As Filed with the Securities and Exchange Commission on October 6, 1999
Registration No. 333-82585
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
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 Industrial (I.R.S. Employer
incorporation 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
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Proposed
Title of Amount to be Proposed Maximum Amount of
securities to registered Maximum Aggregate registration fee
be registered Offering Price Offering Price
Per Share(1)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- -----------------------------------------------------------------------------------
Total
Registration Fee $786.44
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</TABLE>
(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 the company.
This prospectus relates to 1,578,333 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 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 registration. We will bear all the costs and expenses
associated with the preparation and filing of this registration statement.
<PAGE>
SUBJECT TO COMPLETION, DATED October 6, 1999
PROSPECTUS
1,578,333 Shares
DOCUPORT, INC
Common Stock
This is the first registration 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 registration.
Prior to this registration, there has been no public market for the common
stock. The Company has 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 4 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 __, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
Prospectus Summary...........................................................1
Summary Financial Information............................................... 2
Risk Factors.................................................................3
Use of Proceeds..............................................................9
Capitalization...............................................................9
Management's Discussion and Analysis of Financial Condition and
Results of Operations .....................................................10
Financial Condition and Results of Operations...............................11
Business....................................................................15
Dividend Policy.............................................................20
Employees...................................................................21
Management..................................................................22
Executive Compensation......................................................24
Certain Relationships and Transactions......................................25
Principal Stockholders......................................................27
Plan of Distribution........................................................28
Description of the Securities...............................................32
Shares Eligible for Future Sale.............................................35
Legal Matters...............................................................36
Experts.....................................................................36
Available Information.......................................................37
Index to Financial Statements............................................F - 1
<PAGE>
SUMMARY
Our business
For simplicity, we use the terms "we" and "our" to refer both to the
corporation originally founded as Docuport, Inc. 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. The Canadian
corporation was founded by our chairman of the board of directors, Mr. Raja S.
Tuli.
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. Our objective is to
establish the Slimfax and other related products as computer industry standard
for portable personal computer users.
In recent years, advances in laptop or notebook computers enabled more
individuals to work outside the confines of the traditional office space. In
addition, computers are increasingly being made a necessity in business and
homes. Largely as a result of these trends, portable computing is needed when
traveling or when an individual is not able to remain at one's desk. Portable
computer users are also increasingly seeking a reliable means of expanding
portable computer capabilities. We believe that there are no means currently
available to provide portable computer users with complete portable office
capabilities.
We have no knowledge that any other company presently makes a portable
product such as the Slimfax that incorporates a fax machine, copier, scanner,
data modem and printer in one unit. Furthermore, the intended price of the
Slimfax would make it affordable to a wide segment of the population. We intend
to have a strategic marketing and promotion campaign which shall focus upon
educating distributors and potential users about the technology and the Slimfax
benefits.
We will not receive any proceeds from the sale of shares of our common
stock by selling stockholders. Prior to this registration, no public market for
our securities existed. A total of up to 1,578,333 shares may be sold based upon
this prospectus by certain of our stockholders.
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.
1
<PAGE>
SUMMARY FINANCIAL INFORMATION
Since the Delaware corporation was formed on March 24, 1999 and we did not
commence operations through the Delaware corporation 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 our Canadian subsidiary 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
from the 1996 private offering. The June 30, 1999 financial information reflects
the Delaware corporation's formation and recapitalization and reflects the
combined results of Docuport Delaware and Docuport Canada.
AUDITED
<TABLE>
<CAPTION>
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) $(490,345)
</TABLE>
UNAUDITED
<TABLE>
<CAPTION>
From Inception 6 Months Ending June 30,
February 1, 1992 1999 1998
through June 30, 1999
<S> <C> <C> <C>
Statement of Operations Data:
Net Revenue................$ 231,605 $ 65,096 $ 0
Interest Income............$ 14,894 $ 3,742 $ 0
Total Expenses.............$ 1,325,201 $ 405,358 $ 69,629
Net Loss...................$(1,078,702) $(336,520) $ (69,629)
Balance Sheet Data:
Working Capital............... $ 341,593 $ (35,886)
Total Assets.................. $ 747,687 $ 160,240
Total Liabilities............. $ 913,787 $ 711,956
Stockholders' Equity (Deficiency) $(166,100) $(551,716)
</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.
Portable computer technology is subject to rapid change and advancement which
may adversely impact any potential revenues
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. While management believes that our
product is currently innovative and unique, the development of new and better
technologies, may render our products obsolete or have a material adverse effect
upon our business. 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, there
are numerous manufacturers of portable peripheral technology which have
substantially greater financial and technical resources and production and
marketing capabilities than we do. These competitors may be able to bring new,
better and cheaper products to the market more quickly than we can.
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.
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
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<PAGE>
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
product 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: (a) future earnings, and (b) the availability of
funds from private sources such as, loans and additional private placements. In
view of our lack of an operating history, our ability to obtain additional funds
is limited. Additional financing may only be, 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 will be competing with numerous larger and more financially established
computer technology companies
The market for our computer products are highly competitive and is
characterized by pressures to reduce prices, incorporate new features and
accelerate the release of new product versions. There are 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. Competitors with superior resources may be able to bring newer, better
and cheaper products to market more quickly than we are capable of doing. We
will be competing with:
o Multi-function and single use portable product manufacturers; and
o Local businesses which provide the same services which can be
performed by the SlimFax, such as copy centers and computer rental
service providers.
It should take several years of research and development efforts before
competitors can design and develop a comparable product. However, 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. A variety of other potential actions by our
competitors, including increased promotion and accelerated introduction of new
of enhanced products, could have a material adverse impact upon the results of
our operations. There can be no assurance that we will
4
<PAGE>
be able to successfully compete with such promotions in the future.
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 have not declared any dividends on our common stock
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 sufficient earnings to pay any
dividends on our common stock. In addition, even if we have sufficient earnings,
we are not obligated to declare dividends on our common stock. Future
declarations of any cash or stock dividends will be in our board's sole and
absolute discretion and will depend on our earnings, capital requirements,
financial position, general economic conditions and other pertinent factors. It
is also possible that the terms of any future debt financing may restrict the
payment of dividends.
We may be subject to the SEC's "penny stock" rules if our common stock is below
$5.00 per share
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 SEC'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.
We may not be able to protect our proprietary rights to our peripheral
technology
We rely, and intend to rely upon the patent which has been granted to us
and the patent applications we have filed and intend to file with the United
States Patent and Trademark Office to protect our rights to the technology we
have developed. Our exclusive right to develop and use this technology is
essential to our introduction into the computer technology market. However,
there can
5
<PAGE>
be no assurance that we will be able to protect and enforce these rights against
companies which attempt to copy our technology or improve upon our designs.
Our success depends upon the continued employment of our executives and certain
key employees
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. In addition, 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. The loss of the services of
Mr. Docteroff or Mr. Tuli 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.
In addition, our success is dependent upon our ability to attract and
retain highly qualified personnel. Competition for such personnel is intense and
there can be no assurance that we will be able to attract and retain the
personnel necessary for the development and operation of our business. The loss
of the services of any such personnel may have a material adverse effect upon
our financial condition and our existing or planned operations.
Government regulations and legal uncertainties relating to the computer industry
may have an adverse affect on production and sale of our product
Our operations are subject to regulations applicable to our products and
business operations such as:
o import and export regulations;
o minimum product safety regulations; and
o federal and state tax regulations.
We intend to fully comply with applicable regulations, there can be no
assurance of our ability to do so. Government regulations are constantly
changing and evolving, especially with regard to the computer industry. If we
are unable to comply with such regulations, such noncompliance may have an
adverse effect upon our operations by restricting export or import or affecting
standards of computer production. Any changes in the current regulations may
adversely affect our operations.
We may not engage in future product development of the Slimfax or other related
products
Our plans to engage in future development of the Slimfax and other
products are based upon factors such as:
6
<PAGE>
o our profitability from the sale of the Slimfax;
o our ability to raise additional financing other than from
operations; and
o the recruitment of sufficient personnel for sales, marketing and
technology development for future products;
There can be no assurance that we will engage in future product development or
that such new product development will be successful.
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 engage in transactions in foreign currency which are subject to fluctuations
in the exchange rate
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 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.
Conflicts may exist with certain of our officers and directors
There are several conflicts associated with our officers and directors.
These conflicts include, engaging in other businesses similar or dissimilar to
ours and allocating their time and services between us and the other entities
with which they are involved.
Since 1993, one of our directors, Mr. Raja S. Tuli, president, has served
as the president, chief executive officer and director of the Widecom Group,
Inc. Widecom designs and manufactures "wide format office equipment" which
transmits, receives, prints, copies and archives wide format documents. Mr. Tuli
is required to spend a majority of his time for Widecom. Mr. Tuli does not
intend to spend more than ten (10%) percent of his total working time working
for us.
Mr. Norman Docteroff is our president and chief executive officer. His
wife, Corina Docteroff, is the owner of Solutions Plus, Inc., the company with
which we have entered into an agreement to market and sell the Slimfax. Mr.
Docteroff has entered into an employment agreement
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<PAGE>
with Solutions Plus, Inc. which provides for Mr. Docteroff to receive a salary
and commissions for sales. Our employment agreement with Mr. Docteroff's permits
him to engage in other activities. However, he is required to devote a minimum
of 30 hours of work per week to us.
The law firm of Mintz & Fraade, P.C. has been retained as our legal
counsel. Counsel owns 15,000 shares of our common stock which it purchased in
our private offering of March, 1999, at a purchase price of $.10 per share.
Our right to issue preferred stock may facilitate management entrenchment
Our board has the right to issue up to 2,000,000 shares of preferred stock
and to determine the rights, price, preferences, privileges, and restrictions
including voting rights of these shares without the approval of our
stockholders. Any issuance of preferred shares could be used by our current
management to delay, defer or prevent a change in management, which may not be
in the best interests of holders of our common stock. We have no present plans
to issue any shares of preferred stock.
We are dependent upon third party manufacturers which could result in our
inability to manufacture our products efficiently.
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.
We are dependent upon third party retail sellers of computer products for some
of the sales of our product
We intend to enter into agreements with third parties to sell our products
on the retail market and we expect a substantial amount of our revenues will be
derived from the sale of our products through these third parties. We are,
therefore, dependent upon the continued viability and financial stability of
these resellers. We are also dependent upon the resellers who generally offer
products of several different companies, including, in some cases, products
which may be competitive with our products. There can be no assurance that the
resellers will purchase our products or provide such products with adequate
levels of support. The entire loss of, or a significant reduction in sales
volume to, any of these resellers would have a material adverse effect upon our
results of operations.
8
<PAGE>
FORWARD LOOKING STATEMENTS
Certain 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, and as the term has been defined in the Private Securities
Litigation Reform Act of 1995. 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 June 30, 1999, on an
unaudited basis, the consolidated capitalization for our Company, 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.
June 30, 1999
-------------
Liabilities:
Current Liabilities $ 388,787
Long-Term Liabilities $ 525,000
Stockholders' Deficiency:
Common Stock,
$.001 par value $ 6,002
Total
Stockholders' Deficiency $(166,100)
Total Liabilities and
Stockholders' Equity $ 747,687
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All of our activities, since our 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.
The following discussion should be read in conjunction with the financial
statements and the 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.
OVERVIEW
We are principally involved in the planning, design and development of our
two products, the "Slimfax" and "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 sale 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 last quarter of this year. We will shortly begin to recruit
management level employees as well as salesmen. The extent of our hiring will
depend upon whether we manufacture the Slimfax or 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
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<PAGE>
of our 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
certain line items in the statement of operations. As a result of rounding of
the certain line items the total does not equal 100%:
1998 1997
Revenues
R & D Grants (6%) (29%)
Expenses
Amortization 1% 0%
Salaries & Subcontractors 13% 48%
Consulting Fees 31% 0%
Materials 8% 21%
Foreign exchange loss 14% 10%
Professional fees 4% 2%
Rent & Office 5% 7%
Taxes and licenses 0% 0%
Travel 2% 6%
Other income and expenses
Financing Fees 2% 16%
Interest and bank charges 0% 0%
Interest income 0% (2%)
Interest on long term debt 25% 19%
Net loss for the year 100% 100%
YEAR ENDING DECEMBER 31, 1998 COMPARED TO YEAR ENDING DECEMBER 31, 1997
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
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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 reduced in 1998 by 86% to $13,482 from $93,897 for the year
ending December 31, 1997.
INTERIM ENDING JUNE 30, 1999 COMPARED TO INTERIM ENDING JUNE 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 $40,681 for the year
ending June 30, 1998 to $440,908 for the year ending June 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
first half of 1999 from the first half of 1998, but resulted in 9% of the net
loss for the half ending June 30, 1999 compared to 41% for the half ending June
30, 1998. Salaries and subcontractors accounted for 50% of the net loss for
1999, compared to 27% for 1998, which was a 89% increase from $19,125 in 1998 to
$167,023 in 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 June 30, 1999
we had working capital of $341,593, as compared to negative $621,438 on December
31, 1998 and negative $500,610 on December 31, 1997.
On July 11, 1996 we conducted a private offering under the guidelines
provided by Rule 504 of the Securities Act of 1933. The offering raised $575,000
which we used as working capital and to assist research and development of our
products. Each investor in the 1996 private offering purchased a unit, or a
fractional unit, valued at $50,000. Each unit consisted of the following:
o a $50,000 promissory note bearing 10% interest per year and maturing
upon the earlier of two years from issuance or the effective date of
an initial public offering;
o 10,000 shares of common stock; and
o 10,000 common stock purchase warrants.
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Upon a resolution of our board of directors, passed on March 24, 1999, all
shares of common stock and warrants in the Canadian subsidiary were exchanged
for shares in the Delaware parent (the "Exchange"). The ratio of the Exchange
was three (3) shares or warrants in the parent for every two (2) shares or
warrants in the Canadian subsidiary.
As of February, 1999 we were in default of the promissory notes issued 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 which were part of the 1996
private offering. 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 agreed to the extension, we: (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 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.
On March 12, 1999 we commenced a second private offering, which closed on
April 6, 1999 raising $70,000. The offering consisted of shares of our common
stock, at a purchase price of $0.10 per share. These shares are restricted and
cannot be transferred until the earlier to occur of one year after purchase or
registration of the shares with the SEC.
On March 22, 1999 we commenced an additional private offering, which also
closed on April 6, 1999 raising $870,000. The offering consisted of shares of
our common stock, at a purchase price of $2.00 per share. These shares are not
restricted.
The initial March, 1999 offering was conducted at a purchase price of
$.10, in view of the fact that at the time of the offering we had no working
capital and we were unsure as to whether we could fund the expenses to
reorganize the company and raise additional funds. The amount was calculated
based on a determination that the purchase price should be low enough to quickly
raise funds. These shares were further sold with restrictions as to further
transfer. After commencement of the offering we finalized our reorganization and
made arrangements for raising the capital necessary to proceed with our initial
business operations. Therefore, the second offering conducted in March, 1999 was
$2.00. These shares were sold without any restrictions on transfer.
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 thirty days following
the 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 compliment our current
cash position and we will be able to satisfy any liquidity needs that may arise.
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.
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When we will need additional financing, and how much we will need, will
depend upon how we determine to manufacture and market the Slimfax. If we
proceed with production ourselves, we will need additional financing sooner than
if we contract manufacture of the Slimfax to third parties. Such a determination
will also affect the number of employees we anticipate hiring in the next 12
months. If we do not manufacture the Slimfax ourselves, we anticipate the need
for an additional 30 to 40 employees, including salesmen, management, engineers
and other skilled employees within the next 12 months. If we manufacture the
Slimfax ourselves, we will require additional employees, the number of which is
uncertain and will be dependent upon the extent of our manufacturing activities.
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. 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 suficient 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 (a) the Company's internal systems
and (b) 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 certain
of 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 our Canadian subsidiary in exchange for 3,245,000 common shares
and any warrants held of the Canadian subsidiary. This constituted all the
issued and outstanding shares of the Canadian company.
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
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(5) fax/data modem,
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 and we have
re-submitted such patent. 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 new designs for the Slimfax and related
technologies.
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 (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 (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
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printing. Management believes that the direct thermal method, which is utilized
by the Slimfax 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:
(i) a DC connector which conveniently plugs into any electrical outlet;
(ii) a rechargeable Nickel Metal Hydride battery; or
(iii) 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;
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o anyone who requires hard copy facsimile transmissions from remote
locations;
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.
Although we are reviewing the advantages of distribution by a large
company 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 registration statement.
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
certain 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 believes that it is important to constantly 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.
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.
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 on
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 certain target publications. We intend to place
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.
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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.
Future products
We intend to improve the features of 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 60 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.
While we may initially manufacture the Slimfax ourselves. However, when
demand for the Slimfax increases, we intend to enter into agreements to have the
Slimfax manufactured abroad. Once these contracts are entered into, we will no
longer manufacture the Slimfax.
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
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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 six full time employees consisting of four engineers,
one technician and one computer scientist. 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 CN$9,960 (Canadian Dollars) per year.
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.
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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 and
chief executive officer
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. 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.
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.
22
<PAGE>
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 (England), Toulouse (France) and the University of
Waterloo (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 (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 members of his immediate family (Raja S. Tuli and
members of his immediate family will collectively be referred to as the "Tuli
family shareholders") own approximately 58% of our issued and outstanding common
stock. The Tuli family shareholders 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. 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 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 registration 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.
23
<PAGE>
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. On May 1, 1999, we made the first $10,000 monthly payment to
Solutions Plus, Inc. As provided by the Marketing and Sales Agreement dated the
5th day of April, 1999 and are obligated to make 34 additional monthly payments.
These payments will last for the duration of the three year agreement. Solutions
Plus, Inc. is owned by Corina Docteroff, wife of Mr. Docteroff, who is the
president and a director of Solutions Plus, Inc.
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 CN$24,000 (Canadian Dollars) in
payments of CN$2,000 per month. 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 (the "Act") 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 Act and is, therefore, unenforceable.
Our certificate of incorporation contains the following provision with
respect to indemnification of our directors and officers:
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.
24
<PAGE>
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
these other companies. During 1997 we also subcontracted software consulting
projects totaling $64,837 to companies controlled by some of our shareholders.
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 the Canadian corporation. Upon the
exchange of the Canadian Corporation'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 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
and chief executive officer, 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 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;
25
<PAGE>
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 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.
26
<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 September 24, 1999
for the following:
o all persons who own more than 5 percent of our outstanding common
stock;
o each officer and director;
o officers and directors as a group.
----------------------------------------------------------
AMOUNT OF
NAME BENEFICIAL PERCENTAGE
OWNERSHIP
----------------------------------------------------------
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 41,670(2) .69%
Fairfield, New Jersey 07005
----------------------------------------------------------
Melvin Yablon
220 East 57th Street, Apt. 2C 37,500(3) .63%
New York, NY 10022
----------------------------------------------------------
Diversified Investors Capital
Services of North America, Inc. 637,750 10.63%
850 Third Avenue
New York, N.Y. 10022
----------------------------------------------------------
27
<PAGE>
----------------------------------------------------------
Madan Singh 0 0.0%
c/o Docuport, Inc.
1155 Rene Levesque West
Suite 3500
Montreal, PQ, H3B 3T6,
Canada
----------------------------------------------------------
All Officers and Directors
as a group (5 people) 2,704,170 45.05%
----------------------------------------------------------
- ----------
(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 15,000 shares of our common stock
underlying the common stock purchase warrants held by Mr. Yablon which he
purchased in the 1996 private offering and received due to the Extension
Agreement entered into with Docuport. Those warrants will not be exercisable
until the earlier to occur of either August 1, 2000 or the closing of a
financing of $5,000,000.
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 the following: Mr. Tuli and certain
members of his family who own our common stock, Rexon Limited and Diversified
Investors Capital Services of North America, Inc. with respect to their
ownership of our common stock and our registration of their shares. In exchange
for registering certain of their shares which are the subject of this
registration statement, Mr. Tuli and the members of his family who own shares of
our common stock may sell 300,000 shares at the rate of 100,000 shares per
quarter and Rexon Limited and Diversified Investors may each sell 75,000 shares
at the rate of 25,000 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 principal shareholders, is
Jake Berg. Mr. Herman Finesod is a consultant to Diversified Investors Capital
Services of North America, Inc.
Plan of distribution
Prior to this registration, no public market for our securities existed. A
total of up to 1,405,833 shares may be sold pursuant to this prospectus by
certain of our stockholders. This is 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 are being registered and included in the
following table, nor are 157,500 shares underlying warrants held by investors
from the 1996 private offering which are not being registered. 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
28
<PAGE>
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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Shares Owned Shares Owned Percentage of
Selling Prior to Shares Following Shares following
Stockholder Registration Registered Registration Registration
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Raja S. Tuli, 1,750,000 300,000 1,450,000 24.16%
chairman of the
board of directors
- ----------------------------------------------------------------------------------------------------
Norman Docteroff 250,000(1) 83,333 166,667 2.78%
- ----------------------------------------------------------------------------------------------------
Aarnel Funding 25,000 25,000 0
Corp. Pension Plan
- ----------------------------------------------------------------------------------------------------
Abedon, Barbara 30,000 30,000 0
- ----------------------------------------------------------------------------------------------------
Artas Corporation 40,000 40,000 0
- ----------------------------------------------------------------------------------------------------
Baker, David 6,000 1,000 5,000
- ----------------------------------------------------------------------------------------------------
Barotz, Norman 2,500 1,500 1,000
- ----------------------------------------------------------------------------------------------------
Banque Bruxelles 50,000 30,000 20,000
Lambert (IP)
- ----------------------------------------------------------------------------------------------------
Banque Bruxelles 7,500 7,500 0
Lambert (P)
- ----------------------------------------------------------------------------------------------------
Berg, Jake 70,000 20,000 50,000
- ----------------------------------------------------------------------------------------------------
Bouin, Frederic 5,000 5,000 0
- ----------------------------------------------------------------------------------------------------
Bowen, Douglas J 6,250 6,250 0
- ----------------------------------------------------------------------------------------------------
Bowen, Ellen, & 1,000 1,000 0
Doug
- ----------------------------------------------------------------------------------------------------
Brown, Gary 5,000 2,000 3,000
- ----------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Bushong, Heather 13,500 10,500 3,000
- ----------------------------------------------------------------------------------------------------
Caldarola, Eva 7,500 7,500 0
- ----------------------------------------------------------------------------------------------------
Calderola, Nancy 3,000 2,000 1,000
- ----------------------------------------------------------------------------------------------------
Castellano, 20,000 12,500 7,500
Anthony
- ----------------------------------------------------------------------------------------------------
Castellano, Jean 15,000 15,000 0
- ----------------------------------------------------------------------------------------------------
Chianese, 1,000 1,000 0
Lawrence
- ----------------------------------------------------------------------------------------------------
Corsalini, Marie 4,500 2,000 2,500
- ----------------------------------------------------------------------------------------------------
Diversified 637,750 369,250 268,500 4.47%
Investors Capital
Services of North
America, Inc.
- ----------------------------------------------------------------------------------------------------
DiModica, Joseph 10,000 10,000 0
- ----------------------------------------------------------------------------------------------------
Euro 15,000 15,000 0
Pharmaceutical
Distributors
Limited
- ----------------------------------------------------------------------------------------------------
Evans, Debra 50,000 30,000 20,000
- ----------------------------------------------------------------------------------------------------
Fam Gindi 5,000 5,000 0
- ----------------------------------------------------------------------------------------------------
Finesod, Ben 5,000 2,000 3,000
- ----------------------------------------------------------------------------------------------------
Forgione, Diane & 2,500 2,500 0
Peter
- ----------------------------------------------------------------------------------------------------
Garrison, Mark W 12,500 12,500 0
- ----------------------------------------------------------------------------------------------------
Hayhurst, Sandra &
Walter 2,000 2,000 0
- ----------------------------------------------------------------------------------------------------
Hazoury, Anandy 25,000 10,000 15,000
- ----------------------------------------------------------------------------------------------------
Henderson, Maria 30,000 30,000 0
- ----------------------------------------------------------------------------------------------------
Hersch, Andrew 37,500 12,500 25,000
- ----------------------------------------------------------------------------------------------------
Kaplan, Hilan 500 500 0
Trust, Lovey
Kaplan Trustee
- ----------------------------------------------------------------------------------------------------
Kessler, Robert 40,000 25,000 15,000
- ----------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Key Group, Inc. 35,000 35,000 0
- ----------------------------------------------------------------------------------------------------
Kramer & Kramer 3,000 1,000 2,000
- ----------------------------------------------------------------------------------------------------
Levi, Benjamin 3,000 3,000 0
- ----------------------------------------------------------------------------------------------------
London, Joyce 2,000 1,500 500
- ----------------------------------------------------------------------------------------------------
Mann, Larry 8,500 7,500 1,000
- ----------------------------------------------------------------------------------------------------
Mastey, Henri 4,000 2,000 2,000
- ----------------------------------------------------------------------------------------------------
Mastey, Jean Yves 4,000 2,000 2,000
- ----------------------------------------------------------------------------------------------------
Mellis, Lee 3,000 1,000 2,000
- ----------------------------------------------------------------------------------------------------
Merchant Ent. Ltd. 2,000 2,000 0
- ----------------------------------------------------------------------------------------------------
Miller, Michael 20,000 20,000 0
- ----------------------------------------------------------------------------------------------------
Mintz & Fraade, 15,000 15,000 0
P.C
- ----------------------------------------------------------------------------------------------------
MMH Investments, 37,500 12,500 25,000
Inc.
- ----------------------------------------------------------------------------------------------------
Morris, Barbara K 30,000 30,000 0
- ----------------------------------------------------------------------------------------------------
Pedrignani, Paolo 10,000 5,000 5,000
- ----------------------------------------------------------------------------------------------------
Peterson, Brent 1,000 1,000 0
- ----------------------------------------------------------------------------------------------------
Regency 9,500 8,500 1,000
Resources, Inc.
- ----------------------------------------------------------------------------------------------------
Rowe, Sandra 1,000 1,000 0
- ----------------------------------------------------------------------------------------------------
Rubin, Alan 30,000 30,000 0
- ----------------------------------------------------------------------------------------------------
Schattle, Arthur & 30,000 30,000 0
Sheila
- ----------------------------------------------------------------------------------------------------
Schuster, Jerome 50,000 15,000 35,000
- ----------------------------------------------------------------------------------------------------
Shapiro, Jane 1,000 1,000 0
- ----------------------------------------------------------------------------------------------------
Spellane, Tom 2,000 2,000 0
- ----------------------------------------------------------------------------------------------------
Steiner, Jeffery 5,000 2,000 3,000
- ----------------------------------------------------------------------------------------------------
Stepniewski, Jackie 7,000 2,000 5,000
- ----------------------------------------------------------------------------------------------------
Stone, Gladys 2,000 2,000 0
- ----------------------------------------------------------------------------------------------------
Stone, Lawrence 34,500 34,500 0
- ----------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Tamburrini, Vivian 30,000 30,000 0
- ----------------------------------------------------------------------------------------------------
Telesnick, Alan 17,000 17,000 0
- ----------------------------------------------------------------------------------------------------
Tigrak, Omer 3,000 1,000 2,000
- ----------------------------------------------------------------------------------------------------
Tobias, Barbara 4,000 2,000 2,000
- ----------------------------------------------------------------------------------------------------
Toboroff, Leonard 10,000 5,000 5,000
- ----------------------------------------------------------------------------------------------------
Toboroff, Matthew 500 500 0
- ----------------------------------------------------------------------------------------------------
Toth, Francis 5,000 2,000 3,000
- ----------------------------------------------------------------------------------------------------
Tristan, Lucia 2,000 1,000 1,000
- ----------------------------------------------------------------------------------------------------
Vecchio 65,000 65,000 0
Consultants, Inc.
- ----------------------------------------------------------------------------------------------------
Weissman, Jody 12,500 9,500 3,000
- ----------------------------------------------------------------------------------------------------
Wells, John 15,000 5,000 10,000
- ----------------------------------------------------------------------------------------------------
Wiech, Christopher 12,500 12,500 0
M. & Norbet L
- ----------------------------------------------------------------------------------------------------
Wunderlin, 1,000 1,000 0
Rosalind
- ----------------------------------------------------------------------------------------------------
Yablon, Melvin 45,000 30,000 15,000
- ----------------------------------------------------------------------------------------------------
Zion Morally 1,000 1,000 0
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) 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 chief executive officer and a director, which provide for the vesting of
options to purchase 6,945 shares of common stock per month.
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
32
<PAGE>
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 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
On July 11, 1996 we conducted a private offering as provided by Rule 504
of the Securities Act of 1933. The offering raised $575,000 which we used as
working capital and to assist research and development of our products. Each
investor in the 1996 private offering purchased a unit, or a fractional unit,
valued at $50,000. Each unit consisted of the following: (a) a $50,000
promissory note bearing 10% interest per year and maturing upon the earlier of
two years from issuance or the effective date of an initial public offering; (b)
10,000 shares of common stock, which were exchanged for 15,000 shares of our
common stock upon the exchange of common stock (the "Exchange") in our Canadian
subsidiary for our common stock; and (c) 10,000 common stock purchase warrants,
which were exchanged for 15,000 common stock purchase warrants upon the
33
<PAGE>
exchange of common stock in our Canadian subsidiary for our common stock. When
issued our management determined that the warrants, with an exercise price of
$2.50 per share had no discernable value for accounting purposes at the time
issued, while the warrants would have value in future based on our anticipated
growth and improved financial condition.
In February, 1999 we 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, we: (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 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.
Warrant holders 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 certain events were
occur such as stock dividends, stock splits, combinations or reclassifications
of the common stock. 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, in which it
raised $575,000. Each investor in the 1996 offering purchased units consisting
of the following securities: (a) 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, (b) 10,000 shares of our common
stock, and (c) 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, however, no
provisions have been made if we do not conduct an initial public offering. In
February 1999, investors in the 1996 private placement were offered an extension
agreement which extended the due date of the promissory note in exchange 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. Seventeen of the eighteen investors in the 1996
private placement agreed to this extension, executing extension agreements.
34
<PAGE>
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.
The previous private offerings discussed in this section were previously
discussed more extensively in this prospectus in the section on Management's
Discussion and Analysis.
On March 24, 1999, our board and the board of our Canadian subsidiary,
authorized the exchange of all of the issued and outstanding shares and warrants
of the Canadian corporation into our shares or warrants to purchase our shares
on a 3 for 2 basis. Thus, for every 100 shares of the Canadian corporation's
common stock, a stockholder received 150 shares of our common stock. The
Canadian subsidiary 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 certain public
information about the issuer as required by Rule 144 is then available and the
seller complies with certain other requirements. Affiliates may sell
unrestricted securities in compliance with Rule 144, other than the holding
period requirement. A 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.
35
<PAGE>
Prior to this registration, 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 registration 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 statement, and
are included in reliance upon such reports given upon the authority of said firm
as experts in accounting and auditing.
36
<PAGE>
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, certain 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.
37
<PAGE>
- --------------------------------------------------------------------------------
Docuport, Inc.
1,578,333 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
================================================================================
38
<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 June 30, 1999 (unaudited). . . . . . . . . . . . . . . F-13
Statements of Operation, for the Period of Inception
Through Six months ended June 30, 1999 and 1998 (unaudited). . . . . . . . .F-14
Statements of Cash Flows, for the Period of Inception
Through Six months ended June 30, 1999 and 1998 (unaudited). . . . . . . . .F-15
Statements of Shareholders' Deficit, for the Period of Inception
Through Six months ended June 30, 1999 and 1998 (unaudited). . . . . . . . .F-16
Notes to Unaudited Financial Statements. . . . . . . . . . . . . . . . . . .F-18
F-1
<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.
/s/ BDO Dunwoody LLP
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 Statements The accompanying financial statements are
stated in 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 Accounting SFAS No 133, "Accounting for Derivatives
Standards Instruments and 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
Development Costs against 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
Financial of the Company, Instruments 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 share Earnings (loss) per common share is based on
the 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
JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 594,587 $ 1,428
MISCELLANEOUS RECEIVABLE 2,878 2,296
INCOME TAX CREDITS RECEIVABLE 92,784 143,941
ADVANCES TO EMPLOYEES AND CONSULTANTS 21,000 3,405
INVENTORY 19,131 --
----------- -----------
TOTAL CURRENT ASSETS 730,380 151,070
FIXED ASSETS 14,730 8,585
PATENTS 1,018 585
SECURITY DEPOSITS 1,559 --
----------- -----------
$ 747,687 $ 160,240
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 269,460 $ 122,099
DUE TO RELATED PARTIES 69,327 14,857
CURRENT PORTION OF LONG TERM DEBT 50,000 50,000
----------- -----------
TOTAL CURRENT LIABILITIES 388,787 186,956
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
JUNE 30, 1999; 4,522,500 ISSUED AND OUTSTANDING
JUNE 30, 1998 6,002 4,522
ADDITIONAL PAID IN CAPITAL 884,471 --
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (1,083,266) (589,781)
CUMULATIVE TRANSLATION ADJUSTMENT 26,693 33,543
----------- -----------
(166,100) (551,716)
----------- -----------
$ 747,687 $ 160,240
=========== ===========
</TABLE>
F-13
<PAGE>
DOCUPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 AND THE PERIOD FROM
FEBRUARY 1, 1992 (DATE OF INCEPTION) TO JUNE 30, 1999
<TABLE>
<CAPTION>
FEBRUARY 1, 1992
6 MONTHS ENDED (INCEPTION) TO
JUNE 30, JUNE 30,
1999 1998 1999
----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
REVENUES
GOVERNMENT RESEARCH AND DEVELOPMENT GRANTS $ 65,096 -- $ 231,605
EXPENSES
DEPRECIATION AND AMORTIZATION 2,729 1,388 9,636
FOREIGN EXCHANGE LOSS (GAIN) (26,778) 9,117 37,385
MANAGEMENT FEES 30,000 -- 30,000
MATERIALS 23,373 90 131,269
OFFICE 10,478 5,950 46,522
PROFESSIONAL FEES 98,373 2,797 187,663
RENT 7,185 1,265 15,987
SALARIES AND EMPLOYEE BENEFITS 110,601 18,659 265,863
SUBCONTRACTORS 56,422 466 182,643
PRINTING AND PACKAGING 23,523 -- 23,523
TAXES AND LICENSES 4,671 -- 6,077
TESTING AND CERTIFICATION 6,613 -- 6,613
TRAVEL 28,622 949 56,457
----------- ----------- -----------
375,812 40,681 999,638
OTHER INCOME AND (EXPENSES)
INTEREST INCOME 3,742 -- 14,894
FINANCING FEES -- -- (155,336)
INTEREST AND BANK CHARGES (796) (197) (3,409)
INTEREST ON LONG TERM DEBT (28,750) (28,751) (166,818)
----------- ----------- -----------
(25,804) (28,948) (310,669)
NET LOSS $ (336,520) $ (69,629) $(1,078,702)
=========== =========== ===========
LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.06) $ (0.02) $ (0.24)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 5,262,500 4,522,500 4,573,534
</TABLE>
F-14
<PAGE>
DOCUPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 AND THE PERIOD FROM
FEBRUARY 1, 1992 (DATE OF INCEPTION) TO JUNE 30, 1999
<TABLE>
<CAPTION>
FEBRUARY 1, 1992
6 MONTHS ENDED (INCEPTION) TO
JUNE 30, JUNE 30,
1999 1998 1999
----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS $ (336,520) $ (69,629) $(1,078,702)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES
DEPRECIATION AND AMORTIZATION 2,729 1,388 9,635
FOREIGN EXCHANGE LOSS (GAIN) (26,778) 9,117 37,385
COMMON STOCK ISSUED FOR SERVICES 230 -- 230
RECAPITALIZATION AND MERGER 115 -- 115
ADDITIONAL PAID-IN CAPITAL THROUGH
ISSUANCE OF STOCK FOR SERVICES 22,770 -- 92,770
NET CHANGES IN ASSETS AND LIABILITIES RELATED TO
OPERATIONS
MISCELLANEOUS RECEIVABLE 264 -- (2,878)
INCOME TAX CREDITS RECEIVABLE (67,369) 1,807 (92,784)
INVENTORY (19,131) -- (19,131)
SECURITY DEPOSITS (1,559) -- (1,559)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 101,855 36,965 269,460
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (323,394) (20,352) (785,459)
CASH FLOWS USED IN INVESTING ACTIVITIES
PURCHASE OF FIXED ASSETS (10,075) -- (23,932)
PATENTS (650) -- (1,018)
ADVANCES TO EMPLOYEES AND CONSULTANTS (21,000) -- (21,000)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (31,725) -- (45,950)
CASH FLOWS FROM FINANCING ACTIVITIES
DUE TO RELATED PARTIES 44,038 11,403 69,327
LONG-TERM DEBT ISSUED -- -- 575,000
COMMON STOCK ISSUED 792,836 -- 792,909
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 836,874 11,403 1,437,236
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (5,067) (445) (11,241)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 476,688 (9,394) 594,586
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 117,899 10,822 --
----------- ----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $ 594,587 $ 1,428 $ 594,586
=========== =========== ===========
</TABLE>
F-15
<PAGE>
DOCUPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' DEFICIT
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 AND THE PERIOD FROM
FEBRUARY 1, 1992 (DATE OF INCEPTION) TO JUNE 30, 1999
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON STOCK PAID-IN COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT CAPITAL LOSS DEFICIT LOSS
----------- ----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <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 $ -- $ -- $ -- $ --
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 -- -- --
ISSUANCE OF COMMON STOCK IN JANUARY
1999 TO EXISTING SHAREHOLDERS IN
EXCHANGE FOR CONSULTING SERVICES
FOR THE COMPANY 230,000 230 22,770 -- -- --
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 700,000 700 69,300 -- -- --
ISSUANCE OF COMMON STOCK IN
APRIL 1999 FOR 2.00 PER SHARE NET
OF OFFERING COSTS 435,000 435 722,401 -- -- --
COMPREHENSIVE LOSS
NET LOSS FROM INCEPTION TO
JUNE 30, 1999 -- -- -- -- (1,078,702) (1,078,702)
OTHER COMPREHENSIVE INCOME
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS -- -- -- 26,693 -- 26,693
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1999 6,002,500 6,002 $ 884,471 $ 26,693 $(1,083,266) $(1,052,009)
=========== =========== =========== =========== =========== ===========
<CAPTION>
TOTAL
-----------
(Unaudited)
<S> <C>
BALANCE, FEBRUARY 1, 1992 (INCEPTION)
ISSUANCE OF COMMON STOCK IN 1992
FOR 0.0000251 PER SHARE $ 73
ISSUANCE OF COMMON STOCK IN 1996
FOR NIL CONSIDERATION --
RECAPITALIZATION TO EFFECT THE
EXCHANGE OF SHARES ON REVERSE
ACQUISITION --
TRANSFER OF COMMON STOCK IN
1998 FROM EXISTING SHAREHOLDERS IN
EXCHANGE FOR CONSULTING SERVICES
FOR THE COMPANY 70,000
ISSUANCE OF COMMON STOCK IN JANUARY
1999 TO EXISTING SHAREHOLDERS IN
EXCHANGE FOR CONSULTING SERVICES
FOR THE COMPANY 23,000
RECAPITALIZATION TO EFFECT THE
EXCHANGE OF SHARES ON REVERSE
ACQUISITION --
ISSUANCE OF COMMON STOCK IN
MARCH 1999 FOR 0.10 PER SHARE 70,000
ISSUANCE OF COMMON STOCK IN
APRIL 1999 FOR 2.00 PER SHARE NET
OF OFFERING COSTS 722,836
COMPREHENSIVE LOSS
NET LOSS FROM INCEPTION TO
JUNE 30, 1999 (1,078,702)
OTHER COMPREHENSIVE INCOME
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS 26,693
-----------
BALANCE, JUNE 30, 1999 $ (166,100)
===========
</TABLE>
F-16
<PAGE>
DOCUPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' DEFICIT
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 AND THE PERIOD FROM
FEBRUARY 1, 1992 (DATE OF INCEPTION) TO JUNE 30, 1999
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON STOCK PAID-IN COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT CAPITAL LOSS DEFICIT LOSS
----------- ----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1998 4,522,500 4,522 $ -- $ 25,285 $ (520,152) $ --
COMPREHENSIVE LOSS
NET LOSS FOR THE PERIOD -- -- -- -- (69,629) (69,629)
OTHER COMPREHENSIVE INCOME
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS -- -- -- 8,258 -- 8,258
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1998 4,522,500 4,522 $ -- $ 33,543 $ (589,781) $ (61,371)
=========== =========== =========== =========== =========== ===========
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 -- -- --
RECAPITALIZATION TO EFFECT THE
EXCHANGE OF SHARES ON REVERSE
ACQUISITION 115,000 115 -- -- (115) --
ISSUANCE OF COMMON STOCK MARCH 1999
FOR 0.10 PER SHARE 700,000 700 69,300 -- -- --
ISSUANCE OF COMMON STOCK APRIL 1999
FOR 2.00 PER SHARE NET OF FEES 435,000 435 722,401 -- -- --
COMPREHENSIVE LOSS
NET LOSS FOR THE PERIOD -- -- -- -- (336,520) (336,520)
OTHER COMPREHENSIVE LOSS
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS -- -- -- (31,045) -- (31,045)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1999 6,002,500 6,002 $ 884,471 $ 26,693 $(1,083,266) $ (367,565)
=========== =========== =========== =========== =========== ===========
<CAPTION>
TOTAL
-----------
(Unaudited)
<S> <C>
BALANCE JANUARY 1, 1998 $ (490,345)
COMPREHENSIVE LOSS
NET LOSS FOR THE PERIOD (69,629)
OTHER COMPREHENSIVE INCOME
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS 8,258
-----------
BALANCE, JUNE 30, 1998 $ (551,716)
===========
BALANCE JANUARY 1, 1999
ISSUANCE OF COMMON STOCK IN JANUARY
1999 TO EXISTING SHAREHOLDERS IN
EXCHANGE FOR CONSULTING SERVICES
FOR THE COMPANY 23,000
RECAPITALIZATION TO EFFECT THE
EXCHANGE OF SHARES ON REVERSE
ACQUISITION --
ISSUANCE OF COMMON STOCK MARCH 1999
FOR 0.10 PER SHARE 70,000
ISSUANCE OF COMMON STOCK APRIL 1999
FOR 2.00 PER SHARE NET OF FEES 722,836
COMPREHENSIVE LOSS
NET LOSS FOR THE PERIOD (336,520)
OTHER COMPREHENSIVE LOSS
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS (31,045)
-----------
BALANCE, JUNE 30, 1999 $ (166,100)
===========
</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
June 1999 June 1998
--------- ---------
10% subordinated promissory notes, 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
=======================
On February 10, 1999, the Company negotiated an extension with a majority of the
noteholders which included reducing the exercise price of existing warrants 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. These shares were sold for $0.10 per share with 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 the Canadian subsidiary were exchanged for shares in the
Delaware parent (the "Exchange"). The ratio of the Exchange was three (3) shares
or warrants in the parent for every two (2) shares or warrants in the Canadian
subsidiary.
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 share and (B) the exercise price for the warrants originally
issued in connection with the 1996 private
II-3
<PAGE>
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 effective 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 effective 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.
The two offerings which commenced in March, 1999 were two separate and
distinct offerings. The initial offering which commenced on March 12, 1999 was
to have closed on, or prior to, March 31, 1999, but the closing was delayed
although the purchasers had remitted payment and provided executed Subscription
Agreements prior to March 31, 1999. The Registrant commenced the offering prior
to its incorporation and did not commence the second offering until after the
initial offering had been completed. The funds were needed in order to provide
the Registrant with capital with which it could incorporate and fund short term
operations. After receipt of such funds, the Registrant proceeded to raise
additional capital in order to finance its operations.
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)
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) Previously filed.
II-4
<PAGE>
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.
(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
II-5
<PAGE>
(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
October 5, 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.]
October 5, 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
"Company"), 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 1,578,333 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
October 1, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the annual
statements and is qualified in its entirety by reference to such financial
statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 14,151
<SECURITIES> 103,748
<RECEIVABLES> 28,557
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 146,456
<PP&E> 13,257
<DEPRECIATION> 6,190
<TOTAL-ASSETS> 153,523
<CURRENT-LIABILITIES> 767,894
<BONDS> 0
0
0
<COMMON> 4,522
<OTHER-SE> (618,893)
<TOTAL-LIABILITY-AND-EQUITY> 153,523
<SALES> 0
<TOTAL-REVENUES> 13,595
<CGS> 0
<TOTAL-COSTS> 164,473
<OTHER-EXPENSES> 62,119
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,479
<INCOME-PRETAX> (226,479)
<INCOME-TAX> 0
<INCOME-CONTINUING> (226,479)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (226,479)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
