UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended - June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-28772
Salient Cybertech, Inc.
(Name of Small Business Issuer in its charter)
Delaware 35-1990559
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1999 Lincoln Drive, Suite 202, Sarasota, Florida 34236
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (941) 953-6168
1715 Stickney Pt,. Rd, Sarasota FL 34231
(Former name, former address and former fiscal year if changed since
last report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. YES [x] NO [ ]
As of June 30, 2000, the Registrant has outstanding
4,250,000 shares of Common Stock, $.001 par value.
Documents Incorporated by Reference
Certain exhibits listed in Item 6 of Part II have been incorporated by
reference. An index to exhibits appears with Item 6.
<PAGE>
THIS QUARTERLY 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.
Salient Cybertech, Inc.
Form 10-QSB
Quarterly Report, period ended June 30, 2000.
INDEX page number
PART I Financial Information
Item 1. Financial Statements
Accountants' Compilation Report F1
Statements Of Financial Condition F2
Statements Of Operations F3
Statement Of Changes In Stockholders' Equity F4
Statements Of Cash Flows F5
Item 2. Management's discussion and analysis of
financial conditions and results of operations.
Part II. Other Information
<PAGE>
REPORT ON COMPILATION OF
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED JUNE 30, 2000
AND DECEMBER 31, 1999
Bobbitt, Pittenger & Company, P.A.
<PAGE>
SALIENT CYBERTECH, INC.
CONTENTS
PAGE
FINANCIAL STATEMENTS
ACCOUNTANTS' COMPILATION REPORT 1
CONSOLIDATED BALANCE SHEETS 2
CONSOLIDATED STATEMENTS OF OPERATIONS 3
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
<PAGE>
August 3, 2000
TO THE BOARD OF DIRECTORS
Salient Cybertech, Inc.
Sarasota, Florida
ACCOUNTANTS' COMPILATION REPORT
We have compiled the accompanying consolidated balance sheets of Salient
Cybertech, Inc., as of June 30, 2000 and December 31, 1999, the related
consolidated statements of changes in stockholders' equity for the periods
then ended, and the consolidated statements of operations for the three
and six month periods ending June 30, 2000 and 1999 and consolidated cash
flows for the six month periods ended June 30, 2000 and 1999, in accordance
with Statements on Standards for Accounting and Review Services issued by
the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited
or reviewed the accompanying financial statements and, accordingly, do not
express an opinion or any other form of assurance on them.
Management has elected to omit substantially all of the disclosures required
by generally accepted accounting principles. If the omitted disclosures
were included in the financial statements, they might influence the user's
conclusions about the Company's financial position, results of operations,
and cash flows. Accordingly, these financial statements are not designed
for those who are not informed about such matters.
Generally accepted accounting principles require that all foreign currency
transactions be revalued in U.S. currency. Management has not valued all
foreign transactions as if they were originated in U.S. dollars. If
generally accepted accounting principles had been followed, net income and
stockholders' equity would be decreased by $24,419.
Certified Public Accountants
<PAGE>
SALIENT CYBERTECH, INC.
PROFORMA CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2000 1999
ASSETS
Cash $ 219,935 $ 356,240
Short-term investments 149,002
Restricted cash 75,358
Accounts receivable - net 443,052 250,255
Inventory 577,185 612,169
Prepaid legal fees - current 328,125 562,500
Prepaid consulting fees 133,488
Deferred syndication costs 100,000
Prepaid expenses 3,216 63,416
Deferred tax asset 2,285
TOTAL CURRENT ASSETS 1,720,515 2,155,711
EQUIPMENT - NET 4,693,150 4,726,909
Research and development 486,769 486,769
Prepaid legal fees - long term 46,875
Goodwill - net 1,748,935 1,767,335
Other assets 3,861 2,285
$8,653,230 $9,185,884
See accountants' compilation report.
<PAGE>
June 30, December 31,
2000 1999
LIABILITIES AND STOCKHOLDERS'
EQUITY
LIABILITIES
Current maturities
of long-term debt $ 272,731 $ 272,731
Accounts payable 963,874 684,645
Accrued expenses 385,507 319,579
Accrued interest 39,747 12,240
Accrued interest -
related party 104,189 79,017
Notes payable 15,000 15,000
Notes payable -
related party 762,451 677,316
TOTAL CURRENT LIABILITIES 2,534,499 2,060,528
Long-term debt,
less current maturities 348,862 553,737
Due to others 45,684
Due to shareholders/
related parties 62,850 108,138
TOTAL LIABILITIES 2,955,211 2,768,087
STOCKHOLDERS' EQUITY
Common stock - authorized
80,000,000 shares;
par value $.001; issued
and outstanding,
4,250,006 and 3,164,900
shares at June 30,
2000 and December 31, 1999,
respectively 4,250 3,165
Additional paid-in capital 9,402,086 8,323,943
Due from officer (33,565)
Accumulated deficit (3,708,317) (1,875,746)
TOTAL STOCKHOLDERS' EQUITY 5,698,019 6,417,797
$ 8,653,230 $9,185,884
See accountants' compilation report.
<PAGE>
SALIENT CYBERTECH, INC.
PROFORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Six months Three months Six months Three months
ended ended ended ended
June 30, June 30, June 30, June 30,
2000 2000 1999 1999
SALES $ 2,460,997 $1,119,238 $2,902,089 $1,381,592
COST OF SALES 2,188,543 1,024,749 2,328,799 1,132,796
GROSS PROFIT 272,454 94,489 573,290 248,796
EXPENSES
Selling 38,970 12,607
General and
administrative 2,047,758 1,164,944 1,371,941 816,015
Interest 66,355 49,000 53,119 23,660
2,114,113 1,213,944 1,464,030 852,282
OPERATING LOSS (1,841,659) (1,119,455) (890,740) (603,486)
OTHER INCOME 9,088 7,112 309,940 251,305
LOSS BEFORE
INCOME TAXES (1,832,571) (1,112,343) (580,800) (352,181)
INCOME TAXES
NET LOSS $(1,832,571) $(1,112,343) $ (580,800) $ (352,181)
NET LOSS
PER SHARE $ (.477) $ (.254) $ (.051) $ (.030)
See accountants' compilation report.
<PAGE>
SALIENT CYBERTECH, INC.
PROFORMA CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
Additional
Common Paid-in Due from Accumulated
Stock Capital Officer Deficit Total
BALANCE,
January 1,
1999 $10,635 $6,473,913 $(33,565) $(238,923) $ 6,212,060
Common stock
issued 1,013 1,850,030 1,851,043
Gain from
currency conversion 4,005 4,005
Other (8,483) (8,483)
Net loss (1,640,828) (1,640,828)
Balance,
December 31,
1999 3,165 8,323,943 (33,565) (1,875,746) 6,417,797
Common stock
issued 1,085 1,178,143 1,179,228
Reversal of due
from officer 33,565 33,565
Syndication costs (100,000) (100,000)
Net Loss (1,832,571) (1,832,571)
BALANCE,
June 30, 2000 $ 4,250 $9,402,086 $ $(3,708,317) $ 5,698,019
See accountants' compilation report.
<PAGE>
SALIENT CYBERTECH, INC.
PROFORMA CONSOLIDATED STATEMENTS OF CASH FLOWS
June 30,
2000 1999
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $(1,832,571) $(580,800)
Adjustments to reconcile
net loss to
net cash used in
operating activities:
Depreciation 13,759 125,384
Amortization 18,400
Stock issued for services 800,000
(Increase) decrease in
operating assets:
Accounts receivable - net (182,797) (231,406)
Inventory 34,984 (96,760)
Deferred tax asset 2,285
Prepaid insurance 60,200 15,577
Prepaid legal and
consulting fees 414,738 (633,334)
Other assets (863) (3,410)
(Decrease) increase
in operating liabilities:
Accounts payable 279,229 398,800
Accrued expenses 254,443 105,956
Accrued interest 52,679 20,395
NET CASH USED IN OPERATING
ACTIVITIES (885,514) (79,598)
CASH FLOWS USED BY
INVESTING ACTIVITIES
Expenditure for research
and development (467,288)
NET CASH USED BY INVESTING
ACTIVITIES
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds of loans from
related parties 58,374 47,224
Proceeds from sale of
common stock 1,000,000 492,576
Repayments from shareholders 33,565 (10,299)
Repayments of loans (259,375) (175,634)
Repayments to shareholders (9,711)
NET CASH PROVIDED BY
FINANCING ACTIVITIES 822,853 353,867
NET DECREASE IN CASH (62,661) (193,019)
CASH, at beginning of period 431,598 309,747
CASH, at end period $ 368,937 $ 116,728
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 13,676 $ 32,724
See accountants' compilation report.
<PAGE>
Part I. Item 2. Description of business and management's discussion
Salient Cybertech, Inc. (the "Company") is the new name for Sloan
Electronics, Inc. authorized by the shareholders at the Annual
Shareholders' Meeting on May 22, 1999 and approved by the Board of
Directors on May 22, 1999. The company, through the Sloan Electronics
division will continue to design, manufacturer and market electronic
monitoring equipment for the criminal justice industry and the long-
term health care industry. It will market house arrest monitoring
equipment through its in-house marketing department and currently
distributes its products through national service providers. The Sloan
Electronics division has a distribution agreement with Response USA, a
distributor of personal emergency response systems.
Salient Cybertech, Inc. is actively seeking acquisition candidates with
interests in technology, Internet, distance learning, and security
industries. During the third quarter 1999, acquisition discussions were
held with several companies and resulted in the acquisition for stock
of Gemini Learning Systems, Inc., which will operate as a division of
the company. The company filed an 8K current report on September 28,
1999 and an 8K/A report on October 29, 1999 that more fully discuss the
acquisition and are incorporated herein by reference. 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.
On Tuesday May 23, 2000, Salient Cybertech, Inc. (the "Company") executed
an agreement whereby it acquired Futronix, Inc. ("Futronix"). The acquisition
was accomplished by the Company forming a Delaware subsidiary known as Salient
Acquisition Corporation, and that corporation merging with Futronix. The
surviving Corporation will be a wholly owned subsidiary of the Company,
carrying on business as Futronix, Inc. The transaction is more fully
described in the Report on Form 8-K, filed on May 25, 2000, with the
Securities and Exchange Commission.
Established in 1989, Futronix is an ISO 9002-certified consignment and
turnkey contract electronic manufacturer. Futronix offers advanced Surface
Mount Technology capabilities, mixed technology, mechanical assembly, in-
circuit and functional testing, and design and engineering services for
customers. Futronix is part of the FUTRONIX ELECRONICS DIVISION.
Salient Cybertech's revenues are currently primarily from the product
sales of Futronix. With the addition of Gemini Learning Systems, management
hopes to add SWIFT licensing fees, courseware sales and recurring revenue from
per use course fees to its revenues in the next fiscal year. Based on a written
agreement, the Sloan Electronics division is to receive recurring payments from
Response USA based on a percentage of their service revenue. The Company
received recurring revenue from Response USA for the first and second quarter
of 1999, and will receive recurring revenue for the third quarter of 1999.
Response USA has recently modified its business focus and has sold several
divisions. Management is unsure of their ability to successfully market the
Wander Watch products, and there is uncertainty as to the growth or
continuance of recurring payments from Response USA.
SLOAN ELECTRONICS DIVISION
Information sheets and video clips of some of the company's products
are available from the company web site at salientcyber.com.
The Company'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.
<PAGE>
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 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.
<PAGE>
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. The Company 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. The Company 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. 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.
<PAGE>
Sloan Electronics Business Strategy
High-Quality Image. We believe that within the house arrest and medical
monitoring industries, the Company 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 the
Company and may include personnel outside the Company 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. The Company 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
with unit 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 manufacturers have developed proprietary
<PAGE>
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. The Company 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. The Company 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. The Company maintains
a web site at www.salientcyber.com.
Competition
The Company 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
the Company 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.
<PAGE>
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 the
Company'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 the Company.
The Company 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., the Company'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.
The Company's relationship with Kimchuk allows it to reduce its
production costs, to reduce its final testing costs and to reduce its
personnel costs. The Company 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
the Company's products in the most cost-efficient manner, while
maintaining accuracy in circuit board production and error-free
transfer and component connections.
<PAGE>
Product Warranties. The Company supports its products with a limited
one year warranty, which covers all defects in materials or
workmanship. The Company will repair or replace defective units without
charge to the consumers for labor or materials. The Company'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. The Company 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
the Company.
FURTONIX ELECTRONICS DIVISION
FUTRONIX, INC. made its entry into the electronic contract manufacturing
industry in March of 1988 providing assembly labor to a consignment base.
Consignment is an industry term where the customers supplied the components
and FUTRONIX provides the equipment and labor to assemble and test the
products. This concept is a relatively low capital risk because the raw
components typically make up about 70% of the cost of an electronic assembly.
This consignment work continued through 1996, with the exception of a few
small "turn-key" jobs. Turnkey is a concept that requires components and
labor to be provided to complete a finished Printed Circuit Assembly (PCA)
for the customers based on their drawings and specifications.
<PAGE>
In 1997, a major transition to "turn-key" was accomplished, resulting in 35% of
sales in 1997 as opposed to less than 10% in 1996. In 1998 turnkey sales
accounted for 75% of sales. With turnkey work, Futronix sets the production
schedules based on longer term Purchase Orders.
The transition to turn key work required the development of a purchasing
department, Materials Requirement Planning and related materials tracking,
stocking, and issuing systems. An NT based SQL server with over 30 on line
stations was installed supporting the following control and tracking databases:
* Shop control that tracks the status of all work-in-process (WIP)
* Purchase order system that verifies and controls all purchases made,
verifies receipt of ordered items and tracks vendor quantity in three
categories.
* Inventory control that logs receipt, and issuance of all materials used in
all value added services.
* Materials Requirement Planning (MRP) that can generate forward looking
reports for future material needs, based on current schedules, orders,
inventory, work-in process.
* Return stock (RTS) and scrap. The MRP system assures that when a job is
scheduled, the components to complete the job are on hand when needed.
* Quality reporting that provides process status, process yield, vendor
status, and other quality reporting as required by ISO9002 policy.
* Schedule control that allows for efficient workload and leveling.
* Bill of material (BOM) control and verification that ensures every
component used in a customer's product is approved and correct.
* Job cost module that utilizes the shop floor tracking system, materials
and labor utilization to feed back costing information to management for
quoting and resource allocation purposes.
<PAGE>
The controls enumerated above were implemented to provide full turnkey
services and to meet the requirements for ISO9002 quality standard
certification. The substantial costs to the company to implement this
system resulted in reduced earnings in 1997 and 1998. However, the company
is now poised to facilitate larger turn-key accounts.
In the first quarter of 1998, FUTRONIX received ISO9002 quality standard
certification from Underwriters Laboratories (UL), without a single
nonconformance. As a result of operating in a solid operable quality
system, the Company increased its first pass yield (FPY) from 70% to
currently better than 97% for any individual process.
Facilities
FUTRONIX, INC. is located in Suncoast Industrial Park, Homosassa, Florida
and presently occupies two main buildings, and several support and storage
buildings totaling 30,000 sq. ft (MOL). Approximately 40 acres of adjacent
industrial property owned by the shareholders is available for expansion as
required. The facilities are leased from the Company's shareholders. The
location easily accessible from Orlando or Tampa, and provides a plentiful
and reliable labor base.
Products and Services
FUTRONIX INC is a high quality Electronic Contract Manufacturer (ECM)
providing manufacturing, test, prototyping, and product development and
support for a diverse set of market segments. Printed circuit assemblies
and box build products manufactured in medium to high volume supplied to
OEM's for commercial, industrial, medical, and telecommunication
applications. As an ECM, Futronix reviews our customers product
specifications and develops and implements a plan to efficiently and
cost effectively fabricate and test the product (typically a Printed
Circuit Assembly), that meets or exceeds the functional and quality
specifications. This plan typically calls for continual improvement that
will reduce the costs while maintaining quality. A percentage of the
realized cost savings, typically 50%, are passed on to the customer.
Product Description
Printed Circuit Assembly (PCA): Futronix utilizes automated, high speed
assembly equipment that can be used or adapted for most any type of PCA
manufacturing. PCA types include Surface Mount Technology (SMT),
conventional through hole technology, mixed technology, and mechanical
fabrication and assembly. Turnkey, consignment or combinations of these
services are offered. The Company also provides design and product
development, along with design for test and manufacturability services
for customers who do not have the personnel or expertise to fulfill this
requirement.
Box build at multi levels from finished products bulk shipped in retail
dress box packing shipped direct to the distribution center, retail
outlet or even to the end user.
Stocking finished goods, warranty return service, invoicing and payment
processing are additional services Futronix can offer.
Competitive Comparison
FUTRONIX is small to mid size in comparison to the top ECM's with sales
over $100 million. This mid sized atmosphere, coupled with high volume
capabilities gives Futronix an edge in that our responsiveness to our
customers needs can not be achieved through the bureaucracy of a larger
ECM. The Company is able to be competitive in bidding for contracts
based on its capability, reputation and its location in a plentiful and
favorable labor market. The Company has had to turn down substantial
contracts in the past due to limitations in its ability to purchase
inventory of components in advance for large contracts. The excess
capacity of our production facility allows us to immediately respond to
increases of current customer needs as well as the influx of new business.
This surplus capacity allows Futronix to be very competitive when
responding to requests for quotations. Since the fixed overhead is
covered by current work, any additional work will lower our burdened
labor rate, thus allowing aggressive quotations at the same time increasing
margins.
<PAGE>
Technology
Technology is the basis of our business and it's growth. Electronic circuits
are becoming more and more prevalent in every day life. Mechanical products
of just a few years ago now have electronic circuits that control, monitor,
indicate, and make the product easier to use. From toys to automobiles,
appliances to computers, consumer, commercial and industrial products
have included technology as a tool to gain a competitive edge. As technology
becomes more specialized Original Equipment Manufacturers (OEM) are
focussing more on leading edge design and outsourcing the manufacturing
to ECMs. In addition, as component complexity grows, OEMs are finding
the capital expense for the specialized equipment and assembly techniques
outweigh the cost to outsource in many applications. Futronix has been a
leader in technology advancement to meet these needs. Futronix co-developed
a process with AIM solderpastes for intrusive reflow that cut 60% of the
assembly costs for a customer's computer product. The process called Step
Soldering Aids "Intrusive" Reflow was published in the September
1996 issue of SMT magazine.
Future Products
Futronix sees the mutual advantages of consolidating the diversified needs
of an OEM into a "one stop" contract manufacturing enterprise where box
build products are leading the growth in our industry. Expansion plans to
meet these growing requirements include an injection molding facility and
laminated keypad fabrication. Both of these products/services fit well in
our industry and are used in the vast majority of Box build products.
Market Analysis Summary
According to Manufacturing Market Insider (MMI) September 1997, the ECM
market is estimated to be nearly $90 billion in 1998. The article sited
the trend of OEM's to outsource manufacturing to the ECM industry:
"Electronics contracting manufacturing should continue it's growth of
nearly 20 percentage points more than the overall electronic equipment
industry growth". According to Contracting Manufacturing from a Global
Perspective, a recent report from Technology Forecasters, based on a
study of 149 electronic contract manufacturers and their customers.
"There's no holding back in evidence - OEM's demand for manufacturing
cost reduction, new assembly techniques, global manufacturing, and
outsourcing of complete systems contributes to the 25 percent global
compound annual growth rate from 1996 through 2001," said Pamila J.
Gordon, management consultant and president of Technology Forecasters.
<PAGE>
Strategy and Implementation Summary
Futronix Inc. strategy for growth consists these key elements:
* To maintain focus on key competencies such SMT and mixed technology
PCA assembly, and expand our involvement in box build products, which
represents the ECM markets fastest growing segment.
* To build and maintain long term relationships with our customers. To
become a partner, not a vendor to OEM's by providing not only a product
delivered on time, but include a service that will continually provide
cost reduction actions and product improvements.
* To continually improve our internal systems to provide our customers the
highest quality in the industry. Quality not only in the products we
manufacture, but also in communications, information, and all other
services offered.
Sales Strategy
The key to growth is an effective marketing plan utilizing qualified,
experienced marketing personnel. As a concurrent effort, we are putting
emphasis on key vendor relations to provide quick response to Requests
For Quotation (RFQ). This not only takes coordination with vendors
regarding component pricing, but also our internal labor costing estimates
based on acquiring the new work. We have budgeted for several internal
cost tracking, forecasting and compilation programs and systems. These will
be continually upgraded to maintain the capability to provide a "snapshot"
of what operations would be if the quotation were accepted. This is a very
valuable tool as with the additional work that is within our production
window, our costs for specific tasks are reduced. With this knowledge of
what costs will be, we can provide the most competitive quotations.
Additionally, we will be directing our marketing efforts towards a network
of Futronix representatives throughout the US and other regions. These
Independent representatives are well versed in the industry and have
focused local knowledge of prospective customers. We will be focusing on
our core competencies which are medium to high volume PCA's with an emphasis
on SMT.
Management
Nevin C. Jenkins (42), PRESIDENT and CEO: Mr. Jenkins has a born-in
leadership ability that is evidenced by the success of previous companies
he has owned or managed. In 1976, a Vice President of Diversified
Industries, Mr. Jenkins headed up the national marketing effort that
grew from less than a $1M in 1976 to over $10M by 1978. He sold his
interest in Diversified in 1979 to form his own company, Med-E-Lert.
Based on his knowledge of both security system electronic capabilities
and market demands, he developed the Personal Emergency Response System
(PERS) which became nationally famous with the slogan "Help, I've fallen
and can't get up". In 1985 Mr. Jenkins sold the marketing rights for the
PERS to Life Call Systems. He retained the manufacturing rights for the
PERS and in 1986 moved the production facilities from Clearwater, Florida
to Homosassa, Florida, where he built a manufacturing plant for high volume
production of the PERS base units and supporting devices. His passion became
manufacturing and automation. In 1988 he partnered with Rande Newberry and
formed the electronic manufacturing company - FUTRONIX, INC. Mr. Jenkins
philosophy, "I know that no one person can be successful alone, it takes
a team, working together, to learn and grow, I've been successful because
I surround myself with experts" is largely responsible for his success.
The PERS manufacturing plant was sold and the company's operations were
moved to the larger facilities where FUTRONIX, INC. is today. In addition
to his leadership successes, he has creative concepts with the ability to
"identify what the market wants". Many patents on various inventions that
he holds is evidence of this. Mr. Jenkins holds interest in two other
companies, Sports Radar, Ltd. and Fashion Nails, Inc.
<PAGE>
Rande W. Newberry (43), VICE PRESIDENT and Secretary/Treasurer: Mr.
Newberry brought the electronic knowledge needed for the expansion in
the electronic contract manufacturing business. Mr. Newberry holds a BSEE
from the University of South Florida, in addition associate degrees in
Business Administration (ASBA) and Electronic Engineering Technology
(ASEET). From 1983 to 1987 he worked from Senior Engineering Technician
to Engineer at Honeywell's Tampa, Florida operations. In 1988 he became
an independent contractor for Honeywell until joining with FUTRONIX, INC.
Mr. Newberry also holds interest in Sports Radar, Ltd. and Fashion Nails,
Inc. Robert Garrett, CFO: Mr. Garrett has 35 years experience in accounting,
along with continued teaching at USF for tax accounting. Mr. Garrett's
accounting firm, W.R.Garrett CPA was utilized by Futronix since
incorporation. Mr. Garrett is a certified public accountant and holds
a Master degree in accounting from Nova Southeastern University.
Mark Nichols, General Manager: Mr. Nichols has 15 years experience in
electronic manufacturing with a unique common sense approach to problem
solving. Mr. Nichols was part of the founding Principals of Futronix and
is a graduate of the Franklyn (NY) school of engineering.
Jim Wilson, Quality Assurance Manager: Mr. Wilson has 25 years experience
in quality systems auditing with private and governmental agencies.
Positions include Lead assessor for the DOD at the NASA facility in Florida.
<PAGE>
GEMINI LEARNING SYSTEMS DIVISION
Information about Gemini, and product demos can be seen by visiting the
web site at www.gemini.com.
Gemini is a software applications development company, specializing in
distance education and training solutions. The company created and
markets software technology called SWIFT(tm) (SoftWare Intelligent
Freeform Training). The Company is emerging from its development phase,
having created an entire product line based on the SWIFT(tm)
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(TM) 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.
<PAGE>
Background Information
Gemini Learning Systems, Inc. began business in the Canadian City of
Calgary 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(TM) technology, and a distribution network. 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. Gemini was
purchased by the company on September 24, 1999, and will operate as a
division of Salient Cybertech. Gemini is an emerging company, having
emerged from its development phase this past quarter.
Gemini has 12 full time employees, and no part time employees. Gemini
currently rents approximately 2,104 square feet for its staff, at Suite
605, 839 - 5th Avenue SW, Calgary, Alberta, Canada T2P 3C8. 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.
The fixed assets of Gemini as valued for accounting purposes have a
depreciated book value of $21,208, and an non-depreciated book value of
$55,000. The assets are principally comprised of computers, computer
equipment, and software, along with office furniture.
Gemini, management believes, is ready to become the industry leader in
the delivery of distance education systems, to be utilized in an intra-
company setting (intranet), over the internet, as well as by CD-ROM
distribution. The students may be individuals or complex organizations
with diverse training and educational needs to be delivered worldwide
to their various locations. Gemini has developed and markets SWIFT(tm)
software, a "Cyber Learning" engine which allows existing curricula to
be quickly and easily adapted to internet and new media distribution,
thereby making it available worldwide. Gemini products are unique and
offer the only commercially available adaptive learning environment and
adaptive testing solution that has proven to be more effective than
traditional training methods. Unlike many other distance learning
models, the Gemini learning paradigm does not require the downloading
of courseware, thereby minimizing pirating and security concerns.
Business Development
Ms. Kim Adolphe was the founding president of Gemini Learning Systems,
Inc., and will continue the day to day operations of Gemini as
President and CEO. For the past ten years she has been responsible for
taking SWIFT(tm) software from a concept to an industry leader in
distance learning.
Patrick Brackett, Vice President Product Development, currently
oversees SWIFT(tm) software implementation and the development of
enhancements. Mr. Brackett has been with Gemini since 1993 as a senior
member of the SWIFT(tm) development team. His role is to oversee new
software design and implementation and is responsible for all aspects
of R&D. He is also responsible for evaluating current and emerging
technologies and ensuring that Gemini continues to be well positioned
as a distance education and training solution leader. He has co-
authored an international award-winning paper on the SWIFT(tm)
methodology.
Ms. Pam Hirtle has been with Gemini since 1993 as a senior member of he
SWIFT(tm) development team. She is involved in SWIFT(tm) development,
particularly as it pertains to the SWIFT(tm) Development Environment.
Her responsibilities include liaison with clients, particularly in the
areas of training and support. She works with various strategic
partners in specific projects related to the enhancement of the SWIFT
Development Environment and the SWIFT DTD.
Ms. Janet Werstroh has been with Gemini since 1991 overseeing office
administration, and in more recent years has become involved in beta
testing SWIFT(tm) and SWIFT(tm) courses, liaison with distributors and
clients, web site maintenance, and assisting the President in the
coordination of all marketing related activities.
SWIFT(tm) technology took eight years to develop and utilized the
talents of many professionals. The SWIFT(tm) 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. She 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. Kimder continues to provide
input into the development of Gemini's product line.
Day to day management of the 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(tm) 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(tm)
interface and multimedia support requirements.
Dr. Tom Keenan, was the leading consultant for the Post-Secondary
Interface Design Project for SWIFT(tm). 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 Honor 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(tm). He led the design and wrote most of the
code for the unique SWIFT(tm) course compiler. Stuart also provides
valuable technical input and feedback to the technical team.
Ruby Loo, was responsible for coordinating all human-computer
interactions aspects of the project including usability studies, mock-
ups, evaluations of mock-ups, and the design of the Graphical User
Interfaces. In addition to a M.Math Computer Science she has ten years
of technical experience, including computer graphics, color usage,
animation, human-computer interaction, and graphical interface design.
<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(tm) and the 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 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(tm) 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, some of which 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(tm) in Europe and were a
valuable partner during the implementation of international
functionality.
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(tm). The courses will be offered in the SWIFT(tm) Library some
time in 2000.
Diskover Office Software Ltd. Diskover specializes in content
development using the SWIFT(tm) Kit. They have created the entire
Office 97 Suite, Level 1 and 2, Windows 95/98 in the SWIFT(tm) 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(tm).
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(tm).
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(tm) 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(tm) 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(tm) for internal use and to resell to their corporate clients.
Current clients also include HYPROTECH Ltd. Of Calgary, Canada and
Albeda College a consortium of 50 colleges in Rotterdam.
The following companies have purchased SWIFT(tm) courseware:
AMEC Construction plc, UK
Amoco UK Exploration, UK
BPB Paperboard, UK
Bridgewater Paper Company, UK
British Biotech Pharmaceuticals, UK
BTR Automotive, UK
Burmah Castrol, UK
C&C Marshall Limited, UK
Caledonian Paper PLC, UK
Centre for Quality Assurance, Egypt
Devonport Royal Dockyard, UK
Engineering Employers Federation, UK
Geest Foods PLC, UK
Ivo Generation Services (UK) Ltd, UK
Kay-Metzeler Ltd, UK
Liverpool John Moores University, UK
Prestige Veneers Ltd., UK
Proctor and Gamble, UK
Solvay S.A., Belgium
South Staffordshire Water PLC, UK
The Marshall Group, UK
Thurrock Council, UK
Transco PLC, UK
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. The SWIFT(tm) interface can be readily branded for
OEM and Corporate identities with little expense required on Gemini's
part.
Principal Products and Services and their Markets
Currently, Gemini has over 400 course titles available to convert into
SWIFT(tm), and has, in the current fiscal year, launched its own online
SWIFT(tm) library of over 30 popular course titles.
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.
<PAGE>
All course content can be developed externally to SWIFT(tm) using word-
processors and other software programs of the client's choice. Existing
traditional courses can also be a starting point for conversion to
SWIFT(tm) courseware. The course content is "tagged" with computer
instructions using the international Standard Generalized Markup
Language (SGML) in the SWIFT Development Environment. After tagging it
is compiled into the Adaptive Learning Environment using the SWIFT(tm)
compiler. The DE includes a course structure known as a Document Type
Definition (DTD). The course structure is a three level hierarchy that
promotes courseware consistency and effective instructional design.
SWIFT(tm) version 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(tm) 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.
SWIFT(tm) provides what management believes to be the only Adaptive
Learning Environment commercially available in the world. The ALE
adapts each course to each learner's individual requirements, based on
the chosen goals by completion of a pretest. The pedagogical
effectiveness of ALEs have been proven by years of research conducted
by educational institutions and government organizations around the
world.
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 uses statistical techniques to
allow exams to be significantly shorter than traditional tests, without
losing any predictive power about a learner's master of the material.
SWIFT's unique testing power allows for seven types of questions,
including "must ask, must know" questions, short answer questions, and
multiple-choice questions.
Another Gemini breakthrough is ELMer(tm), an advanced Internet/Intranet
delivery, management, and analysis system for SWIFT(tm) courses. ELMer
allows for the tracking and documentation of students' progress and
provides billing information for fee structures based on per student
charges. ELMer is required for administering Intranet and Internet
courses and can be purchased separately for $7,000.00 per license. The
ELMer(tm) is an important feature for an organization that must certify
a student's having taken and mastered a course such as diver safety,
emergency procedures, human resources guidelines or environmental
issues.
Course Delivery
Although SWIFT(tm) courses can be delivered on standard CD-ROM disks,
its real power is the ability to deliver courses on demand over the
Internet or corporate internal intranet using existing server hardware.
The SWIFT Server is a component of ELMer that runs on Windows(TM)
95//98/NT or UNIX platforms. It can deliver and manage large numbers of
courses to large numbers of learners simultaneously. Learners are able
to access highly interactive SWIFT(tm) courses over the Internet
running a 28.8 or greater modem, with full multimedia functionality.
The SWIFT Server is controlled either locally or remotely and manages
billing and accreditation. It adjust resource consumption, determines
average transmission rates and identifies fault occurrences.
A wide variety of learner-based data is automatically gathered and
stored by the Server. The Server can provide grading and progress
reports, progress and content analysis, item analysis, pathways and
billing information. Data can be exported to external applications and
used, for example, in statistical analysis.
<PAGE>
E-commerce
Gemini has, in the current quarter, launched an E-commerce solution and
can offer server-hosting or connect to third party E-commerce 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 credit card 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 (computer bases training) authoring
tools, web authoring tools, IT (information technology) education and
training, courseware development services, internet software, e-
commerce, on-line training.
Gemini operates in a high growth environment. The IT Education and
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
annum, while the Internet software market is showing a growth rate of
50% per annum, and the packaged internet software market is currently
growing at the rate of 127% per annum.
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.
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 129.6 165.9 187.0 220.0
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.
<PAGE>
As IDC has stated, the packaged Internet software market should reach
$4 billion by 2000. SWIFT(tm) courses delivered over the Internet and
corporate Intranets represent a distinct opportunity for the company.
This area will become the focus of a great deal of the company's
resources in the year 2000, and will likely be the primary area to
which investment capital from any public offering or private placement
is directed.
Competitive Advantage
SWIFT(tm) overcomes the two primary drawbacks of multimedia training,
the high cost and initial deployment/updates and lack of interactivity,
which were identified by Dataquest in the 1996 end-user survey (The
Role of Digital Multimedia in Training in Business, Dataquest, August
1996). In another Dataquest survey (Education and Training: Market
Analysis and Outlook 1996, Dataquest, February 1997) respondents
identify time and cost experiences in producing conventional CBT and
TBT multimedia courseware using conventional tools or custom
programming as the key drawback. The table below summarizes these
findings:
Courseware Type Development Hours Cost per Hour of Development Time
per Hour of Instruction ($US) Per Instruction
Hour
------------------------------------------------------------------------
CBT
(Conventional) 150 to 300 hours $10,000 to 13 to 20 weeks
$45,000
TBT Multimedia 250 to 500 hours $14,000 to 10 to 26 weeks
$55,000
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.
A key advantage of SWIFT(tm) is that it reduces development time by
upwards of 70% as compared to other technologies. Using SWIFT(tm), an
existing traditional three-day course can typically be converted into
an internet delivered course in two to three weeks. SWIFT(tm) is easy
for course developers to use. It delivers consistent, highly
interactive courses and requires the course developer to provide only
content, no computer programmers or software teams are needed. In
addition to internet delivery the SWIFT System allows the same course
to be delivered as a CD-ROM or in an Intranet delivery environment,
without additional developmental costs.
Other competitive advantages are:
SWIFT(tm) is the only SGML technology-based training solution that
provides an efficient method for managing, updating and re-purposing
existing course content, resulting in leveraged investment over time.
SWIFT(tm) has full multi byte character functionality.
SWIFT(tm) incorporates an intelligent tutoring system (ITS) and is,
management believes, the only commercially available Adaptive Learning
Environment (ALE) in the world.
SWIFT(tm) has an included management system (ELMer), 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.
SWIFT(tm) 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(tm) is upwardly compatible, 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.
Distribution Methods
Gemini intends to distribute the SWIFT(tm) course library worldwide and
grow by writing as many titles as possible for the SWIFT Library, and
marketing them directly from its web site and through distribution and
alliance partners. 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. Sales of
SWIFT(tm) courses over the Internet or corporate intranet have an
attractive profit margin because, once developed and uploaded onto a
server, they can be sold an unlimited number of times without
additional costs for manufacturing, packaging, warehousing, or
shipping.
Large Corporate Accounts
SWIFT(tm) 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 training content and documents into
SGML and appear very interested in leveraging their investment further.
By concentrating on the SGML market, where we have a significant
competitive advantage, Gemini can quickly qualify and target potential
clients through SGML trade shows, publications and conferences that
draw only interested SGML clients. Gemini has already made several
strategic alliances within the SGML industry (See above, Distribution
Partners and Strategic Alliances).
<PAGE>
Fortune 1000 Companies
Large Information Technology deployments within Fortune 1000 companies
necessitate a major user training effort and hence an opportunity for
SWIFT(tm). 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(tm) technology; IT
groups can avoid the lengthy and expensive development associated with
other solutions.
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(tm).
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(tm), and take a higher percentage of the
recurring revenues.
Product Positioning
The SWIFT(tm) product line is ideally positioned to target the fast
growing Internet/Intranet market, as well as packaged internet software
for the retail market. SWIFT(tm) products offer low cost to both
developers and end users as well as many pedagogical distinguishing
features.
The SWIFT(tm) product line fits into the following fast growing market
segments:
- Turn-key Internet Distance Education and Training solution
- Online Library
- E-business
- 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 and Large Account 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(tm) 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(tm) 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(tm) 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 can re-sell SWIFT(tm) courses directly from their Internet of
Intranet web site. SLD's must install and the online library on their
server at minimal up front costs. 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(tm)
library.
Strategic Alliances and Industry Partners
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.
The marketing strategy outlined above, management believes, should
build a broader awareness of the SWIFT(tm) 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(tm), help build upon multiple
recurring revenue streams, create healthy cash flow, shorten sales
cycles, and build more strategic partners and alliances.
Gemini is emerging from its development stage, and as such the products
employing the SWIFT(tm) technology are 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.
Competition
SWIFT(tm) 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(tm) is outlined in the table below:
<PAGE>
SWIFT Authoring tools
===== ===============
SGML-based, leverage investment HTML-based
over time
Designed for use by course content Development is from scratch
creators, requires content only
CBT interface (Learning Requires expertise in HCI,
Environment) is built-in - virtually no programming, project mgmt,
learning curve, no software teams or pedagogy.
programmers required
Reduces development time and Averages 200 - 250 hours of
costs by about 70%. development for every hour of
finished product.
Provides delivery on CD-ROM, Requires development from
Intranet and Internet scratch 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 Virtually no pedagogy
tutoring 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(tm) technology effectively gives Gemini
a differentiable new technology that 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(tm) 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.
<PAGE>
Trademarks and Licenses
Gemini has registered the trademark "SWIFT" in Canada, and uses the
mark throughout the world. Management 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. Management intends to make protection of its intellectual
property rights a priority. No other patents, trademarks, licenses,
franchises, or concessions are used by Gemini.
Gemini generally grants 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.
GOVERNMENT REGULATION
The Company's US facilities are subject to numerous federal, state and
local laws and regulations designed to protect the environment
from waste emissions and hazardous substances. We are 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 facilities. We believe
that we are in compliance in all material aspects with all applicable
environmental and occupational safety regulations. The Sloan
Electronics division radio frequency anklet transmitter is subject to
FCC (Federal Communications Commission) regulations, as are all radio
frequency devices. The Company has obtained type approval #HCQ3B6WWT
for the anklet transmitter and its products are in compliance with FCC
rules Part 15. Regarding the Gemini Learning Systems division, to the
best of management's knowledge there are no special requirements for
government approval of its principal products or services which are not
generally applicable to normal business operations. Management is
unaware of any probable regulation of its business, other than as will
apply to businesses in general.
YEAR 2000
The Company's accounting and database systems are year 2000 compliant.
The Company's Gemini Learning Systems division SWIFT(tm) products have
been analyzed at the application layer for two digit date storage, leap
year calculations, and special meanings for dates for Y2K compliance
and have met all criteria for Year 2000 compliance. However, certain
applications out of the company's control and for which the SWIFT(tm)
product line is not responsible may be incompliant in the remaining
layers of exposure, which includes hardware, operating system, runtime
library, user custom code and data interfaces. The Company's Sloan
Electronics division products and operations are year 2000 compliant.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS.
The following discussion should be read in conjunction with
the information contained in the financial statements of the Company,
and the Notes thereto appearing elsewhere herein, and in conjunction
with the Balance Sheet at December 31, 1999 and Income Statement for
the year ended December 31, 1999 contained in the Company's Annual
Report 10-KSB and in conjunction with the quarterly 10-QSB report
for the period ended March 31, 2000 incorporated herein by
reference, and is qualified in its entirety by reference to such
financial statements and reports.
RESULTS OF OPERATIONS
A majority of the Company's revenues are derived from sales of
the products produced by the FUTRONIX ELECTRONIC DIVISION.
Operating revenues decreased by $441,092 for the six months
ended June 30, 2000 as compared to the six months ended June
30, 1999.
Gross profit for the first two quarters of 2000 decreased to
$272,454 as compared to $573,290 for the six months ended June 30,
1999. The decrease is due in part to lower sales.
General and administrative expenses were $2,047,758 in the six
months ended June 30, 2000, compared to $1,371,941 for the same period
in 1999. This large increase in general and administrative expenses over
the period in 1999 is mostly due to legal and consulting fees paid for
with stock and in part due to increased insurance costs, professional
fees, and contract services and expenses. Sales and marketing expenses
The net loss for the six months ended June 30, 2000 was
$1,832,571 or $0.477 per share based on 4,250,000 shares outstanding,
as compared to a net loss for the first six months of 1999 of
$580,800, or $0.051 per share. The net loss for the period is primarily
attributed to insufficient level of revenue generated by the Company.
The company had 4,250,000 common shares outstanding, out of
authorized capital in the amount of 80,000,000 common shares with
a par value of $0.001. Of an authorized 20 preferred convertible shares,
each immediately convertible into 1.5 million common shares,1 share is
presently held by the IDT Fund.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES.
Net cash provided from financing activities was $822,853 for the
six months ended June 30, 2000, raised through private placement
of common stock and borrowing.
The Company has acquired Gemini Learning Systems Inc. and Futronix, Inc.
for stock and made a cash funding commitment to both companies for the next
three quarters. The current cash and working capital position and future
income from operations will require sufficient additional capital to
meet company cash and working capital needs.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Senger vs Salient and Paul Sloan. This action involves the plaintiff's
claim to entitlement to securities within the company. The company
believes the claims are without merit, and will vigorously defend
the action.
Acquisition of Futronix, Inc. As part of the acquisition of Futronix,
Inc., the company attempted to have the Futronix' lenders consent to the
transaction, and the accompanying change of ownership. To date, not all
lenders have consented, and the possibility of future litigation exists,
although no lender has shown any sign of commencing litigation. Based on
the recently completed audit, there remain certain issues stemming from
the purchase agreement with Futronix. While no litigation is anticipated,
and these matters should resolve amicably, nevertheless, there is a chance
that litigation may be required at some future date to resolve the
outstanding issues.
The company resolved potential Section 16 violations of the Securities
and Exchange Act of 1934. A number of claims for attorney fees have been
advanced as a result of the matter. The company believes these to be
without merit, and the claims may give rise to future litigation.
<PAGE>
Item 2. Changes in Securities
None.
Item 3. Defaults.
None
Item 4. Submission Of Matters To A Vote Of Security Holders.
On Saturday, May 13, at 2 p.m. the Company held its annual meeting,
followed by a meeting of the Board of Directors. At the annual meeting, the
items, as disclosed in the Report on Schedule 14-A filed with the Securities
and Exchange Commission on March 30,2000, were voted upon:
1. The election of two Class I directors to serve until the 2003 Annual
Meeting of Stockholders and until their respective successors are elected and
qualified. Nominees were:
1-Kim Adolphe
2-James Marquis
2. The ratification of the appointment of Stan J.H. Lee and Company, to
audit the company's financial statements.
3. The ratification of the appointment of Melanie Meer as the Company's
Secretary.
4. The approval by the shareholders of options issued to officers, directors
and consultants of the company under the 1998 Stock Option Plan.
Each Item above was duly brought before the shareholders and voted upon.
Kim Adolphe and James Marquis were elected directors, to serve until the
annual meeting to be held in 2003. Items 2 and 3 above were duly ratified,
and the options to be issued pursuant to Item 4 was approved.
<PAGE>
The current Officers of the Company were re-elected to serve for another
year, and the annual report including the audited financial statements for
the year ended December 31, 1999 was approved.
At the meeting of the Board of Directors, immediately following the annual
meeting, Paul Sloan, the Company's President and CEO, was elected as Chairman
of the Board of Directors. By unanimous vote it was resolved that an Audit
Committee be formed with a one year term of office for Committee members, and
Michael Solomon and Melanie Meer were elected to serve on the said committee.
By unanimous vote it was resolved that an Executive Compensation Committee be
formed, with a one year term of office for Committee members, and a committee
was formed to search for suitable candidates. It was agreed that the candidates
be presented to the Board of Directors for nomination to the Committee, and any
ensuing vote be effected by teleconference, the Board members having
unanimously voted to waive notice of the said meeting.
The Board of Directors voted unanimously to form a subsidiary, Salient
Acquisition, Inc., a Delaware corporation, to acquire and merge with Futronix,
Inc. The President was directed to do all things necessary and execute all
documents required to give effect to this resolution. The Board voted
unanimously to waive notice of meeting and meet via telephonic conference call
to ratify the acquisition.
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(13) Incorporated by reference:
Quarterty and annual Reports on Form 10-QSB and 10-KSB, respectively,
as timely filed with the Securities and Exchange Commission pursuant
to the Securities and Exchange Act of 1934.
(27) Financial data schedule for electronic filing.
(b) Reports on Form 8-K
1. Form 8K filed with the Securities and Exchange Commission on
September 28,1999 regarding the acquisition of Gemini Learning Systems, Inc.
2. Form 8K/A filed with the Securities and Exchange Commission on
October 29,1999 regarding the acquisition of Gemini Learning Systems, Inc.
3. Form 8K filed with the Securities and Exchange Commission on November
1,1999 regarding the reverse stock split.
4. Report on Form 8-k filed on May 27, reporting the change of name from
Sloan Electronics, Inc. to Salient Cybertech, Inc.
5. Current Report on Form 8-K, reporting the purchase of Gemini Learning
Systems, Inc. by the Company, filed on September 28, 1999.
6. 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.
7. 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.
<PAGE>
Signatures
In accordance with the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Salient Cybertech, INC.
Dated August 15, 2000
By: /s/ Paul Sloan/s/
Paul Sloan
President and CEO
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-2000
[PERIOD-END] JUN-30-2000
[CASH] 219,935
[SECURITIES] 149,002
[RECEIVABLES] 443,052
[ALLOWANCES] 0
[INVENTORY] 577,185
[CURRENT-ASSETS] 1,720,515
[PP&E] 4,693,150
[DEPRECIATION] 0
[TOTAL-ASSETS] 8,653,230
[CURRENT-LIABILITIES] 2,543,499
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 1
[COMMON] 4,450
[OTHER-SE] 5,693,752
[TOTAL-LIABILITY-AND-EQUITY] 8,653,230
[SALES] 2,460,997
[TOTAL-REVENUES] 2,460,997
[CGS] 2,188,543
[TOTAL-COSTS] 2,188,543
[OTHER-EXPENSES] 2,047,758
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 66,355
[INCOME-PRETAX] (1,832,571)
[INCOME-TAX] 0
[INCOME-CONTINUING] 0
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (1,832,571)
[EPS-BASIC] (0.477)
[EPS-DILUTED] (0.477)
</TABLE>
