SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended Commission File Number: 0-28772
December 31, 1999
SALIENT CYBERTECH, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 35-1990559____
(State or other jurisdiction of (I.R.S.
incorporation or organization) Employer Identification Number)
1715 Stickney Point Rd., Suite A-12, Sarasota FL 34231
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (941) 349-6583
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
per share
Preferred Stock,
$.001 par value
per share
(Title or class)
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), YES X NO and (2) had 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 the Company'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. [ ]
As of December 31, 1999 the revenues for the most recent fiscal year is
$112,554.
The aggregate market value of voting stock held by non-affiliates of the
Company was $753,770 based on the average price per share of $1 1/16 paid
for shares on the NASDAQ Bulletin Board on December 31, 1999, trading under
symbol SLEL.
There were 3,164,900 shares of common stock outstanding having a par value
of $0.001 per share as of December 31, 1999. There were 20 shares of
preferred stock authorized, having a par value of $0.001 as of December 31,
1999. No preferred shares had been issued since December 31, 1999.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
Transitional Small Business Disclosure Format (check one): Yes ___ No _X_
<PAGE>
PART I
THIS ANNUAL REPORT CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD
LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. THESE STATEMENTS APPEAR IN A NUMBER OF
PLACES IN THIS QUARTERLY REPORT AND INCLUDE STATEMENTS REGARDING THE
INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY, WITH RESPECT TO
(I) THE COMPANY'S PRODUCT DEVELOPMENT AND FINANCING PLANS, (II) TRENDS
AFFECTING THE COMPANY'S FINANCIAL CONDITION OR RESULTS OF OPERATIONS,
(III) THE IMPACT OF COMPETITION AND (IV) THE EXPANSION OF CERTAIN
OPERATIONS. ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES
OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF VARIOUS FACTORS.
ITEM 1 DESCRIPTION OF BUSINESS.
Background
MAS Acquisition I Corp. ("MAS"), was incorporated on July 31, 1996 in the
State of Delaware, to engage in any lawful corporate undertaking, including,
but not limited to, selected mergers and acquisitions. On December 5, 1997,
pursuant to the terms of an Agreement of Merger (the "Agreement") between
MAS and Sloan Electronics, Inc. ("Sloan Electronics"), Sloan Electronics
merged into MAS and MAS changed its name to Sloan Electronics, Inc.
Sloan Electronics, Inc., through its Sloan Electronics Division (Sloan)
designs, manufacturers and markets electronic monitoring equipment primarily
for the criminal justice industry and the long-term health care industry.
Sloan markets its house arrest monitoring equipment through its in-house
marketing department and currently distributes its products through national
service providers. Sloan's medical division has distribution agreements with
Response USA, a distributor of personal emergency response systems and with
King Alarm, a security product distributor.
In May, 1999, Sloan Electronics decided to actively seek acquisition
candidates in the high technology, Internet, distance learning, and security
industries. To this end, and to reflect the change in the company philosophy,
Sloan changed its name to Salient Cybertech, Inc. (the "Company") in
May, 1999.
During the third quarter 1999, acquisition discussions were held with
several companies and resulted, on September 24, 1999, in the acquisition
for stock of Gemini Learning Systems, Inc. ("Gemini"), which operates as a
division of the company. Gemini Learning Systems developed and markets
SWIFT(tm) (SoftWare Intelligent Freeform Training) distance learning
software and courseware. Ms. Kim Adolphe, founder of Gemini, will continue
to run the division as President and has been named to the Board of
Directors to fill the seat vacated by Mr. Richard Brooks in May of 1999.
The Company, through the Sloan Electronics Division, will continue to service
its current clients, and to identify new markets for its product line, as
well as seek acquisitions in the area of high technology industry.
The Company will also develop the Internet based business, of which
Gemini is the first acquisition.
The business of the Company will be broken into two sections, one
section dealing with the Sloan Electronics Division High Technology
Division), and the second with the Internet Technology Division (Gemini).
A. Sloan Electronics Division:
Sloan's electronics business strategy is based on establishing a market
share within the criminal justice house arrest industry and within the
healthcare industry. By incorporating better, more cost-effective technology
into its SEI Alert 24 product line and its Wander Watch products, we believe
that our products are among the best currently available in these two
industries.
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Criminal Justice:
The Sloan Electronics division offers a range of electronic monitoring
equipment for the criminal justice house arrest corrections programs.
We believe our equipment strikes a balance between solid, state-of-the-art,
high-quality products and competitive price.
The concept behind the product line is that each product is able to stand
alone, without additional equipment such as door sensors or custom wiring,
yet each product is integratable with a number of pre-existing computer
software programs. This philosophy of integration makes the SEI Alert
products as well as Wander Watch products more attractive to institutional
consumers.
The SEI Alert 24 Single Offender Based System. A tamper-proof transmitter is
fitted and attached to an offender's ankle. This anklet is waterproof and
designed to be worn at all times. A home-based receiver is placed in a
central location within a residence, and a range setting is selected. In the
event that the anklet is removed, or that the person wearing it strays
outside the predetermined range, the event is recorded, time and date
stamped, and sent by modem to an outside monitoring station within 4 minutes.
The current industry average time window is over 8 minutes.
The SEI Alert 24 Half-Way House Multi-Residence System. Each person paroled
to a half-way house is fitted with an anklet transmitter. The receiver then
monitors the movements of each client within the predetermined parameter of
the half-way house and records any and all violations. This system can work
as a stand-alone measure with the current data sent via a telephone line to
monitoring station, or can also work as an in-house employee monitoring
station. The system is designed to monitor from 1 to 50 offenders.
The SEI Alert 24 Drive-By Transmitter Detector. This device is designed for
use by parole officers, probation officers or security officers. This mobile
surveillance system allows an officer to check on a house arrest client
simply by driving past the offender's residence, work place or school. The
system detects and displays the ID of a particular offender by interfacing
with that person's anklet transmitter. The receiver unit time an date stamps
the information collected, and it can also upload this information to a
central computer.
The SEI Alert 24 Chain Gang / Work Release Departure Alert System. Each
inmate is fitted with an anklet transmitter. A single guard monitors the
portable programmable receiver unit which alerts the officer in the event
that an offender, or group of offenders, leaves the general area.
The SEI Alert 24 Automated Check In System. A kiosk for the criminal justice
industry to facilitate the "day reporting" of offenders on probation or
parole. Client is verified using hand print technology, listens to a specific
message from the parole officer and replies using a telephone handset and
tone pad. The system can collect restitution money and issues a receipt to
the offender showing check-in details and payments. The system interfaces
with a computer that can generate various reports. As a case management tool
it improves a parole officer's efficiency in managing the growing number of
inmates released into supervision programs. It has been used in field trial
in Washington State for the Department of Corrections.
Medical Monitoring:
The Wander Watch Single Patient System. An adjustable, tamper-proof anklet
is fitted to a patient's leg. It is completely waterproof and designed to be
worn at all times, including bathing and swimming. The micro-transmitter in
the anklet sends a coded silent radio signal to the home receiver, which in
turn determines the proximity of the patient to the base unit. An alarm will
sound when the patient travels beyond the selected range or if the anklet is
removed. This alarm can be transmitted by telephone to a central station
using industry standard alarm protocols. Dispatchers at the central station
can then take the appropriate responses, such as calling the caregiver,
notifying a neighbor, or calling emergency services. Management is
disappointed with the sales of this product and is reassessing the use of
company assets to further develop and promote the single patient system.
The Wander Multi-Patient Wander Alert System. A computer-based system for
placement within a medical facility, the Multi-Patient Alert System is able
to notify a caregiver in the event of a patient departure from a long-term
<PAGE>
healthcare facility. It can monitor up to 25 patients. Unlike most wander
alert systems installed in a medical facility, the Wander Watch system
stands alone and does not require custom electrical wiring, installation of
door sensors or the use of door barrier detection equipment.
Nurse Call Alert 24. A wireless nurse call system with a 500 resident
capacity, which can be installed in less than 30 minutes. This system
utilizes fail-safe technology, provides coverage of any sized facility,
outputs usage reports and provides for a complete audit trail. The system's
advanced features include an automatic signal check, low battery reporting
and an optional range extender. The system can function as a nurses' call
network or it can complement an optional paging system to direct staff to
medical emergencies in a more timely and efficient manner. This system is
currently available for field trials.
Other products:
Fleet Watch Alert 24. This radio frequency reporting system allows a company
to passively keep tract of its fleet vehicle traffic. Every time a fleet
vehicle drives onto or off the company property, the event is date and time
stamped automatically. This enables a company to keep track of employee
hours, vehicle use and vehicle status instantly. The Fleet Watch computerized
base unit is fully integratable with other computer software, allowing the
unit to generate vehicle status reports on demand. No longer is it necessary
for a company to assign an employee the duty of physically counting each
vehicle on the lot. This system is available for field trials.
Industry Background
The Corrections Industry. The United States currently locks up a greater
share of its residents than other nations. According to the US Department of
Justice there were 3.5 million people on probation or parole at year end
1995, and the estimated 5.5 million total in the correctional population
equals 2.8% of US adults and is growing at 4.5% per year. As of June 30,
1995, there were 1,004,608 state prison inmates, up 9.1%, and 99,466 federal
inmates, up 6.1%. The annual average increase in the prison population since
1980 has been 8.7% per year.
The Criminal Justice System regards house arrest as an acceptable alternative
to incarceration for the nonviolent segment of the prison population, and as
a better way to monitor criminals once they are paroled to a half-way house
facility. The public's insistence on increased law enforcement along with
their reluctance to fund additional prisons also makes house arrest
using electronic assisted monitoring systems an increasingly attractive
alternative to incarceration.
The Medical Industry. A patient's compulsive desire to wander about is a
symptom of dementia, which often accompanies Alzheimer's Disease.
Biologically, this is caused by physical changes in the brain. Oftentimes
the patient acts out of routine, such as the repetitive action of
getting ready to leave for work every day. Sometimes the patient just feels
tense or trapped and wants to escape his environment. Until recently, a
common medical practice was to heavily sedate these patients, or to restrain
a patient to a chair or bed to keep them from wandering. Today, hospitals
and institutions maintain separate facilities to enable them to better deal
with patients who demonstrate a compulsive desire to wander. However, the
huge costs associated with institutionalized care, along with its impersonal
nature, make at-home care an important option for many families. Of the 4
million currently diagnosed with Alzheimer's, 3 million live at home, cared
for by family, visiting aides, and nurses supplied by the estimated 18,000
at-home care agencies which are projected to grow 30% every two years. The
Wander Watch Alert 24 systems are designed to help at-home caregivers and
institutions safeguard patients prone to wandering.
The US Administration on Aging projects as many as 14.3 million Alzheimer's
cases by 2040. Sloan believes that the long-term healthcare segment of the
medical industry is growing at an increasing rate. The Sloan Electronics
Wander Watch Alert 24 Multi-Patient system is designed for long term care
facilities. Sloan also believes that the home-care segment of the healthcare
market is growing at a steady rate. The Wander Watch Alert 24 Single Patient
System is specifically designed to meet the needs of the more than 3 million
Alzheimer's patients and patients with related medical disorders, who are
cared for at home. These systems not only help protect the patient, but they
also give the at-home caregiver peace of mind that their loved one will not
wander off at night or when the caregiver is momentarily distracted.
<PAGE>
Recently, medical researchers have announced results that further the
understanding of the chemical mechanisms associated with Alzheimer's and
which may lead to methods to prevent or treat the disease. While management
hopes such treatments will be developed, we are aware that they could
decrease the need for the Wander Watch products.
Sloan Electronics Business Strategy
High-Quality Image. We believe that within the house arrest and medical
monitoring industries, Sloan has built a reputation for developing and
manufacturing some of the best, cost-effective and user-friendly systems on
the market. The Wander Watch products and the SEI Alert 24 products reflect
our commitment to quality; the highest standards in design, assembly and
appearance of products. We recognize that product dependability and
reliability are highly significant to success. Therefore, quality control
and customer satisfaction play an important role in our business strategy.
Focus on Private Residence. The Wander Watch product line and the SEI Alert
24 product lines are both specifically designed to be used in a private
home, apartment or townhouse. Ease-of-use and stand-alone features inherent
to both products give them a competitive advantage in these areas. The
Wander Watch Single Patient System is both affordable and easy to install.
The receiver unit plugs into a standard outlet. Unlike most competitive
products, this is all that is required to install and operate the products;
doors do not need to be wired with sensors. There are no wires or barriers
associated with the products.
Product Design And Development
The Sloan Electronics division is continuously engaging in electronic
component research, design, experimentation and development, all of which
are essential to maintaining a competitive advantage in the market place.
The overall product development is managed and directed by Paul Sloan,
President. In addition, on project-by-project basis a product development
team is assembled from personnel within Sloan and may include personnel
outside Sloan as well.
The product development team is responsible for developing working designs of
all approved product concepts using computer-aided design systems, and for
coordinating all modeling and initial prototyping. The in-house testing
department evaluates all prototypes. We then create full documentation and
design all circuitry artwork. Complete product specifications and designs
are then sent to Kimchuk Inc., which prints the circuit-boards, assembles,
tests, performs quality control inspections to rigid standards, packages and
finally drop-ships the products to distributors or directly to customers.
Sales And Marketing
The marketing strategy varies based upon each product line. With regard to
the criminal justice house arrest market, we continue to market SEI Alert 24
products to independent service providers and to municipalities which monitor
and administer their own house arrest programs. The company is seeking
strategic associations with other companies to develop and market enhanced
products for the criminal justice industry. Sloan has licensed its
Wander Watch Alert 24 single patient departure alert system for exclusive
distribution to the long-term health care industry to Response USA,
a major company in the PERS (Personal Emergency Response System) industry.
Response USA leases Wander Watch Alert 24 single patient systems on a
monthly basis to individual users and to home care agencies. Management is
disappointed withunit sales by Response USA and is evaluating its options
for the sale and marketing of Wander Watch Alert 24 systems. We also sell
directly to independent security companies who distribute to end users.
Marketing strategies and distribution decisions concerning other products
are handled on a product-by-product basis.
SEI Alert 24 Products. The criminal justice house arrest market is dominated
by several manufacturers who, along with retailing their products, are also
contract service providers who compete in the security industry. These
<PAGE>
manufacturers have developed proprietary software which is not currently
integratable with standard, existing security company protocol. Their
software is not as effective or user-friendly as security industry software.
However, these manufacturers look upon this proprietary software as a way to
shut small security companies out of a lucrative market.
Based on current trends, management believes that within 5 years, 80% of the
municipalities who currently monitor their own house arrest program will get
out of the business. Independent security contractors will be competing
directly against these other equipment manufacturers for service contracts.
Sloan is in the position to market its fully integratable home incarceration
system to these security providers, thus leveling the playing field within
the house arrest industry.
The Wander Watch Products. We view our role in the medical monitoring
industry as that of developer, designer and manufacturer. To that end, we
have negotiated and signed contracts with Response USA for them to distribute
Wander Watch single patient systems. Response USA leases the systems to
individuals and home care agencies and offers central station monitoring of
the Wander Watch Alert 24 units for an additional monthly fee. The company
has a recurring revenue sharing arrangement with Response USA, and received
income from recurring monthly fees for the first and second quarter of 1999,
and will receive payments for the third quarter of 1999. Response USA has
four regional offices servicing all 50 states and markets to home care
agencies, hospitals, adult day care facilities, as well as individuals.
Response USA receives payment for the Wander Watch system both from end users
and various state and local agencies. There is no assurance that other
reimbursements will be obtained or those in place will continue.
Response USA also receives referrals from the National Alzheimer Association
and participates in their Safe Return program. Management is disappointed
with sales of the single patient system by Response USA and recognizes the
need to either develop an alternative distribution arrangement or to stop
marketing the product.
Advertising. Sloan has in the past advertised in trade publications specific
to the markets it manufacturers products for, and in journals which publish
company-by-company product comparisons. Sales from these efforts have been
disappointing, and management is evaluating the expenditure of resources
advertising the Wander Watch patient monitoring systems and SEI Alert 24
offender monitoring systems. However, we are continue to seek out innovative
ways to build name recognition within the industries in which we compete, as
well as to create public awareness for the product line. Sloan maintains a
web site at www.salientcyber.com.
Competition
Sloan competes in a number of niche markets.
House Arrest Market. Competitors within the criminal justice market include
BI Incorporated, Strategic Technologies, Inc., and Elmo-Tech Ltd. Although
all of the companies manufacturing house arrest products base their products
on the same principals, management believes that Sloan has competitive
advantages over its competitors within this industry.
1. The SEI Alert 24 product line uses a 900 MHz spread spectrum radio
frequency. This technology is similar to the technological differences that
exist between cordless phones. Phones using 900 MHz radio frequencies are
far superior to those less expensive models that experience interference
problems due to the fact that they operate at a lower frequency.
2. The SEI Alert 24 products have an exclusive low range setting on the
receiver unit, which ensures that house arrest means house arrest and not
neighborhood arrest. With other systems, an offender could wander the
neighborhood and still not trip the distance setting on the base unit.
The industry standard low range setting is a 150 foot perimeter. SEI's low
range setting is between 40 and 60 feet.
3. With competitors' equipment, the "window" from the time an offender steps
outside the range setting until he is detected as being outside the range
setting varies from 6 to 30 minutes. With some systems, an offender is able
to leave his residence for that period of time and return undetected. The
SEI Alert 24 system greatly improves performance and offers an exclusive 4
minute radio frequency window.
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4. The SEI Alert 24 anklet transmitter is tamper resistant. No tamper system
currently available is 100% tamper proof or false alarm proof. However, the
SEI Alert 24 system is the most reliable on the market when it comes to
false alarms. A false alarm necessitates a physical inspection of the
anklet transmitter by a monitoring officer. Therefore, this fact is viewed
as a major selling point among security providers.
5. The SEI Alert 24 product line has been designed to allow independent
security companies access to a growing segment of the industry, electronic
home incarceration. The competitors' use of abusive pricing policies and
proprietary non-compatible software have worked together to keep
independents out of the market. Using Sloan's products, these security
companies are now able to compete with BI Incorporated, Strategic
Technologies, and Elmo-Tech for municipal contracts on an even footing.
Unlike other manufacturers, we do not directly compete against our
customers in the contract monitoring business. However, we are seeking
strategic associations with other companies in the criminal justice
monitoring industry to vertically integrate business and maximize market
share.
Long-Term Healthcare Market. Competition in this market includes WanderGuard,
Code Alert, Watchmate and Secure Care Products. All of these companies
utilize proximity sensing technology, which requires that a patient wear a
low powered transmitter that sends a weak signal. A receiver is mounted at
each door. When a patient approaches a door, an alarm sounds and the door
magnetically locks. Our Wander Watch Alert 24 technology has a competitive
advantage over proximity-sensing systems since it requires no additional
wiring of door sensors and provides a higher level of patient security.
1. With competitive products, the transmitter attached to a patient has no
removal alert (an inherent part of the Wander Watch systems). These
transmitters are attached with a hospital ID type band. Common behavior for
an Alzheimer's patient, or other patients suffering from dementia, is to try
to remove everything from their bodies. The Wander Watch anklet, if removed,
activates an alarm at the receiver unit.
2. Proximity-sensing technology requires the installation of barriers, door
sensors and magnetic locks. Prices per door range from $2,500 to over $5,000,
with the average facility having anywhere between four and ten doors.
Automatic door locks also create problems with existing fire alarms and fire
regulations, for in the event of a fire, the proximity technology and
magnetic door locks need to be deactivated.
3. The Wander Watch system utilize 900 MHz spread spectrum radio frequency
technology, a tamper-resistant anklet transmitter with a tamper alarm, and
sells its products at a price below that charged by the competition.
The Fleet Watch Alert 24. The Fleet Watch system is able to monitor vehicles
and generate status reports on demand, confirm employee hours of vehicle
operation and continuously monitor the comings and goings of fleet vehicles.
This tamper resistant monitoring system installs in less than 30 minutes,
ends unapproved vehicle use, and provides a complete audit trail and other
necessary usage reports for each vehicle in a company's fleet. This unit
has been successfully tested on a fleet of concrete trucks, and is available
for field trials.
The Nurse Call Alert 24. A fully supervised 900 MHz spread spectrum wireless
nurse call system is yet another innovation by Sloan. Sloan believes that
this system is among the best wireless security system available, with unique
features such as automatic signal check and low battery reporting. With the
systems optional range extenders, any sized facility may be monitored.
Another unique integratable option is the paging system which assists in
quicker response times by staff. This system is available for field trials.
Manufacturing And Assembly
All of our electronic products are currently made in the USA. Kimchuk Inc.,
Sloan's primary contract manufacturer, has many years of experience as an
electronics manufacturer and designer. Kimchuk manufacturers over 500
different products at its four plants located through out the East Coast.
Sloan's relationship with Kimchuk allows it to reduce its production costs,
to reduce its final testing costs and to reduce its personnel costs. Sloan
designs all of its products with automatic insertion, surface mount
technology, and automatic testing in mind. This attention to detail enables
Kimchuk to manufacture and assemble Sloan's products in the most cost-
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efficient manner, while maintaining accuracy in circuit board production and
error-free transfer and component connections.
Product Warranties. Sloan supports its products with a limited one year
warranty, which covers all defects in materials or workmanship. Sloan will
repair or replace defective units without charge to the consumers for labor
or materials. Sloan's service department acts as liaison between the
customer and Kimchuk and works aggressively to resolve any and all problems
a customer may have with any of its products. Sloan has not experienced a
material level of product warranty claims for breakage or other defects.
Future Products
We continue to look for new ideas for development of new products, and
believe that new products could represent substantial new business for Sloan.
Government Regulation
Sloan's facilities are subject to numerous federal, state and local laws and
regulations designed to protect the environment from waste emissions and
hazardous substances. Sloan is also subject to the Federal Occupational
Safety and Health Act and other laws and regulations effecting the safety
and health of employees in the administrative and manufacturing areas of its
facilities. Sloan believes that is in compliance in all material aspects
with all applicable environmental and occupational safety regulations.
Sloan's radio frequency anklet transmitter is subject to FCC (Federal
Communications Commission) regulations, as are all radio frequency
devices. Sloan has obtained type approval #HCQ3B6WWT for the anklet
transmitter and its products are in compliance with FCC rules Part 15.
B. Internet Technology Division (Gemini Learning Systems, Inc.):
Gemini Learning Systems, Inc. ("Gemini"), organized under the laws of the
Canadian Province of Alberta in June, 1990, has never been a party to any
material reclassification, merger, consolidation, or purchase or sale of a
significant amount of assets not in the ordinary course of its business.
Gemini was purchased by the Company on September 24, 1999.
Gemini is a software applications development company, specializing in
distance education and training solutions. The company created and markets
software technology called SWIFT (SoftWare Intelligent Freeform Training).
The Company is emerging from its development phase, having created an entire
product line based on the SWIFT technology. The company has already begun
to establish clients and a distribution network in Canada, the United States,
the United Kingdom and Europe.
Management's primary objective is for Gemini to become a leader in the
emerging internet/intranet distance education and training industry by
establishing SWIFT as the de facto standard delivery environment. Management
believes that it can obtain this objective through its strategic alliances
and by utilizing its staff of outside consultants, most of whom are the top
professionals in their field (See "Business Development").
<PAGE>
Background Information
Gemini began business in the Canadian City of Alberta in 1990. The
corporate aim was to develop a delivery environment for the emerging
internet/intranet distance education and training industry. The corporation
expended over $3,000,000 in developing its SWIFT technology, and a
distribution network.
Gemini, management believes, is ready to become the industry leader
in the delivery of distance education systems, to be utilized both in an
intra-company setting (intranet) and by students over the internet. The
students may be individuals or complex organizations with diverse
training and educational needs to be delivered worldwide to their various
locations.
Business Development
The development of the SWIFT technology, eight years in the making,
is, management believes, its primary competitive edge in the business world.
The technology was developed utilizing the talents of many
professionals, aside from the current Gemini Staff ( See Significant
Employees). The SWIFT project leaders were Elliot Kimber, Sr. Consultant,
ISOGEN Corp., and Dr. Marlene Jones. Eliot Kimber has over 10 years of
experience designing and building industrial strength publishing systems
based on the principles of generic markup and information reuse. He has
developed systems for customers in a variety of industries including: IBM,
Intel, Tandem Computers, Ameritech, International Correspondence Schools
(ICS), and Cisco Systems. Dr. Jones was a Senior Scientist with Alberta
Research Council's (ARC) Advanced Computing and Engineering Department since
1987. Marlene had more than a decade of experience in applied research in
the field of Adaptive Learning Environments and is internationally recognized
as an expert in the field. Mr. Kimber continues to provide steady input into
the development of Gemini's product line.
Day to day management of the SWIFT project was by Terry Yasui, Mr.
Yasui brought with him over fifteen years experience in the design,
development, and management of high-technology projects. He was responsible
for the overall management of the SWIFT project including the preparation,
implementation, tracking and updating of all project plan documents
through weekly and monthly progress reports following the IEEE standards.
John Moore, who holds a B.Sc., B.Ed., and an M.A. in Educational
Psychology specializing in "Instructional Design for Higher Education",
provided his expertise in the overall development of the SWIFT interface and
multimedia support requirements.
Dr. Tom Keenan, is the leading consultant for the Post-Secondary
Interface Design Project for SWIFT. Tom is a Professor and Dean in the
Faculty of Continuing Education at the University of Calgary. He holds an
Ed.D. in Higher and Adult Education, an M.A. in Higher and Adult Education,
a M.Sc. in Mathematical Methods and Operations Research, and a B.A. in
Mathematics (Dean's Honour List).
Stuart Williams, who holds a B.Sc. in Physics, a B.Sc. in
Mathematics/Computer Science, and a M.S. in Computer Science and has several
years of programming experience, including extensive work in object-oriented
language design and SGM, implemented the SGML DTD (Document Type Definition)
for SWIFT. He led the design and wrote most of the code for the unique
SWIFT course compiler. Stuart also provides valuable technical input and
feedback to the technical team.
Ruby Loo, who, in addition to a M.Math Computer Science has ten
years of technical experience in a variety of computer science areas,
including computer graphics, color usage, animation, human-computer
interaction, and graphical interface design, was responsible for
coordinating all human-computer interactions aspects of the SWIFT project
including usability studies, mock-ups, evaluations of mock-ups, and the
design of the Graphical User Interfaces.
<PAGE>
Jim Tubman, who holds a M.Math Computer Science degree and has
extensive experience in the area of software engineering, object oriented
design, and system development, was involved in the High-Level and Low-Level
Design of SWIFT and implementation of certain features.
These dedicated individuals were augmented by part time consultants
who were hired as their input in specific areas was required. While many of
the original development team have left the company, Mssrs. Kimber, Kenan,
and Williams have remained as consultants, working with Gemini in its
continual efforts to update the technology and product line.
Management feels that the technology assembled by this team is, at
present unchallenged, and that as the market is penetrated, development
costs and resistance to new products once a benchmark standard is set will
provide an almost monopolistic arena in which to grow.
Current Clients
HYPROTECH Ltd. Calgary, Canada
Albeda College Rotterdam*
*Consortium of 50 colleges
Distribution Partners and Strategic Alliances
Management has always felt that a basic key to the success of any
venture is the development of a local distribution network, sensitive to the
needs of the local clientele and at the same time providing a local presence
for support and service.
As different companies have specific strengths and areas of
expertise, Gemini, in developing SWIFT and maintaining and enhancing its
product line, has always made use of individual consultants and companies
and with specific areas of expertise . To this end, Gemini has, over the
years, formed some especially advantageous strategic alliances.
The key distribution partners and strategic alliances are listed below:
BCS Learning Systems, based in the Netherlands; works closely with Ideals, a
consortium of 16 European Institutes dedicated to advanced training linked
to small and medium sized enterprises and Institutes of higher education.
They represent SWIFT in Europe and were a valuable partner
during the implementation of the international functionality in SWIFT.
CamAxys Limited is Europe's leading supplier of environment, health, and
safety software management systems. They are developing courses
independently and in partnership with Excel (see below) for the environment,
health, and safety industry and have just launched the first
course entitled EnviroDiscovery in partnership with Excel for ISO 14001
compliance. The Corporation acts as a distribution agent for Gemini's
product line.
CCI Learning Solutions Inc. specializes in providing high quality training
services offering over 150 course titles to over 25,000 students per year;
they are Microsoft Certified. They are a SWIFT CCP. Gemini is currently
converting many of CCI's courses for delivery in SWIFT. The courses
will be offered in the SWIFT Library some time in 2000.
Diskover Office Software Ltd. Diskover specializes in content development
using the SWIFT Kit. They have created the entire Office 97 Suite, Level 1
and 2, Windows 95/98 in the SWIFT format, and are continuing to produce
courses in SWIFT, which are sold through the SWIFT Library.
<PAGE>
GST Technology Limited, a worldwide provider of Desktop Publishing and
Graphics Software Technology, has licensed millions of copies of their
software to well known publishers worldwide, including Fuji and Canon.
The company is launching a new brand name called "getwise" which Gemini is
currently negotiating to include the Office 97 and 2000 suite, Windows 98,
and other courses created in SWIFT.
Excel Partnership is an international leader in environmental management and
systems training and consulting, and the first EARA (Environmental Auditors
Registration Association) approved trainers for Advanced Environmental
Management Systems Auditors. They are a CCP and have released two
environmental courses in conjunction with CamAxys utilizing SWIFT.
Interactive Advantage Corporation, an Atlanta based company has built a name
and reputation for producing products for an impressive client base including
NCR, Home Depot, and Sterling Software. Their expertise includes development
of CBT, software simulations, certification testing, online references,
multimedia presentations, and information kiosks. They are a CAR and SWIFT
Distributor.
JOT is a registered Trade School with registered Engineering status. Over
the past ten years, Jot has built a solid reputation for developing high
quality course content for a wide range of training solutions. They have an
extensive library of courses with wide market potential and are a Course
Content Provider.
Open Learning Agency is a unique, fully accredited, publicly funded
educational leader providing a wide range of formal and informal educational
and training opportunities for learners around the world. They use SWIFT for
internal development. They have also partnered with Gemini in an
R&D project (see R&D Projects) to enhance various components of SWIFT
specific to SGML Standards.
RAND Worldwide, the world's largest Value Added Reseller of mechanical design
automation tools and services, have launched their first course in SWIFT for
internal use and to resell to their corporate clients.
Management feels that the current group of Strategic and distribution
partners will greatly enhance Gemini's ability to penetrate its target
markets, and grow at a far faster rate than would be possible if Gemini had
tried to develop its markets without the said distributors and alliance
partners.
BUSINESS
Principal Products and Services and their Markets
SWIFT Library
Currently, Gemini offers over 400 course titles available to convert into
SWIFT, and has, in the current fiscal year, launched its own online SWIFT
library (over 30 popular course titles).
SWIFT Kit
The SWIFT Kit provides a Development Environment (DE), Adaptive Learning
Environment (ALE), Adaptive Testing Algorithms, Interface, extensive testing,
tracking and certification capabilities, and Enterprise Learning Manager
(ELMer). Additional SWIFT Kits can be purchased for as many sites as the
client wishes, with a price range of $1995.00 for one license to $1595.00
each, for more than twenty licenses. Annual Support Fees are $3,000.00.
There is also a licensing fee per learner for delivering courses in the ALE.
The DE
All course content can be developed externally to SWIFT using software
programs of the client's choice. The course content is then tagged in SGML
in the DE and compiled into the LE using the SWIFT compiler. The DE includes
<PAGE>
a DTD (Document Type Definition) or course structure. The course structure
is a three level hierarchy that promotes consistency and effective
instructional design.
SWIFT 5.0, currently in development, and expected to be released in the next
fiscal year, will provide the capability to map the SWIFT DTD to other DTDs
and vice versa. SWIFT clients and SGML users alike will be able to easily
reuse course content for other applications, thus further leveraging their
investment in SWIFT and SGML.
The ALE
SWIFT provides what management believes to be the only Adaptive Learning
Environment commercially available in the world. The pedagogical
effectiveness of ALEs have been proven by years of research conducted by
educational institutions and government organizations around the world.
The ALE adapts each course to each learner's individual requirements, based
on the goals they choose and by completing a pretest.
Adaptive Testing
One of the problems with traditional exams is that they are of fixed length.
A learner must complete a long series of questions in order for the system
to determine how well they know a subject. This characteristic can cause
frustration for both novices and experts, who may know after a few questions
that the subject matter is either bewildering or trivial. Adaptive testing
allows exams to be significantly shorter than traditional tests, without
losing any predictive power about a learner's master of the material.
SWIFT Branding
The SWIFT interface can be readily branded for OEM and Corporate identities
with little effort required on Gemini's part.
ELMer
ELMer is an advanced Internet/Intranet delivery, management, and analysis
system for SWIFT courses. ELMer is required for administering Intranet and
Internet courses and can be purchased separately for $7,000.00 per license.
Delivery
The Server, which runs on Windows 95//98/NT or UNIX platforms, can deliver
and manage large numbers of courses to large numbers of learners
simultaneously. Learners are able to access highly interactive SWIFT courses
over the Internet running a 28.8 or greater modem , with full multimedia
functionality.
Management of System
The Server is controlled either locally or remotely and manages:
- - billing,
- - accreditation,
- - adjust resource consumption,
- - determine average transmission rates,
- - identify fault occurrences.
Analysis of Student Progress
A wide variety of statistical information of learner-based data is
automatically gathered and stored by the Server. The Server can provide:
- - grading and progress reports,
<PAGE>
- - progress and content analysis,
- - item analysis,
- - pathways.
Data can also be exported to external applications.
Ecommerce
Gemini has, in the current quarter, launched an Ecommerce solution and can
offer server-hosting or connect to third party Ecommerce sites for SWIFT
Library Distribution through portals, ISP's and web sites.
The customer simply selects a course(s) from the SWIFT Library list,
then submits their financial information once they have placed an order.
Approval takes 26 to 36 seconds. Once the customer has been approved they
can access their course(s) from the SWIFT LE.
Market For Products
Gemini's market opportunity is diversified across a number of market
segments, including multimedia CBT authoring tools, web authoring tools, IT
education and training, courseware development services, internet software,
ecommerce, on-line training.
Gemini operates in a high growth environment. The IT Education & Training
market is a $3.1 Billion established market experiencing moderate growth of
approximately 15% annually through the year 2000. The Multimedia CBT market
is currently growing at the rate of 31% per anum, while the Internet
software market is showing a growth rate of 50% per anum, and the
packaged internet software market is currently growing at the rate of 127%
per anum.
Gemini, management believes, is well positioned to take advantage of the
rapidly growing Internet/Intranet Software market. Gartner Group research
indicates that Interactive Training will make up 20% of corporate Intranet
applications*. The overall market for Internet/Intranet software projected
to be $12 billion by 2000. The market for Internet services is projected to
be $14 billion by 2000**. In addition, the SWIFT SGML Development
Environment (with its multimedia extensions) will enter the CBT Market
Projections multimedia authoring tool market, expected to exceed $165
million by 2000***.
________________________________
- - * IT Symposium presentation, October 1996.
- - ** DC, Capturing the Top 10 IT Opportunities, July 1997.
- - *** IDC, Capturing the Top 10 IT Opportunities, July 1997.
________________________________
<PAGE>
In the following table are presented the expected market size for
the markets Gemini specifically targets with its products and marketing
efforts:
All data is in Millions of dollars
Market Segments 1999 2000 2001 2002
Multimedia Authoring Tools
CBT Tools 129.6 165.95 187.0 220.0
IT Education and Training
Network-delivered 1,566.0 1,695.0 1,830.0 1,960.0
Desktop-delivered 3,133.0 3,495.0 3,901.0 4,290.0
Total 4,699.0 5,189.0 5,731.0 6,251.0
Internet/Intranet
Internet Software 5,575.0 8,000.0 8,800.0 9,680.0
Packaged Internet
Software 2,730.0 4,000.0 4,400.0 4,840.0
Internet Services 10,205.0 14,000.0 15,400.0 16,940.0
Total 18,509.0 26,000.0 28,600.0 31,460.0
Training segment (20%) 3,702.0 5,200.0 5,720.0 6,292.0
Sources: IDC, Dataquest, Gartner Group.
The table presented above, is a 4-year top-down revenue model. What the
model shows is that there is tremendous potential for rapid revenue growth
based on very modest penetration into the various market segments. For
example, in the CBT Authoring Tools segment, where the SWIFT Kits will be
marketed, achieving a modest 4.0% share of this market would result in $1.9
million in revenue.
As IDC has stated, the packaged Internet software market should reach $4
billion by 2000. SWIFT courses delivered over the Internet and corporate
Intranets represent a distinct opportunity for Gemini. This area will become
the focus of a great deal of the company's resources in the year 2000, and
will likely be the primary area to which investment capital from any public
offering or private placement is directed.
Competitive Advantage
SWIFT overcomes the two primary drawbacks of multimedia training
quoted by Dataquest in the 1996 end-user survey (The Role of Digital
Multimedia in Training in Business, Dataquest, August 1996), the high cost
and initial deployment/updates and lack of interactivity. In another
Dataquest survey (Education and Training: Market Analysis and Outlook 1996,
Dataquest, February 1997) respondents identify time and cost experiences in
producing conventional CBT and TBT multimedia courseware using conventional
tools or custom programming as the key drawback. The table below summarizes
these findings:
Courseware Type
DEVELOPMENT Cost per Hour of Elapsed Time per
HOURS Instruction ($US) Hour of Instruction
PER HOUR
OF
INSTRUCTION
CBT (Conventional) 150 to 300 hours $10,000 to $45,000 13 to 20 weeks
TBT Multimedia 250 to 500 hours $14,000 to $55,000 10 to 26 weeks
<PAGE>
Management believes that Gemini addresses these concerns, and
delivers a solution that is both unique in the industry, and provides a user/
developer friendly environment that is at the same time cost effective. The
SWIFT System provides the same course delivered in a CDROM, Internet, and
Intranet delivery environment, as well as being the only SGML-technology-
based training solution that provides an efficient method for managing,
updating and re-purposing course content, resulting in leveraged investment
over time.
SWIFT has full multi byte character functionality, and is,
management believes, the only commercially available Adaptive Learning
Environment in the world. SWIFT features extensive testing capabilities
including adaptive testing, mandatory questions, and fixed-length testing
for online certification, as well as having the ability to set seven
different question types, including short answer, and feedback specific to
learner interaction.
SWIFT offers an intelligent tutoring system and has upwardly
compatible versions, ensuring that clients benefit over time from Gemini's
ongoing R&D. This last feature is of the utmost significance as the
technology is continually undergoing development and upgrades.
SWIFT has an included management system, which offers a competitive
edge over other delivery systems in that the management systems of other
products start at $50,000 U.S. plus licensing fees.
A key advantage of SWIFT is that SWIFT reduces development time,
management believes, by upwards of 70% as compared to other technologies,
offering a consistent, highly interactive learning environment requiring
only content. SWIFT requires no programmers and software teams, and exhibits
virtually no learning curve for developers.
Distribution Methods of the Products or Services
SWIFT Library Distribution
Gemini intends to meet its corporate and marketing objectives by building as
many titles as possible for the SWIFT Library and marketing those worldwide,
directly, as outlined below, and through distribution and alliance partners,
as previously discussed. This will be accomplished by partnering with Course
Content Providers for building the SWIFT Library and marketing the SWIFT
Library through Portals (Specialized Web Sites), Internet Service Providers
(ISPs), ASPs, OEMs, and Retail Distributors.
Large Corporate Accounts
SWIFT is, to the best of management's knowledge, the only SGML aware
Distance Education and Training solution in the world. SGML users are
typically medium to large corporations and government bodies with
significant training requirements. These organizations have made large
investments to transfer their content into SGML and appear very interested
in leveraging their investment further. By concentrating on the SGML
market, where Gemini has, as discussed earlier, a significant competitive
advantage, Gemini can quickly qualify and target potential clients through
SGML trade shows, publications, conferences, etc. which draw only
interested SGML clients. Gemini has already made several strategic
alliances within the SGML industry (See above, Distribution Partners and
Strategic Alliances).
Fortune 1000 Companies
Large Information Technology deployments within Fortune 1000 companies
necessitate a major user training effort and hence an opportunity to sell
SWIFT. These projects usually have a lengthy development cycle with
significant up-front investments and are often behind schedule. There is
usually significant pressure on IT departments to expedite deployment so
that the organization can realize the promised benefits. Inevitably, the
budget and time-frame for developing end-user training is tight. This
scenario plays well for the SWIFT technology; IT groups can avoid the
lengthy and expensive development associated with other tools.
<PAGE>
Course Content Providers
Course Content Providers (CCPs) are made up of both private and public
training and education organizations. This industry sector is in transition
due to the rapid growth of the distance education and training industry
resulting in the need to become competitive in a global economy. The
development costs, consistency and course content re-use SWIFT, providing
compelling value to this industry sector. To further entice CCPs, Gemini
also offers a partnering program to selected CCPs that does not involve
purchasing SWIFT.
Course Content Partnering (CP) Program
Gemini launched the CP program in January, 1999 and now has well over 400
courses available for conversion, with over 30 already converted. The
programs entails Gemini (or a Gemini Partner) converting course content for
delivery in SWIFT, and take a higher percentage of the royalties.
Product Positioning
The SWIFT product line is ideally positioned to target the fast growing
Internet/Intranet market, as well as packaged internet software for the
retail market. SWIFT products offer low cost to both developers and end
users as well as many pedagogical distinguishing features.
The SWIFT product line fits into the following fast growing market segments:
- - Turn-key Internet Distance Education and Training solution
- - Online Library
- - Ebusiness
- - Application Service Provider software
- - Internet Software
- - Packaged Internet Software
- - IT Education and Training
Marketing Plan
Direct Sales
Gemini plans to hire a team of sales people to address the target markets
defined above that will consist of:
- - Distributor Sales
- - Inside Sales
- - Large Acct. Sales
Distributor Sales
Gemini will hire sales people to build upon the distribution channels
already in place. The target market, as defined above, includes Retail,
OEM, ISPs, Portals and ASPs).
- - Marketing will be accomplished through investment in four specific areas:
- - Direct sales - Gemini plans to establish an inside sales team to focus on
the SGML market. This team will have a telemarketing orientation and will
consist of salespeople with 2 to 5 years' experience. Gemini has created
two new product and service "packagings" of SWIFT to support a "try and buy"
selling model without compromising longer term revenue potential.
- - Distribution recruitment - establishment of a distribution sales team to
recruit distributors and Courseware Authorized Resellers. This team will
consist of more senior sales personnel who possess the skills and experience
to work with prospective distribution partners to develop their business
models around the SWIFT technology.
<PAGE>
- - Marketing - conduct direct mail, advertising, conference, and industry
partner marketing, as well as trade show activities, to raise brand awareness
and generate sales and distribution leads. These efforts will be targeted
towards the SGML market, the content developer market and the training
groups within Fortune 1000 companies, government and educational institutions.
- - R&D - expand the R&D staff to further develop the technology, focusing on
Internet/Intranet delivery. The SWIFT technology will be enriched through
additional authoring functionality and the product line will be broadened
with new modules.
In addition, executive business development resources will be focused on
industry partnerships, key distribution prospects and large reference
account opportunities.
SWIFT Library Distributors (SLD)
SLDs must purchase ELMer - a total investment of $7,000,00 U.S.D. which
includes the entire online library. Gemini can provide the hosting services
providing a turn key solution with virtually no administration required, or
set it up remotely. All SLDs receive the same discount based on the
suggested retail price, ensuring a level playing field.
Gemini has designed the distribution program on a sliding scale based on
sales to further motivate marketing efforts by SLDs. Courses are priced
slightly below competitor pricing. We have also provided a multi level
marketing approach for third party Gemini partners to receive royalties for
establishing SLD's.
Gemini will hire a direct sales force to establish distribution channels for
the SWIFT library.
Strategic Alliances and Industry Partners
Strategic alliances are defined as course content companies and content
distributors. Gemini has had significant success partnering with Course
Content Providers with access to hundreds of titles already available and in
conversion. Likewise, the company has recently signed a number of high
profile distributors for Internet/Intranet, OEM and Retail (CD-ROM
delivery) (See Distribution Partners and Strategic Alliances, above).
The marketing strategy outlined above, management believes, should build a
broader awareness of the SWIFT technology, creating a pull strategy for the
SWIFT Kit into the lucrative corporate market. As well, Gemini's strategy
should provide a huge incentive for CPs to convert their courses into SWIFT,
help build upon multiple recurring revenue streams, create healthy
cash flow, shorten sales cycles, and build more strategic partners and
alliances.
Status of any Publicly Announced New Product or Service
As outlined herein, Gemini is emerging from its development stage,
and as such the products employing the SWIFT technology, which Gemini plans
to introduce into the general worldwide marketplace, are, by definition, new
products. However, as described above, both the products and the technology
have been available since 1998, have been thoroughly market tested, and are
ready for rollout into the general marketplace (See also, Distribution
Methods of the Products or Services; and, Products and Services and their
Markets, above).
Competitive Business Conditions, Competitive Position in the Industry, and
Methods of Competition
See, Market for Products, above, for a discussion of the Marketplace
in general.
SWIFT uses an entirely different approach in design and licensing than its
closest competitors, products such as Authorware, Toolbook, CBT Express and
Icon Author. The primary areas of divergence between the competitors and
SWIFT is outlined in the table below:
<PAGE>
SWIFT Authoring Tools
SGML-based, leverage investment over HTML-based
time
Designed for use by course content Development is from scratch
creators, requires content only
CBT interface (Learning Environment) is Requires expertise in HCI,
built-in - virtually no learning curve, no programming, project mgmt,
software teams or programmers required pedagogy.
Reduces development time and costs by Averages 200 - 250 hours of
about 70%. development for every hour of
finished product.
Provides delivery on CD-ROM, Intranet and Requires development from scratch
Internet for each delivery format
Utilizes ELMer Expensive mgmt systems
International utilization built in Limited internationalization if
at all
The primary areas of divergence between the competitors and SWIFT LE is
outlined in the table below:
SWIFT LE Other Learning Environment
Adaptive learning environment and No adaptivity
adaptive testing algorithms
Internationally awarded intelligent tutor- Virtually no pedagogy
ing system (Ed Media '95; World Conference
on Educational Multi-Media and Hypermedia)
effectiveness backed by years of lead by the nose training
international R&D and usability studies
Management feels that the SWIFT Technology effectively gives Gemini
a differentiable new technology which has no direct competition. As can be
seen from the table presented above, SWIFT and SWIFT LE bear little
resemblance to the competition in the marketplace except for the fact that
the end user product is somewhat similar. What must be remembered is that
Gemini is primarily marketing a delivery system, not a particular product.
Indeed, most competitors in the industry could market their products using
the SWIFT system for product delivery. In this respect one is drawn to the
logical conclusion that Gemini, with respect to its base technology, has no
direct competitors.
Sources and Availability of Raw Materials and the Names of Principal
Suppliers
Gemini's services are not reliant on the availability of raw materials, but,
rather, involve the development of software computer applications, and
interactive data networks. Sources of all materials, internet services, and
equipment are readily available from a large number of suppliers, none of
which would be difficult to replace.
Dependence on One or a Few Major Customers
No customer of Gemini accounts for more than 5% of its business.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements
or Labor Contracts, Including Duration
Copyright and Trademarks
<PAGE>
Gemini has registered the trademark "SWIFT" in Canada, and uses the
mark throughout the world. Gemini plans, in the next quarter to register the
said mark in the United States and in Europe.
All of Gemini's software is believed subject to common law but
unregistered copyrights.
Licenses
Gemini grants its clients licenses for the non-exclusive use of its products.
No one licensee accounts for more than 5% of Gemini's current business, and
there are no outstanding or impending claims under any current licenses, or
to the best of management's knowledge, are any such claims likely.
Other Intellectual Rights
No other patents, trademarks, licenses, franchises, concessions,
royalty agreements or labor contracts are used by Gemini.
Need for Any Government Approval of Principal Products or Services
To the best of Gemini's management's knowledge, there are no special
requirements for government approval of its principal products or services,
not generally applicable to normal business operations.
Effect of Existing or Probable Governmental Regulations on the Business
Gemini is unaware of any probable regulation of its business, other
than as will apply to businesses in general.
Estimate of the Amount Spent During Each of the Last Two Fiscal Years on
Research and Development Activities, and if Applicable the Extent to Which
the Cost of Such Activities are Borne Directly by Customers
During the past two years management believes Gemini spent
approximately $300,000 on R&D, none of which will be directly borne by
Gemini's customers, but all of which will be indirectly borne by the
customer as reflected in the price of the products of Gemini, a portion of
which will be allocated to the amortized cost of development.
Costs and Effects of Compliance with Federal, State and Local Environmental
Laws
Gemini is not aware of any expenses directly attributable to
compliance with federal, state or local environment laws or regulations.
<PAGE>
Further Information with respect to Gemini and the Company:
Number of Total Employees and Number of Full Time Employee
Gemini has 4 full time employees, and no part time employees. The Company
has one full time Employee.
Description of Real Estate and Operating Data
Gemini currently rents approximately 2,104 square feet for its staff, at
Suite 605, 839 - 5th Avenue SW, Calgary, Alberta, Canada T2P 3C8, with a
rent of $7,890 per anum. The Company currently rents space at 1715 Stickney
Point Road, Suite A-12, Sarasota FL, free of charge.
Management is of the opinion that its current facilities are adequate
for its immediate needs. As the Company's business increases, additional
facilities may be required, however the current facilities are expected to
suffice until after December 31, 2000.
Equipment
The fixed assets of Gemini, as valued for accounting purposes have a
depreciated book value of $25,465, and an non-depreciated book value of
$31,215. The assets are principally comprised of computers, computer
equipment, and software, along with office furniture. The Company has
equipment with a depreciated book value of $1,444, and an undepreciated book
value of $1,975.
Investment Policies
The Company has no investment policies with respect to investments
in real estate or interests in real estate or investments in real estate
mortgages.
Operating Subsidiaries of the Company
The subsidiary of the Company, Gemini, currently generates virtually
all revenue for the Company, and the discussions and tables referring to
operations in this Annual report on Form 10-KSB refer virtually exclusively
to the revenues generated by the subsidiary.
Item 2 PROPERTIES.
Gemini currently rents approximately 2,104 square feet for its staff, at
Suite 605, 839 - 5th Avenue SW, Calgary, Alberta, Canada T2P 3C8, with a
rent of $7,890 per anum. The Company currently rents space at 1715 Stickney
Point Road, Suite A-12, Sarasota FL, free of charge.
Management is of the opinion that its current facilities are
adequate for its immediate needs. As the Company's business increases,
additional facilities may be required, however the current facilities are
expected to suffice until after December 31, 2000.
Item 3 LEGAL PROCEEDINGS.
Neither Gemini nor the Company is currently a party to any pending
or threatened litigation of a meritorious or material nature or that could
result in a significant financial impact. From time to time the Company or
Gemini may be involved in lawsuits in the normal course of its business,
that do not have a material impact upon the Company.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE.
<PAGE>
PART II
Item 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company is authorized to issue 80,000,000 shares of Common Stock,
with a par value of $.001. 3,164,900 shares of Common Stock were outstanding
and held of record by approximately 480 persons as of December 31, 1999. The
holders of Common Stock have one vote per share on all matters (including
election of directors) without provision for cumulative voting. Thus,
holders of more than fifty percent (50%) of the shares voting for the
election of directors can elect all of the directors, if they choose to do
so. The Common Stock currently is not redeemable and has no conversion or
pre-emptive rights. The Common Stock currently outstanding is validly issued,
fully paid and non-assessable.
In the event of liquidation of the Company's assets, holders of
Common Stock will share equally in any balance of the Company's assets
available for distribution to them after satisfaction of creditors and the
holders of the Company's senior securities. The Company may pay dividends,
in cash or in securities or other property when and as declared by the board
of directors from funds legally available therefor, but has, to date, paid
no cash dividends on its Common Stock.
Market Information.
The Company's common stock is traded on the NASD over the
counter Bulletin Board, symbol SLEL. Trading began on June 18, 1998. The
range for each quarter quoted reflect inter-dealer prices and may not
represent actual transactions.
Quarter Year Low High
Second 1998 $0.8750 $3.0000
Third 1998 $2.6875 $5.0000
Fourth 1998 $2.2500 $4.5000
First 1999 $1.3125 $3.3125
Second 1999 $0.3125 $2.9375
Third 1999 $0.1875 $0.6250
Fourth 1999 $0.1875 $1.7500
Dividends.
The Company has never paid a cash dividend on its Common Stock
and has no present intention to declare or pay cash dividends on the Common
Stock in the foreseeable future. The Company intends to retain any earnings
that it may realize in the foreseeable future to finance its operations.
Future dividends, if any, will depend on earnings, financing requirements
and other factors.
Item 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis relate to factors which have
affected the financial condition and results of operations of the Company
for its years ended December 31, 1998 and December 31, 1999.
<PAGE>
On September 24, 1999 the Company purchased 100% of all the
outstanding shares of Gemini, as fully described in Material Events, below.
As a result of the aforementioned transaction, the Company gained Gemini,
whose activities are fully described herein.
Discussion of Financial Information
For the current financial period the financial statements were
prepared on a consolidated basis, as neither Division had significant sales
activity. The 1998 fiscal year end financial statements were prepared on a
pro-forma basis, to provide a better comparative view as to the Company's
financial position. The audited financial statements for each division at
the end of the fiscal year ending on December 31, 1998 is found in the
Second Amendment to the Current Report on Form 8-K, filed with the
Securities and Exchange Commission on December 28, 1999, said amendment
incorporated herein by reference.
During the current operating fiscal year the Company had sales of
$112,554, as compared to $119,782 in sales for the fiscal year ended
December 31, 1998. The overall sales in 1999 were consistent with those in
1998. The Company feels that its reorganization into two divisions, and its
purchase of Gemini will lead to a much higher sales level over the next
fiscal year. The Company is also actively seeking emerging and successful
acquisitions in both Divisions to ensure the fiscal health and growth of the
Company.
The Cost of goods sold was $11,386 for the current fiscal year, as compared
to $67,959 for 1998, netting a gross profit of $101,168 for the current
fiscal year, and $51,823 for the year ended December 31, 1998.
Total selling expenses were $45,434 for the year ended December 31, 1999,
as compared to $13,938 for the period ended December 31, 1998.The
discrepancy was due to $42,566 paid in 1999 for consulting services, as
compared to $12,661 in 1998. The increase is primarily due to the efforts
of the Company to examine and increase the sales activity of Gemini by
providing inroads to major clients. The results of these efforts, management
feels, will make themselves felt in the next fiscal year.
Total operating expenses, except for selling expenses, were $1,509,585 in
the year ended December 31, 1999 as compared to $604,254 in 1998. Of this
amount, $1,154,009 was, for professional fees and consulting fees, as
compared to $111,755 in 1998. The $1,154,009 was paid mainly through the
issuance of 1,000,000 shares of the Company to a law firm, and to outside
consultants, in aid of the Company's efforts to raise capital for expansion
and acquisitions, reorganize into its current divisions, and to pay for the
purchase of Gemini. The Company feels that over the ensuing years, its
growth and expansion will largely be attributable to the efforts and
expenses incurred during the fiscal year ended December 31, 1999.
The cash and investment certificate position of the Company was $3,650 on
December 31, 1999 as compared to $19,792 on December 31, 1998. Current
assets, as a whole, increased approximately four-fold, from $224,522 on
December 31, 1998 to $893,778 on December 31, 1999.
Material Events
Acquisition of Gemini
On September 24, 1999, Mrs. Kim Adolphe, a resident of the Canadian
Province of Alberta, exchanged 100% of the outstanding capital stock of
Gemini Learning Systems, Inc. ("Gemini"), a corporation organized and
operating under the laws of the Canadian Province of Alberta, for 20,000,000
shares of the Registrant's common stock, said stock having a par value of
$0.001 per share. As a result of the said transaction, Mrs. Adolphe became
the beneficial owner of the stock exchanged, which comprises approximately
66.7% of the Registrant's outstanding common stock. Prior to the foregoing
transaction Mrs. Adolphe had no relationship with the Registrant. The
shares were not exempt from the ten for one reverse split effected on
November 1, 1999. Mrs. Adolphe was also allowed 250,000 shares to give to
key personnel, said shares were not subject to the reverse split. To date
none of the shares have been issued.
<PAGE>
Mrs. Adolphe was named to the Company's Board of Directors as a Class I
Director, whose term of office will expire on May 13, 2000. The Board of
Directors have indicated that she will be nominated for re-election. Mrs.
Adolphe remains as president of Gemini.
Liquidity
Liquidity
Management believes that the Company has the cash funds and
necessary liquidity to meet the needs of the company over the next year,
assuming sales and development efforts conform to the standards set by
management.
To fully maximize the potential presented in the marketplace, management
believes that approximately $1,000,000-5,000,000 will need to be raised.
The initial $1,000,000 would be utilized to further develop Gemini's product
line and for marketing its products. The remainder would be utilized for
expansion and acquisitions in developing the two divisions of the Company.
In the event only part of the funds are raised, then the funds will be
allocated first to marketing of Gemini's product line, secondly to product
development, and thirdly towards the purchases of suitable acquisitions.
The money will likely be raised through private placements of shares. In
the event funds are not raised, the Company will continue with its sales
activities, and, management believes, meet its liquidity demands. The
funds, as noted above, are for increased activity and sales, not for
primary liquidity demands.
Current Plans
The Company has a threefold plan for the next fiscal year;
(1) The Company plans to continue to service its current clientele in the
Sloan Electronics Division (High Technology Division), and examine potential
areas of growth in the electronic monitoring industry.
(2) The Company plans to hire marketing and sales staff for Gemini, and to
actively pursue primarily large corporate clients for Gemini's product
line. Management feels that this strategy will produce healthy sales in the
next fiscal year, and years to come.
(3) The Company plans to actively seek acquisition targets for both
divisions, to develop a strong vibrant Company with two active profitable
divisions. The Company would like to acquire at least one successful,
operating business for each division over the next year.
Accounting Policies and Procedures
The Company follows generally accepted accounting principles in
preparing its financial statements, and has audited statements produced
annually, with its quarterly statements produced by its management and
accountants.
Revenue Recognition
Revenue is recognized using the accrual method of accounting.
Statements of Cash Flows
Statements of Cash Flow are prepared quarterly, on a consolidated
basis, using generally accepted accounting principles and guidelines.
<PAGE>
Inventory
The Company keeps minimal inventory, manufacturing goods in response
to orders.
Fixed Assets
Fixed assets are valued based on their depreciated value.
Depreciation is calculated using the straight line method.
Principles of Consolidation
All Financial Statements are produced on a consolidated basis.
Statement Re: Computation of Earnings Per Share
The Company has a simple capital structure as defined by APB Opinion
Number 15. Accordingly, earnings per share is calculated by dividing net
income by the weighted average shares outstanding.
Provision for Income Taxes
Provisions for income tax are computed quarterly using the
guidelines as defined in the Federal and State Statutes.
The Company's Immediate Capital Requirements
The Company requires about $1,000,000 to continue the growth and
market penetration of its products and its R&D (For discussion,
See "Liquidity").
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Included at Pages 34 through 49 hereof.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
The firm of Bobbitt, Pittenger and Company PA (BPC) audited the financial
statements of the Company for the fiscal year ended Dec. 31, 1998, through
June 30, 1999. On March 20, 2000, pursuant to a vote of the Board of
Directors, the firm of Stan J. H. Lee and Company was selected to audit
the financial statements of the Company for the year ended December 31,
1999, and December 31, 2000.
The report of BPC on the Company's financial statements for the previous
year did not contain an adverse opinion or a disclaimer of opinion, and was
not qualified or modified as to uncertainty, audit scope, or accounting
principles. During the entire period of the engagement of BPC, through
June 30, 1999, there had been no disagreement on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope
or procedure, which disagreement, if not resolved to BPC's satisfaction,
would have caused BPC to make reference in connection with its reports to
the subject matter of the disagreement.
<PAGE>
PART III
Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth the names and ages of all the Directors and
Executive Officers of the Company, positions held by such person, length of
service, when first elected or appointed and term of office.
First Elected
Name Age or Appointed/Term Position
Paul A. Sloan 41 1997 President, Chief Executive
Officer and Director.
Larry Provost* 51 Chairman of the Board of
Directors, Secretary,
Treasurer and Chief
Financial Officer.
Michael Solomon** 54 1997 Senior Vice President.
Lester H. Cohen** 53 1997 Vice President-Marketing.
James Vondra 58 1997 Director.
Kim Adolphe 41 1999 Director, President of
Subsidiary (Gemini Learning
Systems, Inc.).
Jim Marquis 57 1999 Director.
Todd Finch 34 1999 Director.
___________________
* retired from all positions in February, 2000
** retired in May, 1999.
Biographies of Directors, Officers and Officers Nominees.
Mr. Paul A. Sloan is President, Chief Executive Officer and a Director of
the Company. Mr. Sloan was President of Sloan Electronics, Inc., and had
been since its inception in 1990. Mr. Sloan co-founded Vorec Corporation
in 1986 and served as design team leader.
Mr. Larry Provost has been Chairman, Secretary and Chief Financial Officer
of the Company since the December 5, 1997. Mr. Provost is presently
President of Production Talent, Inc., a film and video production company,
and President of Vidco, Inc., an equipment leasing company. Mr. Provost
graduated with a B.A. degree in Psychology from New York University in 1970.
Mr. Provost retired from all positions in February, 2000.
Mr. Michael Solomon is Senior Vice President. Mr. Solomon has worked at the
New York City Police Department for 15 years. Mr. Solomon founded Pro-Tech
Security Systems, a company that installs and services residential and
commercial security systems, after retirement from the New York City Police
Department. Mr. Solomon holds a Master's Degree in Criminal Justice
Administration from New York Institute of Technology. Solomon retired from
all positions in May, 1999.
<PAGE>
Mr. Lester H. Cohen is Vice President - Marketing. Mr. Cohen served as New
York State Division of Probatio0n Training Administrator, Chief of Planning
Policy and Program Development for the same department and as a Line
Probation Officer in the Steuben County Probation Department. Mr. Cohen
received a Master's Degree in Social Work from Adelphi University, School of
Social Work. Mr. Cohen retired from all positions in May, 1999.
Mr. James Vondra is a Director of the Company. From 1991 to the present,
Mr. Vondra has been a Senior Systems Analyst for data based management
systems (IMS development) produced by Computer Science Corp., located in
Texas. He received a BA in Business Administration in 1963 from North Texas
State University. Mr. Vondra has 29 years experience in data processing and
system programming.
Mrs. Kim Adolphe is a Director. For the past 5 years, she has been President
and CEO of Gemini. Mrs. Adolphe runs Gemini on a day to day basis. Her role
is to oversee the strategic direction of the company and to ensure that the
people and processes to accomplish Gemini's corporate objectives are in
place. She has held this position continuously, on a full time basis, since
1990.
Mrs. Adolphe is a director and alumni member of Canadian Advanced Technology
Alliance (CATA). She was the founding President of the Calgary UNIX User's
Group (CUUG), spearheading the first Internet service in Calgary. Mrs.
Adolphe has published papers in such journals as Canadian Artificial
Intelligence and co-authored an international award-winning paper on the
SWIFT (SoftWare Intelligent Freeform Training) methodology.
Jim Marquis, is a Director. He is currently Vice President and a Board
member of Kimchuk, Inc. and a Board member of Smartcom, Inc., Thermal Waste
Technologies, Smart Communications, Inc., Investment Funding LLC, and Baron
Express LLC and a partner of Professional Properties. In March of 1971 he
joined Kimchuk, Inc. and formed their electronics equipment fabrication
division, and has been with the company since that time, rising through
the ranks to his current position. Mr. Marquis received a BSEE from the
University of Bridgeport in 1968 and a MBA from the University of
Connecticut in 1974.
Mr. Todd Finch is a Director. He has extensive internet experience while
holding the position of the President of Netscape Canada. He was also
involved in the formation of the Sun-Netscape Alliance of Canada.
Item 11 EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The Directors received no cash compensation in 1999, but did receive the
following stock options during 1999:
Name Amount Exercise Price Term Amount Exercised
Mr. Provost(1) 50,000 1.44 5 yr 0
Mr. Sloan 50,000 1.44 5 yr 0
Mr. Cohen(2) 10,000 1.12 10 yr 0
Mr. Solomon(3) 10,000 1.12 10 yr 0
Mr. Vondra 10,000 1.12 10 yr 0
Mr. Marquis 10,000 1.12 10 yr 0
______________
(1) Larry Provost retired from the Board in February, 2000.
(2) Lester Cohen retired from the Board in May, 1999.
(3) Michael Solomon retired from the Board in May, 1999.
<PAGE>
EXECUTIVE COMPENSATION
The primary objectives of the Company's executive compensation structure
are to maintain executive compensation at competitive levels to retain
qualified personnel and to reward individuals for their respective
contributions to the Company's success. Bonuses may be granted in order to
reward and acknowledge employees for, among other things, individual
initiative and achievement. A number of factors are considered in
determining compensation of executives, such as historical financial
results, anticipated revenues and earnings for the next fiscal year,
individual contributions to, and length of service with, the Company,
compensation levels at other companies (both within and outside the
Company's industry), and equity and fairness within the top levels of
management. Decisions on executive officer compensation are, however,
primarily subjective. No predetermined weight is generally assigned
to any of the factors mentioned above. A guideline in determining bonus
compensation for division presidents and other designated executive
officers has historically been the achievement of budgeted sales and
earnings levels, but no other specific corporate performance related
targets are otherwise used and the achievement of such goals is not,
in all cases, determinative of whether an executive officer will receive
bonus compensation or the amount of such compensation.
Summary Compensation Table:
Name and Principle All Other Compensation
Position Year Salary Pecuniary Shares
Larry Provost* 1999 $78,000(3) 50,000(4)
Chairman, Secretary 1998 $52,000(3) $18,000(1) 20,000(4)
Treasurer and Chief 1997 $18,000 196,350(2)
Financial Officer
Paul Sloan 1999 $78,000(3) 50,000(4)
President, Chief 1998 $60,000(5) 20,000(4)
Executive Officer 1997 $60,000(6)
and Director
Lester Cohen** 1999 10,000(4)
VP Marketing, 1998 10,000(4)
Director
Michael Solomon*** 1999 10,000(4)
Senior VP 1998 10,000(4)
Director
Jim Vondra 1999 10,000(4)
Director 1998 10,000(4)
Kim Adolphe 1999 $123,000(8) 2,000,000(9)
Director, and 1998 70,000(8)
President
of Subsidiary 1997 37,650(8)
James Marquis 1999 10,000(4)
_____________
* Retired from all positions in February, 2000.
** Retired from all positions in May, 1999.
*** Retired in May, 1999.
(1) Mr. Provost received a $18,000 stipend to cover the costs of maintaining
an office.
(2) Mr. Provost received an aggregate of 196,350 shares as part of total
compensation during fiscal year 1997.
<PAGE>
(3) Mr. Provost and Mr. Sloan received $0 as of December 31, 1999. This
amount is accrued and payable by the Company.
(4) Shares in stock option plan (unexercised).
(5) Mr. Sloan has received $25,000 as of December 31, 1998. The balance of
$35,000 is accrued and payable by the Company.
(6) Mr. Sloan has received $40,000 as of December 31, 1997. The balance of
$20,000 is accrued and payable by the Company.
(7) This represents one month's salary.
(8) Salary and auto expenses received from Subsidiary. This is consolidated
and carried back two years, even though the Subsidiary was only purchased in
September, 1999.
(9) Shares received as compensation for the purchase of Gemini. The original
sale price was 20,000,000 shares, which were subject to the 1 for 10 reverse
split in November, 1999,
In addition, the Company may award stock options to key employees, members
of management, directors and consultants under stock option programs as
bonuses based on service and performance.
Item 12 Security Ownership of Certain Beneficial Owners and Management
Parents of the Company
The following table discloses all persons who are parent of the
Company (as such term is defined in Securities and Exchange Commission
Regulation C), showing the basis of control and as to each parent, the
percentage of voting securities owned or other basis of control by its
immediate parent if any.
Name and Address Amount and Nature of Percent
Title of Class of Beneficial Owner Beneficial Ownership of Class
Common Stock Paul Sloan 207,504 6.6%
4266 Higel Ave. Record and Beneficial
Sarasota FL 34242 Owner
Common Stock Kim Adolphe 2,000,000 63.2%
Suite 38 RR# 12 Record and Beneficial
Calgary Alta. T3E 6W5 Owner
Transaction with Promoters, if Organized Within the Past Five Years
There have been no transactions with Promoters over the past five
years.
Principal Stockholders
As of December 31, 1999, the following persons (including any
"group" are, based on information available to the Company, beneficial
owners of more than five percent of the Company's common stock (its only
class of voting securities):
Name and Address Amount and Nature of Percent
Title of Class of Beneficial Owner Beneficial Ownership of Class
Common Stock Paul Sloan 207,504 6.6%
4266 Higel Ave. Record and Beneficial
Sarasota FL 34242 Owner
Common Stock Kim Adolphe 2,000,000 63.2%
Suite 38 RR# 12 Record and Beneficial
Calgary Alta. T3E 6W5 Owner
<PAGE>
Security Ownership of Management
As of the date of this Prospectus, the following table discloses, as
to each class of equity securities of the registrant or any of its parents
or subsidiaries other than directors' qualifying shares, beneficially owned
by all directors and nominees, the names of each executive officer (as
defined in Item 402[a][2] of Securities and Exchange Commission regulation
S-B), and directors and executive officers of the registrant as a group,
the total number of shares beneficially owned and the percent of class so
owned. Of the number of shares shown, the associated footnotes indicate the
amount of shares with respect to which such persons have the right to
acquire beneficial ownership as specified in Securities and Exchange
Commission Rule 13(d)(1).
Name and Address Amount and Nature of Percent
Title of Class of Beneficial Owner Beneficial Ownership of Class
Common Stock Larry Provost 132,750 4.2%
116 Teatown Rd. Record and Beneficial
Croton, NY 10520 Owner
Common Stock Paul Sloan 207,504 6.6%
4266 Higel Ave. Record and Beneficial
Sarasota FL 34242 Owner
Common Stock Lester Cohen (1) 58,876 1.9%
7705 Porto Vecchio Pl. Record and Beneficial
Delray Beach FL 33446 Owner
Common Stock Margery Cohen Trust (1) 58,876 1.9%
7705 Porto Vecchio Pl. Record and Beneficial
Delray Beach FL 33446 Owner
Common Stock Michael Solomon 29,863 0.9%
3 Chippewa Ct. Record and Beneficial
Suffern NY 10901 Owner
Common Stock James Vondra 42,476 1.3%
216 Overcrest Dr. Record and Beneficial
Benbrook TX 76126 Owner
Common Stock Todd Finch 0 0%
1096 Algonquin Drive Record and Beneficial
Mississauga, Ontario Owner
L5H 1P4
Common Stock Kim Adolphe 2,000,000 63.2%
Suite 38 RR# 12 Record and Beneficial
Calgary Alta. T3E 6W5 Owner
All Directors & 2,530,345 80%
as a group (5 persons)
Officers
(1) Mr. Lester Cohen is the husband of Mrs. Margery Cohen;
_________________________________________
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Transactions
The following information pertains to all transaction during the
last two year, or proposed transactions, to which the Company was or is to
be a party, in which any of the following persons had or is to have a direct
or indirect material interest: any director or executive officer of the
Company: any nominee for election as a director; any principal security
holder listed below; and, any member of the immediate family (including
spouse, parents, children, siblings, and in-laws) of any of the foregoing
persons.
Name and Principle All Other Compensation
Position Year Salary Pecuniary Shares
Larry Provost* 1999 $78,000(3) 50,000(4)
Chairman, Secretary 1998 $52,000(3) $18,000(1) 20,000(4)
Treasurer and Chief 1997 $18,000 196,350(2)
Financial Officer
Paul Sloan 1999 $78,000(3) 50,000(4)
President, Chief 1998 $60,000(5) 20,000(4)
Executive Officer 1997 $60,000(6)
and Director
Lester Cohen** 1999 10,000(4)
VP Marketing, 1998 10,000(4)
Director
Michael Solomon*** 1999 10,000(4)
Senior VP 1998 10,000(4)
Director
Jim Vondra 1999 10,000(4)
Director 1998 10,000(4)
Kim Adolphe 1999 $123,000(8) 2,000,000(9)
Director, and President 1998 70,000(8)
of Subsidiary 1997 37,650(8)
James Marquis 1999 10,000(4)
_____________
* Retired from all positions in February, 2000.
** Retired from all positions in May, 1999.
*** Retired in May, 1999.
(1) Mr. Provost received a $18,000 stipend to cover the costs of maintaining
an office.
(2) Mr. Provost received an aggregate of 196,350 shares as part of total
compensation during fiscal year 1997.
(3) Mr. Provost and Mr. Sloan received $0 as of December 31, 1999. This
amount is accrued and payable by the Company.
(4) Shares in stock option plan (unexercised).
(5) Mr. Sloan has received $25,000 as of December 31, 1998. The balance of
$35,000 is accrued and payable by the Company.
(6) Mr. Sloan has received $40,000 as of December 31, 1997. The balance of
$20,000 is accrued and payable by the Company.
(7) This represents one month's salary.
(8) Salary and auto expenses received from Subsidiary. This is consolidated
and carried back two years, even though the Subsidiary was only purchased in
September, 1999.
<PAGE>
(9) Shares received as compensation for the purchase of Gemini. The original
sale price was 20,000,000 shares, which were subject to the 1 for 10 reverse
split in November, 1999,
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) The following documents are filed as a part
of this Report:
(1) Financial Statement. The following Financial Statements are filed
as part of this Report:
Page
Report of Independent Public Accountants. 36
Balance Sheets: December 31, 1999, December 31, 1998. 37
Statements of Operations: Year Ended December 31, 1999,
Year Ended December 31, 1998. 38
Statement of Cash Flows: Year Ended December 31, 1999,
Year Ended December 31, 1998. 39
Statement of Stockholders' equity: December 31, 1998,
to December 31, 1999- June 30, 1998. 40
Statement of Expenses for the Year Ended December 31, 1999,
Year Ended December 31, 1998. 41
Notes to Financial Statements. 42
(2) Exhibits. The following exhibits are filed as part of
this Report:
Exhibit No. Item Page
2.0 Plan and Agreement of Merger between MAS Acquisition
I Corp. and Sloan Electronics, Inc. as filed with the
Form 8-K Amendment on March 18, 1998.
2.1 Article of Amendment changing company name from
MAS Acquisition I Corp. to Sloan Electronics, Inc.
as filed with the Form 8-K Amendment on March 18, 1998.
2.11 Article of Amendment changing company name from
Sloan Electronics, Inc. to Salient Cybertech, Inc.
as filed with the Form 8-K Amendment on March 18, 1998.
2.12 Articles of Incorporation as filed with the Form
0-SB Registration Statement on September 4, 1996.
3.1 Bylaws of the Company adopted by the Company from
the Bylaws of Sloan Electronics, Inc. as amended, filed
with the form 10-QSB on November 12, 1998
<PAGE>
4.0 Specimen Stock Certificate as filed with the Form
10-SB Registration Statement on September 4, 1996.
4.11 Specimen Stock Certificate replacing MAS Acquisition I
Corp. Stock Certificate, filed with form 10-KSB/A April
7, 1998.
4.12 Stock Option Plan approved by shareholders May 16, 1998
as filed with form DEF-14A April 10, 1998.
27 Financial Data Schedule.
(3) Reports on Form 8-K filed in the fourth quarter and incorporated in
the current Report on Form 10-KSB by Reference:
1. Report on Form 8-k filed on May 27, reporting the change of name from
Sloan Electronics, Inc. to Salient Cybertech, Inc.
2. Current Report on Form 8-K, reporting the purchase of Gemini Learning
Systems, Inc. by the Company, filed on September 28, 1999.
3. First Amendment to Current Report on Form 8-K, providing the details of
the purchase of Gemini Learning Systems, Inc. by the Company, filed on
October 28, 1999.
4. Second Amendment to the Current Report on Form 8-K, providing the
financial details of the purchase of Gemini Learning Systems, Inc.,
filed on December 28, 1999.
5. Report on Form 8-K, reporting the 1-10 reverse split of the shares
in the common stock of the Company.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Company has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SALIENT CYBERTECH, INC.
By /s/Paul Sloan/s/
Paul Sloan, President and Director
(Principal Executive Officer)
Date: March 30, 2000.
<PAGE>
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
Company and in the capacities and on the dates indicated.
SALIENT CYBERTECH, INC.
By /s/Paul Sloan/s/
Paul Sloan, President and Director
(Principal Executive Officer)
Date: March 30, 2000.
<PAGE>
Salient Cybertech, Inc.
Comparative Consolidated
Financial Statements and
Accountant's Audit Report
For the Years Ended
December 31, 1999 and 1998
<PAGE>
Salient Cybertech, Inc.
COMPARATIVE CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1999 and 1998
TABLE OF CONTENTS
_______________________________________________________________
Page
Accountant's Audit Report 3
Financial Statements:
Balance Sheet 4
Statements of Operations and Retained Earning 5
Statement of Stockholder's Equity 6
Statements of Cash Flows 7
Statement of Selling., General and Administrative 8
Notes to Financial Statements 9
_______________________________________________________________
<PAGE>
Stan J.H. Lee & Co., CPAs Direct) 201-681-7475
Princeton Corporate Center Tel) 609-514-5100
5 Independence Way, Suite 300 Fax) 609-514-5123
Princeton, NJ 08540
e-mail) [email protected]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Shareholders of Salient Cybertech, Inc.
Sarasota , FL
We have audited the accompanying comparative consolidated balance sheet of
Salient Cybertech, Inc. as of December 31, l999 and the pro-forma
consolidated balance sheet as of December 31, 1998 and the related
comparative and pro-forma statement of operations and retained earnings
(deficit) , statement of stockholders' equity, comparative and pro-forma
consolidated statement of cash flows and the comparative and pro-forma
consolidated statements of selling, general and administrative expenses
for the years then ended. 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. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Salient Cybertech, Inc. at December 31, l999 and 1998, and the results of
its operations and its cash flow for the years then ended in conformity
with generally accepted accounting principles.
/s/Stan J.H. Lee & Co. CPAs
_______________________
Stan J.H. Lee & Co., CPAs
March 25, 2000
Princeton , NJ
<PAGE>
Salient Cybertech, Inc.
Balance Sheet at December 31, 1999 and
December 31, 1998
Pro-Forma
1999 1998
ASSETS:
Cash 3,650 19,792
Accounts receivable 8,873 48,919
Inventory 19,566 27,171
Income taxes recoverable 63,416 -
Prepaid insurance - 26,422
Prepaid legal fees - current 562,500 -
Prepaid consulting fees 133,488 -
Prepaid expenses and sundry assets 2,285 2,218
Deferred syndication costs 100,000
TOTAL CURRENT ASSETS 893,778 224,522
Equipment - net 26,909 19,700
Research and development 486,769 408,435
Sundry assets and security deposit 2,285 -
Prepaid legal fees - long-term 46,875 -
1,456,616 652,657
LIABILITIES AND STOCKHOLDERS'S EQUITY:
Bank indebtedness 2,731 2,779
Accounts payable 103,360 122,539
Accrued expenses 250,587 120,056
Accrued interest 12,240 8,650
Accrued interest - related party 79,017 41,189
Notes payable 15,000 41,718
Notes payable - related party 300,053 210,000
TOTAL CURRENT LIABILITIES 762,988 546,931
Notes payable - related party, long term 35,577 33,224
Due to others 45,684 13,927
Due to shareholders 72,561 -
153,822 47,151
STOCKHOLDERS' EQUITY
Common stock - authorized 80,000,000 shares;
par value $0.001; issued and outstanding,
3,164,900 in 1999 and 10,635,249 in 1998 3,165 10,635
Additional paid-in capital 2,453,171 603,141
Due from officer (33,565) (33,565)
Accumulated deficit (1,882,965) (521,636)
TOTAL STOCKHOLDERS' EQUITY 539,806 58,575
1,456,616 652,657
The accompanying notes are integral part of these financial statements
<PAGE>
Salient Cybertech, Inc.
Comparative Consolidated Statement of
Operations and Retained Earnings
For the Years Ending
December 31, 1999 and
December 31, 1998
Pro-Forma
For the year for the year
ended ended
12/31/99 12/31/98
SALES 112,554 119,782
COST OF SALES 11,386 67,959
GROSS PROFIT 101,168 51,823
EXPENSES
Selling 45,434 13,938
General and administrative 1,509,585 604,245
Interest 48,114 39,481
capitalization of research and - -
development expenditure (80,326) (150,798)
1,522,807 506,866
OPERATING LOSS (1,421,639) (455,043)
OTHER INCOME 25,000 -
RECOVERY OF SCIENTIFIC
RESEARCH TAX CREDIT 31,305 94,650
LOSS BEFORE INCOME TAXES (1,365,334) (360,393)
INCOME TAXES - -
EXTRAORDINARY GAIN - 50,185
NET LOSS (1,365,334) (310,208)
DEFICIT, BEGINNING (521,636) (151,998)
NET GAIN FROM FOREIGN
CONVERSION 4,005 (59,430)
DEFICIT , END (1,882,965) (521,636)
NET LOSS PER SHARE $.1979 per share $.0314 per share
The accompanying notes are integral part of these financial statements
<PAGE>
Salient Cybertech, Inc.
Statement of Shareholders' Equity
at December 31, 1999 and
December 31, 1998
Others Retained Total
Common Stocks Issued Paid-in (Due from Earnings Shareholders'
Shares Amount ( $) capital officer) (Deficit) Equity
Beginning
balance
1/1/1998 9,189,699 9,190 226,645 (33,565) (151,998) 50,272
Common
stocks
issued 1,445,550 1,445 376,496 - 377,941
Loss from
currency
conversion (59,430) (59,430)
Loss for the
year 1998 (310,208) (310,208)
Ending
balance
12/31/1998 10,635,249 10,635 603,141 (33,565) (521,636) 58,575
Common
stocks
issued 1,012,500 1,013 1,850,030 1,851,043
Purchase of
Gemini
Learning
Systems,
Inc. 20,000,000
Gain from
currency
conversion 4,005 4,005
Others (8,483) (8,483)
Loss for
the year
1999 (1,365,334)(1,365,334)
Ending
balance
12/31/1999 3,164,900 3,165 2,453,171 (33,565)(1,882,965) 539,806
The accompanying notes are integral part of these financial statements
<PAGE>
Salient Cybertech, Inc.
Comparative Consolidated Statement of Cash Flow
For the Years Ending December 31, 1999 and December 31, 1998
Pro-Forma
12/31/99 12/31/98
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (1,365,334) (310,208)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 47,533 75,089
Gain(Loss) from currency conversion 4,005 (59,430)
(Increase) decrease in operating assets:
Accounts receivable - net 40,046 64,303
Inventory 7,605
Income taxes recoverable (63,416) (17,020)
Prepaid insurance 26,422 52,523
Prepaid legal and consulting fees (842,911) 18,137
Other assets (2,352) 163
Deferred syndication costs 100,000 (100,000)
Accounts payable (19,179) (27,226)
Bank indebtedness 2,060
Accrued expenses 130,531 85,304
Accrued interest 3,590 25,963
Accrued interest - related parties 37,828 76,718
(1,895,632) (113,624)
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of equipment (54,762) (82,945)
Expenditure for research and development (78,334) (14,422)
(133,096) (97,367)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans 92,406
Loans from other 104,318 10,752
Repayments of debt (26,718) (15,770)
Proceeds from sale of common stock 1,842,560 228,083
2,012,566 223,065
NET (DECREASE) INCREASE IN CASH (16,162) 12,074
CASH, at beginning of period 19,792 7,721
CASH, at end of year 3,630 19,792
The accompanying notes are integral part of these financial statements
<PAGE>
Salient Cybertech, Inc.
Comparative Consolidated Statement of
Operating Expenses For the Years Ending
December 31, 1999 and December 31, 1998
Pro-Forma
for the year for the year
ended ended
12/31/99 12/31/98
Selling expenses:
Trade show 197 61
Consulting 42,566 12,661
Advertising 450 20
Brochures and catalog 2,221 46
45,434 13,938
General and administrative
expenses:
Auto expense 1,404 3,492
Bank charge 6,360 11,118
Bad debt 1,671 75,089
Salary 159,569 127,072
Consulting and commission 54,707 53,550
Insurance 35,103 29,426
Other expenses 1,105 30,521
Office expense and supplies 14,524 31,115
Professional and consulting 1,154,009 111,755
Rent 18,143 12,100
Taxes 605 5,448
Other operating expense - 19,245
Amortization 47,553 75,089
Communication 7,044 9,385
Travel 7,788 9,840
1,509,585 604,245
The accompanying notes are integral part of these financial statements
<PAGE>
SALIENT CYBERTECH, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Salient Cybertech, Inc. (formerly known as Sloan Electronics,Inc.)
(the "Company") was incorporated in the state of Florida in July, 1993.
The Company designs, manufacturers and markets electronics monitoring
equipment for the criminal justice industry and the long-term health care
industry.
The subsidiary company which was incorporated under the laws of the
Canadian Province of Alberta in June 1990 is a software applications
development company, specializing in distance education and training
solutions. The company created and markets software technology called
SWIFT (SoftWare Intelligent Freeform Training). The Company is emerging
from its development phase, having created an entire product line based on
the SWIFT technology.
The company has begun to establish clients and a distribution network in
Canada, the United States, the United Kingdom and Europe.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Equipment
Equipment is recorded at cost. The equipment is depreciated over its
estimated useful life, using the straight-line method of accounting.
Earnings per Share
Basic earnings per share (EPS) is computed by dividing income available
to common shareholder by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if dilutive securities and other contracts to issue
common stock were exercised or converted into common stock or resulted
in the issuance of common sock that then shared in the earnings of the
Company.
Statements of Cash Flows
For purposes of reporting cash flows, the Company considers cash and cash
equivalents as those amounts which are not subject to restrictions or
penalties and have an original maturity of three months or less.
Reclassifications
Certain reclassifications have been made to the 1998 financial statements
to conform with the 1999 financial statement presentation.
<PAGE>
SALIENT CYBERTECH, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Use of Consolidated and Pro-Forma Comparative Data
The comparative financial statements for 1998 were prepared on a pro-forma
basis, as if the Purchase of Gemini had occurred on January 1, 1998.
This was done to provide a clear comparative picture for comparing the
statements for 1998 to those of 1999, which were prepared on a consolidated
basis.
Revenue and Expense Recognition
The Company prepares its financial statements on the accrual accounting basis.
Consequently, certain revenue and related assets are recognized when earned
rather than when received, and certain expenses are recognized when the
obligation is incurred or the asset consumed, rather than when paid.
Accounting Method
The Company recognizes income and expenses on accrual basis.
Depreciation
Depreciation is computed by using the straight-line method for financial
reporting purposes and the modified accelerated cost recovery method for
federal income tax purposes.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the bases of certain assets
and liabilities for financial and tax reporting.
The deferred taxes represent the future tax return consequences of those
differences, which will either be taxable when the assets and liabilities
are recovered or settled.
Net Operating Loss Carry-forward
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred
taxes for operating losses that are available to offset future taxable
income.
Intangible Assets
Intangible assets subject to amortization include organization costs, loan
closing costs, and in-force leasehold costs.
Reclassifications
Certain accounts in the prior-year financial statements have been
reclassified for comparative purposes to conform with the presentation
in the current-year financial statements.
<PAGE>
SALIENT CYBERTECH, INC.
NOTE TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Property and Equipment
Property and equipment are carried at cost. Depreciation of property and
equipment is provided using the straight-line method for financial reporting
purposes at rates based on the estimated useful lives.
Inventories
Inventories are stated at the lower of cost (determined on the first-in,
first-out basis) or market.
Deferred Syndication Costs
Deferred syndication costs represent legal and professional fees related to
the registration of a new issue of common stock. When the common stock is
issued, these costs will reduce proceeds received as reflected in
stockholder's equity.
NOTE B- NOTES PAYABLE AND NOTES PAYABLE TO RELATED PARTIES
Note payable to an individual, 15% annual
Interest rate, payable on demand $ 15,000
NOTES PAYABLE $ 15,000
Note payable to a stockholder, 20% annual
Interest rate, maturity date March 1, 1996. $ 10,000
Note payable to a stockholder, 18%
Compounded interest rate, payable on demand. 100,000
Note payable to a stockholder, 5% annual
Interest rate, maturity date of December 16,1998. 40,000
Notes payable to a stockholder, 10% annual
interest rate, maturity date of October 22, 1999. 20,000
Note payable to a stockholder, 10% annual
interest rate, maturity date December 7, 1999. 30,000
Note payable to a stockholder, 10% annual
interest rate, maturity date of January 5, 2000
for $20,000 and March 29, 2000 for $5000. 25,000
<PAGE>
SALIENT CYBERTECH, INC.
NOTE TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
NOTE B- NOTES PAYABLE AND NOTES PAYABLE TO RELATED PARTIES - CONTINUED
Note payable to a stockholder, 10% annual
interest rate, maturity date of May 27, 2000. 10,000
Notes payable to the Company president, 10 %
annual interest rate, maturity date of June 30, l999. 6,000
Notes payable to the Company president, 10 %
annual interest rate, payable upon demand. 52,853
Note payable to the Company president, 10%
annual interest rate, maturity date of October 7,
1998. 7,000
NOTES PAYABLE TO RELATED PARTIES $300,053
The Company has not repaid loans whose maturity dates have passed since no
funds were available. Interest continues to accrue under the same terms.
The notes payable - related party, long term, represents amounts owed to
Wayne Adolphe, husband of the President of Gemini Learning Systems, Inc.
The loans have no fixed term, bear a simple interest rate of 4 % per annum
on outstanding principal, and are payable upon a change of ownership.
Accordingly, the notes are due on September 24, l999, effective date of
the change of ownership but the notes remain unpaid as of the date of the
statements and the management has no specific plan of retiring the same in
near future.
NOTE C - INCOME TAXES
At December 31, 1999, the Company has a net operating loss carry forward of
approximately $ 1,882,965 that will be available to offset future taxable
income through 2014. Based on historical operations, management has
elected to record a valuation allowance equal to the deferred tax benefit
of $696,697, calculated using an effective income tax rate of 37%.
The Company has no significant differences between book and taxable income.
NOTE D - NET LOSS PER SHARE
The following sets forth the computation of basic and diluted earnings per
share:
Numerator Year 1999 Year 1998
Operating loss $ ( 1,365,334) $ (360,393)
Denominator
Denominator for basic earnings
per share - weighted average
shares 6,900,075 9,888,219
Net loss per common share $ .1979 per share $ .0365 per share
<PAGE>
SALIENT CYBERTECH, INC.
NOTE TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
NOTE E - STOCK - BASED COMPENSATION
In 1998, the Company established a stock option plan ("the Plan") to
provide a means whereby selected employees, officers, directors, agents,
consultants and independent contractors of the Company may be granted
incentive stock options and/or non-qualified stock options to purchase
common stock of the Company.
The Plan requires the exercise price shall not be less than the fair market
value per share of the common stock at the time the option is granted,
with respect to incentive stock options and not less than 85% of the fair
market value per share of the common stock at the time the option is
granted with respect to non-qualified stock options. Incentive stock
options to employees who own more than 10% of the total combined voting
power of all classes of stock require that the exercise price shall not
be less than 110% of the fair market value of the common stock at the
time the incentive stock option is granted.
The term of each incentive and non-qualified stock option is established
by the plan administrator but may not exceed ten years. Incentive stock
options to employees who own more the 10% of the total combined voting
power of all classes of stock of the Company may not exceed five years.
Non-qualified stock options granted under the Plan in 1999 total 220,000
shares, with an exercise price of $1.12 and an expiration date of
February 24, 2009. Compensation expense related to these options and
included in the income statement for the period ending June 30, 1999 is
$20,059.
The minimum fair value of options granted during 1999 estimated on the
date of grant was $.64 per share. The fair value of options granted is
estimated on the date of the grant using the following assumptions:
risk-free interest rate of 5.7% and an expected life of 10 years.
NOTE F - RELATED PARTY TRANSACTIONS
The company rents space from the president under a month to month lease,
for $1,000 per month. Rent expense related to this lease , paid or
accrued were $ 12,000 in 1999 and $ 12,100 in 1998.
NOTE G - FAIR VALUE OF FINANACIAL INSTRUMENTS IN ACCORDANCE WITH THE
REQUIREMENTS OF SFAS NO.107
The Company's financial instruments consist of all its assets and liabilities.
The Company's management has determined that the fair value of all of
its financial instruments is equivalent to the carrying cost.
NOTE H - STOCK TRANSACTIONS
In February 1999, the Company issued 500,000 shares to a law firm for
legal services to be provided over a two year period which is the
anticipated life of the services. The market price of the shares on the
day they were issued was $1.375. The prepaid consulting services were
valued using this market value and are being amortized over a one year
period.
<PAGE>
SALIENT CYBERTECH, INC.
NOTE TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
In March 1999, the Company sold 12,500 shares to an investor for $ 10,000.
In April 1999, the Company issued 500,000 shares to a consulting firm for
public relations and other services to be provided to the Company. The term
of the agreement covers one year. The market price of the shares on the
day they were issued was $ 1.375. The prepaid consulting services were
valued using this market and are amortized over a one year period.
In May 1999, the board of directors approved changing the certificate of
incorporation to authorize the issuance of twenty shares of preferred stock.
Each share of preferred stock is convertible to 1,500,000 shares of common
stock at the will of the holder of the preferred stock.
NOTE I - COMMITMENTS AND CONTINGENCIES
In May 1999, the board of directors approved a reverse stock split of up to
10 to 1 which was carried out on November 1, 1999 at the discretion of
the chairman. The board of directors also approved the issuance of the
twenty shares of preferred stock to two key employees of the company
subsequent to the stock split As of the financial statement date neither
the reverse split nor the issuance of the preferred shares had occurred.
The Company provides a limited warranty on its products. The warranty
covers all defects in materials or workmanship in the product for one
year from the date of purchase. The Company will repair or replace
units covered by this warranty without charge to the consumer for
labor or materials. No amounts have been accrued in the financial
statements as the company does not believe that any warranty claims
would be material.
The Company has a general liability insurance policy that provides coverage
for liability claims arising out of the products it sells. The Company
has not been the subject of any material product claim. The sale of the
Company's products entails the risk of product liability claims. In
addition, many of the companies with which the Company does or may do
business may require financial assurances of product reliability. The
Company has product liability insurance, but may be required to pay
higher premiums associated with the new product development. Because
of the high cost of product liability insurance, there can be no assurance
that additional insurance will be available on acceptable terms, if at all,
or that it will provide adequate coverage against potential liabilities.
NOTE J - DEPENDENCE ON THE THIRD PARTY CONTRACT MANUFATURER
The Company subcontracts the manufacturing of all its products to one
contractor. The Company has an understanding but no agreement with the
contractor to manufacture its products. Although to date the
contractor has been able to manufacture the company's products on a timely
basis, there is no assurance that future manufacturing by the contractor
will not be delayed or interrupted due to shortage in components or
manufacturing capacity. The Company believes that there are alternative
contract manufacturers that could produce the Company's products,
but is not pursuing agreements or understandings with alternative sources.
The inability of the Company to develop alternative manufacturers,
if required in the future, could have a material adverse effect on the
Company's results of operations.
<PAGE>
SALIENT CYBERTECH, INC.
NOTE TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
NOTE K - GOING CONCERN
As shown in the accompanying financial statements, the Company incurred
accumulated deficit of $ 1,882,965 as of December 31, l999. The
ability of the Company to continue as a going concern is dependent
on obtaining additional capital and financing and operating at a
profitable level. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue
as a going concern.
NOTE L - BUSINESS COMBINATION
In September 24, 1999, the Company purchased a Canadian corporation
(Seller), Gemini Learning Systems, Inc. The purchase price is 20,000,000
shares of common stocks in the Company paid at closing. An additional
50,000 shares of stock, which shall not be subject to any stock split,
shall be made available to the Seller to reward key employees of the
business at the Seller's discretion so long as said shares are issued
in conformance with the purchaser's existing non-qualified stock option plan.
The agreement also entitles the Seller to an additional 9,230,000 sharesof
common stock in the event the business earns three million dollars in gross
sales for the fiscal year ended September 30, 2000. If the business has a
gross sales for the fiscal year ended September 30, 2000 which are at least
double the business' gross sales for the fiscal year ended September 30,
1999, but less than three million dollars, than the Seller shall be entitled
to a percentage of the 9,230,000 additional shares. In addition, if as of
September 30, 2000 the prior five trading days average closing price of the
Company's stock is greater than or equal to three dollars per share,
adjusted for any split, and the gross revenue of the business is at least
eighty percent of the total preceding calendar year revenues than the Seller
shall be entitled to the additional shares. In the event the business
earns ten million dollars in gross sales for the fiscal year ended September
30,2001, then the Seller is entitled to an additional 30,730,000 shares of
common stock in the Company. If the business has gross sales for
the fiscal year ended September 30, 2001 which are at least double the
business' gross sales for the fiscal year ended September 30, 2000 and at
least quadruple the business' gross sales for the fiscal year ended
September 30, 1999 but less than ten million dollars then the Seller shall
be entitled to a percentage of the 30,730,00 additional shares. In
addition, if as of September 30, 2001 the prior five trading days average
closing price of the Company's stock is greater than or equal to five
dollars per share, adjusted for any split, and the gross revenue of the
business is at least eighty percent of the total preceding calendar year
revenues of the Company the Seller shall be entitled to the additional
shares. These figures have not been adjusted to take into account the 1 for 10
stock split in November, 1999, and must be adjusted accordingly. The
agreement also provides for additional shares to be issued to the Seller if
the targeted projections or targeted share prices are exceeded.
In addition, the letter of intent calls for the Company to pay $750,000 to
the Seller for the purposes of funding the Company's future growth. These
monies are to be raised through a public offering.
<PAGE>
SALIENT CYBERTECH, INC.
NOTE TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE M - RESEARCH AND DEVELOPMENT
All research and development expenditures net of refundable income tax
credits (said refund issued by Revenue Canada, irrespective of the
existence of net taxable income) have been capitalized and are being
amortized on a ten year straight line basis. Costs incurred internally
have been historically charged as expenses, until technological feasibility
for the product line (the SWIFT technology) had been established, after
which they were capitalized over the expected life of the technology.
(SFAS 86).
The Canadian company has filed certain claims with Revenue Canada for
Scientific Research and Development Expenditures with respect to its
1999 and 1998 tax years. The refunds relating to these claims have been
recorded as receivable but are subject to audit. No provision has been
made in the financial statements for any reassessment which may results
from audits as management is of the opinion that the differences, if any,
will not be material. Any change will be accounted for in the year of
reassessment.
NOTE N - DESCRIPTION OF LEASING ARRANGEMENTS
Gemini currently rents approximately 2,104 square feet for its staff, at
Suite 605, 839 - 5th Avenue SW, Calgary, Alberta, Canada T2P 3C8 under
long term lease agreement which expires on December 31, 2001.
The annual rent for premises consists of a minimum rent plus realty taxes,
maintenance, heat and certain other expenses. Minimum rent payable for
premises for each of the next three years to maturity of the leases are
as follows;
1999 $ 15,220
2000 $ 16,500
2001 $ 16,500
NOTE O - FOREIGN CURRENCY CONVERSION
The Financial Statements are expressed in U. S. dollars.
Current assets and liabilities of Gemini Learning Systems, Inc.
denominated in Canadian dollars at the year end are translated
into U.S. dollars at the rate of exchange prevailing on that date.
Transactions in foreign currencies are recorded in U. S. dollars at
the rates of exchange prevailing on the date of the transactions.
Exchange gains and losses are reflected in income.
<PAGE>
BLANK PAGE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> DEC-31-2000
<CASH> 3,650
<SECURITIES> 0
<RECEIVABLES> 8,873
<ALLOWANCES> 0
<INVENTORY> 19,566
<CURRENT-ASSETS> 893,778
<PP&E> 26,909
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,456,616
<CURRENT-LIABILITIES> 762,988
<BONDS> 0
0
0
<COMMON> 3,165
<OTHER-SE> 346,639
<TOTAL-LIABILITY-AND-EQUITY> 1,456,616
<SALES> 112,554
<TOTAL-REVENUES> 112,554
<CGS> 11,386
<TOTAL-COSTS> 11,386
<OTHER-EXPENSES> 1,522,807
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,411
<INCOME-PRETAX> (1,365,334)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,365,334)
<EPS-BASIC> (0.198)
<EPS-DILUTED> (0.198)
</TABLE>
