayment.
From February 1, 1992 to December 31, 1998 the Company subcontracted
software and other consulting projects totalling $111,557 with various
companies controlled by shareholders.
During 1997 the Company subcontracted software consulting projects
totalling $64,837 with various companies controlled by shareholders.
During 1998 the Company incurred rent charges from a related company
totalling $2,451 (1997 - $2,626).
These transactions were in the normal course of business and were measured
at the exchange amount, which is the amount of consideration established
and agreed to by the related companies.
4. Long Term Debt
1998 1997
--------------------
10% subordinated promissory notes, due
August 28, 1998 $ 575,000 $ 575,000
====================
The Company is currently in default as the notes were due August 28, 1998
and the debt has been reflected as current. On February 10, 1999 the
Company negotiated an extention with a majority of the noteholders which
would include issuing additional warrants equal to the number of warrants
held by the noteholders and changing the excercise price to $0.10.
F-9
<PAGE>
================================================================================
DOCUPORT INC.
(a development stage company)
Notes to Financial Statements
(Expressed in United States dollars)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
5. Share Capital
(a) Authorized
12 million common shares, par value $.001 per share
2 million preferred shares, par value $.01 per share
(b) Changes to issued share capital
Subsequent to December 31, 1998, all the shareholders of the Company
exchanged their shares of the company for shares of a new parent
company at a ratio of three (3) shares for every two (2) shares
held. At the conclusion of the transaction, the former shareholders
of the Company controlled the new parent company and, thus, the
transaction has been accounted for as a recapitalization. These
changes have been treated retroactively to all prior period
information and earnings per share calculations.
(c) Issued and outstanding
1998 1997
-------------------
4,522,500 common shares $ 4,522 $ 4,522
===================
(d) Preferred shares
The prefered shares may be issued from time to time in one or more
series. The Board of Directors of the Company are authorized to
provide for the creation of each such series and to fix the
designations and the powers, preferences, rights, qualifications,
limitations and restrictions relating to the shares of each such
series.
(e) Warrants
In connection with the subordinated promissory notes (see Note 4),
the Company has issued to the noteholders 172,500 warrants to
purchase common shares at an exercise price of $1.67. The warrants
expire August 28, 2002.
Also, as at December 31, 1998 the Company had an additional 650,000
issued and outstanding warrants exercisable at an exercise price of
$2.50 which were subsequently cancelled ( Note 8).
- --------------------------------------------------------------------------------
F-10
<PAGE>
================================================================================
DOCUPORT INC.
(a development stage company)
Notes to Financial Statements
(Expressed in United States dollars)
December 31, 1998 and 1997
6. Income Taxes
(a) The reconciliation of income taxes calculated at the effective tax
rate of 18.87% to the total tax provision is as follows:
1998 1997
---------------------
Income taxes (recovery) at statutory rates $ (42,737) $ (61,011)
Adjustment to valuation adjustment 42,737 61,011
---------------------
$ -- --
=====================
(b) Deferred Tax Assets
Deferred tax assets have been recorded at current rates as follows:
Balance of pool of Scientific Research &
Development available to reduce taxable
income for future years $ -- $ 41,000
---------------------
Tax losses available to reduce taxable
income of future years 116,000 59,000
---------------------
116,000 100,000
Less: Deferred tax asset valuation
allowance 116,000 100,000
Net tax asset $ -- $ --
=====================
The Company has net operation loss carryforwards to reduce taxable
income of approximately $614,000 which expire during the years 2003
through 2005.
- --------------------------------------------------------------------------------
F-11
<PAGE>
================================================================================
DOCUPORT INC.
(a development stage company)
Notes to Financial Statements
(Expressed in United States dollars)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
7. Commitment
The Company is committed under a management and consulting agreement for a
three year period ending December 2001 for compensation consisting of
1,050,000 common shares, which have been transferred from the present
shareholders, and a fee of $5,000 per month for a two year period after
such time the Company becomes publicly traded. The shares transferred are
fully vested, non forfeitable, and excercisable. This share transfer
resulted in a consulting fee expense of $70,000 with a credit to
additional paid-in capital representing the fair value of the shares on
December 12th, 1998.
- --------------------------------------------------------------------------------
8. Subsequent event
On January 29, 1999, in exchange for the cancellation of warrants (Note
5e), the company issued a total of 230,000 shares to management and the
consultant refered to in Note 7. This transaction will be accounted for as
an expense with a credit to additional paid-in capital representing the
fair value of the shares issued.
- --------------------------------------------------------------------------------
F-12
<PAGE>
DOCUPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
1999 1998
----------- -----------
(Unaudited) (Unaudited)
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 225,611 $ 4,262
MISCELLANEOUS RECEIVABLE 2,871 2,210
INCOME TAX CREDITS RECEIVABLE 150,966 138,648
ADVANCES TO EMPLOYEES AND CONSULTANTS 21,000 3,277
INVENTORY 44,580 --
PREPAID EXPENSES 20,000
----------- ---------
TOTAL CURRENT ASSETS 465,028 148,397
FIXED ASSETS 30,229 8,106
PATENTS 1,016 465
SECURITY DEPOSITS 1,555 --
=========== =========
$ 497,828 $ 156,968
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 378,375 $ 137,665
DUE TO RELATED PARTIES 74,247 21,013
CURRENT PORTION OF LONG TERM DEBT 50,000 50,000
----------- ---------
TOTAL CURRENT LIABILITIES 502,622 208,678
LONG-TERM DEBT, LESS CURRENT PORTION 525,000 525,000
STOCKHOLDERS' DEFICIT
COMMON STOCK, $.001 PAR VALUE; 12,000,000 SHARES
AUTHORIZED, 6,002,500 ISSUED AND OUTSTANDING
SEPTEMBER 30, 1999; 4,522,500 ISSUED AND
OUTSTANDING SEPTEMBER 30, 1998 6,002 4,522
ADDITIONAL PAID IN CAPITAL 2,113,771 --
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (2,679,754) (636,399)
CUMULATIVE TRANSLATION ADJUSTMENT 30,187 55,167
----------- ---------
(529,794) (576,710)
----------- ---------
$ 497,828 $ 156,968
=========== =========
F-13
<PAGE>
DOCUPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 AND THE PERIOD FROM
FEBRUARY 1, 1992 (DATE OF INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
FEBRUARY 1, 1992
9 MONTHS ENDED (INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999
----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
REVENUES
GOVERNMENT RESEARCH AND DEVELOPMENT GRANTS $ 122,721 112 $ 289,230
EXPENSES
CONSULTING FEES 882,100 -- 882100
DEPRECIATION AND AMORTIZATION 7,990 2,161 14,897
FOREIGN EXCHANGE LOSS (GAIN) (25,228) 30,894 38,935
MANAGEMENT FEES 60,000 -- 60,000
MATERIALS 41,474 541 149,370
OFFICE 12,662 6,713 48,706
ORGANIZATION COSTS 423,700 -- 423,700
PROFESSIONAL FEES 69,769 2,797 1,041,159
RENT 15,290 1,865 24,092
SALARIES AND EMPLOYEE BENEFITS 194,592 22,090 349,854
SUBCONTRACTORS 237,962 2,142 364,183
PRINTING AND PACKAGING 30,909 -- 30,909
TAXES AND LICENSES 8,551 155 9,957
TESTING AND CERTIFICATION 6,200 -- 6,200
TRAVEL 54,663 3,678 82,498
----------- ----------- -----------
(1,897,913) (72,924) (2,355,230)
OTHER INCOME AND (EXPENSES)
INTEREST INCOME 9,269 -- 20,421
FINANCING FEES -- -- (155,336)
INTEREST AND BANK CHARGES (1,239) (197) (3,852)
INTEREST ON LONG TERM DEBT (43,125) (43,126) (181,193)
----------- ----------- -----------
(35,095) (43,323) (319,960)
NET LOSS $(1,933,008) $ (116,247) $(2,675,190)
=========== =========== ===========
LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.35) $ (0.03) $ (0.59)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 5,509,167 4,522,500 4,534,917
</TABLE>
F-14
<PAGE>
DOCUPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 AND THE PERIOD FROM
FEBRUARY 1, 1992 (DATE OF INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
9 MONTHS ENDED FEBRUARY 1, 1992
SEPTEMBER 30, (INCEPTION) TO
-------------------------- SEPTEMBER 30,
1999 1998 1999
----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS $(1,933,008) $ (116,247) $(2,675,190)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES
DEPRECIATION AND AMORTIZATION 7,990 2,161 14,897
FOREIGN EXCHANGE LOSS (GAIN) (25,228) 30,894 38,935
COMMON STOCK ISSUED FOR SERVICES 230 -- 230
RECAPITALIZATION AND MERGER 115 -- 115
ADDITIONAL PAID-IN CAPITAL THROUGH
ISSUANCE OF STOCK FOR SERVICES 1,252,070 -- 1,322,070
NET CHANGES IN ASSETS AND LIABILITIES RELATED TO
OPERATIONS
MISCELLANEOUS RECEIVABLE 271 744 (2,871)
INCOME TAX CREDITS RECEIVABLE (125,551) 7,100 (150,966)
INVENTORY (44,580) -- (44,580)
PREPAID EXPENSES (20,000) -- (20,000)
SECURITY DEPOSITS (1,555) -- (1,555)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 210,770 52,531 378,375
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (678,476) (22,817) (1,140,540)
CASH FLOWS USED IN INVESTING ACTIVITIES
PURCHASE OF FIXED ASSETS (23,162) -- (37,386)
PATENTS (650) -- (1,016)
ADVANCES TO EMPLOYEES AND CONSULTANTS (21,000) 177 (21,000)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (44,812) 177 (59,402)
CASH FLOWS FROM FINANCING ACTIVITIES
DUE TO RELATED PARTIES 48,958 17,558 74,247
LONG-TERM DEBT ISSUED -- -- 575,000
COMMON STOCK ISSUED 792,836 -- 792,909
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 841,794 17,558 1,442,156
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (10,794) (1,478) (16,603)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 107,712 (6,560) 225,611
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 117,899 10,822 --
----------- ----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $ 225,611 $ 4,262 $ 225,611
=========== =========== ===========
</TABLE>
F-15
<PAGE>
DOCUPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' DEFICIT
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 AND THE PERIOD FROM
FEBRUARY 1, 1992 (DATE OF INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON STOCK PAID-IN COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT CAPITAL LOSS DEFICIT LOSS TOTAL
------------------- ---------- -------- -------------------------- -----------
(Unaudited) (Unaudited) (Unaudited ) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 1, 1992 (INCEPTION)
ISSUANCE OF COMMON STOCK IN 1992
FOR 0.0000251 PER SHARE 2,900,000 $ 73 $ -- $ -- $ -- $ -- $ 73
ISSUANCE OF COMMON STOCK IN 1996
FOR NIL CONSIDERATION 115,000 -- -- -- -- -- --
RECAPITALIZATION TO EFFECT THE
EXCHANGE OF SHARES ON REVERSE
ACQUISITION 1,507,500 4,449 -- -- (4,449) -- --
TRANSFER OF COMMON STOCK IN
1998 FROM EXISTING SHAREHOLDERS IN
EXCHANGE FOR CONSULTING SERVICES
FOR THE COMPANY -- -- 70,000 -- -- -- 70,000
ISSUANCE OF COMMON STOCK IN JANUARY
1999 TO EXISTING SHAREHOLDERS IN
EXCHANGE FOR CONSULTING SERVICES
FOR THE COMPANY 230,000 230 22,770 -- -- -- 23,000
RECAPITALIZATION TO EFFECT THE
EXCHANGE OF SHARES ON REVERSE
ACQUISITION 115,000 115 -- -- (115) -- --
ISSUANCE OF COMMON STOCK IN
MARCH 1999 FOR 0.10 PER SHARE 53,000 53 5,247 -- -- -- 5,300
ISSUANCE OF COMMON STOCK IN MARCH
1999 FOR 2.00 PER SHARE, INCLUDING
SERVICES VALUED AT 1.90 PER SHARE 647,000 647 1,293,353 -- -- -- 1,294,000
ISSUANCE OF COMMON STOCK IN
APRIL 1999 FOR 2.00 PER SHARE NET
OF OFFERING COSTS OF $147,164 435,000 435 722,401 -- -- -- 722,836
COMPREHENSIVE LOSS
NET LOSS FROM INCEPTION TO
SEPTEMBER 30, 1999 -- -- -- -- (2,675,189) (2,675,189) (2,675,189)
OTHER COMPREHENSIVE INCOME
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS -- -- -- 30,187 -- 30,187 30,187
------------------- ---------- -------- -------------------------- -----------
BALANCE, SEPTEMBER 30, 1999 6,002,500 6,002 2,113,771 30,187 (2,679,753) (2,645,002) (529,793)
=================== ========== ======== ========================== ===========
</TABLE>
F-16
<PAGE>
DOCUPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' DEFICIT
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 AND THE PERIOD FROM
FEBRUARY 1, 1992 (DATE OF INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON STOCK PAID-IN COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT CAPITAL LOSS DEFICIT LOSS TOTAL
------------------- ---------- -------- -------------------------- -----------
(Unaudited) (Unaudited) (Unaudited ) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1998 4,522,500 4,522 $ -- $ 25,285 $ (520,152) $ -- $ (490,345)
COMPREHENSIVE LOSS
NET LOSS FOR THE PERIOD -- -- -- -- (116,247) (116,247) (116,247)
OTHER COMPREHENSIVE INCOME
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS -- -- -- 29,882 -- 29,882 29,882
------------------- ---------- -------- -------------------------- -----------
BALANCE, SEPTEMBER 30, 1998 4,522,500 4,522 -- 55,167 (636,399) (86,365) (576,710)
=================== ========== ======== ========================== ===========
BALANCE JANUARY 1, 1999 4,522,500 4,522 $ 70,000 $ 57,738 $ (746,631) $ (614,371)
ISSUANCE OF COMMON STOCK IN JANUARY
1999 TO EXISTING SHAREHOLDERS IN
EXCHANGE FOR CONSULTING SERVICES
FOR THE COMPANY 230,000 230 22,770 -- -- -- 23,000
RECAPITALIZATION TO EFFECT THE
EXCHANGE OF SHARES ON REVERSE
ACQUISITION 115,000 115 -- -- (115) -- --
ISSUANCE OF COMMON STOCK IN
MARCH 1999 FOR 0.10 PER SHARE 53,000 53 5,247 -- -- -- 5,300
ISSUANCE OF COMMON STOCK IN MARCH
1999 FOR 2.00 PER SHARE, INCLUDING
SERVICES VALUED AT 1.90 PER SHARE 647,000 647 1,293,353 -- -- -- 1,294,000
ISSUANCE OF COMMON STOCK IN
APRIL 1999 FOR 2.00 PER SHARE NET
OF OFFERING COSTS OF $147,164 435,000 435 722,401 -- -- -- 722,836
COMPREHENSIVE LOSS
NET LOSS FOR THE PERIOD -- -- -- -- (1,933,008) (1,933,008) (1,933,008)
OTHER COMPREHENSIVE LOSS
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS -- -- -- (27,551) -- (27,551) (27,551)
------------------- ---------- -------- -------------------------- -----------
BALANCE, SEPTEMBER 30, 1999 6,002,500 6,002 2,113,771 $ 30,187 $(2,679,754) $(1,960,559) $ (529,794)
=================== ========== ======== ========================== ===========
</TABLE>
F-17
<PAGE>
NOTE 1: BASIS OF PRESENTATION
The interim financial statements included herein have been prepared by Docuport,
Inc. ("Docuport" or the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management are necessary for fair
presentation of the information contained therein. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes thereto included elsewhere in this filing. The Company follows the same
accounting policies in preparation of interim reports.
Results of operations for the interim periods may not be indicative of annual
results.
NOTE 2: LONG-TERM DEBT
<TABLE>
<CAPTION>
September 1999 September 1998
-------------- --------------
<S> <C> <C>
10% subordinated promissory note, due August 28, 1998 $ 50,000 $ 50,000
10% subordinated promissory notes, due August 1, 2000 525,000 525,000
-------------------------------
575,000 575,000
Less: current portion 50,000 50,000
-------------------------------
Long-term debt $ 525,000 $ 525,000
===============================
</TABLE>
On February 10, 1999, the Company negotiated an extension with a majority of the
noteholders which included reducing the exercise price of existing options from
$1.67 per share, split adjusted, to $0.10 per share and issuing an additional
157,500 warrants with an exercise price of $0.10 per share.
The Company is in default on the current $50,000 note which was due August 28,
1998 and is due on demand.
NOTE 3: STOCK OFFERINGS
In March, 1999 the Company conducted an offering of 700,000 shares of its $0.001
par value common stock. Certain shares sold to individuals or companies deemed
to be related parties were sold for $2.00 per share, comprised of $0.10 per
share in cash and $1.90 per share of services, while shares sold to those
individuals deemed unrelated parties were sold for $0.10 per share in cash. All
shares sold during this offering contain certain restrictions as to further
transfer.
In April, 1999 the Company conducted a second offering of $930,000. The Company
raised $870,000 with the placement of 435,000 shares of its $0.001 par value
common stock at $2.00 per share. These shares were sold without any restrictions
as to further transfer.
F-18
<PAGE>
NOTE 4: MERGER
On March 24, 1999, the Company issued 4,867,500 shares of its common stock in
exchange for all of the outstanding common stock of Docuport, Inc., a Canadian
corporation ("Canada"). At the conclusion of the transaction, the former
shareholders of Canada controlled the new parent company and, thus, the
transaction has been accounted for as a recapitalization. Accordingly, the
Company's financial statements have been restated to include the accounts and
operations of Docuport for all periods prior to the merger.
F-19
<PAGE>
PART II
Item 24. Indemnification of Directors and Officers.
Article EIGHTH of the Registrant's Certificate of Incorporation, contains
the following provision with respect to the indemnification of directors of the
Company:
"EIGHTH: The personal liability of the directors of the Corporation
is hereby eliminated to the fullest extent permitted by the provisions of
Section 102(b)(7) of the General Corporation Law of the State of Delaware, as
the same may be amended or supplemented."
Sections 1, 2, 3 and 4 of Article 8 of the Registrant's By-laws contain
the following provisions with respect to the indemnification of directors,
officers and authorized representatives:
"Section 1. Indemnification of Directors and Officers in Third Party
Proceedings. The Corporation shall indemnify any director or officer of the
Corporation who was or is an "authorized representative" of the Corporation
(which shall mean for the purposes of this Article a director or officer of the
Corporation, or a person serving at the request of the Corporation as a
director, officer, partner or trustee of another corporation, partnership, joint
venture, trust or other enterprise) and who was or is a "party" (which shall
include for purposes of this Article the giving of testimony or similar
involvement) or is threatened to be made a party to any "third party proceeding
" (which shall mean for purposes of this Article 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 was or is an authorized representative of
the Corporation, against expenses (which shall include for purposes of this
Article attorney's fees and disbursements), judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such third party proceeding if such person acted in good faith
and in a manner such person reasonably believed to be in, or not opposed to, the
best interests of the Corporation and, with respect to a criminal third party
proceeding (which shall include for purposes of this Article any investigation
which could or does lead to a criminal third party proceeding) had not
reasonable cause to believe such conduct was unlawful. The termination of any
third party proceeding by judgment, order, settlement, indictment, conviction or
upon a plea of no contest or its equivalent, shall not, of itself, create a
presumption that the authorized representative did not act in good faith and in
a manner which such person reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal third party
proceeding, had reasonable cause to believe that such conduct was unlawful.
Section 2. Indemnification of Directors and Officers in Corporate
Proceedings. The Corporation shall indemnify any director or officer of the
Corporation who was or is an authorized representative of the Corporation and
who was or is a party or is threatened to be made a party to any "corporate
proceeding" (which shall mean for purposes of this Article any threatened,
pending or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor or any investigative proceeding by or on behalf
of the Corporation) by reason of the fact that such person was or is an
authorized representative of the Corporation, against expenses (including
attorneys' fees and disbursements) actually and reasonably incurred by such
person in connection with the defense or settlement of such corporate proceeding
if such person acted in good faith and in
II-1
<PAGE>
a manner such person reasonably believed to be in, or not opposed to, the best
interests of the Corporation, 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 for negligence or misconduct in the performance of such
person's duty to the Corporation unless and only to the extent that the court in
which such corporate proceeding was pending shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such authorized representative is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
Section 3. Indemnification of Authorized Representatives. To the
extent that an authorized representative of the Corporation who neither was nor
is a director or officer of the Corporation has been successful on the merits or
otherwise in defense of any third party or corporate proceeding or in defense of
any claim, issue or matter therein, such person shall be indemnified against
expenses actually and reasonably incurred by such person in connection
therewith. Such an authorized representative may, at the discretion of the
Corporation, be indemnified by the Corporation in any other circumstances to any
extent if the Corporation would be required by Section 1 or 2 of this Article
VIII to indemnify such person in such circumstances to such extent as if such
person were or had been a director or officer of the Corporation.
Section 4. General Terms. Any indemnification under Section 1 and
Section 2 of this Article VIII (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 had met the applicable standard of conduct set forth in
Section 1 and Section 2 of this Article VIII. Such determination shall be made
(i) by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (ii) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in written
opinion, or (iii) by the stockholders.
Expenses incurred in defending a civil or criminal action, suit or
proceeding shall 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 the director, officer, employee or agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in these By-laws.
Section 145 of the Delaware General Corporation Law also contains
provisions entitling directors and officers of the Company to indemnification
from judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees, as the result of an action or proceeding in which
they may be involved by reason of being or having been a director or officer of
the Company (or, at the request of the Company,, a director or officer of
another corporation or other enterprise); provided the officers or directors
acted in good faith. The Company also may obtain an insurance policy which will
cover officers and directors for any liability arising out of their actions in
such capacity.
The foregoing do not and will not eliminate or limit the liability of a
director for violating his duty of loyalty (which includes the obligation of a
director of the Company to refrain from self-dealing with respect to the
Company, improperly competing with the Company or usurping
II-2
<PAGE>
Company opportunities), failing to act in good faith, engaging in intentional
misconduct or knowingly violating a law or participating in the payment of a
dividend or a stock repurchase or redemption for himself. The foregoing also do
not and will not affect any director's liability under federal securities laws
or the availability of equitable remedies such as an injunction or rescission
for breach of fiduciary duty.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth an itemized list of all expenses to be
borne by the Registrant in connection with the issuance and distribution of the
securities being registered hereby other than underwriting discounts and
commissions and non-accountable expenses.
SEC Registration Fee............................................... $ 786.44
Printing and Engraving............................................. 1000.00*
Legal Fees and Expenses............................................ 45,000.00*
Accounting Fees and Expenses....................................... 27,000.00*
Transfer Agent Fees................................................ 800.00*
Miscellaneous Expenses............................................. 413.56
------
TOTAL................................................... 75,000.00
- ---------------
* Estimated.
Item 26. Sales of Unregistered Securities.
On July 11, 1996 the Registrant offered for sale units, or a fractional
unit, which included shares of common stock, common stock purchase warrants and
promissory notes. The Registrant sold and issued an aggregate of (a) 115,000
shares of common stock; (b) 115,000 common stock purchase warrants; and (c)
$575,000 in promissory notes, to a total of eighteen individuals for the
aggregate consideration of $575,000. The issuance of these securities did not
require registration under the Securities Act in that all of such securities
were issued under an exemption from the registration requirements of the
Securities Act provided by Section 3(b) and Rule 504. Upon a resolution of the
Registrants Board of Directors, passed on March 24, 1999, all shares of common
stock and warrants in Docuport Canada were exchanged for shares in Docuport
Delaware (the "Exchange"). The ratio of the Exchange was three (3) shares or
warrants in the parent for every two (2) shares or warrants in Docuport Canada.
On February 10, 1999 the Registrant offered an extension agreement to the
investors of the 1996 offering which extended the due date of the promissory
notes which were part of the 1996 private offering. Seventeen of the 18
investors agreed to the extension. As compensation to the investors who agreed
to the extension, the Registrant: (A) issued additional warrants equal to the
number of the warrants held (as adjusted upon the Exchange) with an exercise
price of $0.10 per
II-3
<PAGE>
share and (B) the exercise price for the warrants originally issued in
connection with the 1996 private offering was reduced from $1.67 (as adjusted)
to $0.10. The extension agreement extended the due date for the Promissory Notes
until the earlier to occur of either (a) August 1, 2000; or (b) the raising an
aggregate of $5,000,000 in financing.
Commencing on March 12, 1999 and closing on April 6, 1999, the Registrant
sold and issued an aggregate of 700,000 shares of common stock to a total of
seventeen individuals for the aggregate consideration of $70,000 ($.10 per
share). The issuance of all of such shares of common stock did not require
registration under the Securities Act in that all of such shares of common stock
were issued under an exemption from the registration requirements of the
Securities Act afforded by Section 3(b) and Rule 504. The purchasers of the
Registrant's common stock were all accredited investors.
Commencing on March 22, 1999 and closing on April 6, 1999, the Registrant
sold and issued an aggregate 435,000 shares of its common stock to a total of 32
individuals for the aggregate consideration of $870,000 ($2.00 per share). All
of such shares of Common stock were issued under an exemption from the
registration requirements of the Securities Act afforded by Section 3(b) and
Rule 504. Twenty-one of the purchasers were accredited investors, while eleven
purchasers of the common stock were non-accredited investors.
On March 24, 1999 the Registrant, Docuport Delaware and Docuport Canada,
authorized the exchange of all of the issued and outstanding shares and warrants
of Docuport Canada into shares or warrants to purchase shares of Docuport
Delaware on a 3 for 2 basis. Thereupon, the Board of Directors of the
Registrant, both Docuport Delaware and Docuport Canada, agreed and authorized
the exchange of 4,876,500 shares of common stock of Docuport Delaware for
3,245,000 shares of common stock of Docuport Canada. The Registrant further
exchanged 115,000 warrants to purchase shares of common stock of Docuport Canada
for 172,500 warrants to purchase shares of Docuport Delaware.
Item 27. Exhibits.
Number Description
- ------ -----------
3.1 Articles of Incorporation of Registrant. (1)
3.2 By-Laws of Registrant. (1)
4.1 Specimen Common Stock Certificate. (1)
5.1 Opinion of Mintz & Fraade, P.C.
10.1 Employment Agreement of Norman Docteroff (1)
10.2 Marketing and Sales Agreement with Solutions Plus, Inc. (1)
10.3 Management and Consulting Agreement with Rexon Ltd. (1)
II-4
<PAGE>
15.1 Letter on unaudited interim financial information (1)
21.1 Subsidiary of Registrant (1)
23.1 Consent of Mintz & Fraade, P.C. (Included in 5.1)
23.2 Consent of BDO Dunwoody
24.1 Power of Attorney (set forth on the signature page of this
Registration Statement).(1)
27.1 Financial Data Schedule (1)
- ----------
(1) Previously filed.
Item 28. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to any of the provisions
described under Item 24 above, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will governed by the final
adjudication of such issue.
The Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(a) include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) reflect in this prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change in
the information set forth in the registration statement; and,
notwithstanding the forgoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in the
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(c) Include any additional or changed material information with
respect to the plan of distribution.
II-5
<PAGE>
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering; and
The Registrant hereby further undertakes that it will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this Registration Statement as
of the time the Commission declared it effective; and
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the Registration
Statement, and that offering of such securities at that time as the
initial bona fide offering of those securities.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, we
certify that we have reasonable grounds to believe that we meet all of the
requirements of filing on Form SB-2 and authorize this registration statement to
be signed on our behalf by the undersigned, in New York, State of New York, on
November 18, 1999.
DOCUPORT, INC.
By: /s/ Raja S. Tuli
------------------------------------
Raja S. Tuli, Chairman of the Board
By: /s/ Norman Docteroff
------------------------------------
Norman Docteroff, President
[LETTERHEAD OF MINTZ & FRAADE, P.C.]
November 19, 1999
Docuport, Inc.
1155 Rene Levesque West, Suite 3500
P.O. Box 60
Montreal, PQ, H3B 3T6, Canada
Gentlemen:
Our firm is counsel for Docuport, Inc., a Delaware corporation (the
ACompany"), with respect to the registration statement on Form SB-2 (the
"Registration Statement"), which was filed by the Company with the Securities
and Exchange Commission for the purpose of registering 1,628,333 shares (the
"Shares") of Common Stock, par value $.001 per share, of the Company under the
Securities Act of 1933, as amended (the "Act").
We have reviewed only the following documents (hereinafter collectively
referred to as the "Documents"): the Registration Statement, the Minutes of the
Board of Directors of the Company dated March 24, 1999, the Articles of
Incorporation of the Company filed with the Secretary of State of Delaware, and
the By-Laws of the Company.
You should assume for the purpose of this opinion that our investigation
has been limited solely to a review of the Documents and that no further
investigation has been undertaken.
We have assumed, without investigation, the authenticity of the Documents,
the genuineness of all signatures on the Documents, the legal capacity of the
persons who executed the Documents, due authorization, valid execution, delivery
and acceptance of the Documents and the conformity to the originals of the
Documents which were submitted to us as copies. The scope and application of
this opinion is limited to the Federal Securities Laws and the laws of the State
of Delaware.
No opinion is being rendered hereby with respect to the truth and
accuracy, or completeness of the Registration Statement or any portion thereof.
<PAGE>
Based upon the foregoing, and subject to the qualifications which are set
forth herein, we are of the opinion that, as of the date hereof, the Shares have
been duly and validly authorized and issued and fully paid and nonassessable.
We consent to the filing of this opinion as an Exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters" in
the Prospectus which is a part of the Registration Statement.
Very truly yours,
Mintz & Fraade, P.C.
By: /s/ Alan P. Fraade
------------------------
Alan P. Fraade
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
Docuport, Inc.
1155 Rene-Levesque Blvd. West
Suite 3500
Montreal, Quebec
H3B 3T6
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated February 12, 1999, relating to the
financial statements of Docuport, Inc., which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO DUNWOODY LLP
BDO DUNWOODY LLP
Chartered Accountants
Montreal, Quebec
November 18, 1999
