SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 000-28451
DOCUPORT, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 22-3649272
- ----------------------------- ---------------------
(State or Other Jurisdiction (I.R.S.Employer or
Incorporation of Organization) Identification No.)
81 Two Bridges Road
Fairfield, New Jersey 07004
(973) 882-3177
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(Address and telephone number, including area
code, of registrant's principal executive office)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
YES |_| NO |X|
Aggregate market value of voting stock held by non-affiliates as of March
21, 2000 was approximately $26,045,000
Number of shares of Common Stock outstanding as of March 21, 2000: 6,145,000
Number of shares of Preferred Stock outstanding as of March 31, 2000: None
Documents Incorporated by reference: The Company incorporates by reference
various exhibits from the Company's Registration Statement on Form SB-2, file
No. 333-82585, which became effective on December 21, 1999.
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DOCUPORT, INC.
INDEX
Page
Part I
Item 1. Description of Business 3
Item 2. Description of Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Part II
Item 5. Market for Common Equity and Related Stockholders
Matters 11
Item 6. Management's Discussion and Analysis 12
Item 7. Financial Statements 15*
Item 8. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 15
Part III
Item 9. Directors, Executive Officers,
Promoters and Control Persons;
Compliance with Section 16(a)
of the Exchange Act 16
Item 10. Executive Compensation 18
Item 11. Security Ownership of Certain Beneficial
Owners and Management 20
Item 12. Certain Relationships and
Related Transactions 21
Item 13. Exhibits and Reports on Form 8-K 24
* Page F-1 follows Page 24.
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PART I
All statements contained herein that are not historical facts,
including, but not limited to, statements regarding anticipated growth in
revenue, gross margins and earnings, statements with respect to the Company's
current business strategy, the Company's projected sources and uses of cash, and
the Company's expectations, are forward-looking statements in nature and involve
a number of risks and uncertainties. Actual results may differ materially. Among
the factors that could cause results to differ materially are the following: the
availability of sufficient capital to finance the Company's business plans on
terms satisfactory to the Company's competitive factors; changes in labor,
equipment and capital costs; changes in regulations affecting the Company's
business; general business and economic conditions; and other factors described
from time to time in the Company's reports filed with the Securities and
Exchange Commission. The Company wishes to caution readers not to place undue
reliance on any such forward-looking statements. These statements are made
pursuant to the Private Litigation Reform Act of 1995 and, as such, speak only
as of the date made.
ITEM 1. BUSINESS
Formation
Docuport, Inc. (OTC: BB, DCPT) (the "Company"), a Delaware corporation,
was originally founded under the laws of Ontario, Canada in February, 1992 under
the name Slimfax, Inc. On July 10, 1996 Slimfax, Inc. changed its name to
Docuport, Inc. (Docuport Canada). After the Company was incorporated on March
24, 1999, the Board of Directors agreed to transfer 4,867,500 shares of Common
Stock together with the equivalent rights to purchase Common Stock based upon
warrants owned, to the shareholders of Docuport Canada in exchange for 3,245,000
common shares and any warrants held of Docuport Canada. This constituted all the
issued and outstanding shares of Docuport Canada. Pursuant to the share exchange
between the Company and Docuport Canada, the then holder of a patent and several
patent applications relating to a computer peripheral product known as the
Docuport, Docuport Canada became a wholly-owned subsidiary of the Company. The
Company is currently a developmental stage company and is in the process of
becoming fully operational.
General Description of Business
The Docuport
The Company has developed and is marketing a patented, "portable" multi
functional office machine called the Docuport, which management believes is the
first product of its kind. The Docuport is a combination:
(1) full page fax machine;
(2) full page scanner;
(3) full page printer,
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(4) full page copier; and
(5) fax/data modem,
with dimensions of 12.5" x 3" x 1.24". Full page means 8.5 inches x any length.
The Docuport 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.
The Docuport 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 Docuport to be used in any location where a
telephone connection can be established.
Product features
The features of the Docuport are as follows:
Direct thermal. The Docuport incorporates a direct thermal printing technology.
The Company believes 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 Docuport is a full featured, full size, 8.5 inches x any length,
fax. The Docuport is capable of printing at a speed of 9600 bps, or bits per
second, on 8.5 inch sheets or rolled paper and has three modes of resolution,
standard, fine and super fine. If the Docuport is connected to a telephone line
or cellular phone it can transmit and receive hard copy facsimiles. The Company
believes that because of Docuport's patented single roller design, the Docuport
is smaller, more portable and less expensive than those of the competition.
Sending a fax with the Docuport 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. The Company believes that the current
products in the portable fax market will not challenge the Docuport due to the
size, price and the weight of the Docuport.
Printer. The Docuport can print full size documents. It can print letters,
spreadsheets, and drawings at a resolution of up to 200 x 400 dpi, or dots per
inch, and at a speed of up to two pages-per-minute. Since the Docuport uses
direct-thermal technology, it removes the necessity of cartridges and ribbons.
The methods used by printers currently include ink jet, bubble jet,
thermal fusion, thermal ribbon and direct thermal technology. Both the ink jet
and the bubble jet require ink cartridges for printing. Management believes that
the direct thermal method, which is utilized by the Docuport permits a compact
design and provides excellent print qualities without requiring the user of the
Docuport to maintain a supply of ribbons or cartridges.
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Scanner. Portable scanners are relatively new to the marketplace. The Docuport
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 Docuport 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 Docuport has a single roller design which allows full size documents
to be scanned and printed simultaneously. This enables the Docuport 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 the Company's 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 Docuport.
Fax card and modem for laptops and notebooks. The Docuport 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,
the Company believe that owners of laptops and notebook computers who only have
need for facsimile transmissions will most likely not purchase the
multi-function Docuport. 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 Docuport for end users who desire
multiple functions in conjunction with their computer.
Power supply. The Docuport's power is supplied by one of three means:
(1) a DC connector which conveniently plugs into any electrical outlet;
(2) a rechargeable Nickel Metal Hydride battery; or
(3) an AC adapter which plugs into the cigarette lighter of a car or
boat.
Customer base.
The Company believes that potential customers of the Docuport will be
end users, who are individuals purchasing the Docuport for personal use and
companies which will purchase the Docuport 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
The Company intends to create unique packaging for the Docuport in
order to create quick market awareness and product recognition. This will be
part of multi-faceted marketing campaign designed to introduce the Docuport to
the retail market. The Company believes the easy to use design of the Docuport
will be a critical factor in creating quick market acceptance. An example of the
Docuport's user friendly design is the use of thermal technology which
eliminates the need for toners and cartridges. The Company believes the Docuport
will have a competitive advantage based upon its multiple functions, its
size/portability and high quality at an affordable price. The Company believes
that the Docuport is very practical and efficient, which is a necessity in
today's mobile product environment.
Patents
Management believes that the proprietary nature of the product is
protected under patent rights issued in the United States and certain foreign
countries.
U.S. patents for the Docuport include:
- - - Patent No. 5,420,697, granted on May 30, 1995, entitled "Portable
Facsimile/Thermal Printer Utilizing A Multi-Purpose Single Roller", based upon a
single roller concept placing a scan head which reads the information fed into
the Docuport on one side of the roller and print head on the other side of the
roller.
A second patent has been refiled after being inadvertently deemed
abandoned by the United States Patent and Trademark Office. This second patent
protects the Company's technology, based upon support arms allowing documents
fed through the Docuport to pass through the mechanism unobstructed, which is
critical in such a compact design. Two additional patents are pending for a new
design for the Docuport and related technology.
International patents for the Docuport include:
- - - International Patent Application No. PCT/US/99/27125, filed November 16,
1999, entitled "Portable Scanner, Printer, Facsimile and Copier".
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Supplies and Raw Materials
Supplies and raw materials for the manufacture of the Docuport are
available from various sources. The supplies and raw materials for producing the
Docuport are readily available and the cost of such materials has not
experienced any material fluctuation. The Company has determined the inventory
planning and control, as well as other production management systems, it intends
to use.
Marketing and Distribution
The Company intends to sell the Docuport through the following
distribution channels:
Direct marketing. The Company intends to mail directly to companies,
which fit a predetermined criteria, information with respect to the Docuport.
This will then be followed by telephone calls and local demonstrations. The
Company's 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. The Company intends to shift the primary
focus towards training dealers on how to sell. The Company believes that it is
important to have a small internal direct sales force because it will keep the
Company in touch with end users and gives the Company better control in
directing its retail dealer base.
Dealers/distributors. The Company intends to target distributors which
already carry scanners, copiers, facsimiles, printers, and multifunctional
devices. The Company believes 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. The Company has entered into
an agreement with Thomson Consumer Electronics, Inc. which now has the exclusive
right to promote, market and sell the Docuport in the United States and Canada
to retailers and other resellers as provided in such agreement under the RCA
brand name.
Retail. The Company intend to focus on retail channels targeting
knowledgeable, the 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. The Company believes that these
individuals already own or use portable computers and will have a use for
multi-purpose peripheral equipment such as the Docuport. The Company has entered
into an agreement with Thomson Consumer Electronics, Inc. which now has the
exclusive right to promote, market and sell the Docuport in the United States
and Canada to retailers and other resellers as provided in such agreement under
the RCA brand name.
OEM channels. The Company believes that, in the long term, this
distribution channel will be extremely important to it. The Company desires to
sell rights to the Docuport to established companies with immediate market
recognition which can private label, i.e., put their own name on the Docuport.
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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.
The Company believe that companies will have a great interest in the Docuport
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. The
Company intends to utilize value added resellers in its second year of
operations. The Company intends to launch the Docuport with extensive publicity
in several major cities together with large volume mailings to various target
publications. The Company intends to place descriptive articles announcing the
introduction of the Docuport in a large number of newspapers and trade magazines
in the hopes of alleviating the high cost of private advertising.
Internet - world wide web. Since the Internet has a rapidly increasing
number of users, the Company intend to design and maintain a web page for use as
a marketing tool in an attempt to capitalize on the rapidly growing information
highway.
The Micro Scan Pen
The Company is in the process of completing the development of a
portable pen-size scanner. The Micro Scan Pen is a pen-sized scanner which 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
Micro Scan Pen 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 Micro Scan Pen 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
Micro Scan Pen's portability, it is ideal for remote locations.
The Micro Scan Pen 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.
Competition
The Company believes it is in a unique position because the Company's
products have no known competing devices on the market which would compete
directly with either the Docuport for use as a portable document input and
output device or the Micro Scan Pen for use as a portable pen-size scanner.
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Some of the Company's future competitors may be large, well-financed
and established companies which have greater resources for research and
development, manufacturing and marketing than the Company has and, therefore,
may be better able than the Company to compete for a share of the market, even
in areas in which the Company may have superior technology. There can be no
assurance that the Company can continue to produce a product which is
commercially acceptable, or that if continued to be produced, such a product
will be competitive with existing or future products. It is also possible that
there will be technological changes or developments by competitors which will
render the Company's products noncompetitive or obsolete.
Future Products
The Company intends to improve the Docuport by developing and producing
new features such as infrared data association, color printing, increased
printing, copying, scanning, faxing speed and increased resolution. The Company
believes that these features are essential to maintain what the Company believes
is the Docuport's position ahead of present and future competitors.
The Company is also researching and in the process of developing a
Second Generation Docuport. Unlike current industry standards which incorporate
a parallel scan-head design for use in personal-sheetfed scanning products, the
Second Generation Docuport will utilize a traversing scan head and print head.
This traversing scan head and print head will result in the Second Generation
Docuport being smaller than the Docuport the Company initially intends to
introduce into the market. Moreover, the Company contemplates that the Second
Generation Docuport will be produced at a lower cost than the Docuport
Employees
The Company currently employs fifteen full time employees. In the
Company's Canadian offices there is one administrative assistant and ten
engineers involved with research and development. In the Company's office in the
United States the Company employees four production engineers. In addition, Mr.
Norman Docteroff has signed an Employment Agreement with the Company which
requires him to work a minimum of 30 hours per week for the Company. Mr. Raja S.
Tuli has orally agreed to spend 10% percent of his time working for the Company.
None of the Company's employees are covered by a collective bargaining
agreement with a union. The Company considers its relationship with its
employees to be good.
Risks and Uncertainties
The Company's business is subject to a number of risks and
uncertainties, including, but not limited to, (a) the risk that it may be unable
to raise enough capital to fund the Company's operations, (b) the risk that the
Company's products will not be accepted commercially, (c) the Company's reliance
on certain customers, and (d) the highly competitive nature of the Company's
industry and the impact that competitors' new products and pricing may have upon
the Company. Such factors, as the well as shortfalls in the Company's results of
operations as compared with analyst's expectations, capital market conditions
and general economic conditions, may also cause substantial volatility in the
market price of the Company's Common Stock.
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Public Information
The Company electronically files with the Securities and Exchange
Commission (the "SEC") all its reports, including, but not limited to, its
annual and quarterly reports. The SEC maintains an Internet site which contains
all such reports and other information with respect to the Company on its the
web site, http://www.sec.gov. Additional information on the Company may be
obtained from the Company's web site at http://www.docuport.com.
ITEM 2. PROPERTIES
The Company has executive offices which are currently located at 81 Two
Bridges Road, Fairfield, New Jersey, 07004. The Company utilizes 2000 square
feet of office space provided by Solutions Plus, Inc., at no cost based upon the
Company's Marketing and Sales Agreement, for the Company's United States
operations. If the space provided by Solutions Plus, Inc., at this location is
insufficient for the Company's needs, as determined by the Company's board and
Solutions Plus, Inc., the Company will enter into a lease for office space which
meets its requirements.
In addition the Company utilizes office space 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 the Company's founder and Chairman of the Board of
Directors, owns 10% of the issued and outstanding Common Stock. The Company pays
$30,000 in Canadian dollars per year for use of this office space, which
converted to its equivalent United States dollar value on March 21, 2000
according to the Wall Street Journal is $20,415. The Company has also leased
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 $27,390 in Canadian dollars per year, which converted to its
equivalent United States dollar value on March 21, 2000 according to the Wall
Street Journal is $18,638.90.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders
during the fourth quarter of the year ending December 31, 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's Common Stock, par value $.001 per share (the "Common
Stock"), as of December 31, 1999 had obtained the Symbol DCPT on the NASD
Bulletin Board. The Company's Common Stock was deemed effective for trading on
the NASD Bulletin Board on January 5, 2000. As of March 21, 2000, the closing
price of the Company's Common Stock was $10.00 per share, with a volume of 3,000
shares being traded.
(b) Holders
As of March 21, 2000, there were 88 stockholders of record of the
Company's Common Stock. The number of holders does not include stockholders who
are holding the Common Stock of the Company through nominees or in street name.
(c) Dividends
The Company has not paid any cash dividends and has no current plans to
pay any such dividends. There are no restrictions on the Company's ability to
pay dividends.
(d) Offerings
Commencing in February, 2000 and closing in April, 2000, the Company
conducted a private offering to accredited investors, as the term is defined in
Rule 501 of Regulation D of the Securities Act of 1933, of convertible
debentures and warrants. The offering raised $850,000. Each investor in this
offering purchased a unit, multiple units or a fractional unit, valued at
$50,000 per unit. The issuance of all of such units did not require registration
under the Securities Act in that all of such units were issued under an
exemption from the registration requirements of the Securities Act afforded by
Rule 506. Each unit consisted of the following securities:
o a $50,000 non-negotiable Convertible Debenture at 10% interest, due
at the earlier of either February 15, 2001 or the Company raising
$3,000,000 through either debt or equity financing which has a
conversion price of $8.00 per share of Common Stock which may have
an early call price of $6.40 per share of Common Stock, and
o a warrant to purchase 6,250 shares of the Company's Common Stock at
a purchase price of $8.00 per share upon 30 days notice and expiring
February 15, 2003.
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Commencing on March 12, 1999 and closing on April 6, 1999, the Company
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.
Commencing on March 22, 1999 and closing on April 6, 1999, the Company
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.
(e) Use of Proceeds of Offerings
The proceeds of the offering which commenced in February, 2000 were
primarily utilized by the Company for working capital and for the continued
development of both the Docuport and the Micro Scan Pen by the Company.
Additional funds were utilized to purchase parts and begin the manufacturing of
the Docuport.
The proceeds of the offering which commenced on March 12, 1999 were
utilized by the Company primarily for fees and expenses to prepare a Private
Placement Memorandum in order to raise a greater amount of funds for the
Company's expenses.
The proceeds of the offering which commenced on March 22, 1999 were
primarily utilized by the Company for working capital and to pay administrative
expenses for the continued development of the Docuport by the Company.
Additional funds were utilized to commence marketing and to create a sales force
in order to introduce the Docuport to the consumer markets.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OVERVIEW
The following discussion and analysis should be read in conjunction
with the Company's financial statements and the notes related thereto. The
discussion of results, causes and trends should not be construed to infer
conclusions that such results, causes or trends necessarily will continue in the
future.
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RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
increase or decrease of items included in the Company's consolidated statement
of operations:
1999 1998
Revenues
R & D grants $ 168,193 6% $ 13,482 6%
Expenses
General and administrative (2,674,119) 89% (178,864) 79%
Other income and expenses
Interest income 10,456 0% 113 0%
Interest expense (511,666) 17% (61,210) 27%
Net loss for the year (3,007,136) 100% (226,479) 100%
REVENUES
As of December 31, 1999, the Company had not generated any revenues
from operations and, accordingly is still its developmental stage. In the past,
the Canadian government has provided companies with research and development
grants which were available to the Company as a reimbursement to the Company of
taxes payable to the Canadian government. Research and development grants are
available 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. Research and development grants increased to
$168,193 for the year ended December 31, 2000 from $13,482 for the year ended
December 31, 1998 as the Company is in the final development of both the
Docuport and Micro Scan Pen.
However, due to recently announced pending legislation which would
significantly limit the aforesaid research and development grants, the Company
has provided a reserve of $150,000, the amount of credits currently estimated at
risk. The reserve is included in the Company's General and Administrative
Expenses for the year ended December 31, 1999.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expenses increased $2,495,255 to $2,674,119
for the year ended December 31, 1999 compared to $178,864 for the year ended
December 31, 1998. This increase is primarily due to increases in consulting,
travel and the establishment of the Company's headquarters in the United States
and the purchase of Directors and Officers Insurance. In addition, for the year
ended December 31, 1999, general and administrative expenses included $1,252,300
of non-cash charges associated with the cost of services paid through the
issuance of Common Stock and $150,000 reserve associated with uncollectable
research and development grants described above.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses are included in General and
Administrative Expenses and increased approximately $646,000 to approximately
$692,000 for the year ended December 31, 1999 compared to approximately $46,000
for the year ended December 31, 1998. The increase is primarily attributable to
the reconfiguration of the specifications of the Docuport in order to meet the
design specifications and needs of Thomson Consumer Electronics, Inc. which will
be manufacturing and marketing the Docuport. The Company is also in the end
stages of development of its Micro Scan Pen.
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INTEREST EXPENSE
Interest expense was $511,666 for the year ended December 31, 1999
compared to $61,210 for the year ended December 31, 1998. The $450,456 increase
was principally attributable to the $445,364 non-cash charge resulting when the
Company repriced its outstanding Warrants associated with the Notes Payable (see
Note 5 of the Company's Notes to the Financial Statements).
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital and capital requirements will depend on
numerous factors, including the level of resources that the Company devotes to
the purchase of manufacturing equipment to support start-up production and to
the marketing aspects of its products. The Company intends to construct
production and/or assembly centers abroad to manufacture, market and sell the
Docuport in the international market. The Company has entered into an agreement
with Thomson Consumer Electronics, Inc. to manufacture, market and sell the
Docuport in Canada and the United States under its RCA brand name. The Company
intends to begin distribution of the Docuport in the United States and Canada in
the third quarter of the year ending December 31, 2000.
The Company's success is dependent on raising sufficient capital to
establish a production and assembly facility to manufacture the Docuport. The
Company believes the Docuport will be commercially accepted throughout the
national and international markets. The Company does not have all the financing
in place at this time, nor may it ever, to meet these objectives.
During the year ending December 31, 1999 the Company raised funds
through the sale of securities in order satisfy its cash requirements and
liquidity obligations. During March, 1999 and April, 1999 the Company sold
1,135,000 shares of Common Stock for an aggregate sum of $940,000. Commencing in
February, 2000 and through April, 2000 the Company, through a private offering,
sold a combination of convertible debentures and warrants for a sum of $850,000.
The Company contemplates seeking additional financing or conducting a public
offering in order to satisfy additional cash requirements and its liquidity
obligations.
The Company's computer systems and equipment successfully transitioned
to the Year 2000 with no significant issues. The Company continues to monitor
its systems for latent problems that could surface at key dates or events in the
future. It is not anticipated that there will be any significant problems
related to these events.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes forward-looking statements that may or may not
materialize. Additional information on factors that could potentially affect the
Company's financial results may be found in the Company's filings with the
Securities and Exchange Commission.
OTHER MATTERS
The Form 10-KSB, other than historical financial information, may
consist of forward-looking statements that include risks and uncertainties,
including, but not limited to, statements contained in "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". Such statements are based on many assumptions and are subject to
risks and uncertainties. Actual results could differ materially from the results
discussed in the forward-looking statements due to a number of factors,
including, but not limited to, those identified in the preceding paragraphs as
well as those set forth under "Business - Risks and Uncertainties" in this Form
10-KSB.
14
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants F-1
Independent Auditors' Report F-2
Consolidated Balance Sheet, December 31, 1999 F-3
Statement of Operations and Comprehensive Income (Loss),
Years Ended December 31, 1999 and 1998 and Period from
February 1, 1992 (Date of Inception) to December 31, 1999 F-4
Statement of Stockholders' Deficiency,
Years Ended December 31, 1999 and 1998 and
Period from February 1, 1992 (Date of Inception) to
December 31, 1999 F-5
Statement of Cash Flows,
Years Ended December 31, 1999 and 1998 and Period from
February 1, 1992 (Date of Inception) to December 31, 1999 F-6
Notes to Financial Statements F-7 - F-16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company did not hire its accountants BDO Dunwoody LLP to prepare
its audit for the 12 month period ending December 31, 1999. BDO Dunwoody LLP,
has at no time issued any reports with respect to the Company that contained
either an adverse opinion or disclaimer of opinion. The Company at no time had
any disagreements with BDO Dunwoody LLP on any matter of accounting principle or
practice, financial statement disclosure or auditing scope and procedure. A
determination was made by the Company that since the Company's executive offices
are no longer located in Canada, but are now in the United States. Its Board of
Directors recommended and approved the decision to change from its accountants
which are based in Canada and worked with the Company's Canadian offices. The
Board determined that it was important to retain an accountant located in the
United States now that the Company's executive office are located in New Jersey.
The Company has retained J.H. Cohn LLP effective March 30, 2000 to act as the
Company's principal accountant and to be responsible for the auditing of the
Company's financial statements.
15
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table and biographical outlines set forth the directors,
positions and officers within the Company presently held by each Executive
Officer of the Company and a brief account of the business experience of each
such Director and Officer for the past five years.
Name Age Position
- ---- --- --------
Norman Docteroff 66 President, Chief Executive Officer
and Director
Raja S. Tuli 33 Chairman of the Board of directors
Madan G. Singh 54 Director
Lakhbir Tuli 62 Director
Melvin Yablon 69 Director
Mr. Norman Docteroff has been the Company's President and Chief
Executive Officer since April 15, 1999, upon entering into a three year
Employment Agreement and has been one of the Company's Directors since October
15, 1999. In 1994, Mr. Docteroff founded and is currently President and a
Director of Solutions Plus, Inc., which is wholly owned by his wife Corina
Docteroff. Solutions Plus, Inc. specializes in assisting small companies to
market and sell their products. From 1989 to 1994, Mr. Docteroff was employed
under a five year management contract by Gemini Industries, Inc., a business he
and an associate started in 1968. Gemini Industries, Inc., manufactured various
audio and video accessories. In 1986, Mr. Docteroff and his associate sold 75%
of the business. The remaining 25% was sold in 1989. From 1962 to 1968, Mr.
Docteroff was the national sales manager of Manhattan Industries, a major
consumer products company. From 1957 to 1961, Mr. Docteroff owned and operated
hardware departments in chain department stores, which the Company 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, the Company's founder, had been the Company's President,
Chief Executive Officer from the inception of the Company's Canadian subsidiary
until April 5, 1999. Since the Company hiring of a new President and Chief
Executive Officer in April 1999, Mr. Tuli has been serving as the Company's
Chairman of the Board of Directors. From May, 1999 until November, 1999, Mr.
Tuli served as the President, Chief Financial Officer and as a Director of
Metaclic, Inc., a company which develops Internet software and technology. Mr.
Tuli, from November, 1999 until the present, has been the Chairman of the Board
and Chief Technical Officer of Metaclic, Inc. 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.
16
<PAGE>
Madan G. Singh, an uncle of Raja S. Tuli, has been one of the Company's
Directors since the inception of its Canadian subsidiary. From 1990 to the
present, Mr. Singh has been Chief Executive Officer and a Director of Knowledge
Support Systems Limited a software specialist company which recently went public
in the United Kingdom. He received doctorate degrees from Cambridge University
in England, Toulouse in France and the University of Waterloo in Canada. Dr.
Singh has a B.S. from Exeter University, and a M.S. from Manchester University.
Dr. Singh has been the chairman of the Computer Department and Chairman of
Control Engineering at the University of Manchester Institute of Science and
Technology in Manchester, England since 1979. He was head of the Post Graduate
Department of the University of Manchester from 1981 - 1983 and from 1985 to
1987. In February 1994, he was made a "Chavalier dans l'ordre des Palmes
Academiques", a French academic honor, by a decree signed by the Prime Minister
of France. Dr. Singh edited the ten volume "Encyclopedia of Systems and
Control", coordinated the publication of eight Concise Encyclopedias, each on a
different matter, authored or co-authorized eight books and over 170 scientific
articles and edited or co-edited ten additional books.
Lakhbir Tuli, father of Raja and Suneet Tuli, a brother of Raja S. Tuli
and one of the Company's principal shareholders, has been one of the Company's
Directors since the inception of its 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 the Company's Directors since September
24, 1999. From 1977 to the present, Mr. Yablon has been the President and sole
shareholder of First Adjusters, Inc., an insurance adjusting firm. 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.
Compliance with 16(a) of the Securities and Exchange Act of 1934
To the Company's knowledge, based solely on a review of such materials
as are required by the Securities and Exchange Commission, no Officer, Director
or beneficial holder of more than ten (10%) percent of the Company's issued and
outstanding shares of Common Stock failed to timely file with the Securities and
Exchange Commission any form or report required to be so filed pursuant to
Section 16(a) of the Securities Exchange Act of 1934 during the fiscal year
ended December 31, 1999.
17
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following sets forth, for the fiscal year ended December 31, 1999,
the annual and long-term compensation paid or accrued of the Company's named
Officers and Directors.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual compensation Long-term compensation
----------------------------- -------------------------------
Securities
Name and principal Other annual underlying All other
position Year Salary ($) compensation options (#) compensation
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Norman Docteroff,
President, Chief
Executive Officer and
Director 1999 ________ 55,560 Options 55,560 ________
- ------------------------------------------------------------------------------------------------------
Raja Tuli, Chairman of
the Board 1999 12,283.20 ________ ________ ________
- ------------------------------------------------------------------------------------------------------
Melvin Yablon, Director 1999 ________ 25,000 Options 25,000 ________
- ------------------------------------------------------------------------------------------------------
</TABLE>
During the year ended December 31, 1999, the Company did not grant any
restricted stock awards or stock appreciation rights, nor did the Company have
long-term incentive plan. Additionally, all of the Company's group life, health,
hospitalization, medical reimbursement or relocation plans, if any, do not
discriminate in scope, terms or operation, in favor of the named executive
officers and are generally available to all salaried employees. Further, no
named Executive Officer received, in the period specified in the Summary
Compensation Table, perquisites and other personal benefits, security or
property in an aggregate amount in excess of the lesser of $50,000 or 10% of the
total salary and bonus reported for the named Executive Officer and Director in
the fiscal year in which benefits were received, and no single type of
prerequisite of other personal benefits exceeded 25% of the total perquisites
and other benefits reported for the named Executive Officer and Director in the
applicable fiscal year.
Option Grants Table
The following table sets forth (a) the number of shares underlying
options granted to each named Executive Officer and Director during the 1999
Fiscal Year, (b) the percentage the grant represents of the total number of
options granted to all Company employees during the 1999 Fiscal Year, (c) the
per share exercise price of each option, and (d) the expiration date of each
option.
18
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Percent of total
Number of securities options granted to
underlying options employees in fiscal
Name granted (#) year Exercise price ($/Sh) Expiration date
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Norman Docteroff 55,560 69% $2.00 April 15, 2005
- -----------------------------------------------------------------------------------------------------------------
Melvin Yablon 10,000 12% $4.00 October 31, 2004
15,000 19% $2.00 October 31, 2004
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Options Exercised and Remaining Outstanding
Set forth in the table below is information, with respect to each of
the named Executive Officers and Director, as to the (a) number of shares
acquired during the 1999 Fiscal Year upon each exercise of options granted to
such individuals, (b) the aggregate value realized upon each such exercise
(i.e., the difference between the market value of the shares at exercise and
their exercise price), (c) the total number of unexercised options held on
December 31, 1999, separately identified between those exercisable and those not
exercisable, and (d) the aggregate value of in-the-money, unexercised options
held on December 31, 1999, separately identified between those exercisable and
those not exercisable.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Number of securities underlying
Shares unexercised options at Fiscal Value of unexercised in-the-money
acquired on Value Year end (#) options at Fiscal Year end
Name exercise (#) realized ($) Exercisable/Unexercisable ($)Exercisable/Unexercisable
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Norman Docteroff 0 0 55,560/194,440 111,120/388,880
- ---------------------------------------------------------------------------------------------------------------------
Melvin Yablon 0 0 25,000/0 50,000/0
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Director's Remuneration
Each Director, not otherwise a full time employee of the Company, is
eligible to receive $1,000 for each meeting of the Board of Directors or
committee thereof which they attend along with reimbursement of their reasonable
expenses incurred on the Company's behalf.
Employment Contracts with Named Executive Officers
The Company has entered into a three year Employment Agreement with
Norman Docteroff, who is the Company's President and Chief Executive Officer.
The agreement provides a salary in the form of options to purchase an aggregate
250,000 shares of the Company's 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. The Company can terminate the
employment of Mr. Docteroff upon death or extended disability or for cause as
defined in the Employment Agreement. In addition, the Company may terminate his
Employment Agreement for any reason upon 30 days' notice. If the Company
terminates Mr. Docteroff without cause, the remaining options which have not
vested will immediately vest.
19
<PAGE>
Raja S. Tuli receives an annual salary of $24,000, in Canadian dollars,
in payments of $2,000 per month, which converted to its equivalent United States
dollar value on March 21, 2000 according to the Wall Street Journal is
$16,332.00 annually with monthly payments of $1,361.00. The Company does not
have a written agreement with Mr. Tuli for his employment.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
as of the date of this Statement, with respect to beneficial ownership of: (i)
each person who is known by the Company to be the beneficial owner of more than
five (5%) percent of the Company's outstanding Common Stock; (ii) each of the
Company's directors and executive officers; and (iii) all officers and directors
as a group. Except as otherwise indicated, the Company believes that the
beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares, subject to community property laws, where applicable.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Amount & Nature of
Title of Class Name & Address of Beneficial Owner Beneficial Owner Percent of Class(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Raja S. Tuli
c/o Docuport, Inc.
1155 Rene Levesque West Suite 3500
Common Stock Montreal, PQ, H3B 3T6, Canada 1,750,000 28.48%
- --------------------------------------------------------------------------------------------------------------------
Suneet Tuli
c/o Docuport, Inc.
1155 Rene Levesque West Suite 3500
Common Stock Montreal, PQ, H3B 3T6, Canada 875,000 14.24%
- --------------------------------------------------------------------------------------------------------------------
Lakhbir Tuli
1290 Whiteoaks Avenue
Mississauga, Ontario
L5J 3C1
Common Stock Canada 875,000 14.24%
- --------------------------------------------------------------------------------------------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------------------------------------------
Norman Docteroff
81 Two Bridges Road
Common Stock Fairfield, New Jersey 07005 97,230(2) 1.58%
- --------------------------------------------------------------------------------------------------------------------
Melvin Yablon
220 East 57th Street, Apt. 2C
Common Stock New York, NY 10022 65,000(3) 1.05%
- --------------------------------------------------------------------------------------------------------------------
Madan Singh
c/o Docuport, Inc.
1155 Rene Levesque West Suite 3500
Common Stock Montreal, PQ, H3B 3T6, Canada 0 0%
- --------------------------------------------------------------------------------------------------------------------
All Directors & Officers as a
Common Stock Group (consisting of 5 persons) 3,662,230 59.59%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them. A person is deemed to be the beneficial
owner of securities that may be acquired by such person within 60 days from the
date on which beneficial ownership is to be determined, upon the exercise of
options, warrants or convertible securities. Each beneficial owner's percentage
ownership is determined by assuming that options, warrants and convertible
securities that are held by such person (but not those held by any other person)
and which are exercisable within such 60 day period, have been exercised.
(2) Includes options to purchase shares of the Company's Common Stock which were
issued to Mr. Docteroff as compensation in connection with his Employment
Agreement to serve as the Company's Chief Executive Officer.
(3) Amounts include 15,000 options to purchase shares of the Company's Common
Stock which the were issued to Mr. Yablon as compensation as a consultant to the
Company and 10,000 options for serving as a Director.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) From February 1, 1992 until December 31, 1999 the Company
subcontracted software and various consulting projects to companies controlled
by some of its shareholders. Over this period payments totaling $181,717 were
made by the Company to Raja Tuli Consulting, Lakhbir Tuli Consulting and Widecom
Group, Inc. During 1999 the Company also subcontracted software consulting
projects totaling $70,160 to these same companies. These companies provided
consulting services with respect to software development. These transactions
provided payments in lieu of a salary to the individuals providing these
consulting services.
21
<PAGE>
(b) In December, 1998, the Company entered into a three year Management
and Consulting Agreement with Rexon Limited, a Swiss based company. The
agreement provides that Rexon will provide the Company with various management,
marketing, business planning an acquisition strategies. As compensation, Rexon
received 23.3% of the then issued and outstanding shares of the Common Stock of
Docuport Canada. Upon the exchange of Docuport Canada's shares for the
Company's, Rexon became the beneficial owner of approximately 1,195,000 shares
of the Company's 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, the Company has agreed to pay Rexon $5,000 per
month for a period of two years after the Company becomes a publicly traded
company. The Company has not yet begun to pay Rexon its fees.
(c) In April, 1999, the Company entered into a three year
non-exclusive Marketing and Sales Agreement with Solutions Plus, Inc., which is
wholly owned by Corina Docteroff, the wife of Norman Docteroff, who, in addition
to being the Company's President, Chief Executive Officer and a Director, is the
President and a Director of Solutions Plus, Inc. Mr. Docteroff has signed an
Employment Agreement which requires him to work a minimum of 30 hours per week
for the Company. 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 Docuport. In addition, Solutions
Plus, Inc. will provide the following services:
o manage the Company's financial records including the billing of
customers, payment of expenses such as insurance policies, leases, bills and
other related administrative matters;
o maintain the Company's employment records;
o maintain account and company records in accordance with generally
accepted accounting standards; and
o maintain an operating account for the Company for the deposit of
funds generated by product sales and for payment of the Company's operating
expenses.
As part of the its Marketing Agreement, Solutions Plus, Inc. is providing the
Company with space in their offices for the Company's United States based
employees such as its accounting, sales and marketing staff. In exchange, the
Company 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 the Company's
product, less returns. In addition, Solutions Plus, Inc. will receive 7.5% of
all gross sales of the Company's product to companies which sell the Docuport
under their own private label, less returns. The Company can terminate the
Marketing and Sales Agreement if Solutions Plus, Inc. fails to sell 25,000
Docuport machines within the first twelve months after the Docuport becomes
commercially available and an additional 125,000 Docuport machines during the
second 12 month period after the Docuport becomes commercially available. If
Solutions Plus, Inc. generates gross sales equal or greater than $25,000,000,
then the Company has the option to reduce Solutions Plus, Inc.'s commissions to
3% for the balance of the agreement. If the commission percentage is reduced,
however, Solutions Plus, Inc. will not be obligated to pay for any sales and
marketing costs.
22
<PAGE>
(d) In August, 1999, in consideration for introducing the Company to
Norman Docteroff, the Company granted Millenium Capital Corporation 50,000
options to purchase Common Stock of the Company. These options are fully vested
and may be exercised at a price of $2.00 per share of Common Stock. In addition,
Millenium Capital Corporation will receive as compensation 1/2 of 1% of the
Company's sales. This compensation will be paid equally by the Company and by
Solutions Plus, Inc. which will, in effect, give up 1/4% of its royalty.
(e) The Company agreed with Melvin Yablon, one of its Directors, that
in exchange for providing consulting services to the Company, by acting as a
liaison between the Company and its technology and marketing consultants, to
grant him 15,000 options to purchase Common Stock of the Company. These options
are fully vested and may be exercised at a price of $2.00 per share of Common
Stock. In addition, Mr. Yablon has received, in consideration for his being
appointed as a Director of the Company, 10,000 options to purchase Common Stock
of the Company. These options are fully vested and may be exercised at a price
of $4.00 per share of Common Stock. These options are not registered.
23
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibit Index sets forth the applicable exhibits
(numbered in accordance with Item 601 of Regulation S-B) which are required to
be filed with this Annual Report on Form 10-KSB:
Exhibit
3.1 Articles of Incorporation. *
3.2 By-Laws. *
4.1 Specimen Common Stock Certificate. *
10.1 Employment Agreement of Norman Docteroff. *
10.2 Marketing and Sales Agreement with Solutions Plus, Inc. *
10.3 Management and Consulting Agreement with Rexon Ltd. *
10.4 Marketing Rights and Supply Agreement with Thomson Consumer Electronics,
Inc.
16.1 Letter on change in certifying accountant
21.1 Subsidiary of Registrant. *
24.1 Power of Attorney *
27.1 Financial Data Schedule
The exhibits designed above with an asterisk (*) have previously been filed with
the Commission and, pursuant to 17 C.F.R. Secs. 201.24 and 240.12b-32, are
incorporated by reference to the Registrant's Registration Statement on Form
SB-2 number 333-82585, effective December 21, 1999.
24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Docuport, Inc.
We have audited the accompanying consolidated balance sheet of DOCUPORT, INC.
AND SUBSIDIARY (A Development Stage Company) as of December 31, 1999, and the
related consolidated statements of operations and comprehensive income (loss),
stockholders' deficiency and cash flows for the year then ended and for the
period from February 1, 1992 (date of inception) to December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The financial statements for the year
ended December 31, 1998 and for the period from February 1, 1992 (date of
inception) to December 31, 1998 were audited by other auditors whose report
dated February 12, 1999 expressed an unqualified opinion. Our opinion on the
consolidated statements of operations and comprehensive income (loss),
stockholders' deficiency and cash flows for the period from February 1, 1992
(date of inception) through December 31, 1999, insofar as it relates to amounts
for the period from February 1, 1992 (date of inception) through December 31,
1998, is based solely on the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the 1999
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Docuport, Inc. and
Subsidiary as of December 31, 1999, and their results of operations and cash
flows for the year then ended and for the period from February 1, 1992 (date of
inception) to December 31, 1999, in conformity with generally accepted
accounting principles.
J.H. COHN LLP
Roseland, New Jersey
April 7, 2000
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Directors of
Docuport, Inc.
We have audited the statements of operations, stockholders' deficiency and cash
flows of Docuport, Inc. for the period from February 1, 1992 (date of inception)
through December 31, 1998 and for the year ended December 31, 1998. 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.
We believe that our audits provide a responsible basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the results of operations and the changes in cash flows of Docuport,
Inc. for the period from February 1, 1992 (date of inception) through December
31, 1998 and for the year ended December 31, 1998, in accordance with generally
accepted accounting principles in the United States.
Chartered Accountants
Montreal, Quebec
February 12, 1999
F-3
<PAGE>
DOCUPORT, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 77,486
Research and development grants receivable, net of allowance of
$150,000 39,363
Prepaid expenses and sundry receivables 23,664
Advances to employees 22,955
-----------
Total current assets 163,468
Furniture and equipment, net of accumulated depreciation of $11,780 25,662
Loan financing costs, net of accumulated amortization of $4,871 30,129
Other assets 26,698
-----------
Total $ 245,957
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses $ 427,229
Due to related parties 25,486
Current portion of long-term debt 925,000
-----------
Total liabilities 1,377,715
-----------
Commitments
Stockholders' deficiency:
Preferred stock, par value $.001 per share; 2,000,000 shares
authorized; none issued --
Common stock, par value $.001 per share; 12,000,000 shares
authorized; 6,002,500 shares issued and outstanding 6,002
Additional paid-in capital 2,759,006
Deficit accumulated during the development stage (3,753,767)
Unamortized interest cost (199,986)
Accumulated other comprehensive income - foreign currency
translation 56,987
-----------
Total stockholders' deficiency (1,131,758)
-----------
Total $ 245,957
===========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
DOCUPORT, INC. AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31,1999 AND 1998 AND
PERIOD FROM FEBRUARY 1, 1992 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999 1998 Cumulative
----------- ----------- -----------
(Consolidated) (Unconsolidated)
<S> <C> <C> <C>
Revenues $ 168,193 $ 13,482 $ 334,702
General and administrative expenses 2,674,119 178,864 3,300,558
----------- ----------- -----------
Loss from operations (2,505,926) (165,382) (2,965,856)
Other income (expense):
Interest income 10,456 113 21,608
Interest expense (511,666) (61,210) (805,070)
----------- ----------- -----------
Net loss (3,007,136) (226,479) (3,749,318)
Other comprehensive income (loss) -
foreign currency translation (751) 32,453 56,987
----------- ----------- -----------
Comprehensive income (loss) $(3,007,887) $ (194,026) $(3,692,331)
=========== =========== ===========
Basic net loss per common share $ (.53) $ (.05) $ (.82)
=========== =========== ===========
Basic weighted average common shares
outstanding 5,632,500 4,522,500 4,582,258
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
DOCUPORT, INC. AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31,1999 AND 1998 AND
PERIOD FROM FEBRUARY 1, 1992 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Accmu-
lated
Other
Compre-
Deficit hensive
Accumulated Income -
Additional During the Unamortized Foreign
Common Stock Paid-in Development Interest Currency
Shares Amount Capital Stage Cost Translation Total
--------- ------- ---------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock in 1992
for $.0000251 per share 2,900,000 $ 73 $ 73
Issuance of common stock in 1996
for no consideration 115,000
Recapitalization to effect the ex-
change of shares on reverse
acquisition 1,507,500 4,449 $ (4,449)
Net loss from inception to December
31, 1997 (515,703) (515,703)
Other comprehensive income -
foreign currency translation adjust-
ment from inception to December
31, 1997 $25,285 25,285
--------- ------- ----------- ------- -----------
Balance, December 31, 1997 4,522,500 4,522 (520,152) 25,285 (490,345)
Transfer of common stock in 1998
from existing stockholders in ex-
change for consulting services $ 70,000 70,000
Net loss (226,479) (226,479)
Other comprehensive income -
foreign currency translation
adjustment 32,453 32,453
--------- ------- ---------- ----------- ------- -----------
Balance, December 31, 1998 4,522,500 4,522 70,000 (746,631) 57,738 (614,371)
Issuance of common stock in
January 1999 to existing
stockholders in exchange
for consulting services 230,000 230 22,770 23,000
Recapitalization to effect the
exchange of shares on
reverse acquisition 115,000 115 (115)
Issuance of common stock in
March 1999 for $.10 per share 53,000 53 5,247 5,300
Issuance of common stock in
March 1999 for $2.00 per
share, including services
valued at $1.90 per share 647,000 647 1,293,353 1,294,000
Issuance of common stock in
April 1999 for $2.00 per
share, net of offering costs
of $147,164 435,000 435 722,401 722,836
Effect of repricing outstanding
warrants 645,350 $(645,350)
Amortization of interest cost 445,364 445,364
Net loss (3,007,136) (3,007,136)
Other comprehensive income
(loss) - foreign currency trans-
lation adjustment (751) (751)
--------- ------- ---------- ----------- --------- ------- -----------
Balance, December 31, 1999 6,002,500 $ 6,002 $2,759,006 $(3,753,767) $(199,986) $56,987 $(1,131,758)
========= ======= ========== =========== ========= ======= ===========
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
DOCUPORT, INC. AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,1999 AND 1998 AND
PERIOD FROM FEBRUARY 1, 1992 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999 1998 Cumulative
----------- ----------- -----------
(Consolidated) (Unconsolidated)
<S> <C> <C> <C>
Operating activities:
Net loss $(3,007,136) $ (226,479) $(3,749,318)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation of property and equipment 5,097 2,948 13,004
Amortization of loan financing costs 4,871 4,871
Amortization of interest expense 445,364 445,364
Foreign exchange loss 1,803 32,142 65,966
Costs of services paid through issuance of
common stock and stock options 1,252,300 70,000 1,322,300
Reserve for bad debt 150,000 150,000
Changes in operating assets and liabilities:
Research and development grants receivable (163,948) 120,333 (189,363)
Prepaid expenses and sundry receivables (19,406) (188) (23,598)
Other assets (1,580) 250 (1,330)
Accounts payable and accrued expenses 259,622 82,471 427,277
----------- ----------- -----------
Net cash provided by (used in) operating
activities (1,073,013) 81,477 (1,534,827)
----------- ----------- -----------
Investing activities:
Purchases of furniture and equipment (24,186) (38,410)
Deposit on purchases of equipment (16,726) (16,726)
Payments of costs in connection with acquisition
of patents (8,896) (8,896)
Repayments of (advances to) employees (22,955) 3,454 (22,955)
----------- ----------- -----------
Net cash provided by (used in) investing
activities (72,763) 3,454 (86,987)
----------- ----------- -----------
Financing activities:
Proceeds from long-term debt 350,000 925,000
Proceeds from sale of common stock 792,836 792,909
Loan financing costs (35,000) (35,000)
Proceeds from payable to related parties 196 21,835 25,485
----------- ----------- -----------
Net cash provided by financing activities 1,108,032 21,835 1,708,394
----------- ----------- -----------
Effect of exchange rate changes on cash (2,669) 311 (9,094)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (40,413) 107,077 77,486
Cash and cash equivalents, beginning of period 117,899 10,822 --
----------- ----------- -----------
Cash and cash equivalents, end of period $ 77,486 $ 117,899 $ 77,486
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE>
DOCUPORT, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and business:
Docuport, Inc. ("Docuport Canada") was originally incorporated
in February 1992 in Ontario, Canada and was inactive until
January 1, 1996 at which time it focused its efforts to develop,
design and market highly portable imaging devices. Future
operations are dependent upon successful marketing and selling
of its product as well as obtaining the necessary financing to
complete its design and development.
Docuport, Inc. ("Docuport Delaware") was originally incorporated
on March 23, 1999 in Delaware to carry out the same operations
as Docuport Canada.
As of March 24, 1999, Docuport Canada had 3,245,500 shares of no
par value common stock outstanding. As of that date, the Boards
of Directors of Docuport Canada and Docuport Delaware entered
into an agreement of merger whereby Docuport Delaware issued 3
shares of its common stock, with a par value of $.001, for every
2 shares of Docuport Canada or 4,867,500 shares of common stock
(the "Exchange"). As a result of the Exchange, Docuport Canada
became a 100%-owned subsidiary of Docuport Delaware. The
Exchange was accounted for as the equivalent of a pooling of
interest and, accordingly, the assets and liabilities of
Docuport Canada continued to be recorded at their historical
carrying values as of March 24, 1999; however, common stock and
additional paid-in capital were adjusted as of March 24, 1999 to
reflect the $.001 par value per share of Docuport Delaware. All
references to the number of shares of common stock of Docuport
Canada as of the dates or for periods prior to the Exchange have
been restated to reflect the ratio of the number of common
shares of Docuport Delaware effectively exchanged for common
shares of Docuport Canada. The accompanying financial statements
for periods prior to March 24, 1999 are comprised, effectively,
of the historical financial statements of Docuport Canada.
The "Company" as used herein refers to Docuport Canada prior to
March 24, 1999 and Docuport Canada together with Docuport
Delaware subsequent to that date.
As of December 31, 1999, the Company had not generated any
revenues from operations and, accordingly, it is still in the
development stage. Management does not expect the Company to
generate any revenues from its planned operations prior to the
third quarter of the year ending December 31, 2000.
Note 2 - Summary of significant accounting policies:
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
F-8
<PAGE>
DOCUPORT, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued):
Principles of consolidation:
The 1999 consolidated financial statements include the
accounts of Docuport Delaware and its wholly-owned
subsidiary, Docuport Canada. All significant intercompany
accounts and transactions have been eliminated in
consolidation.
Cash equivalents:
Cash equivalents consist of highly liquid investments with a
maturity of three months or less when acquired.
Furniture and equipment:
Furniture and equipment are stated at cost, net of
accumulated depreciation. Depreciation is provided on a
straight-line basis over the estimated useful lives of the
assets which range from three to seven years.
Impairment of long-lived assets:
The Company has adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121"). Under SFAS 121, impairment
losses on long-lived assets, such as equipment and patents
and trademarks, are recognized when events or changes in
circumstances indicate that the undiscounted cash flows
estimated to be generated by such assets are less than their
carrying value and, accordingly, all or a portion of such
carrying value may not be recoverable. Impairment losses are
then measured by comparing the fair value of assets to their
carrying amounts.
Management also reevaluates the periods of depreciation of
long-lived assets to determine whether events and
circumstances warrant revised estimates of useful lives.
Research and development costs and related grant revenue:
Costs and expenses related to research and product
development are expensed as incurred. In addition, certain
of these expenditures are subject to reimbursement by the
Canadian Government in the form of grants. During the years
ended December 31, 1999 and 1998, the Company incurred
research and development costs of approximately $692,000 and
$46,000, respectively, and provided for grants from the
Canadian Government in the amounts of $168,193 and $13,482,
respectively. Expenditures for research and development are
included in general and administrative expenses. Revenue
from research and development grants is recognized when the
qualifying expenditure is incurred. However, due to recently
announced pending legislation which would significantly
limit these grants, the Company provided for a reserve of
$150,000, the amount of these credits currently estimated at
risk.
Loan financing costs:
Costs of obtaining financing are capitalized. Such costs are
amortized and charged to interest expense over the term of
the related loan using the straight-line method which
approximates the interest method.
F-9
<PAGE>
DOCUPORT, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued):
Patents and trademarks:
The costs of obtaining patents and trademarks, which are
included in other assets, are capitalized and amortized on
the straight-line basis over the estimated useful life of 17
years.
Advertising:
The Company expenses the cost of advertising and promotions
as incurred. Advertising costs charged to operations were
not material during 1999 and 1998.
Stock options:
In accordance with the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), the Company will recognize
compensation costs as a result of the issuance of stock
options and warrants based on the excess, if any, of the
fair value of the underlying stock at the date of grant or
award (or at an appropriate subsequent measurement date)
over the amount the employee must pay to acquire the stock.
Therefore, the Company will not be required to recognize
compensation expense as a result of any grants of stock
options and warrants at an exercise price that is equivalent
to or greater than fair value. The Company will also make
pro forma disclosures, as required by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), of net income or loss as if a
fair value based method of accounting for stock options and
warrants had been applied instead, if such amounts differ
materially from the historical amounts.
Foreign currency translation:
The financial statements of Docuport Canada are generally
measured using the local currency as the functional
currency. Foreign assets and liabilities are translated to
their U.S. dollar equivalents based on the rates of exchange
prevailing at the end of each respective year. Revenue and
expense accounts are translated at average exchange rates
during each respective year. Aggregate gains and losses
arising from the translation of foreign assets and
liabilities are not included in determining net income, but
are accumulated as other comprehensive income (loss) within
stockholders' equity. Foreign currency transaction losses,
which are included in general and administrative expenses in
the accompanying statements of operations, were $1,803 and
$32,142 for the years ended December 31, 1999 and 1998,
respectively.
F-10
<PAGE>
DOCUPORT, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued):
Income taxes:
The Company accounts for income taxes pursuant to the asset
and liability method which requires deferred income tax
assets and liabilities to be computed annually for temporary
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws
and rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets
to the amount expected to be realized. The income tax
provision or credit is the tax payable or refundable for the
period plus or minus the change during the period in
deferred tax assets and liabilities.
Net earnings (loss) per share:
The Company presents "basic" earnings (loss) per share and,
if applicable, "diluted" earnings per share pursuant to the
provisions of Statement of Financial Accounting Standards
No. 128, "Earnings per Share" ("SFAS 128"). Basic earnings
(loss) per share is calculated by dividing net income or
loss by the weighted average number of shares outstanding
during each period. The calculation of diluted earnings per
share is similar to that of basic earnings per share, except
that the denominator is increased to include the number of
additional common shares that would have been outstanding if
all potentially dilutive common shares, such as those
issuable upon the exercise of stock options and warrants,
were issued during the period.
Since the Company had losses in 1999 and 1998, the assumed
effects of the exercise of warrants were anti-dilutive and,
accordingly, diluted per share amounts have not been
presented in the accompanying statements of operations. Such
warrants, however, could dilute basic earnings per share in
the future.
Comprehensive income:
Effective June 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), which establishes new
rules for the reporting and display of comprehensive income
and its components. SFAS 130 requires foreign currency
translation adjustments to be included in other
comprehensive income (loss). Due to availability of net
operating losses, there is no tax effect associated with any
component of other comprehensive income.
F-11
<PAGE>
DOCUPORT, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (concluded):
Recent accounting pronouncements:
The Financial Accounting Standards Board and the Accounting
Standards Executive Committee of the American Institute of
Certified Public Accountants had issued certain accounting
pronouncements as of December 31, 1999 that will become
effective in subsequent periods; however, management of the
Company does not believe that any of those pronouncements
would have significantly affected the Company's financial
accounting measurements or disclosures had they been in
effect as of December 31, 1999 and/or during the years ended
December 31, 1999 and 1998.
Reclassifications:
Certain accounts in the 1998 financial statements have been
reclassified to conform to the 1999 presentations.
Note 3 - Advances to employees:
At December 31, 1999, advances to employees of $22,955 were
noninterest bearing and due on demand.
Note 4 - Furniture and equipment:
Furniture and equipment consists of the following at December
31, 1999:
Estimated
Useful
Lives Amount
--------- -------
Molds and tools 3 years $10,732
Furniture and fixtures 7 years 4,628
Computer equipment 5 years 22,082
-------
37,442
Less accumulated amortization 11,780
-------
Total $25,662
=======
Depreciation expense aggregated $5,097 and $2,948 in 1999 and
1998, respectively.
F-12
<PAGE>
DOCUPORT, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 5 - Long-term debt:
Long-term debt consists of notes payable that bear interest at
10% and are due and payable upon the maturity of the notes as
follows:
Note payable, due August 28, 1998 (A) $ 50,000
Notes payable, due August 1, 2000 (B) 525,000
Notes payable, due November 10, 2000 350,000
---------
Total $925,000
========
(A) The Company is currently in default and, as a
result, the note is due on demand.
(B) On February 10, 1999, the Company negotiated with
the noteholders for an extension until August 1,
2000, in which to repay these obligations. In
consideration for the extension, the Company
reduced the exercise price of the existing
warrants from $1.67 per share, split adjusted to
$.10 per share, and issued to the noteholders an
additional 157,500 warrants having an exercise
price of $.10 per share. The cost of these
additional warrants is estimated to be $645,350,
of which $445,364 has been expensed for the year
ended December 31, 1999. The balance of $199,986
is reflected as unamortized interest cost at
December 31, 1999.
Note 6 - Preferred stock and warrants:
No shares of preferred stock had been issued as of December 31,
1999. Under the Company's Articles of Incorporation, the Board of
Directors, within certain limitations and restrictions, can fix
or alter preferred stock dividend rights, dividend rates,
conversion rights, voting rights and terms of redemption
including price and liquidation preferences. As of April 7, 2000,
the Board of Directors has not yet fixed any terms to the
preferred stock.
At December 31, 1999, the Company had outstanding warrants to
purchase 655,000 shares of common stock that are exercisable
through August 28, 2002. The following table summarizes the
outstanding warrants as of December 31, 1999:
Exercisable Number
Price Outstanding
$4.00 10,000
2.00 315,000
1.67 15,000
.10 315,000
-------
655,000
=======
F-13
<PAGE>
DOCUPORT, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 6 - Preferred stock and warrants (concluded):
The compensation cost, pro forma loss and net loss per share for
1999 and 1998 using a fair value based method of accounting for
the warrants granted, as required by SFAS 123, would not differ
materially from the corresponding historical amounts.
Note 7 - Income taxes:
As of December 31, 1999, the Company had net operating loss
carryforwards of approximately $3,159,000 available to reduce
future taxable income which will expire at various dates through
2019. The Company had no material temporary differences as of
that date. Due to the uncertainties related to, among other
things, any future changes in the ownership of the Company, which
could subject those loss carryforwards to substantial annual
limitations, and the uncertainty of any future taxable income,
the Company offset the deferred tax assets attributable to the
potential benefits of approximately $861,000 from the utilization
of those net operating loss carryforwards by an equivalent
valuation allowance as of December 31, 1999. The Company had also
offset the potential benefits from net operating loss
carryforwards of approximately $747,000 by an equivalent
valuation allowance as of December 31, 1998. Although the Company
had pre-tax losses in each period, no credits for income taxes
are included in the accompanying statements of operations as a
result of the increases in the valuation allowance of $745,000
and $42,000 in 1999 and 1998, respectively.
Note 8 - Related party transactions:
At December 31, 1999, amounts due to related parties of $25,486
are noninterest bearing and are due on demand.
From February 1, 1992 through December 31, 1999, the Company
subcontracted software and other consulting projects totaling
approximately $142,000 with various companies controlled by the
stockholders, of which approximately $70,000 and $47,000 were
incurred during the years dated December 31, 1999 and 1998,
respectively.
During the years ended December 31, 1999 and 1998, the Company
incurred rent charges of approximately $23,000 and $2,500,
respectively, from a company controlled by certain of its
stockholders. The premises are being leased on a monthly basis.
On April 5, 1999, the Company entered into a sales and marketing
agreement with a company controlled by certain of its
stockholders to provide sales and administrative functions on its
behalf. The agreement expires on April 15, 2002 and contains
automatic annual renewals unless terminated by either party upon
30 days written notice. Fees for such services will be $10,000
per month plus a specified percentage of sales. During the year
ended December 31,1999, such fees amounted to $90,000.
F-14
<PAGE>
DOCUPORT, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 9 - Issuance of common stock:
In March 1999, the Company sold 700,000 shares of common stock.
Certain shares sold to individuals or companies deemed to be
related parties were sold for $2.00 per share, comprised of $.10
per share in cash and $1.90 per share of services, while shares
sold to those individual deemed to be unrelated parties were sold
for $.10 in cash. All shares sold during this offering contain
certain restrictions as to further transfer.
In April 1999, the Company conducted a second offering of 435,000
shares of common stock for $2.00 per share raising $870,000 less
offering costs of $147,164. These shares were sold without any
restrictions as to further transfers.
Note 10- Commitments:
The Company is committed under a management and consulting
agreement for a two year period ending December 2001 for
compensation consisting of 1,050,000 common shares, which have
been transferred from the present stockholders, 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, nonforefeitable and exercisable. 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 12, 1998.
Note 11- Fair value of financial instruments:
The Company's material financial instruments at December 31, 1999
for which disclosure of estimated fair value is required by
certain accounting standards consisted of cash and cash
equivalents, research and development grants receivable, advances
to employees, due to related parties and long-term debt. In the
opinion of management, (i) cash and cash equivalents and research
and development grants receivable were carried at values that
approximated their fair values because of their liquidity and/or
their short-term maturities, (ii) as a result of the relationship
of the Company and its related parties there is no practical
method that can be used to determine the fair value of advances
to employees and due to related parties, and (iii) the fair value
of long-term debt approximated their carrying values because they
had interest rates equivalent to those currently prevailing for
financial instruments with similar characteristics.
F-15
<PAGE>
DOCUPORT, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 12- Segment and geographic information:
Pursuant to the provisions of SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information," the Company
is required to report segment information in the same format
reviewed by the Company's management (the "management approach").
The Company operates principally in one industry segment
consisting of the development, manufacture and sale of highly
portable imaging devices. Prior to 1999, the Company conducted
its operations principally in Canada. Commencing in 1999, the
Company also expanded its operations to the United States.
Information about the Company's operations and assets in
different geographic locations for 1999 and 1998 is shown below:
<TABLE>
<CAPTION>
United
States Canada Consolidated
----------- ---------- -----------
1999
<S> <C> <C> <C>
Revenues $ 168,193 $ 168,193
Expenses, net of interest income $ 2,362,219 813,110 3,175,329
----------- ---------- -----------
Net loss $(2,362,219) $(644,917) $(3,007,136)
=========== ========= ===========
Total assets $ 157,040 $ 88,917 $ 245,957
=========== ========= ===========
1998
Revenues $ 13,482 $ 13,482
Expenses, net of interest income 239,961 239,961
---------- -------------
Net loss $(226,479) $ (226,479)
========= ============
Total assets $ 153,523 $ 153,523
========= ============
</TABLE>
F-16
<PAGE>
DOCUPORT, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 13- Subsequent event:
On January 28, 2000, the Company commenced a private offering
(the "New Offering") to "Accredited Investors" of units of 10%
convertible promissory notes payable that are due February 15,
2001 (the "10% Notes"). The New Offering expired on February 15,
2000 (unless extended by the Company at its sole and absolute
discretion) and is intended to be exempt from registration
pursuant to the provisions of Regulation D of the Securities Act
of 1933. The 10% Notes will be convertible at any time at the
holder's option, subject to Company approval, at the rate of
$8.00 per share. Interest on the 10% Notes will be payable upon
the payment of the principal balance. However, if the Company
intends to pay the full principal amount plus any accrued
interest upon the closing of any equity or debt financing of at
least $3,000,000, the 10% Notes can be converted at $6.40 per
share. Each unit subject to the New Offering consists of 10%
Notes in the principal amount of $50,000. As of April 7, 2000,
the Company had sold 17 units which raised $850,000 in proceeds.
* * *
F-17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DOCUPORT, INC.
By: /s/ Norman Docteroff
------------------------
Norman Docteroff, President
Date: April 14, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Norman Docteroff
- ----------------------------------------
Norman Docteroff
President, Chief Executive Officer
and Director
/s/ Raja Tuli
- ----------------------------------------
Raja Tuli
Chairman of the Board
/s/ Mada G. Singh
- ----------------------------------------
Mada G. Singh
Director
/s/ Lakhbir Tuli
- ----------------------------------------
Lakhbir Tuli
Director
/s/ Melvin Yablon
- ----------------------------------------
Melvin Yablon
Director
Exhibit 10.4
MARKETING RIGHTS AND SUPPLY AGREEMENT ("AGREEMENT")
THIS AGREEMENT made this 14, day of Jan, 2000 by and between DOCUPORT,
INC., a Delaware corporation with offices at 81 Two Bridges Road, Fairfield, New
Jersey 07004 ("DPI") and THOMSON CONSUMER ELECTRONICS, INC., a Delaware
Corporation with offices at 10330 North Meridian Street, Indianapolis, Indiana
46290 ("Thomson").
RECITALS
WHEREAS, DPI has developed a "portable" multi-functional office machine
capable of functioning as a fax machine, scanner, printer, copier and fax and
data modem;
WHEREAS, DPI holds patents with respect to certain technologies and
components embodied in the "portable" multi functional office machine and has
acquired certain rights in trademarks related to it;
WHEREAS, DPI is interested in granting to Thomson the exclusive right to
market the "portable" multi functional office machine in the United States and
Canada only and supplying Thomson with DPI units on the terms proposed herein;
WHEREAS, the parties have heretofore entered into a Memorandum of
Understanding concerning a proposed marketing and supply agreement; and
WHEREAS, the parties do now desire to enter into a binding Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter contained, the parties hereby agree to enter this Agreement.
All of the above Recitals are deemed to be part of this Agreement as
though set forth at length in the text of this Agreement.
Section 1: Grant and Appointment
1.1 Grant. DPI hereby grants to Thomson the exclusive right to
promote, market and sell the portable "Multi Functional Office
Machine" and any upgrades or replacement models (the "Product")
in the United States and Canada only (the "Territory") for
sales to retailers and other resellers as identified on Exhibit
1.1, attached hereto. This grant shall in no way be construed
to limit DPI marketing and sales rights outside of the
Territory. Thomson may, in addition negotiate the right to
manufacture, and to have manufactured, Product both inside and
outside the United States pursuant to Section 4.1 below.
<PAGE>
1.2 Consent. During the term of this Agreement, except as otherwise
provided in Section 1.1, DPI shall not itself, nor shall it
license or authorize any other marketing representative,
distributor, retailer or other person to, promote, market or
sell the Product or any similar product within the Territory
without the express written consent of Thomson.
1.3 Term. Subject in each case to the provisions of Section 12,
this Agreement shall commence on the date set forth above and
shall continue in effect until December 31, 2003 (the "Initial
Term"); thereafter, this Agreement shall be renewable at
Thomson's election, by written notice from Thomson to DPI not
less than one hundred eighty (180)) days prior to the end of
any term of this Agreement, for additional three (3) year
terms, provided that Thomson has met the minimum purchase
requirements set forth in Section 2.5 and has otherwise
complied in all material respects with the terms and provisions
of this Agreement.
Section 2; Rights and Duties of Thomson
2.1 Best Efforts. Thomson shall use commercially reasonable efforts
to promote, market and sell the product in the Territory.
Thomson shall maintain adequate facilities and personnel
necessary to accomplish the purpose of this Agreement, and
shall maintain sufficient inventory and stock of the Product
for anticipated sales, timely delivery and sales
demonstrations.
2.2 Employee and Agents. Thomson shall be solely responsible for
the conduct and representations of any of its employees or
agents in connection with its efforts to promote, market and
sell the Product. Thomson's employees and agents shall have no
claims against DPI for commissions, salary, reimbursement or
for any other claim of any kind whatsoever.
2.3 Modification of Project. Thomson shall not modify the Product
in any function without the express written permission of DPI.
Such permission will not be unreasonably withheld and all such
modifications will be done jointly.
2.4 Records and Information. Thomson shall maintain and furnish to
DPI upon its request on a quarterly basis (i) records relating
to sales of the Product by Thomson in the Territory, which
shall be certified by an officer of Thomson and (ii) any other
information relating to market conditions in the Territory,
technical or marketing problems or opportunities related to the
Product in the Territory and customer complaints, comments and
suggestions.
2
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2.5 Minimum Purchases. Thomson will use commercially reasonable
efforts to purchase and sell the following quantity of
Products:
From the first day of shipping until the end of calendar year,
8666 units per month 2nd Year - 75,000 units 3rd Year - 100,000
units
Note: 1st year volume is based upon an anticipated production
in the June-July 2000 timeframe.
Should Thomson not meet or exceed these quantities, all
exclusive rights under this Agreement may be terminated by DPI
at its sole discretion.
2.6 Marketing Expenses and Responsibilities. Thomson shall bear all
costs and expenses it incurs in promoting, marketing and
selling the Product in the Territory. This also includes
tooling expense should Thomson wish to manufacture. Thomson
shall be responsible for customer service, warranty repair and
service, customer and retailer returns and all other support
functions of supporting marketing channels in the Territory.
2.7 Compliance with Law. Thomson shall at all times conduct its
efforts hereunder in strict accordance with all applicable
federal, state and local laws and regulations and in accordance
with the highest commercial standards.
Section 3: Rights and Duties of DPI
3.1 Product Supply. Subject to the provisions set forth in Section
4 or elsewhere in this Agreement, DPI shall during the Initial
Term use commercially reasonable efforts to cause its
manufacturer to supply DPI with sufficient quantities of
Products for DPI to meet Thomson's minimum annual requirements
set forth in Section 2.5 and DPI shall deliver Product to
Thomson in accordance with scheduled delivery dates. All
Product shall meet DPI's specifications, attached hereto or as
subsequently agreed upon by the parties.
3.2 Documentation. DPI shall provide Thomson with such assistance
as Thomson may reasonably request in connection with its
preparation of documentation relating to the Product such as,
but not limited to, safety data.
3.3 Technical Information. DPI shall provide all technical
information and repair instructions reasonably necessary to
assist Thomson in promoting, marketing, selling and repairing
the Product.
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3.4 Compliance with Law. DPI shall at all times conduct its efforts
hereunder, and shall ensure that the Product shall be, in
strict accordance with all applicable federal, state and local
laws and regulations and in accordance with the highest
commercial standards.
3.5 Replacement Product. Unless Thomson elects to designate a third
party manufacturer or to manufacture the Product itself under
Section 4.1 below, DPI shall provide to Thomson the
opportunity, upon expiration or termination of this Agreement,
to purchase such quantities of Products from DPI as Thomson
reasonably anticipates may be required to replace defective
Products for a period of seven (7) years after expiration of
this Agreement.
3.6 Thomson Trademarks. DPI shall apply Thomson trademarks and
logos to the Product and packaging in accordance with Thomson
specifications, all as reasonably acceptable to DPI.
3.7 Recalls. If at any time a government agency orders Thomson to
conduct a product safety recall or a field fix program with
respect to the Product, or Thomson undertakes, with DPI's
consent, not to be unreasonably withheld, a product safety
recall or field fix program, Thomson will notify DPI within
thirty (30) days. DPI shall (1) repair or replace defective
Product units or, at Thomson's option, credit Thomson's
account, and (2) reimburse Thomson for Thomson's documented
reasonable and necessary expenses, including labor, materials
and shipping expenses, in conducting such product safety recall
or field fix program.
Section 4: Product Manufacturer.
4.1 Selection of Manufacturer. Until the completion of the initial
term, the Product shall be manufactured by DPI's contract
manufacturer, or by such other third party manufacturer as may
be mutually acceptable to DPI and Thomson. From and after the
completion of the Initial Term, Thomson may in its discretion
designate a third party manufacturer for the Product or may
manufacture the Product on its own behalf. In addition, from
and after the completion of the Initial Term, at the request of
DPI, Thomson shall make the election referred to in the
immediately preceding sentence. In either event DPI shall use
its best efforts to facilitate an efficient transfer of the
manufacturing capability to such third party manufacturer or to
Thomson, as the case may be. The parties shall at that time
negotiate a mutually acceptable nonexclusive license of DPI's
intellectual property rights related to the Products necessary
for Thomson to manufacture or to have manufactured for it the
Products.
4
<PAGE>
4.2 Product Orders. Thomson shall order Product from time to time
by issuing a firm purchase order not less than ninety (90) days
in advance of the date that Thomson requires delivery of such
Product in accordance with Section 4.3 hereof. DPI shall
utilize the Thomson purchase orders as the basis for issuing
purchase orders to its manufacturer. Thomson shall issue to DPI
its forecast of Product purchases on a rolling six (6) month
basis, but such forecasts shall be estimates only and not
binding purchase commitments.
4.3 Title and Risk of Loss. Title and risk of loss with respect to
the Products shall pass to Thomson when the Products are
delivered to a carrier designated by Thomson.
4.4 Product Specifications. DPI and Thomson shall cooperate in all
reasonable respects with respect to the oversight and
instruction of any third party manufacturer of the Product.
Such third party manufacturer of the Product shall use the DPI
specifications attached hereto as such specifications may be
amended or supplemented from time to time. DPI shall provide
Thomson with the specifications and such other information
relating thereto as Thomson may reasonably request. DPI shall
[ILLEGIBLE] in advance, with Thomson prior to changing the
specifications, and in connection therewith Thomson shall have
the right to request changes to the specifications, with such
changes to be made with DPI's consent, which shall not be
unreasonably withheld.
Section 5: Patents, Trademarks or Trade Names
5.1 Third Party Infringement. DPI will use commercially reasonable
efforts to prevent third parties from marketing and/or selling
in the Territory products incorporating or infringing DPI
patents.
5.2 Trademarks. Product shall bear the "DPI Technologies" logo in a
type size equal to the Federal Communications Commission
listing information set forth on the Products. Thomson shall
have the exclusive right to use the DPI trademark and logo
during the term of this Agreement on the Product and to
advertise and promote the Product, except for DPI's use outside
the Territory. Thomson shall have the right to utilize the
"DPT", trademark in conjunction with other brad names owned or
licensed by Thomson except to be extent any such utilization
would violate any agreement under which Thomson licenses any
such brand names. Except as set forth in the preceding
sentences, without the express written consent of DPI, Thomson
may not use any DPI mark, trademark or tradenames. Any use of
or reference to any DPI mark, trademark or trade name by
Thomson shall inure solely to the benefit of DPI. Thomson shall
not apply for, maintain or acquire any United States or foreign
trademark relating to
5
<PAGE>
the marketing or sale of the Product without the express
written consent of DPI which may be granted or withheld in
DPI's sole discretion. Thomson shall use commercially
reasonable efforts to inform DPI of any known infringement by
third parties of any DPI mark, trademark or trade name used by
Thomson pursuant to this Agreement. Upon the expiration or
termination of this Agreement, Thomson shall immediately cease
all and any use of all DPI marks, trademarks or trade names,
except that Thomson may continue to sue such marks, trademarks
or trade names solely in connection with the sale of Product in
Thomson's inventory at the time of such cancellation. Nothing
contained herein shall be construed in anyway to permit DPI to
use any of Thomson marks, trademark or trade name.
5.3 Patents. Except as contemplated in Section 4.1 above, nothing
in this Agreement grants to either party any rights or licenses
under the other party's patents.
Section 6: Pricing and Costs.
6.1 Price. DPI shall sell the Product to Thomson and Thomson shall
purchase the Product from DPI, at a price set equal to the net
price charged by DPI's manufacturer to DPI plus $45.00. DPI
shall allow Thomson reasonable access to its records to verify
such net price.
6.2 Costs. Thomson shall pay all transportation and freight costs
for the Products from DPI's third party manufacturer's location
and shall specify a carrier for shipment. If no carrier is
specified, DPI shall make reasonable arrangements at Thomson's
expense for shipment. All costs for insurance, handling,
special packaging or similar charges and all sales, use, excise
and other similar federal, state and local taxes and tariffs
also shall be borne by Thomson.
Section 7: Payment Terms.
7.1 Terms. Thomson shall pay all sales invoices for Products
purchased by Thomson within thirty (30) calendar days from date
of delivery to Thomson (FOB DPI's manufacturer).
Section 8: Incoming Inspection.
8.1 Incoming Inspection. Thomson shall have the right to inspect
Product after delivery and in the event that more than five
percent (5%) of a shipment of Product is defective or
non-confirming, Thomson shall have the right to reject and
return the entire shipment.
Section 9: Warranty and Limitation of Liability.
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9.1 General. DPI warrants that each unit of Product will meet DPI's
specifications and will be free from defects in design,
material and workmanship for a period of one (1) year after
receipt by Thomson in Thomson's warehouse of such units. This
warranty does not extend to Thomson supplied components.
9.2 Failure to Comply with Warranty. Upon failure of any unit of
Product to comply with the above warranty, DPI will, at its
option, promptly repair or replace such unit of, if unable to
repair it, promptly refund in cash to Thomson the amount paid
by Thomson for such unit.
THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES EITHER EXPRESSED OR
IMPLIED INCLUDED, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE.
Section 10: Confidentiality
10.1 Confidentiality. Each of the parties has heretofore and may
from time to time hereinafter disclose confidential information
to the other party. Each party agrees to treat confidentially
all notes, analyses, compilations, studies or other documents,
whether prepared by the other party or others, provided to it
and clearly marked "Confidential" (collectively, the
"Information"). The term "Information" does not include
information which (i) becomes generally available to the public
other than as a result of a disclosure in breach of this
Agreement, (ii) was available to a party on a non-confidential
basis prior to its disclosure by the other party, its
representatives or its agents or (iii) becomes available to a
party on a non-confidential basis from a source other than the
other party, its representatives or its agents, provided that
the source is not (A) bound by a confidentiality agreement
prohibiting disclosure of such information or (B) otherwise
prohibited from transmitting the information by a contractual,
legal or fiduciary obligation.
10.2 Disclosure to Representatives. It is understood that each
party may disclose any of the Information to those of its
representatives (including, without limitation, contract
manufacturers) who require such Information for the purpose of
fulfilling such party's obligations under this Agreement
(provided that such representatives shall be informed of the
confidential nature of the Information and shall execute a
similar confidentiality obligation). Each party agrees that the
Information will be kept confidential by such party and its
representatives and, except with the specific prior written
approval of the other party or as expressly otherwise permitted
by the terms hereof, will not be disclosed by such party or its
representatives. Each party further agrees that it and its
representatives
7
<PAGE>
will not use any of the Information of the other party, in any
manner that infringes the propriety rights or intellectual
property of the other party or for any reason or purpose other
than to fulfill such party's obligations under this Agreement.
10.3 Protective Order. In the event that a party or any of its
representatives is requested or required (by oral questions,
interrogatories, requests for Information or documents,
subpoena, civil investigative demand or similar process) to
disclose any of the Information, it is agreed that such party
or its representative, as the case may be, will provide the
other party with prompt notice of such requests) so that the
other party may seek an appropriate protective order or other
appropriated remedy and/or waive compliance with the provisions
hereof. In the event that such protective order or other remedy
is not obtained, or that such a waiver is granted hereunder,
the party or its representative may furnish that portion (and
only that portion) of the Information which it is legally
compelled to disclose and will exercise its best efforts to
obtain reliable assurance that confidential treatment will be
accorded any Information so furnished.
10.4 Continuing Obligations. The provisions of this Section 10
shall survive the termination of this Agreement for a period of
five (5) years.
Section 11: Indemnification
DPI shall defend, indemnify and hold harmless Thomson and Thomson's
customers for any loss, damage, expense or liability that may result
by reason of any infringement or claim that the Product infringes
any patent, trademark copyright, or any other proprietary right of
any third party. Thomson shall notify DPI promptly of any claim of
infringement and shall cooperate with DPI in every reasonable way to
facilitate defense of any such claim.
Should any Product furnished to Thomson hereunder or in orders
placed hereunder become the subject of a claim of such infringement,
DPI shall, at its expense, and at Thomson's option, either procure
for Thomson the right to continue using the Product, replace or
modify the same so that it becomes noninfringing, or refund to
Thomson the full purchase price of the infringing items.
Section 12: Termination
This Agreement may be terminated under the following circumstances:
(i) at the election of either party, immediately upon bankruptcy,
insolvency, assignment for benefit of creditors, or
appointment of a receiver for the business or assets of the
other party; or
8
<PAGE>
(ii) at the election of either party, immediately upon the other
party's failure to cure a material breach of any of the terms
of this Agreement within thirty (30) days after written notice
thereof by; or
(iii) at the election of Thomson in the event that competitor of
Thomson's acquires a financial interest in DPI and as a result
receives access from or through DPI to Thomson Information as
defined in paragraph 10.1 above.
Section 13: Assignment
This Agreement may not be assigned or otherwise transferred by
either party without the express written consent of the other party.
Section 14: Headings Not Controlling
Headings used in this Agreement are for reference purposes only,
shall not be deemed a part of this Agreement and in no way define,
limit, augment, extend or describe the scope, content or intent of
any part or parts of this Agreement.
Section 15: Entire Agreement
The parties agree that this Agreement constitutes the entire
Agreement between the parties pertaining to the subject matter
hereof and supersedes all prior agreements and understandings
pertaining thereto.
Section 16: Severability
If any provision or provisions of this Agreement are declared
invalid, illegal or unenforceable, such declaration shall not affect
or impair the validity, legality and enforceability of the remaining
provisions of this Agreement.
Section 17: Modification of Terms
No modification of this Agreement shall be effective unless it is in
writing and properly executed by both parties.
Section 18: Waiver
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to
exercise any right or remedy upon a breach thereof shall constitute
a waiver of any such breach or of any other covenant, agreement,
term or condition. Any party may, by notice delivered in the manner
provided in this Agreement, but shall be under no obligation to,
waive any of its rights or any conditions to its obligations
hereunder, or any duty, obligation or covenant of any other party.
No waiver shall affect or alter the
9
<PAGE>
remainder of this Agreement, but each and every other covenant,
agreement, term and condition hereof shall continue in full force
and effect with respect to any other then existing or subsequently
occurring breach.
Section 19: Relationship of the Parties
DPI and Thomson are independent entities engaged in independent
businesses and, except as provided herein, each shall bear all costs
and expenses incurred in the performance of their respective duties
under this Agreement. Nothing in this Agreement is intended to
create a partnership or joint venture between the parties. Neither
DPI nor Thomson nor any agent or employee of either shall be
regarded as an agent or employee of the other, and nothing herein
shall be construed as reserving to any party the right to control
the other. Neither party to this Agreement shall have the right or
authority to make any promise, guarantee, warranty or
representation, or to assume, create or incur any liability or other
obligation of any kind, express or implied, against, or in the name
of, or on behalf of, the other.
Section 20: Force Majeure
Neither party hereto will be liable for any failure to perform any
obligation under this Agreement, or for delay in such performance,
to the extent such failure to perform or delay is caused by
circumstances beyond its reasonable control, including without
limitation fire, storm, flood, earthquake, explosion, accident, war,
acts of a public enemy or rebellion, insurrection, sabotage,
epidemic, quarantine restriction, labor disputes, labor shortages,
transportation embargoes, delays in transportation, shortages of
material, fuels or power, acts of God, acts of any government or any
agency thereof, and judicial action. Any suspension of performance
by reason of this Section 20 will be limited to the period during
which the cause exists.
Section 21: Certain Rights of First Refusal
In the event DPI develops after the date hereof any new product or
further development with respect to the Products or any original
equipment manufacturing application with respect to the Product, DPI
shall, as soon as practicable after the development of a prototype
thereof, notify Thomson of such new product or development
(collectively the "New Product"). Upon the execution of a mutually
satisfactory confidentiality agreement with respect to such New
Product DPI shall provide all appropriate information about such New
Product to Thomson. On or before the nineteth (90th) day after DPI
notifies Thomson of the existence of a New Product, Thomson shall
indicate in writing whether it desire to market such New Product in
the Territory. If Thomson so desires to market the New Product, DPI
and Thomson agree to negotiate in good faith an agreement governing
the terms and conditions under which Thomson
10
<PAGE>
would have the marketing rights to the New Product (the "New Product
Agreement). The New Product Agreement shall be substantially similar
to this Agreement with such changes as may be necessary to reflect
the specific terms of the agreement, including without limitation
minimum purchases, pricing and costs and other factors particular to
the New Product.
Section 22: Notice
All notices under this Agreement shall be deemed to have been duly
given when delivered, if delivered by hand, or three (3) days after
posting, if sent by registered first class mail, return receipt
requested and postage prepaid, in either case at the following
stated addresses:
DPI:
DocuPort
81 Two Bridges Road
Fairfield, New Jersey 07004
Attn: Norman Docteroff, President and CEO
With a copy to:
Morris Yamner, Esq.
Sills Cummis Radin Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, New Jersey 07102
Thomson:
Thomson Consumer Electronics, Inc.
2000 Clements Bridge Road
Deptford, New Jersey 08096
Attn: Manager - Accessories Business
With a copy to:
Thomson Consumer Electronics, Inc.
10330 North Meridian Street
Indianapolis, Indiana 46290
Attn: Legal Operation
A party may, by giving three (3) business days written notice to the
other party hereto, designate another address in substitution of the
foregoing address to which such notice shall be given.
11
<PAGE>
Section 23: Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without reference to choice of law
rules. Venue over any litigation arising under or related to this
Agreement shall exclusively be in the State of New Jersey.
Section 24: Facsimile
The parties agree that any documentation, other than notices under
this Agreement, that must be submitted by one party to the other for
approval, information or review my be transmitted by facsimile
unless specifically requested otherwise by the receiving party.
Section 25: Counterparts
This Agreement shall be executed simultaneously in two (2)
counterparts, each of which shall be deemed an original and each of
which shall constitute the same instrument for purposes of
evidencing this Agreement.
Section 26: Binding on Assigns
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective heirs, executors, administrators,
successors, legal representatives and permitted assigns.
Section 27: Authorization
Each individual executing this Agreement does hereby represent and
warrant to each other person so signing (and each other entity for
which another person may be signing) that he or she has been duly
authorized to execute this Agreement in the capacity and for the
entity set forth where he or she signs.
This Agreement, including all of the Recitals as though set forth in the
text of the Agreement, constitutes the entire agreement and understanding
between the parties concerning
12
<PAGE>
the subject matter hereof and supersedes and replaces all prior negotiations,
discussions and agreement proposed or otherwise, whether written or oral,
concerning the subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first mentioned above.
DOCUPORT, INC. THOMSON CONSUMER
ELECTRONICS, INC.
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
-------------------------------- -------------------------------------
Title: President/CEO Title: MANAGER, PRODUCT DEVELOPMENT
Date: 1/20/2000 Date: 1-14-2000
13
<PAGE>
Product Specifications
14
<PAGE>
Exhibit 1.1
Thomson Account Base
All U.S. and Canadian Retailers
Direct Internet Sales
Shopping Network Sales
Distributors
All Military Service Clubs
Warehouse Clubs
Catalog Merchants
Internet Resellers
DocuPort Account Base
All Corporate/Commercial Sales
Local, State and Federal Government Sales
All OEM Personal Computer Direct Sellers, i.e., Dell, Gateway
College and University Book Stores
VARS
Airline Catalog Sales
At Home Resellers, i.e., Amway
Exhibit 16.1
BDO Dunwoody LLP
4150, rue Sainte-Catherine O.,
Bur./Suite 600
Montreal Quebec H3Z 2Y5 Canada
April 13, 2000
Via Facsimile
Mr. Louis Canant
Staff Accountant
Office of Small Business
United States Securities and Exchange Commission
Washington, D.C. 20549
Re: Docuport, Inc.
Dear Mr. Canant:
We are in receipt of the Form 8-K from Docuport, Inc. (the "Company"). We
are in agreement with the statements made in response to Item 304(a). In
addition, during the last two fiscal years and since our not being rehired this
year, there have been no disagreements between ourselves and the Company, nor
have any of the enumerated reportable events occurred.
/s/ BDO Dunwoody LLP
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 77486
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 163468
<PP&E> 37442
<DEPRECIATION> 11780
<TOTAL-ASSETS> 245957
<CURRENT-LIABILITIES> 1377715
<BONDS> 0
0
0
<COMMON> 6002
<OTHER-SE> (1137760)
<TOTAL-LIABILITY-AND-EQUITY> 245957
<SALES> 0
<TOTAL-REVENUES> 168193
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2674119
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 511666
<INCOME-PRETAX> (3007136)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3007136)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3007136)
<EPS-BASIC> (.53)
<EPS-DILUTED> (.53)
</TABLE>
