<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB-A1
First Amended Registration Statement on Form 10-SB-A1
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
CYBERTEL, COMMUNICATIONS CORP.
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(Name of Small Business Issuer as specified in its charter)
NEVADA 86-0862532
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(State or other jurisdiction of (I.R.S. incorporation or
organization) Employer I.D. No.)
4275 Executive Square, Suite 510
La Jolla, California 92037
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(Address of Principal Executive Office)
Issuer's Telephone Number, including Area Code: (858) 646-7410
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
$0.001 Par Value Common Voting Stock
------------------------------------
Title of Class
DOCUMENTS INCORPORATED BY REFERENCE: None.
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Item 1. Description of Business.
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Business Development.
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Organization, Charter Amendments and General History
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Organization
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Cybertel, Communications Corp., a Nevada corporation (the
"Company"), was organized on June 13, 1996, for the purpose of engaging in any
lawful activity.
At inception, the Company was authorized to issue 20,000,000 shares
of non-assessable common voting stock, par value one mill ($0.001) per share.
In addition, the Company is authorized to issue 5,000,000 shares of preferred
stock having a par value of one mill ($0.001) per share, with such rights and
preferences as the Board of Directors shall determine. As of the date of this
Registration Statement, the Board of Directors has not designated the rights
and preferences of the preferred stock and no shares of preferred stock have
been issued. Copies of the Company's Articles of Incorporation and Bylaws are
attached hereto and incorporated herein by this reference. See Item 15.
Charter Amendments
------------------
The Company has never amended its Articles of Incorporation.
General History
---------------
Until approximately May, 1999, the Company was a development stage
company. Its business plan is to provide long distance voice and data
telecommunications services using the network switching and transport
facilities of Tier I long distance carriers such as MCI/Worldcom and Level 3
Communications, as well as its own IP switching facilities, to provide a broad
array of integrated long distance telecommunications services. The Company
plans to use Internet Protocol ("IP") Telephony technology to offer a range of
services including basic "1 plus" (i.e., dial "1" then the area code and
telephone number of the person being called) and "800" long distance, frame
relay data transmission and wireless communications services as well as
enhanced telecommunications services such as international callback, prepaid
calling cards and Internet access.
The Company is a facilities-based provider (i.e., a provider that
owns or leases the property and equipment necessary to provide its services)
of a broad range of integrated communications services. It is building a
regional IP network in the western United States that will interconnect with a
national network, allowing the Company to transport telecommunications
nationally. Using IP technology, the Company's goal is to enable its customers
to place long distance calls over the Internet through their existing
telephone equipment.
This Registration Statement is being filed on a voluntary basis to
maintain the Company's quotations on the OTC Bulletin Board of the National
Association of Securities Dealers, Inc. (the "NASD"). See the heading
"Effects of Existing or Probable Governmental Regulations," Item I.
NASD OTC Bulletin Board Quotations
----------------------------------
The Company's common stock is quoted on the OTC Bulletin Board of
the National Association of Securities Dealers, Inc. (the "NASD") under the
symbol "CYTP." For information concerning these stock quotations during the
past two years, see the caption "Market Price of and Dividends on the
Company's Common Equity and Other Stockholder Matters," Item 9. The quotations
presented do not represent actual transactions or broker/dealer markups,
markdowns or commissions.
Effective January 4, 1999, the NASD adopted rules and
regulations requiring that prior to any issuer having its securities quoted on
the OTC Bulletin Board of the NASD that such issuer must be a "reporting
issuer" which is required to file reports under Section 13 or 15(d) of the
Securities and Exchange Act of the 1934, as amended (the "1934 Act"). The
Company is not currently a "reporting issuer," and this Registration Statement
will bring the Company into compliance with these listing provision of the OTC
Bulletin Board and should prevent the NASD from "delisting" quotations of the
Company's common stock. Under the "phase-in" schedule of the NASD, the
Company has until November, 1999, within which to become a "reporting issuer"
and to satisfy all comments of the Securities and Exchange Commission with
respect to this Registration Statement.
Changes of Control During the Past Three Years
----------------------------------------------
There have been no changes in control of the Company since its
inception in June, 1996.
Sales of "Unregistered" and "Restricted" Securities Over the Past Three
Years
-----
For information concerning sales of "unregistered" and "restricted"
securities during the past three years, see the caption " Recent Sales of
Unregistered Securities," Item 10.
Business.
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The Company provides long distance voice and data telecommunications
services. It utilizes the network switching and transport facilities of Tier I
long distance carriers, such as MCI/WorldComm, Inc., to provide a broad array
of integrated long distance telecommunications services on a seamless and
highly reliable basis. A non-facilities based carrier provides long distance
services without the use of its own preferred interexchange carrier code
("PIC"). A "reseller" places its customers' calls through a facilities based
carrier and that carrier bills and collects from the end-user customers. The
Company's service offerings include basic "1 plus" and "800" long distance,
frame relay data transmission, Internet telephony and wireless communications
services, as well as enhanced telecommunications services such as prepaid
calling cards and Internet access.
In addition, the Company is developing a regional internet protocol
network in the western United States that will connect with a national
network, allowing the Company to transport telecommunications nationally. To
reach this goal, management plans to purchase equipment and lease facilities
and other assets. The Company is arranging financing for this purpose. See
the caption "Management's Discussion and Analysis or Plan of Operation" of
this Registration Statement.
Risk Factors
------------
Limited Operating History. The Company was incorporated in June,
1996 for the purpose of engaging in any lawful activity. The Company's plan
of operations calls for it to create an international, facilities-based
communications network. However, the Company is still in a formative stage.
Potential investors should be aware of the difficulties normally encountered
by a new enterprise in a highly competitive industry. There is limited
evidence at this time upon which to base an assumption that the Company's
business plans will prove successful or that its products and services will be
successfully marketed. As a consequence, there is no assurance that the
Company will be able to operate profitably in the future.
Operating Results of the Company. The Company is still a
development stage company and has not yet earned an annual profit. The gross
revenues and net losses of the Company for the three calendar years ended
December 31, 1998 are shown below:
Year ended Gross Net
December 31, Revenues Loss
------------ -------- ----
1996 -0- $ 33,300
1997 $25,962 $ 72,405
1998 $16,004 $730,241
No assurance can be given that the Company will not continue to
report losses on an annual basis or that the Company's business operations
will ultimately prove to be profitable.
Any substantial downturn in economic conditions or any significant
price decreases related to the telecommunications industry could have a
material adverse effect on the Company's business. Economic conditions such
as inflation may also affect the future availability of attractive financing
rates for the Company or its customers and may materially adversely affect the
Company's business. Deflation may also affect the Company's income derived
from telecommunications to the extent that the Company's costs of providing
services increase from the time that the services are sold until the time that
they provided and the Company must adjust its rates.
Dependence Upon Additional Financing. The Company's proposed
business operations will depend upon its ability to raise substantial
additional financing. It has negotiated equity lines of credit totaling $30
million with two entities, but has not finalized these lines of credit.
Failure to achieve sufficient financing will significantly delay or destroy
the Company's ability to build its IP network and commence direct marketing
operations. The lines of credit provide for the Company to issue shares of
"unregistered" and "restricted" stock at 91% of the market price for such
stock. The issuance of such shares may have a dilutive effect on the holdings
of existing stockholders.
Reliance on Existing Management. The Company's operations are
primarily dependent upon the experience and expertise of Richard Mangiarelli
(Chief Executive Officer, President and director) and Paul Mills (Chairman of
the Board and Secretary). The loss of either Mr. Mangiarelli or Mr. Mills may
have a material adverse effect on the Company's business. The Company's
success is also dependant on its ability to attract and retain qualified
management, administrative and sales personnel to support its anticipated
future growth, of which there can be no assurance. The Company does not carry
key man insurance upon the lives of any of its officers.
Rapid Technological Change. The telecommunications industry is
characterized by rapidly evolving technology. The Company believes that its
success will increasingly depend on its ability to offer, on a timely basis,
new services based on evolving technologies and industry standards. The
Company intends to develop new services; however, there can be no assurance
that the Company will have the ability or resources to develop such new
services, that new technologies required for such services will be available
to the Company on favorable terms or that such services and technologies will
enjoy market acceptance. Further, there can be no assurance that the Company's
competitors will not develop products or services that are technologically
superior to those expected to be used by the Company or that achieve greater
market acceptance. The development of any such superior technology by the
Company's competitors or the inability of the Company to successfully respond
to such a development, could render the Company's existing products or
services obsolete and could have a material adverse effect on the Company's
business, financial condition and results of operations. The lack of capital
resources could materially affect the Company's ability to respond to
technological changes.
Lack of Dividends. The Company has never paid, and does not plan to
pay in the foreseeable future, any cash dividends with respect to its common
stock.
Shares Eligible for Future Sales. Of the 3,408,909 currently
issued and outstanding shares of the Company's common stock, 1,131,209 are
freely tradeable, and 2,277,700 are unregistered securities and therefore
restricted from resale other than by way of a transaction complying with the
provisions of Rule 144, adopted under the Securities Act of 1933, as amended,
or some other exemption from registration. Rule 144 provides, among other
things, that if certain information concerning the operating and financial
affairs of the Company is publicly available, persons who have held restricted
securities for a period of one year thereafter may sell in each subsequent
three month period up to that number of such shares equal to the greater of 1%
of the Company's outstanding common stock or the average weekly reported
volume of common stock trading during the four calendar weeks preceding the
filing of a notice of proposed sale. Pursuant to Rule 144(k), unlimited sales
of such restricted stock by non-affiliates may be effected following a two
year holding period, without regard to the other Rule 144 requirements.
Future sales of the above mentioned shares under Rule 144 could depress the
current market price of the common stock and any market which may develop in
the near future.
Conflicts of Interest. Although they have no present plans to do
so, the Company's directors and officers may become officer, directors,
controlling shareholders and/or partners of other entities engaged in a
variety of businesses. Thus, there exist potential conflicts of interest
including, among other things, time, effort and corporate opportunity,
involved in participation with such other business entities.
No Assurance of Continued Public Market for the Company's
Securities. There is currently a public market for the Company's common
stock; however, there can be no assurance such a market will continue.
Purchasers of the Company's securities may, therefore, have difficulty in
selling such securities should they desire to do so.
Market Value of Common Stock. There is no correlation between the
market price of the Company's common stock and its book value. As of December
31, 1998, the net book value of a share of the Company's common stock was
$0.03, whereas the average closing bid price of a share of common stock during
the quarterly period ended on such date was $1.50 per share, and does not
necessarily bear any relationship to the Company's asset value, net worth or
other established criteria of value and should not be considered indicative of
the actual value of the Company or the market price of the common stock.
Risks Associated with Execution of Growth Strategy. A principal
component of the Company's growth strategy is to build a regional
telecommunications network in the western United States. The Company's
ability to execute its growth strategy depends on a number of factors
including (i) the availability of attractive opportunities; (ii) the Company's
ability to acquire service relating to such opportunities on economically
feasible terms; (iii) the Company's ability to obtain the capital necessary to
finance the acquisition of facilities, as well as to cover any necessary
sales, marketing and operation expenditures; (iv) the Company's ability to
market and sell services; and (v) the Company's ability to manage rapidly
growing operations effectively and in a manner which results in significant
customer satisfaction. There can be no assurance that the Company will be
successful with respect to any or all of these factors.
Year 2000
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The Company uses a 16-line Triad System Star Plus Modavi, which is a
digital telecommunications system that can be used for both voice and data.
In addition, the Company uses Dell personal computers in its office. It has
determined that both its telecommunications system and its personal computer
system are Year 2000 compliant.
The Company can give no assurance that third parties with whom it
intends to do business will ensure Year 2000 compliance in a timely manner or
that, if they do not, their computer systems will not have an adverse effect
on the Company. However, the Company does not believe that Year 2000
compliance issues of such third parties will result in a material adverse
effect on its financial condition or results of operations.
Principal Products and Services
--------------------------------
Long Distance Service
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The Company intends to offer basic "1 plus" and "800" long distance
services. Management believes it will be successful as a provider of these
basic services because of the volume discounts it has been able to negotiate
with underlying carriers and its ability to direct customer call traffic over
the transmission networks of more than one carrier. As the Company expands its
network of switching facilities, it will increasingly have the ability to
choose among the transmission networks of different carriers to take advantage
of the most favorable rates to different destinations at different times of
the day.
Initially, the Company will charge its customers on the basis of
minutes or partial minutes of usage at rates which may vary with the distance,
duration, time of day of the call and the type of call. Rates charged for a
call are not affected by the particular transmission facilities selected for
call transmission but are affected by the type of call a user may select.
Ultimately, the Company will perform its own billing functions. In the near
future, the Company hopes to provide its customers a flat rate long distance
calling service throughout the United States. Billing will occur in
six-second increments.
Debit and Prepaid Calling Cards
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The Company offers travel and debit cards with low long distance
rates through either per unit fees or through monthly billing of the end user
subscriber. These cards are utilized in the exact same manner as other
calling cards and there are no "ease of use" disadvantages versus traditional
calling cards. Besides relatively large savings for out of country and
foreign travelers, larger corporations, whose executives and sales personnel
routinely utilize calling cards, are now pricing these cards at a level that
includes substantial potential utilization. The absences of transaction fees
per call as well as lower per minute charges make these cards extremely
attractive to both large and smaller users. Prepaid calling cards offer an
additional advantage to the subscriber in that they limit the liability for
lost, stolen or employee abused cards, since the minutes are preset and added
to each card in limited quantities at the direction of the subscriber. The
Company expects to begin receiving revenues from these cards in the third
quarter of its 1999 fiscal year.
Internet Access
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This product is the newest and fastest growing to telecommunications
providers in general. The Company packages a service which includes domain
registration and services (e.g. design, placement, advertising), Web sites,
monthly access to the Internet for dial-up and dedicated usage, and a
discounted 800 service to respond and/or reply to the customers' eventual
order flow. It is expected that this package will include E-mail, Web
browser, Internet dialer, and search engines, all priced substantially below
representative major carrier providers for software and initial access. The
bundling of these services will provide a "one-stop" arrangement for the small
and middle size business subscriber. Since many small businesses do not
employ computer/software specialists to serve their systems needs, and are
owned or managed by individuals who are themselves "Internet-deficient", a
one-stop approach provides the Company with easy access to a steadily
expanding demand in the marketplace and is responsive to the practical
deficiencies inherent in this market niche. Management expects to begin
receiving revenues from this service in the third or fourth quarter of the
1999 fiscal year.
Recent Public Announcements
---------------------------
On July 7, 1999, the Company publicly announced that it has signed a
contract with Bell Atlantic Corporation giving the Company the right to
terminate IP long distance and data traffic on Bell Atlantic's network. This
strategic alliance will allow the Company to deliver IP telephony calls
originating outside of Bell Atlantic's region through the Public Service
Telephone Network ("PSTN") 24 hours per day, seven days per week, on Bell
Atlantic's Termination Gateways. The agreement also allows the Company to
sell wholesale termination on Bell Atlantic's lines to third parties and will
make it possible for the Company's calls from anywhere in the world to be
delivered to the Northeast Corridor of the United States via Bell Atlantic's
IP telephony network.
The Company's agreement with Bell Atlantic provides for the Company
to pay Bell Atlantic a rate based on the number of minutes that Bell
Atlantic's Termination Gateways are being used, with a minimum monthly payment
of $4,800. The term of the agreement is one year, with automatic yearly
renewals until either party gives the other notice of non-renewal at least 90
days before the expiration of the current term.
Distribution Methods of the Products or Services
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Affinity Groups
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The Company is expanding the reseller concept by targeting its
products to specific niche markets. This entails marketing to large
associations whose members form a loyal base and have an inherent allegiance
to their organization and wish to support it financially. The Company offers
these associations discounted long distance services at wholesale prices, 20-
60% below AT&T, MCI/WorldCom and Sprint, and a portion of the long distance
charges will go to the subscribers' organization (professional association,
alumni association, etc.) when they pay their monthly bill. It is expected
that the long distance services will be solicited by and through the
subscriber's organization and packaged by Cybertel.
The above strategy should allow the Company to introduce and sell
its services to many more users than it could contact directly, or obtain
through advertising. The sponsoring group has a vested interest in obtaining
all telecommunications business from its affiliated members as it stands to
gain substantial commission dollars, once volume levels are realized. This
strategy also applies to fund raisers, promotional events and collectors. The
personalized prepaid calling card also functions as an excellent perceived
benefit or promotion for the sponsoring entity.
Management hopes to increase market share in each market segment of
the Company's business through a combination of direct sales efforts targeted
to corporate and individual clients and through acquisition of strategic
competitive firms providing value-added services to the core businesses of the
Company. Marketing public relations tactics will be employed not only to
conserve resources, but to increase credibility and visibility in the targeted
marketplace. Tactics to be used include editorial coverage in industry
specific media along with general interest publications.
Other marketing opportunities include: industry trade shows,
membership in professional and business organizations, cross promotional
events, direct mail/lead generated, promotional literature, direct sales and
in-house telemarketing. The Company intends to retain and hire sales and
marketing staff who demonstrably posses the ability to achieve sales levels
that the Company has established. This staff will predominantly include those
who have specific industry experience and maintain existing customer bases
from which to generate above industrial average sales levels. Each market will
be driven by a strong direct response campaign using value-based pricing and
superior innovative customer service as the cornerstone in establishing and
maintaining customer loyalty.
Internet Protocol Network
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The Company is building a regional telecommunications network in the
western United States. The Company plans to build local networks in cities in
11 western states that will interconnect with a national long distance
network. This will be the first national telecommunications network to use
Internet technology end-to-end. The Company will focus primarily on the
residential market in order to compliment its Affinity Group Marketing
Programs. The Internet Protocol ("IP") based network will provide a full range
of communications services including long distance and data transmission as
well as other enhanced services to the domestic and international markets.
Additionally, the Company will offer a range of Internet access services at
varying capacity levels, and as technology development allows, at specified
levels of quality of service and security to meet the needs of its residential
and business customers. The Company established its first IP Gateway in San
Diego, California, in June, 1999.
The Company has shaped its strategy to build an IP-based network
because of a fundamental shift that is occurring in the communications
industry. Management believes that this shift is as important as that from
the telegraph to the telephone or from mainframe to personal computers. It is
a shift that the Company and a growing number of industry experts believe will
change the way people communicate.
The change is a move from the traditional "circuit switched"
networks that were designed primarily for voice communications, and which have
existed form almost a century, to newer "packet switched" networks using IP.
The new technology makes it possible to move information at a much lower cost,
because packet switching technology makes more efficient use of the network
capacity.
Major communications carriers would like to add IP-based switching
technology to portions of their networks, but because of the immense
investment that these companies have already made in their existing networks,
they continue to retain extensive networks based on the older and less
efficient circuit switching technology. The Company believes it is well
positioned for the fundamental shift to the new technology because the company
has no investment in, or commitment to, the older technology. Equally
important, the Company plans to design the network to be upgradeable, so that
it can evolve as the technology evolves.
Today, data networks carry less than 1% of the total voice traffic,
By the year 2004 it is estimated that the market will be 60% or $64 billion.
In March, 1999, the Company signed a service agreement with General
Telecom, Inc., a Massachusetts corporation, which allows the Company to use
General Telecom's telecommunications equipment for a one-year term, which is
renewable for five additional one-year periods. The Company's fees will be
based on usage volume and line types, with a minimum monthly payment of $6,500
per month.
The Company executed an agreement with Level 3 Communications on
March 12, 1999. Under the agreement, Level 3 agreed to co-locate the
Company's IP gateway equipment in Level 3's gateway switching centers in all
50 states. This allows the Company to place its telecommunications equipment
in Level 3's co-location cabinets and send voice and data traffic over the
Internet without having to build a fiber optic network of its own. The
agreement with Level 3 is for a term of three years; payment terms vary by
location.
On June 28, 1999, the Company and TeleHub Network Services
Corporation, an Illinois corporation ("TeleHub"), entered into a
Telecommunications Service Agreement and a Supplemental Service Agreement
under which TeleHub agreed to provide certain telecommunications services for
the Company to resell. These services include switched domestic and
international outbound long distance telephone service; switched toll-free
service; calling cards; and dedicated outbound and toll-free service. The
per-minute rates for these services vary by geographic area and are set forth
in an attachment to the Supplemental Service Agreement.
The Company has also entered into a contract with Bell Atlantic
Corporation giving the Company the right to terminate IP long distance and
data traffic on Bell Atlantic's network. This strategic alliance will allow
the Company to deliver IP telephony calls originating outside of Bell
Atlantic's region through the Public Service Telephone Network ("PSTN") 24
hours per day, seven days per week, on Bell Atlantic's Termination Gateways.
The agreement also allows the Company to sell wholesale termination on Bell
Atlantic's lines to third parties and will make it possible for the Company's
calls from anywhere in the world to be delivered to the Northeast Corridor of
the United States via Bell Atlantic's IP telephony network.
Acquisition Strategy
- --------------------
One of the Company's primary goals is to become a one-stop service
provider for a variety of services. Management believes this can be
established through an acquisition strategy which is intended to (i) enhance
Company's sales force capability, (ii) broaden its service offerings, and
(iii) increase its customer base and revenue. However, there can be no
assurance that the Company will be able to identify attractive acquisition
candidates in the future, that acquisitions pursued by the Company will be
completed, or that, if completed, such acquisitions will be beneficial to the
Company. The Company has no current understanding, arrangement or agreement to
make any acquisitions.
Competitive Business Conditions
-------------------------------
The communications and information services industry is highly
competitive. Many of the Company's existing and potential competitors have
financial, personnel, marketing and other resources significantly greater than
those of the Company, as well as other competitive advantages including
customer bases.
The Company is subject to significant competition from other
entities engaged in the telecommunications industry. The Company's principal
competitors include Level 3, IDT, Delta 3 and USA Talks, of which the first
three are national and the last is regional. All of these entities possess
significantly greater financial, sales and marketing, personnel and other
resources than those of the Company and may be able to grow at a more rapid
rate or more profitably as a result. Management of the Company believes that
industry competition will be increased by recent and possibly future
consolidation in the telecommunications industry.
The long distance telecommunications industry is significantly
influenced by the marketing and pricing activities of the major industry
participants, including AT&T, MCI/WorldCom, and Sprint. While the Company
believes that AT&T, MCI/WorldCom and Sprint historically have chosen not to
concentrate their direct sales efforts on small to medium sized businesses,
these carriers control approximately 85% of that market. Moreover, AT&T,
MCI/WorldCom and Sprint have recently introduced new service and pricing
options that are attractive to smaller commercial users, and there can be no
assurance that they will not market to these customers more aggressively in
the future. AT&T and, as an interim measure, the structurally separate
interexchange affiliates of the seven regional Bell operating companies
("RBOCs") have recently been reclassified as non dominant carriers and,
accordingly, have the same flexibility as the Company in meeting competition
by modifying rates and service offerings without pricing constraints or
extended waiting periods. These reclassifications may make it more difficult
for the Company to compete for long distance customers. In addition, a
significant number of large regional long distance carriers and new entrants
in the industry compete directly with the Company by concentrating their
marketing and direct sales efforts on small to medium
sized commercial users. Activities by competitors include, among other
things, national advertising campaigns, telemarketing programs and the use of
cash to contribute to significant customer attrition in the long distance
industry.
The Company will contract for call transmission over networks
operated by suppliers who may also be the Company's competitors. Both the
interexchange carriers ("IXCs") and local exchange carriers ("LECs") that will
be providing transmission services for the Company have access to information
concerning the Company's customers for which they provide the actual call
transmission. Because these IXCs and LECs are potential competitors of the
Company, they could use information about the Company's customers, such as
their calling volume and patterns of use, to their advantage in attempts to
gain such customers' business. The Telecommunications Act, which became law
in 1996, has strengthened the rules which govern the privacy of customer
proprietary information by expressly prohibiting telecommunications carriers
which receive proprietary information from resale carriers for purposes of
providing telecommunications services to those resale carriers from using such
information for their own marketing purposes. In addition, the Company's
future success will depend, in part, on its ability to continue to buy
transmission services and access from these carriers at a significant discount
below the rates these carriers otherwise make available to the Company's
targeted customers.
Regulatory trends have had, and may have in the future, a
significant impact on competition in the telecommunications industry. As a
result of the recently enacted Telecommunications Act, the RBOCs are now
permitted to provide, and are providing or have announced their intention to
provide, long distance service originating (or in the case of "800" service,
terminating) outside their local service areas or offered in conjunction with
other ancillary services, including wireless services. Following application
to and upon a finding by the Federal Communications Commission (the "FCC")
that an RBOC faces facilities based competition and has satisfied a
congressionally mandated "competitive checklist" of interconnection and access
obligations, an RBOC can provide long distance service within its local
service area. The entry of these well-capitalized and well known entities
into the long distance service market could significantly alter the
competitive environment in which the Company operates.
The Telecommunications Act also removes all legal barriers to
competitive entry into the local telecommunications market and directs
incumbent local exchange carriers ("ILECs") to allow competing
telecommunications service providers (of which the Company will be one) to
interconnect their facilities with the local exchange network, to acquire
network components on an unbundled basis and to resell local
telecommunications services. Moreover, the Telecommunications Act seeks to
facilitate the development of local telecommunications competition by
requiring ILECs, among other things, to allow end users to retain their
telephone numbers when changing service providers and to place short haul toll
calls without dialing lengthy access codes. In response to these regulatory
changes, MCI/WorldCom and AT&T have each announced their intention to enter
the local telecommunication market, including MCI/WorldCom's announcement that
it will invest more than $2.0 billion in fiber optic rings and local switching
equipment in major metropolitan markets throughout the United States, and
AT&T's announcement that it filed applications in all 50 states to provide
local telecommunications services.
While the Telecommunications Act opens new markets to the Company,
the nature and value of the resultant business opportunities will be dependent
in large part upon subsequent regulatory interpretation of the statute's
requirements. The FCC has recently promulgated rules implementing the local
competition provisions of the Telecommunications Act; each state must now
individually adopt regulations applying the new national guidelines. The
Company anticipates that ILECs will actively resist competitive entry into the
local telecommunications market and will seek to undermine the operations and
the service offerings of competitive providers, leaving carriers such as the
Company which are dependent on ILECs for network services vulnerable to anti
competitive abuses. No assurance can be given that the local competition
provisions of the Telecommunications Act will be implemented and enforced by
federal and state regulators in a manner which will permit the Company to
successfully compete in the local telecommunications market or that subsequent
legislative and/or judicial actions will not adversely impact the Company's
ability to do so. Moreover, federal and state regulators are likely to
provide ILECs with increased pricing flexibility for their services as
competition in the local market increases. If ILECs are allowed by regulators
to lower their rates substantially, engage in excessive volume and term
discount pricing practices for their customers, charge excessive fees for
network interconnection or access to unbundled network elements, or decline to
make services available for resale at wholesale rates, the ability of the
Company to compete in the provision of local service could be materially and
adversely affected.
Telecommunications Act
- ----------------------
On February 8, 1996, Congress enacted the Telecommunications Act,
which effected a sweeping overhaul of the Communications Act of 1934 (the
"Communications Act"). In particular, the Telecommunications Act
substantially governs telecommunications common carriers. The
Telecommunications Act was intended by Congress to open telephone exchange
service markets to full competition, to promote competitive development of new
service offerings, to expand public availability of telecommunications
services and to streamline regulation of the industry. The Telecommunications
Act makes all state and local barriers to competition unlawful, prohibits
state and local governments from enforcing any law, rule or legal requirement
that prohibits or has the effect of prohibiting any person from providing
interstate or intrastate telecommunications services and directs the FCC to
conduct rulemaking proceedings on local competition and other related matters.
Implementation of the provisions of the Telecommunications Act will
be the task of the FCC, the state public utility commissions and a joint
federal/state board. Much of the implementation of the Telecommunications Act
must be completed in numerous rulemaking proceedings with short statutory
deadlines. These proceedings are expected to address issues and proposals
already before the FCC in pending rulemaking proceedings affecting the long
distance industry as well as additional areas of telecommunications regulation
not previously addressed by the FCC and the states. States retain
jurisdiction under the Telecommunications Act to adopt laws necessary to
preserve universal service, protect public safety and welfare, ensure the
continued quality of telecommunications services and safeguard the rights of
consumers.
Some specific provisions of the Telecommunications Act which are
expected to affect long distance service providers are summarized below:
Expanded Interconnection Obligations. The Telecommunications Act
establishes a general duty of all telecommunications carriers to interconnect
with other carriers, directly or indirectly. The Telecommunications Act also
contains a detailed list of requirements with respect to interconnection
obligations, including resale, number portability, dialing parity, access to
rights of way and reciprocal compensation.
ILECs have additional obligations including: to negotiate in good
faith; to provide for network interconnection at any technically feasible
point on terms that are reasonable and non discriminatory; to provide non
discriminatory access to facilities, equipment, features, functions and
capabilities on an unbundled basis; to offer for resale at wholesale rates any
service that ILECs provide on a retail basis; and to provide actual
collocation of equipment necessary for interconnection or access.
The Telecommunications Act establishes a framework for state
commissions to mediate and arbitrate negotiations between ILECs and carriers
requesting interconnection services or network elements. The
Telecommunications Act establishes deadlines, policy guidelines for state
commission decision making and federal preemption in the event a state
commission fails to act. While the FCC has recently promulgated rules
implementing these provisions of the Telecommunications Act, the impact of
these rules on the Company cannot be determined at this time.
Provision of Interexchange Services.The Telecommunications Act
eliminates the previous prohibition on RBOC provision of interexchange
services originating (or in the case of "800" service, terminating) outside
their local service areas and all interexchange services associated with the
provision of most commercial mobile wireless services, including services
originating within their local service areas.
In addition, the Telecommunications Act allows RBOCs to provide
landline interexchange services in the states in which they provide landline
local exchange service; provided, however, that before engaging in landline
long distance services in a state in which it provides landline local exchange
service, an RBOC must (i) provide access and interconnection to one or more
unaffiliated competing facilities based providers of telephone exchange
service, unless after 10 months after enactment of the Telecommunications Act
no such competing provider has requested such access and interconnection more
than three months before the RBOC has applied for authority and (ii)
demonstrate to the FCC its satisfaction of the Telecommunications Act's
"competitive checklist."
The specific interconnection requirements contained in the
"competitive checklist" include network interconnection and unbundled access
to network elements, including local loops, switching and transport; access to
poles, ducts, conduits and rights of way owned or controlled by them; access
to emergency 911, directory assistance, operator call completion and white
pages; access to telephone numbers, databases and signaling for call routing
and completion; availability of number portability; local dialing parity;
reciprocal compensation arrangements; and resale opportunities.
Review of Universal Service Requirements. The Telecommunications
Act contemplates that interstate telecommunications providers will "make an
equitable and non-discriminatory contribution" to support the cost of
providing universal service, although the FCC can grant exemptions in certain
circumstances. The FCC has promulgated rules to implement these provisions of
the Telecommunications Act, and the outcome of such proceedings and its effect
on the Company cannot be determined.
Limitation on Joint Marketing of Local and Long Distance Services.
Long distance providers that serve greater than five percent of pre-subscribed
access lines in the United States (which includes the nation's three largest
long distance providers) are precluded from jointly marketing local and long
distance service until the RBOCs are permitted to enter the long distance
market, or three years from the date of enactment of the Telecommunications
Act, whichever is sooner.
Deregulation. The FCC is authorized to forebear from applying any
statutory or regulatory provision that is not necessary to keep
telecommunications rates and terms reasonable or to protect consumers. A state
may not apply a statutory or regulatory provision that the FCC decides to
forbear from applying. In addition, the FCC must review its telecommunications
regulations every two years and change any that are no longer necessary.
The ability of the Company to compete effectively in this market
will depend upon its ability to maintain high quality services at prices equal
to or below those charged by its competitors.
The communications and information services industry is subject to
rapid and significant changes in technology. For instance, recent
technological advances permit substantial increases in transmission capacity
of both new and existing fiber, and the introduction of new products or
emergence of new technologies may reduce the cost or increase the supply of
certain services similar to those which the Company plans on providing.
Accordingly, in the future the Company's most significant competitors may be
new entrants to the communications and information services industry, which
are not burdened by an installed base of outmoded equipment.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Payments
or Labor Contracts
------------------
The Company has trademarked its logo. The Company has no patents,
licenses, franchises, concessions, royalty agreements or labor contracts.
Need for Government Approval of Principal Products or Services
--------------------------------------------------------------
The Company's communications service business will be subject to
varying degrees of federal, state, local and international regulation.
Effect of Existing or Probable Governmental Regulations on Business
-------------------------------------------------------------------
Regulatory Background
- ---------------------
The existing domestic long distance telecommunications industry was
principally shaped by a 1984 court decree (the "Decree") that required the
divestiture by AT&T of its 22 Bell operating companies ("BOCs"), organized the
BOCs under seven regional Bell operating companies ("RBOCs") and divided the
country into some 200 Local Access Transport Areas or "LATAs." The incumbent
local exchange carriers ("ILECs"), which include the seven RBOCs as well as
independent local exchange carriers, were given the right to provide local
telephone service, local access service to long distance carriers and intra
LATA long distance service (long distance service within LATAs), but the RBOCs
were prohibited from providing inter LATA service (service between LATAs).
The right to provide inter LATA service was given to AT&T and the other
interexchange carriers ("IXC"). Conversely, IXCs were prohibited from
providing local telephone service.
A typical inter LATA long distance telephone call begins with the
local exchange carrier ("LEC") transmitting the call by means of its local
network to a point of connection with an IXC. The IXC, through its switching
and transmission network, transmits the call to the LEC serving the area where
the recipient of the call is located, and the receiving LEC then completes the
call over its local facilities. For each long distance call, the originating
LEC charges an access fee. The IXC also charges a fee for its transmission of
the call, a portion of which consists of a terminating fee which is passed on
to the LEC which delivers the call. To encourage the development of
competition in the long distance market, the Decree required LECs to provide
all IXCs with access to local exchange services "equal in type, quality and
price" to that provided to AT&T. These so called "equal access" and related
provisions were intended to prevent preferential treatment of AT&T. As a
result of the Decree, customers of all long distance companies were eventually
allowed to initiate their calls by utilizing simple "1 plus" dialing, rather
than having to dial longer access or identification numbers and codes.
The Telecommunications Act is expected to significantly alter the
telecommunications industry. The Decree has been lifted and all restrictions
and obligations associated with the Decree have been eliminated by the new
legislation. The seven RBOCs are now permitted to provide long distance
service originating (or in the case of "800" service, terminating) outside
their local service areas or offered in conjunction with other ancillary
services, including wireless services. Following application to the FCC, and
upon a finding by the FCC that an RBOC faces facilities
based competition and has satisfied a congressionally mandated "competitive
checklist" of interconnection and access obligations, an RBOC will be
permitted to provide long distance service within its local service area,
although in so doing, it will be subject to a variety of structural and
nonstructural safeguards intended to minimize abuse of its market power in
these local service areas. Having opened the interexchange market to RBOC
entry, the Telecommunications Act also removes all legal barriers to
competitive entry by interexchange and other carriers into the local
telecommunications market and directs RBOCs to allow competing
telecommunications service providers such as the Company to interconnect their
facilities with the local exchange network, to acquire network components on
an unbundled basis and to resell local telecommunications services. Moreover,
the Telecommunications Act prevents IXCs that serve greater than five percent
of pre-subscribed access lines in the U.S. (which includes the nation's three
largest long distance providers) from jointly marketing their local and long
distance services until the RBOCs have been permitted to enter the long
distance market or for three years, whichever is sooner. This gives all other
long distance providers (which the Company intends to be ) a competitive
advantage over the larger long distance providers in the newly opened local
telecommunications market. As a result of the Telecommunications Act, long
distance carriers will face significant new competition in the long distance
telecommunications market, but will also be afforded significant new business
opportunities in the local telecommunications market.
Legislative, judicial and technological factors have helped to
create the foundation for smaller long distance providers to emerge as
legitimate alternatives to AT&T, MCI/MCIWorldCom and Sprint for long distance
telecommunication services. The FCC has required that all IXCs allow the
resale of their services, and the Decree substantially eliminated different
access arrangements as distinguishing features among long distance carriers.
In recent years, national and regional network providers have substantially
upgraded the quality and capacity of their domestic long distance networks,
resulting in significant excess transmission capacity for voice and data
communications. The Company believes that, as a result of digital fiber optic
technology, excess capacity has been, and will continue to be, an important
factor in long distance telecommunications. As a consequence, not only have
smaller long distance service providers received legal protection to compete
with the network based carriers, they also represent a source of traffic to
carriers with excess capacity. Thus, resellers have become an integral part
of the long distance telecommunications industry.
Federal
- -------
The Company is classified by the FCC as a non-dominant carrier and
therefore is subject to relaxed regulation. Historically, the FCC has
generally either excused or presumed compliance by non dominant carriers with
many of the statutory requirements and regulations to which dominant carriers
are subject, including most reporting, accounting and record keeping
obligations. However, a number of these requirements are imposed, at least in
part, on non-dominant carriers whose annual operating revenues exceed $100
million. The FCC retains the jurisdiction to impose fines or other penalties
on, or to act upon complaints against, any common carrier, including non-
dominant carriers, for failure to comply with its statutory or regulatory
obligations. The FCC also has the authority to impose more stringent
regulatory requirements on the Company and change its regulatory
classification. In the current regulatory atmosphere, however, the Company
believes that the FCC is unlikely to do so. Non dominant carriers are also
subject to a variety of miscellaneous regulations that, for instance, dictate
the materials required to document and the procedures necessary to verify a
consumer's election to change its preferred long distance telephone provider,
mandate disclosure of rate and other data associated with the provision of
operator services and require contribution to a variety of FCC mandated funds
and payment of various regulatory and other fees. There has generally been
increased enforcement activity by the FCC and the states with respect to such
regulations, particularly with respect to those regulations governing the
verification of consumer elections to change long distance service providers.
Among domestic carriers, only the ILECs are classified as dominant
carriers, although ILECs currently would only be classified as dominant in
their provision of long distance telecommunications services if they were to
provide such services other than through structurally separate affiliates. As
a consequence, the FCC regulates many of their rates, charges and services to
a greater degree than the Company's, although the FCC is currently evaluating
proposals to streamline and otherwise relax its regulation, the structurally
separate inter-exchange affiliates of the RBOCs have recently been
reclassified as non dominant carriers and, accordingly, have the same
flexibility as the Company in meeting competition by modifying rates and
service offerings without pricing constraints or extended waiting periods.
The impact on the Company of the reclassification of AT&T and the RBOC
interchange affiliates as non dominant carriers cannot be determined at this
time, but it could make it more difficult for the Company to compete for long
distance customers.
With the passage of the Telecommunications Act, the RBOCs are now
free to offer local service outside their respective local telephone service
areas as well as local service bundled with wireless, enhanced and other
ancillary services. Following application to and upon a finding by the FCC
that an RBOC faces facilities-based competition and has satisfied a
congressionally mandated "competitive checklist" of interconnection and access
obligations, the RBOC will be permitted to provide long distance service
within its local service area, although in so doing, it will be subject to a
variety of structural and nonstructural safeguards intended to minimize abuse
of its market power in these local service areas. As a result of the removal
of the legal barriers to competitive entry into the local market, long
distance carriers like the Company will be allowed to compete with the RBOCs
in the provision of local service. It is impossible to predict the impact of
RBOC entry into the long distance telecommunications market on the Company's
business and prospects, but it could make it more difficult for the Company to
compete for long distance customers.
The Company has all necessary authority to provide domestic
interstate telecommunications services under current laws and regulations.
The Company has been granted authority by the FCC to provide international
telecommunications services through the resale of switched services of U.S.
facilities based carriers. The FCC reserves the right to condition, modify or
revoke such international authority for violations of federal law or rules, as
well as to approve assignments and transfers of control of such international
authority. Both domestic and international non-dominant carriers must maintain
tariffs on file with the FCC. Although the tariffs of non-dominant carriers,
and the rates and charges they specify, are subject to FCC review, they are
presumed to be lawful and are seldom contested. As a domestic non-dominant
carrier, the Company is permitted to make tariff filings on a single day's
notice and without cost support to justify specific rates. As an
international non dominant carrier, the Company has always been required to
include, and has included, detailed rate schedules in its international
tariffs, but, as a result of recent FCC action, is now permitted to make
tariff filings on a single day's notice. Prior to a 1995 court decision,
Southwestern Bell v. FCC, 43 F.3rd 1515 (D.C.Cir. 1995), domestic non dominant
carriers were permitted by the FCC to charge a "reasonable range of rates"
instead of the detailed schedules of individual charges required of dominant
carriers. In reliance on the FCC's past practice of allowing relaxed tariff
filing requirements for non dominant domestic carriers, the Company and most
of its competitors did not maintain detailed rate schedules for domestic
offerings in their tariffs. Until the two year statute of limitation expires,
the Company could be held liable for damages for its failure to do so,
although it believes that such an outcome is highly unlikely and would not
have a material adverse effect on the Company's operations.
To date, the FCC has exercised its regulatory authority to set rates
only with respect to the rates of dominant carriers, and it has increasingly
relaxed its control in this area. Thus, the FCC does not regulate the rates
of the Company or any other long distance telecommunications provider,
including AT&T, although it would regulate the rates charged by any ILEC that
elected to provide interexchange services other than through a structurally
separate affiliate. While the FCC continues to cap the prices that determine
interstate calls, it has afforded the ILECs a modicum of geographically
restricted pricing flexibility when they face competition in a given market.
The FCC has indicated that it will initiate in the near future a comprehensive
review of its access charge structure, evaluating embedded costs and subsidies
that produce current access charge levels. The FCC is currently conducting a
rulemaking procedure to implement the universal service provisions of the
Telecommunications Act and will be determining in that proceeding the
contributions that telecommunications companies such as the Company will be
required to make to support universal service. The FCC also has recently
completed a rulemaking proceeding to implement the local competition
provisions of the Telecommunications Act. In that proceeding, the FCC has set
forth comprehensive national rules and guidelines for states and local
competitors to follow that, among other things, govern the interconnection
obligations among telecommunications carriers, including interconnection with
the local exchange network, and access to a minimum set of unbundled network
elements, as required by the Act. The FCC also has set forth pricing
methodologies for both the FCC and the states to follow in implementing the
Telecommunications Act's requirement that interconnection and access to
unbundled network elements be made available by ILECs at cost-based rates with
a reasonable profit.
The FCC-styled "trilogy" of access charge reform, universal service
and local competition proceedings comprise the FCC's effort to respond to the
Telecommunications Act's goal of transitioning telecommunications markets to
full competition. The FCC does not expect this framework to be complete until
state public service commissions complete their own efforts to implement and
supplement the Telecommunications Act's provisions. Until the FCC's "trilogy"
of proceedings is completed, and until such state actions are taken, the
impact of the FCC's arrangements or access charge obligations, or more
broadly, on the Company's operations in general, cannot be determined at this
time.
The Telecommunications Act grants the FCC authority to forbear from
applying any statutory requirement or regulation to classes of carriers or
services upon a determination that such application is unnecessary and no
longer in the public interest. Utilizing this newly granted authority, the FCC
has already reduced, and has proposed further reductions in, its regulation of
non dominant IXCs such as the Company. Among other things, the FCC has
proposed "mandatory de-tariffing" for the domestic offerings of non-dominant
IXCs. This proposed rule, if adopted, would not only relieve the Company of
its obligation to file tariffs applicable to its domestic interexchange
offerings, but would prohibit all non dominant IXCs, including AT&T, Sprint
and MCI/WorldComm, from filing such tariffs. The magnitude of the impact on
the Company of mandatory de-tariffing of its principal suppliers and
competitors cannot be determined at this time, although such an action would,
if adopted, render enforcement of the FCC's resale and nondiscrimination
requirements more difficult.
State
- -----
The Company's intrastate long distance telecommunications operations
are also subject to various state laws and regulations, including initial
certification, registration and/or notification, as well as various tariffing
and reporting requirements. The Company is certified in 23 states and is
going through the certification process in the remaining 27 states. The
Company intends to continuously monitor regulatory developments in all 50
states and intends to obtain licenses wherever feasible. Once it becomes
certified, the Company will have to file an annual statement with each state's
Public Utilities Commission.
Research and Development
------------------------
Other than developing and expanding its telecommunications network,
the Company does not intend to undertake any activities that may be
characterized as research and development. The Company has not incurred any
research and development expenses since its inception.
Number of Employees
-------------------
The Company presently employs seven full-time employees and no part-
time employees. During the next 12 months, management intends to hire up to
33 additional employees, subject to receipt of sufficient revenues to pay
them.
Item 2. Management's Discussion and Analysis or Plan of Operation.
- -------------------------------------------------------------------
Plan of Operations.
- -------------------
The Company began actively marketing in April, 1999. It is
anticipated that it will produce approximately $3,830,900 in revenue in the
1999 fiscal year and approximately $12,169,879 in fiscal 2000. Net earnings
after taxes would be approximately $348,030, and $1,028,872, respectively. In
the next 12 months, the Company intends to employ 10 IP Gateways throughout
the western United States in order to transport Voice Over the Internet (VOIP)
long-haul traffic both domestically and internationally. The Company has
signed Strategic Partnership Agreements with Bell Atlantic and Level 3
Communications to collocate its Gateway equipment and terminate traffic in
areas that the Company has not or does not intend to locate Gateways. The
Company has very actively begun to employ its Affinity Group Marketing
strategy and has contracted with three of its seven targeted groups; it is
negotiating with the remaining four. The total membership population of the
Company's seven targeted groups is over 40 million.
The Company also intends to build a captive agent network for direct
marketing purposes to supplement its Affinity Group Marketing programs. The
Company is currently negotiating with an experienced group of direct marketers
and management expects that direct marketing operations will commence in
approximately September, 1999.
Management is also seeking viable acquisition candidates. Several
synergistic targets have been identified and initial contacts are being made.
The Company intends to make acquisitions that will allow it to offer value-
added services and products to its customer base. There can be no assurance
that the Company will be successful in locating and completing the acquisition
of any suitable candidate. Even if the Company is successful in this regard,
it can provide no assurance that any acquisition will be profitable.
The foregoing contains "forward-looking" statements and information,
all of which is modified by reference to the caption "Risk Factors," Item 1.
Actual results may differ materially from those projected in such forward-
looking statements.
Results of Operations.
- ---------------------
During fiscal years 1997 and 1998, the Company was an emerging
company setting up its business plan, financing and marketing strategy.
Revenues were $25,962 and $16,004 respectively, and losses per share were
$0.04 and $0.33 respectively.
During the five months ended May 31, 1999, the Company received
revenues of $1,187,698, with gross profit of $14,013. After deduction of
operating expenses totaling $1,123,233, the Company's net loss during this
five month period was $1,109,220, or $0.37 per share.
Liquidity.
- ----------
Revenues during the calendar year ended December 31, 1998, totaled
$16,004, as compared to $25,962 in the calendar year ended December 31, 1997.
Net loss for these periods were $730,241 and $72,405, respectively. The
increased loss in the 1998 calendar year was due principally to increased
general and administrative expenses of $716,479.
The ability to complete the IP Gateway construction and employ
marketing executives to service the Affinity Groups depends on the Company's
success in obtaining adequate financing. The Company has signed a letter of
intent for a $20 million equity line with Swartz Institutional Finance and has
received a commitment for a $10 million financing from national Capital
Merchant Group, Ltd. The Company intends to complete the financing in the
third or fourth quarter of the 1999 fiscal year. These proceeds will allow
the Company to build out its IP Network and build infrastructure to manage it,
and to market the Company's services. The Company completed a $1 million
financing in May, 1998, and management feels it has adequate liquidity to
carry on operations until the above-referenced financing is complete.
Item 3. Description of Property.
- ---------------------------------
The Company leases its principal executive offices, which are
located at 4275 Executive Square, Suite 510, La Jolla, California. These
offices consist of approximately 1500 square feet of office space. Rent
obligations are $2,525 per month. The lease will expire on December 31, 1999,
but the Company has an option to renew it for an additional one-year term, on
the same terms and conditions as the existing lease. Management is currently
seeking a larger facility and does not expect to renew its existing lease.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
- ------------------------------------------------------------------------
Security Ownership of Certain Beneficial Owners.
- ------------------------------------------------
The following table sets forth the share holdings of those persons
who own more than five percent of the Company's common stock as of the date
hereof:
<TABLE>
<CAPTION>
Number of Shares Percentage
Name and Address Beneficially Owned of Class(1)
- ---------------- ------------------ --------
<S> <C> <C>
6M Family Trust 582,000 (1) 17.1%
4275 Executive Square
Suite 510
La Jolla, California
92037
Paul J. Mills 385,000 (2) 11.3%
4275 Executive Square
Suite 510
La Jolla, California
92037
</TABLE>
(1) The 6M Family Trust is controlled by the family of Richard D.
Mangiarelli.
(2) A total of 190,000 of these shares are held of record by
Mr. Mills' adult children; Mr. Mills may be deemed to have
voting control over these shares.
Security Ownership of Management.
- ---------------------------------
The following table sets forth the share holdings of the Company's
directors and executive officers as of the date hereof. Information regarding
the capacities in which each person serves for the Company is contained in
Item 5.
<TABLE>
<CAPTION>
Number of Shares Percentage of
Name and Address Beneficially Owned of Class
- ---------------- ------------------ -------------
<S> <C> <C>
6M Family Trust 582,000 (1) 17.1%
4275 Executive Square
Suite 510
La Jolla, California
92037
Paul J. Mills 385,000 (2) 11.3%
4275 Executive Square
Suite 510
La Jolla, California
92037
John E. Jordan 25,000 (3) 0.7%
4275 Executive Square
Suite 510
La Jolla, California
92037
</TABLE>
(1) The 6M Family Trust is controlled by the family of the Company's
President, Richard D. Mangiarelli.
(2) A total of 190,000 of these shares are held of record by
Mr. Mills' adult children; Mr. Mills may be deemed to have
voting control over these shares.
(3) These shares are held of record by Jordan Family Trust, which
is controlled by Mr. Jordan.
Changes in Control.
- -------------------
On July 19, 1999, the Roman J. Kownacki, M.D. Pension Fund; and
Roman J. Kownacki and Mary Jean Kownacki, as Trustees of the Kownacki Family
Trust dated February 8, 1972 (collectively, "Kownacki"), filed a Complaint for
Judgment Debtor's Interest in Property or Debt to Satisfy Money Judgment in
the Superior Court of the State of California for the County of San Diego (the
"Complaint"). The case was designated Case No. EC18601.
The Complaint sought (i) a declaration that Company securities held
directly or beneficially by the Company's President, Richard D. Mangiarelli,
are the property of Kownacki; (ii) an order that the securities be delivered
to the marshal of the County of San Diego for satisfaction of a judgment in
the amount of $170,470.82 that Kownacki had obtained against Mr. Mangiarelli
on May 28, 1997; (iii) an order to show cause why the Company should not be
enjoined from transferring such securities to any person or otherwise
disposing of the securities; (iv) a temporary restraining order and a
preliminary injunction to that effect; and (v) Kownacki's costs of suit and
attorney's fees and such other relief as the Court deemed proper.
On August 5, 1999, the Court entered an Order (i) enjoining the
Company, during the pendency of the action, from transferring to Mr.
Mangiarelli, concealing, selling or otherwise changing the form of title on
Mr. Mangiarelli's securities; (ii) requiring the Company to transfer all such
securities in its possession to the Marshal of the County of San Diego upon
demand, for application to the satisfaction of the judgment in favor of
Kownacki; (iii) that the Company disclose the existence of the Order to anyone
who inquires as to Mr. Mangiarelli's ownership interest in the Company's
securities; (iv) not accept any lien or other encumbrance upon Mr.
Mangiarelli's stock, options or right to exercise stock options or acquire
shares as a condition to his employment with the Company; and (v) advise the
Securities and Exchange Commission of the restrictions placed upon such stock
on or before August 10, 1999.
The transfer of title to the shares of Company stock beneficially
owned by Mr. Mangiarelli could effect a change in control of the Company.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
- ---------------------------------------------------------------------
Identification of Directors and Executive Officers.
- ---------------------------------------------------
The following table sets forth the names of all current directors
and executive officers of the Company. These persons will serve until the
next annual meeting of the stockholders or until their successors are elected
or appointed and qualified, or their prior resignations or terminations.
<TABLE>
<CAPTION>
Date of Date of
Positions Election or Termination
Name Held Designation or Resignation
- ---- ---- ----------- --------------
<S> <C> <C> <C>
Richard D. CEO 6/96 *
Mangiarelli President 6/96 *
Director 6/96 *
Paul J. Mills Chairman 6/96 *
Director 6/96 *
Secretary 6/96 *
John E. Jordan Director 6/96 *
</TABLE>
* These persons presently serve in the capacities indicated.
Business Experience.
- --------------------
Richard D. Mangiarelli, Chief Executive Officer, President and
Director. Mr. Mangiarelli is 59 years old. In 1985, he founded USA Energy
Corporation, a licensed general and electrical contractor dedicated to energy
conservation contracting. He was the Chief Operating Officer of Fulham
Company, an electronic ballast manufacturer, from 1993 to 1995. Mr.
Mangiarelli holds a BA degree from the University of Connecticut and an MBA
degree from Pepperdine University. He is a licensed general contractor and
licensed electrical contractor and is retired from the United States Marine
Corps at the rank of Colonel.
Paul J. Mills, Secretary and Chairman of the Board of Directors.
Mr. Mills, age 77, has been a principal in Mills and Associates, a management
and consulting firm since 1985. Prior thereto, he founded and served as
president of a marketing company called Southwest Solar Products, Inc. from
1980 to 1986.
John E. Jordan, Director. Mr. Jordan is 63 years of age. In 1959,
he founded the Jordan Companies, a group of privately held, diversified
companies engaged in energy related engineering, manufacturing and marketing
activities, defense and aerospace consulting and international negotiations
and representation. He has served as chief executive officer and president of
these companies for over 20 years. Mr. Jordan is a graduate of Stanford
University, the Marine Corps Command and Staff College, the National Defense
University-Industrial College of the Armed Force program, the Naval War
College, and served as an Officer in both the U.S. Air Force and the Marine
Corps.
Significant Employees.
- ----------------------
The Company does not currently have any employees who are not
executive officers, but who are expected to make a significant contribution to
its business.
Family Relationships.
- ---------------------
There are no family relationships between any director or executive
officer.
Involvement in Certain Legal Proceedings.
- -----------------------------------------
During the past five years, no present or former director, executive
officer or person nominated to become a director or an executive officer of
the Company:
(1) was a general partner or executive officer of any business
against which any bankruptcy petition was filed, either at the time of the
bankruptcy or two years prior to that time;
(2) was convicted in a criminal proceeding or named subject to a
pending criminal proceeding (excluding traffic violations and other minor
offenses);
(3) was subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities or banking
activities; or
(4) was found by a court of competent jurisdiction (in a civil
action), the Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, and the judgment
has not been reversed, suspended or vacated.
Item 6. Executive Compensation.
- --------------------------------
The following table sets forth the aggregate compensation paid by
the Company for services rendered during the periods indicated:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
ities All
Name and Year or Other Rest- Under- LTIP Other
Principal Period Salary Bonus Annual rictedlying Pay- Comp-
Position Ended ($) ($) Compen-Stock Optionsouts ensat'n
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard 12/31/97 -0- -0- -0- -0- -0- -0- -0-
Mangiarelli 12/31/98 -0- -0- -0- -0- -0- -0- -0-
CEO, Pres. 6/30/99 18,750 -0- -0- -0- 1,500,000 -0- -0-
and Director
Paul J. 12/31/97 -0- -0- -0- -0- -0- -0- -0-
Mills 12/31/98 -0- -0- -0- -0- -0- -0- -0-
Secretary 6/30/99 -0- -0- -0- -0- 250,000 -0- -0-
and Chairman
John E. 12/31/97 -0- -0- -0- -0- -0- -0- -0-
Jordan 12/31/98 -0- -0- -0- -0- -0- -0- -0-
Director 6/30/99 -0- -0- -0- -0- -0- -0- -0-
</TABLE>
No cash compensation, deferred compensation or long-term incentive
plan awards were issued or granted to the Company's management during the
year ended December 31, 1998, or the period ended March 31, 1999. In April,
1999, the Company began paying its Chief Executive Officer and President,
Richard D. Mangiarelli, an annual salary of $75,000; as of June 30, 1999, Mr.
Mangiarelli has been paid $18,750 in salary.
The Company has authorized the granting of options to Messrs.
Mangiarelli and Mills to purchase up to 1,500,000 shares and 250,000 shares of
the Company's common stock, respectively. The vesting of these options is
subject to certain performance criteria. As of the date of this Registration
Statement, 500,000 options have vested in Mr. Mangiarelli and no options have
vested in Mr. Mills. The options are exercisable for a period of three years,
at a price of $0.13 per share.
In November 1996, the Board of Directors and majority stockholders
of the Company adopted an employee stock option plan under which 125,000
shares of common stock have been reserved for issuance upon performance of as
yet unspecified performance criteria. As of the date of this Registration
Statement, no options have been granted pursuant to such plan and the Company
has no present plans for the issuance thereof. The Company does not have a
defined benefit plan or any retirement or long-term incentive plan.
As of the date of this Registration Statement, the Company has not
reduced its option arrangements to writing.
Compensation of Directors.
- --------------------------
There are no standard arrangements pursuant to which the Company's
directors are compensated for any services provided as a director. No
additional amounts are payable to the Company's directors for committee
participation or special assignments.
Employment Contracts and Termination of Employment and Change in Control
Arrangements.
- -------------
There are no employment contracts, compensatory plans or
arrangements, including payments to be received from the Company, with respect
to any director or executive officer of the Company which would in any way
result in payments to any such person because of his or her resignation,
retirement or other termination of employment with the Company or its
subsidiaries, any change in control of the Company, or a change in the
person's responsibilities following a change in control of the Company.
Item 7. Certain Relationships and Related Transactions.
- --------------------------------------------------------
The only transactions between members of management, nominees to
become a director or executive officer, 5% stockholders, or promoters or
persons who may be deemed to be parents of the Company are:
- Issued a total of 582,000 shares of the Company's common stock
to the 6M Family Trust, which is controlled by Richard D.
Mangiarelli;
- Issued a total of 385,000 shares of the Company's common stock
to Paul J. Mills and certain members of his family; and
- Issued a total of 25,000 shares of the Company's common stock
to the Jordan Family Trust, which is controlled by John E. Jordan.
See the caption "Security Ownership of Certain Beneficial Owners and
Management" of this Registration Statement.
Item 8. Legal Proceedings.
- ---------------------------
The Company is a party to Case No. EC18601, which is pending in the
Superior Court of the State of California for the County of San Diego. For a
description of this proceeding, see the heading "Changes in Control" of the
caption "Security Ownership of Certain Beneficial Owners and Management."
To the knowledge of management, no federal, state or local
governmental agency is presently contemplating any proceeding against the
Company. No director, executive officer or other person who may be deemed to
be an "affiliate" of the Company or owner of record or beneficially of more
than five percent of the Company's common stock is a party adverse to the
Company or has a material interest adverse to the Company in any proceeding.
Item 9. Market Price of and Dividends on the Company's Common Equity and
Other Stockholder Matters.
- --------------------------
Market Information.
- -------------------
Quotation of the Company's common stock on the OTC Bulletin Board of
the NASD only commenced August 3, 1998; no assurance can be given that any
established market for the Company's common stock will develop or be
maintained. For any market that develops for the Company's common stock, the
sale of "restricted securities" (common stock) pursuant to Rule 144 of the
Securities and Exchange Commission by members of management or any other
person to whom any such securities may be issued in the future may have a
substantial adverse impact on any such public market. Information about the
date when current holders' holding period of "restricted securities" commenced
can be found under the caption "Recent Sales of Unregistered Securities," Item
10. A minimum holding period of one year is required for resales under Rule
144, along with other pertinent provisions, including publicly available
information concerning the Company (this requirement will be satisfied by the
filing and effectiveness of this Registration Statement, the passage of 90
days and the continued timely filing by the Company of all reports required to
be filed by it with the Securities and Exchange Commission; limitations on the
volume of "restricted securities" which can be sold in any 90 day period; the
requirement of unsolicited broker's transactions; and the filing of a Notice
of Sale on Form 144.
The following quotations were provided by the National Quotations
Bureau, LLC, and do not represent actual transactions; these quotations do not
reflect dealer markups, markdowns or commissions.
<TABLE>
<CAPTION>
STOCK QUOTATIONS*
CLOSING BID
Quarter ended: High Low
- -------------- ---- ---
<S> <C> <C>
August 3, 1998 2.125 1.375
(first available date)to
September 30, 1998
December 31, 1998 2 1.01
March 31, 1999 8.375 1.65625
June 30, 1999 6.1875 3.875
</TABLE>
Holders.
- --------
The number of record holders of the Company's securities as of the
date of this Registration Statement is approximately 143.
Dividends.
- ----------
The Company has not declared any cash dividends with respect to its
common stock or its preferred stock, and does not intend to declare dividends
in the foreseeable future. The future dividend policy of the Company cannot
be ascertained with any certainty, and if and until the Company completes any
sales of its products, no such policy will be formulated. There are no
material restrictions limiting, or that are likely to limit, the Company's
ability to pay dividends on its securities.
Item 10. Recent Sales of Unregistered Securities.
- -------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
------------
Date Number of Aggregate
Name Acquired Shares Consideration
---- -------- --------- -------------
<S> <C> <C> <C>
Founders 8/1/96 2,000,000 (1)
Subscribers of
offering under
Rule 504 (2) 125,000 (3) $250,000
Five consultants 8/17/98 140,000 Services
Five consultants 8/21/98 36,800 Services
Milano Mondaile 12/15/98 100,000 $ 13,000
Swiss American Ltd. 12/15/98 100,000 $ 13,000
Southwest Products 12/23/98 25,000 $ 50,000
Southwest Products 1/21/99 10,000 $ 20,000
Three consultants 2/2/99 12,000 Services
National Capital
Merc. 2/19/99 16,000 $ 40,800
National Capital
Merc. 3/25/99 20,000 $110,000
27 consultants 3/26/99 123,300 $ 19,500
6M Family Trust 3/29/99 30,000 $ 2,600
Jeffery Rush 4/20/99 10,000 Services
Telebil 4/20/99 100,000 Services
26 consultants 5/27/99 97,400 Services
Holders of warrants
issued under Rule
504 offering (4) 375,000 $750,000
Eight consultants (5) Warrants to Services
purchase 195,077
shares
(1) Of this amount, a total of 1,783,000 were authorized for
issuance on August 1,1996, and were issued on April 16, 1998,
for a combination of cash and services.
(2) Subscriptions under this offering were made at various times
from January, 1998 through July, 1998.
(3) This offering was of 125,000 units, at a price of $2.00 per
unit. Each unit consisted of one share of the Company's
common stock and warrants to purchase up to three additional
shares at a price of $2.00 per share. As of the date of this
Registration Statement, all or substantially all of these
warrants have been exercised.
(4) These warrants were exercised over a period of time ranging from
approximately February 19, 1999, to February 28, 1999.
(5) These warrants were issued from June, 1997 to February, 1998.
They expired on or about March 10, 1999.
</TABLE>
Management believes each of the foregoing persons or entities was
either an "accredited investor," or "sophisticated investor" as defined in
Rule 506 of Regulation D of the Securities and Exchange Commission. Each had
access to all material information regarding the Company prior to the offer,
sale or issuance of these "restricted securities." The Company believes these
shares were exempt from the registration requirements of the Securities Act of
1933, as amended (the "1933 Act"), pursuant to Section 4(2) and/or 3(b)
thereof.
Item 11. Description of Securities.
- -----------------------------------
Common Stock
------------
The Company has two classes of securities authorized, consisting of
(i) 20,000,000 shares of common voting stock having a par value of one mill
($0.001) per share; and (ii) 5,000,000 shares of preferred stock having a par
value of one mill ($0.001) per share. The holders of the Company's common
stock are entitled to one vote per share on each matter submitted to a vote at
a meeting of stockholders. The shares of common stock do not carry cumulative
voting rights in the election of directors.
The Company's preferred stock shall contain such rights and
preferences as the Board of Directors may authorize. As of the date of this
Registration Statement, the Board of Directors has not assigned any rights or
preferences to the preferred stock and no shares of preferred stock have been
issued.
Stockholders of the Company have no pre-emptive rights to acquire
additional shares of common stock or other securities. The common stock
carries no subscription or conversion rights. All shares of common stock now
outstanding are fully paid and non-assessable.
Outstanding Options, Warrants and Calls
---------------------------------------
See the caption "Executive Compensation" of this Registration
Statement for a description of all options to purchase shares of the Company's
common stock. There are presently no outstanding warrants or calls.
No Provisions Limiting Change of Control
----------------------------------------
There is no provision in the Company's Articles of Incorporation or
Bylaws that would delay, defer, or prevent a change in control of the Company.
Item 12. Indemnification of Directors and Officers.
- ---------------------------------------------------
Section 78.751(1) of the Nevada Revised Statutes ("NRS")
authorizes a Nevada corporation to indemnify any director, officer, employee,
or corporate agent "who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, except an action by or
in the right of the corporation" due to his or her corporate role. Section
78.751(1) extends this protection "against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with the action, suit or proceeding if he
or she acted in good faith and in a manner which he or she reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful."
Section 78.751(2) of the NRS also authorizes indemnification of
the reasonable defense or settlement expenses of a corporate director,
officer, employee or agent who is sued, or is threatened with a suit, by or in
the right of the corporation. The party must have been acting in good faith
and with the reasonable belief that his or her actions were not opposed to the
corporation's best interests. Unless the court rules that the party is
reasonably entitled to indemnification, the party seeking indemnification must
not have been found liable to the corporation.
To the extent that a corporate director, officer, employee, or
agent is successful on the merits or otherwise in defending any action or
proceeding referred to in Section 78.751(1) or 78.751(2), Section 78.751(3) of
the NRS requires that he be indemnified "against expenses, including
attorneys' fees, actually and reasonably incurred by him or her in connection
with the defense."
Section 78.751 (4) of the NRS limits indemnification under
Sections 78.751 (1) and 78.751(2) to situations in which either (1) the
stockholders, (2)the majority of a disinterested quorum of directors, or (3)
independent legal counsel determine that indemnification is proper under the
circumstances.
Pursuant to Section 78.751(5) of the NRS, the corporation may
advance an officer's or director's expenses incurred in defending any action
or proceeding upon receipt of an undertaking. Section 78.751(6)(a) provides
that the rights to indemnification and advancement of expenses shall not be
deemed exclusive of any other rights under any bylaw, agreement, stockholder
vote or vote of disinterested directors. Section 78.751(6)(b) extends the
rights to indemnification and advancement of expenses to former directors,
officers, employees and agents, as well as their heirs, executors, and
administrators.
Regardless of whether a director, officer, employee or agent has
the right to indemnity, Section 78.752 allows the corporation to purchase and
maintain insurance on his behalf against liability resulting from his or her
corporate role.
Article IX of the Company's Articles of Incorporation limits the
personal liability of a director or executive officer for damages for breach
of fiduciary duty to acts or omissions involving intentional misconduct, fraud
or a knowing violation of law. In addition, Article X provides for
indemnification of the Company's directors and executive officers to
substantially the same extent as the NRS. See the Exhibit Index, Item 15 of
this Registration Statement.
Item 13. Financial Statements and Supplementary Data.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Cybertel, Communications Corp.
Las Vegas, Nevada
We have audited the accompanying balance sheet of Cybertel, Communications
Corp. as of December 31, 1998, and the related statements of income,
stockholders' equity and cash flows for the two years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cybertel, Communications
Corp. as of December 31, 1998, and the results of its operations and its cash
flows for the two years then ended.
MALONE & BAILEY, PLLC
June 23, 1999
Houston, Texas
<PAGE>
<PAGE>
CYBERTEL, COMMUNICATIONS CORP.
BALANCE SHEET
December 31, 1998
ASSETS
Current Assets
Cash $ 50,344
Accounts receivable 1,278
Subscriptions receivable 34,500
Total Current Assets 86,122
Equipment, net of $2,612 accumulated depreciation 8,085
Deposits 4,500
TOTAL ASSETS $ 98,707
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 2,554
Accounts payable 2,241
Accrued interest 1,673
Loan from a founding stockholder 12,700
Total Current Liabilities 19,168
Long-term Debt 2,575
Total Liabilities 21,743
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares
authorized, no shares issued or outstanding
Common stock, $.001 par value, 20,000,000
shares authorized, 2,631,659 shares
issued and outstanding 2,632
Paid in capital 910,278
Retained (deficit) (835,946)
TOTAL STOCKHOLDERS' EQUITY 76,964
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 98,707
See accompanying accounting policies
and notes to financial statements.
2
<PAGE>
CYBERTEL, COMMUNICATIONS CORP.
INCOME STATEMENTS
For the Years Ended December 31, 1998 and 1997
1998 1997
Revenues $ 16,004 $ 25,962
Operating Expenses
Selling 26,657 12,851
General and administrative 716,479 84,565
Depreciation 2,400 212
Interest (income) (1,553) ( 236)
Interest expense 2,262 975
Total Operating Expenses 746,245 98,367
NET INCOME (LOSS) $(730,241) $( 72,405)
Net (loss) per common share $(0.33) $(0.04)
Weighted average common shares
outstanding 2,210,553 2,003,694
See accompanying accounting policies
and notes to financial statements.
3
<PAGE>
CYBERTEL, COMMUNICATIONS CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998 and 1997
Stock
Common Stock Subscrip. Paid in Retained
Shares $ Receivable Capital Deficit Totals
Balances,
December 31, 1996 2,000,000 $2,000 $(3,900) $ 38,000 $( 33,300) $ 2,800
Stock subscrip-
tions canceled ( 195,000) ( 195) 3,900 ( 3,705)
Stock issued
- for cash 219,550 220 66,272 66,492
- for services 5,000 5 9,995 10,000
Net (loss) (72,405) (72,405)
Balances,
December 31, 1997 2,029,550 2,030 110,562 (105,705) 6,887
Stock certif-
icates canceled ( 308,500)( 308) 308
Stock issued
- for cash 364,200 364 375,736 376,100
- less: stock
not paid for ( 88,500) ( 88,500)
- for services 546,409 546 929,672 930,218
- less costs of
fundraising (417,500) (417,500)
Net (loss) (730,241) (730,241)
Balances,
December 31, 1998 2,631,659 $2,632 $944,778 $(835,946) $ 76,964
See accompanying accounting policies
and notes to financial statements.
4
<PAGE>
CYBERTEL, COMMUNICATIONS CORP.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997
1998 1997
CASH FLOWS USED BY OPERATING ACTIVITIES
Net income (loss) $(730,241) $( 72,405)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 2,400 212
Stock issued for services 930,218 10,000
Less: amount charged to equity (387,500)
Changes in
Accounts receivable 15,195 ( 16,473)
Accounts payable ( 1,477) 3,718
Accrued interest 762 910
NET CASH USED BY OPERATING ACTIVITIES (170,643) ( 74,038)
CASH FLOWS USED BY INVESTING ACTIVITIES
Purchase of equipment ( 3,073) ( 7,624)
Deposits acquired ( 4,500)
NET CASH USED BY INVESTING ACTIVITIES ( 3,073) ( 12,124)
CASH FLOWS FROM FINANCING ACTIVITIES
Debt proceeds 7,624
Repayment of debt ( 2,127) ( 367)
Loan from a shareholder 12,700
Sales of common stock, net of
costs of fundraising 257,600 66,492
Less: stock subscriptions receivable ( 34,500)
NET CASH FLOWS FROM FINANCING ACTIVITIES 220,973 86,449
NET INCREASE IN CASH 47,257 287
CASH BALANCES
- Beginning of period 3,087 2,800
- End of period $ 50,344 $ 3,087
SUPPLEMENTAL DISCLOSURES
Interest paid $ 1,500 $ 64
Income taxes paid 0 0
See accompanying accounting policies
and notes to financial statements.
5
<PAGE>
CYBERTEL, COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
Nature of Business. Cybertel, Communications Corp. ("Company") was
incorporated in Nevada in June, 1996. The Company sells telecommunications
services to commercial customers and began operations in 1997.
Estimates and assumptions. Preparing financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenue and expenses at the balance sheet date and for the period then ended.
Actual results could differ from these estimates.
Revenue recognition occurs when commercial businesses are signed up with
various commercial carriers.
Equipment is computer-related and is stated at cost. Depreciation is computed
by the straight-line method using rates based on an estimated 3-year life of
the related assets.
Income taxes are computed using the tax liability method of accounting,
whereby deferred income taxes are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates that will be in effect when the differences
reverse.
Loss per share is reported under Statement No. 128 of the Financial Accounting
Standards Board ("FAS 128"). FAS 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share exclude any
dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share are very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented and, where appropriate, restated to conform to the FAS 128
requirement. For 1998, warrants outstanding are not included in the earnings
calculation because their effect in a loss year would be antidilutive.
NOTE 2 - INSTALLMENT DEBT
The Company capitalized two equipment leases payable in 24 equal remaining
installments of $246, beginning December 1997, using a 10% discount factor.
Long-term debt is due in 2000.
NOTE 3 - INCOME TAXES
As of December 31, 1998, the Company has approximately $820,000 in unused net
operating loss carryforwards which expire in 2018.
NOTE 5 - COMMON STOCK
During 1998, the Company sold 393,750 shares of stock for $376,100 pursuant to
<PAGE>
CYBERTEL, COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS
a placement offering exempt from registration under Rule 504 of the Securities
and Exchange Commission. Of this amount, $253,100 was collected during 1998
and another $34,500 was collected in 1999 prior to June 23, 1999, and is
recorded as an asset "Subscriptions receivable." The $88,500 balance is shown
as a reduction in Stockholders' Equity. The Company raised another $907,400
both through additional stock sales and through the exercise of warrants at $2
per share issued with the 1998 and 1999 stock sales through June 23, 1999 and
services worth another $986,800. Total stock issued in 1999 through June 23
is 777,250 shares.
570,077 warrants to purchase Company common stock at $2 were issued in
connection with this offering and other 1998 issuances. 368,550 have been
exercised in 1999 through June 23, 1999. 1999 sales of stock through June 23,
1999 totaled 777,250 shares for net cash proceeds of $907,400 and services
valued at $986,800.
NOTE 6 - OPERATING LEASES
The Company's office in La Jolla, California has 1,500 square feet. Rent
obligations are $2,525 per month for 11 remaining months in 1999.
NOTE 7 - SUBSEQUENT EVENTS
The Company is spending its 1999 stock sales proceeds to acquire equipment to
scale up its implementation of providing long distance and data
telecommunications services. In March 1999, the Company signed a service
agreement with General Telecom, Inc. to use its telecommunications equipment
for a one year term, with five renewable one-year options. Contract pricing
is per the agreement and is based on usage volume and line types, beginning at
$6,500 per month. Total equipment purchases to date are $37,909.
<PAGE>
CYBERTEL COMMUNICATIONS CORPORATION
BALANCE SHEET
MAY 31, 1999
May 31, '99
ASSETS
Current Assets
Cash $ 618,358
Accounts Receivable 680,722
Total Current Assets 1,299,080
Fixed Assets
Equipment 44,676
Accumulated Depreciation (3,612)
Total Fixed Assets 41,064
Other Assets
Deposits 4,500
Total Other Assets 4,500
TOTAL ASSETS $ 1,344,644
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Other Current Liabilities
Accounts Payable $ 632,518
Accrued Interest 2,171
Loans from founding stockholder 12,700
Current portion-long term debt 2,554
Total Other Current Liabilities 649,943
Total Current Liabilities 649,943
Long Term Liabilities
Long term debt 2,575
Total Long Term Liabilities 2,575
Total Liabilities 652,518
Equity
Retained Earnings (835,946)
Net Income (1,109,220)
Capital Stock 3,409
Paid in capital 2,633,883
Total Equity 692,126
TOTAL LIABILITIES & EQUITY $ 1,344,644
UNAUDITED
<PAGE>
CYBERTEL COMMUNICATIONS CORPORATION
PROFIT AND LOSS
JANUARY THROUGH MAY 1999
Jan - May '99
Revenues $ 1,187,689
Cost of Goods Sold 1,173,676
Gross Profit 14,013
Operating Expenses
Selling 11,844
General and Administrative 1,115,036
Depreciation 1,000
Interest (income) (5,147)
Interest Expense 500
Total Operating Expenses 1,123,233
NET INCOME (LOSS) $ (1,109,220)
Net (loss) per common share $ (0.37)
Weighted average common shares
outstanding 3,020,284
UNAUDITED
<PAGE>
CYBERTEL COMMUNICATIONS CORPORATION
STATEMENT OF CASH FLOWS
JANUARY THROUGH MAY 1999
Jan - May '99
OPERATING ACTIVITIES
Net Income (1,109,220)
Adjustments to reconcile Net Income
to net cash provided by operations:
Accounts Receivable (674,444)
Subscriptions receivable 34,500
Accounts Receivable (5,000)
Accounts Payable 630,276
Accrued Interest 499
Net cash provided by Operating Activities (1,123,389)
INVESTING ACTIVITIES
Equipment (33,979)
Accumulated Depreciation 1,000
Net cash provided by Investing Activities (32,979)
FINANCING ACTIVITIES
Capital Stock 777
Paid in capital 1,723,605
Net cash provided by Financing Activities 1,724,382
Net cash increase for period 568,014
Cash at beginning of period 50,344
Cash at end of period 618,358
UNAUDITED
<PAGE>
CYBERTEL COMMUNICATIONS CORPORATION
STATEMENT OF CASH FLOWS
JANUARY THROUGH MAY 1999
Jan - May '99
OPERATING ACTIVITIES
Net Income (1,109,220)
Adjustments to reconcile Net Income
to net cash provided by operations:
Accounts Receivable (674,444)
Subscriptions receivable 34,500
Accounts Receivable (5,000)
Accounts Payable 630,276
Accrued Interest 499
Net cash provided by Operating Activities (1,123,389)
INVESTING ACTIVITIES
Equipment (33,979)
Accumulated Depreciation 1,000
Net cash provided by Investing Activities (32,979)
FINANCING ACTIVITIES
Capital Stock 777
Paid in capital 1,723,605
Net cash provided by Financing Activities 1,724,382
Net cash increase for period 568,014
Cash at beginning of period 50,344
Cash at end of period 618,358
UNAUDITED
<PAGE>
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- ---------------------
During the Company's two most recent calendar years, and to the date
of this Registration Statement, the Company's principal independent accountant
has not resigned, declined to stand for re-election or been dismissed.
Item 15. Financial Statements and Exhibits
- -------------------------------------------
(a)
Malone & Bailey, PLLC
Index to Financial Statements
Independent Auditor's Report
Financial Statements
- --------------------
Audited Financial Statements as of December
31, 1998, and the two years then ended
--------------------------------------
Independent Auditors' Report
Balance Sheet
Income Statements
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
Unaudited Financial Statements as of May
31, 1999, and the five months then ended
----------------------------------------
Balance Sheet
Profit and Loss
Statement of Cash Flows
(b) The following exhibits are filed as a part of this Registration
Statement:
<TABLE>
<CAPTION>
Exhibit
Number Description*
- ------ ------------
<S> <C>
3.1 Articles of Incorporation dated June 13, 1996.
3.2 Bylaws
27 Financial Data Schedule
</TABLE>
* Summaries of all exhibits contained within this
Registration Statement are modified in their
entirety by reference to these Exhibits.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of
1934, the Registrant has caused this Registration Statement to be signed on
its behalf by the undersigned, hereunto duly authorized.
CYBERTEL, COMMUNICATIONS CORP.
Date: 8/13/99 By: /s/ Richard D. Mangiarelli
--------------------------
Richard D. Mangiarelli
CEO, President and Director
Date: 8/13/99 By: /s/ Paul J. Mills
------------------------
Paul J. Mills
Secretary and Director
Date: 8/13/99 By: /s/ John E. Jordan
------------------------
John E. Jordan
Director
ARTICLES OF INCORPORATION
OF
CYBERTEL, COMMUNICATIONS CORP.
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, have this day voluntarily associated ourselves
together for the purpose of forming a Corporation under and pursuant to the
laws of the State of Nevada, and we do hereby certify that:
ARTICLE I - NAME: The exact name of this Corporation is:
Cybertel, Communications Corp.
ARTICLE II - RESIDENT AGENT:
The Resident Agent of the Corporation is Max C. Tanner, Esq., The Law
Offices of Max C. Tanner, 2950 East Flamingo Road, Suite G, Las Vegas, Nevada
89121.
ARTICLE III - DURATION: The Corporation shall have perpetual existence.
ARTICLE IV - PURPOSES: The purpose, object and nature of the business for
which this Corporation is organized are:
(a) To engage in any lawful activity;
(b) To carry on such business as may be necessary, convenient, or
desirable to accomplish the above purposes, and to do all other
things incidental thereto which are not forbidden by law or by
these Articles of Incorporation.
ARTICLE V - POWERS: The powers of the Corporation shall be those powers
granted by 78.060 and 78.070 of the Nevada Revised Statutes under which this
corporation is formed. In addition, the Corporation shall have the following
specific powers:
(a) To elect or appoint officers and agents of the Corporation and to
fix their compensation;
(b) To act as an agent for any individual, association, partnership,
corporation or other legal entity;
(c) To receive, acquire, hold, exercise rights arising out of the
ownership or possession thereof, sell, or otherwise dispose of,
shares or other interests in, or obligations of, individuals,
associations, partnerships, corporations, or governments;
(d) To receive, acquire, hold, pledge, transfer, or otherwise dispose
of shares of the corporation, but such shares may only be
purchased, directly or indirectly, out of earned surplus;
(e) To make gifts or contributions for the public welfare or for
charitable, scientific or educational purposes, and in time of
war, to make donations in aid of war activities.
ARTICLE VI - CAPITAL STOCK:
Section 1. Authorized Shares. The total number of shares which this
Corporation is authorized to issue is 25,000,000 shares of Common Stock
at $.001 par value per share.
(a) The total number of shares of Common Stock which this Corporation
is authorized to issue is 20,000,000 shares at $.001 par value per
share.
(b) The total number of shares of Preferred Stock which this
Corporation is authorized to issue is 5,000,000 shares at $.001
par value per share, which Preferred Stock may contain special
preferences as determined by the Board of Directors of the
Corporation, including, but not limited to, the bearing of
interest and convertibility into shares of Common Stock of the
Corporation.
Section 2. Voting Rights of Shareholders. Each holder of the Common
Stock shall be entitled to one vote for each share of stock standing in
his name on the books of the Corporation.
Section 3. Consideration for Shares. The Common Stock shall be issued
for such consideration, as shall be fixed from time to time by the Board
of Directors. In the absence of fraud, the judgment of the Directors as
to the value of any property for shares shall be conclusive. When
shares are issued upon payment of the consideration fixed by the Board
of Directors, such shares shall be taken to be fully paid stock and
shall be non-assessable. The Articles shall not be amended in this
particular.
Section 4. Pre-emptive Rights. Except as may otherwise be provided by
the Board of Directors, no holder of any shares of the stock of the
Corporation, shall have any preemptive right to purchase, subscribe for,
or otherwise acquire any shares of stock of the Corporation of any class
now or hereafter authorized, or any securities exchangeable for or
convertible into such shares, or any warrants or other instruments
evidencing rights or options to subscribe for, purchase, or otherwise
acquire such shares.
Section 5. Stock Rights and Options. The Corporation shall have the
power to create and issue rights, warrants, or options entitling the
holders thereof to purchase from the corporation any shares of its
capital stock of any class or classes, upon such terms and conditions
and at such times and prices as the Board of Directors may provide,
which terms and conditions shall be incorporated in an instrument or
instruments evidencing such rights. In the absence of fraud, the
judgment of the Directors as to the adequacy of consideration for the
issuance of such rights or options and the sufficiency thereof shall be
conclusive.
ARTICLE VII - ASSESSMENT OF STOCK: The capital stock of this Corporation,
after the amount of the subscription price has been fully paid in, shall not
be assessable for any purpose, and no stock issued as fully paid up shall ever
be assessable or assessed. The holders of such stock shall not be individually
responsible for the debts, contracts, or liabilities of the Corporation and
shall not be liable for assessments to restore impairments in the capital of
the Corporation.
ARTICLE VIII - DIRECTORS: For the management of the business,and for the
conduct of the affairs of the Corporation, and for the future definition,
limitation, and regulation of the powers of the Corporation and its directors
and shareholders, it is further provided:
Section 1. Size of Board. The members of the governing board of the
Corporation shall be styled directors. The number of directors of the
Corporation, their qualifications, terms of office, manner of election,
time and place of meeting, and powers and duties shall be such as are
prescribed by statute and in the by-laws of the Corporation. The name
and post office address of the directors constituting the first board of
directors, which shall be One (1) in number are:
NAME ADDRESS
Max C. Tanner 2950 East Flamingo Road
Suite G
Las Vegas, NV 89121
Section 2. Powers of Board. In furtherance and not in limitation of
the powers conferred by the laws of the State of Nevada, the Board of
Directors is expressly authorized and empowered:
(a) To make, alter, amend, and repeal the By-Laws subject to the power
of the shareholders to alter or repeal the By-Laws made by the
Board of Directors.
(b) Subject to the applicable provisions of the ByLaws then in effect,
to determine, from time to time, whether and to what extent, and
at what times and places, and under what conditions and
regulations, the accounts and books of the Corporation, or any of
them, shall be open to shareholder inspection. No shareholder
shall have any right to inspect any of the accounts, books or
documents of the Corporation, except as permitted by law, unless
and until authorized to do so by resolution of the Board of
Directors or of the Shareholders of the Corporation;
(c) To issue stock of the Corporation for money, property,services
rendered, labor performed, cash advanced, acquisitions for other
corporations or for any other assets of value in accordance with
the action of the board of directors without vote or consent of
the shareholders and the judgment of the board of directors as to
value received and in return therefore shall be conclusive and
said stock, when issued, shall be fully-paid and non-assessable.
(d) To authorize and issue, without shareholder consent, obligations
of the Corporation, secured and unsecured, under such terms and
conditions as the Board, in its sole discretion, may determine,
and to pledge or mortgage, as security therefore, any real or
personal property of the Corporation, including after-acquired
property;
(e) To determine whether any and, if so, what part, of the earned
surplus of the Corporation shall be paid in dividends to the
shareholders, and to direct and determine other use and
disposition of any such earned surplus;
(f) To fix, from time to time, the amount of the profits of the
Corporation to be reserved as working capital or for any other
lawful purpose;
(g) To establish bonus, profit-sharing, stock option, or other types
of incentive compensation plans for the employees, including
officers and directors, of the Corporation, and to fix the amount
of profits to be shared or distributed, and to determine the
persons to participate in any such plans and the amount of their
respective participations.
(h) To designate, by resolution or resolutions passed by a majority of
the whole Board, one or more committees, each consisting of two or
more directors, which, to the extent permitted by law and
authorized by the resolution or the By-Laws, shall have and may
exercise the powers of the Board;
(i) To provide for the reasonable compensation of its own members by
By-Law, and to fix the terms and conditions upon which such
compensation will be paid;
(j) In addition to the powers and authority herein before, or by
statute, expressly conferred upon it, the Board of Directors may
exercise all such powers and do all such acts and things as may be
exercised or done by the corporation, subject, nevertheless, to
the provisions of the laws of the State of Nevada, of these
Articles of Incorporation, and of the By-Laws of the Corporation.
Section 3. Interested Directors. No contract or transaction between
this Corporation and any of its directors, or between this Corporation
and any other corporation, firm, association, or other legal entity
shall be invalidated by reason of the fact that the director of the
Corporation has a direct or indirect interest, pecuniary or otherwise,
in such corporation, firm, association, or legal entity, or because the
interested director was present at the meeting of the Board of Directors
which acted upon or in reference to such contract or transaction, or
because he participated in such action, provided that: (1) the
interest of each such director shall have been disclosed to or known by
the Board and a disinterested majority of the Board shall have
nonetheless ratified and approved such contract or transaction (such
interested director or directors may be counted in determining whether a
quorum is present for the meeting at which such ratification or approval
is given); or (2) the conditions of N.R.S. 78.140 are met.
ARTICLE IX - LIMITATION OF LIABILITY OF OFFICERS OR DIRECTORS: The personal
liability of a director or officer of the corporation to the corporation or
the Shareholders for damages for breach of fiduciary duty as a director or
officer shall be limited to acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law.
ARTICLE X - INDEMNIFICATION: Each director and each officer of the
corporation may be indemnified by the corporation as follows:
(a) The corporation may indemnify any person who was or is a party,
or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the corporation), by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, actually and
reasonably incurred by him in connection with the action, suit or
proceeding, if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests
of the corporation and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suite or proceeding, by
judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, does not of itself create a
presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the
best interests of the corporation, and that, with respect to any
criminal action or proceeding, he had reasonable cause to believe
that his conduct was unlawful.
(b) The corporation may indemnify any person who was or is a party,
or is threatened to be made a party, to any threatened, pending
or completed action or suit by or in the right of the corporation,
to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against expenses including amounts paid in settlement and
attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit,
if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim, issue
or matter as to which such a person has been adjudged by a court
of competent jurisdiction, after exhaustion of all appeals there
from, to be liable to the corporation or for amounts paid in
settlement to the corporation, unless and only to the extent that
the court in which the action or suit was brought or other court
of competent jurisdiction determines upon application that in view
of all the circumstances of the case the person is fairly and
reasonably entitled to indemnity for such expenses as the court
deems proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in
subsections (a) and (b) of this Article, or in defense of any
claim, issue or matter therein, he
must be indemnified by the corporation against expenses, including
attorney's fees, actually and reasonably incurred by him in
connection with the defense.
(d) Any indemnification under subsections (a) and (b) unless ordered
by a court or advanced pursuant to subsection (e), must be made by
the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer,
employee or agent is proper in the circumstances. The
determination must be made:
(i) By the
stockholders;
(ii) By the board
of directors
by majority
vote of a
quorum
consisting of
directors who
were not
parties to
the act, suit
or
proceeding;
(iii) If a majority vote of a quorum consisting of
directors
who were not parties to the act, suit or proceeding
so
orders, by independent legal counsel in a written
opinion; or
(iv) If a quorum
consisting of
directors who
were not
parties to
the act, suit
or proceeding
cannot be
obtained, by
independent
legal counsel
in a written
opinion.
(e) Expenses of officers and directors incurred in defending a civil
or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay
the amount if it is ultimately determined by a court of competent
jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection do not affect any
rights to advancement of expenses to which corporate personnel
other than directors or officers may be entitled under any
contract or otherwise by law.
(f) The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(i) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled
under the certificate or articles of incorporation or any
bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his
office, except that indemnification, unless ordered by a
court pursuant to subsection (b) or for the advancement of
expenses made pursuant to subsection (e) may not be made to
or on behalf of any director or officer if a final
adjudication establishes that his acts or omissions involved
intentional misconduct, fraud or a knowing violation of the
law and was material to the cause of action.
(ii) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE XI - PLACE OF MEETING; CORPORATE BOOKS: Subject to the laws of the
State of Nevada, the shareholders and the Directors shall have power to hold
their meetings, and the Directors shall have power to have an office or
offices and to maintain the books of the Corporation outside the State of
Nevada, at such place or places as may from time to time be designated in the
By-Laws or by appropriate resolution.
ARTICLE XII - AMENDMENT OF ARTICLES: The provisions of these Articles of
Incorporation may be amended, altered or repealed from time to time to the
extent and in the manner prescribed by the laws of the State of Nevada, and
additional provisions authorized by such laws as are then in force may be
added. All rights herein conferred on the directors, officers and
shareholders are granted subject to this reservation.
ARTICLE XIII - INCORPORATOR: The name and address of the sole incorporator
signing these Articles of Incorporation is as follows:
NAME POST OFFICE ADDRESS
1. Max C. Tanner 2950 East Flamingo Road, Suite G
Las Vegas, Nevada 89121
IN WITNESS WHEREOF, the undersigned incorporator has executed these
Articles of Incorporation this 12th day of June, 1996.
/s/ Max C. Tanner
-----------------
Max C. Tanner
STATE OF NEVADA )
)ss:
COUNTY OF CLARK )
On June 12, 1996, personally appeared before me, a Notary Public, Max C.
Tanner, who acknowledged to me that he executed the foregoing Articles of
Incorporation for Cybertel, Communications Corp., a Nevada corporation.
/s/ Trisha Chapman
--------------------
Notary Public
BY-LAWS OF
CYBERTEL, COMMUNICATIONS INC.
ARTICLE I
SHAREHOLDERS
Section 1.01 Annual Meeting. The annual meeting of the shareholders
shall be held at such date and time as shall be designated by the board of
directors and stated in the notice of the meeting or in a duly-executed waiver
of notice thereof. If the corporation shall fail to provide notice of the
annual meeting of the shareholders as set forth above, the annual meeting of
the shareholders of the corporation shall be held during the month of November
or December of each year as determined by the Board of Directors, for the
purpose of electing directors of the corporation to serve during the ensuing
year and for the transaction of such other business as may properly come
before the meeting. If the election of the directors is not held on the day
designated herein for any annual meeting of the shareholders, or at any
adjournment thereof, the president shall cause the election to be held at a
special meeting of the shareholders as soon thereafter as is convenient.
Section 1.02 Special Meetings. Special meetings of the shareholders
may be called by the president or the Board of Directors and shall be called
by the president at the written request of the holders of not less than 51% of
the issued and outstanding shares of capital stock of the corporation.
All business lawfully to be transacted by the shareholders may be
transacted at any special meeting at any adjournment thereof. However, no
business shall be acted upon at a special meeting, except that referred to in
the notice calling the meeting, unless all of the outstanding capital stock of
the corporation is represented either in person or by proxy. Where all of the
capital stock is represented, any lawful business may be transacted and the
meeting shall be valid for all purposes.
Section 1.03 Place of Meetings. Any meeting of the shareholders of the
corporation may be held at its principal office in the State of Nevada or such
other place in or out of the United States as the Board of Directors may
designate. A waiver of notice signed by the shareholders entitled to vote may
designate any place for the holding of such meeting.
Section 1.04 Notice of Meetings.
(a) The secretary shall sign and deliver to all shareholders of
record written or printed notice of any meeting at least ten (10) days,
but not more than sixty (60) days, before the date of such meeting;
which notice shall state the place, date and time of the meeting, the
general nature of the business to be transacted, and, in the case of any
meeting at which directors are to be elected, the names of nominees, if
any, to be presented for election.
(b) In the case of any meeting, any proper business may be
presented for action, except that the following items shall be valid
only if the general nature of the proposal is stated in the notice or
written waiver of notice:
(1)Action with respect to any contract or transaction between
the corporation and one or
more of its directors or another firm, association, or corporation
in which one or more of its directors has a material financial
interest;
(2)Adoption of amendments to the Articles of Incorporation; or
(3) Action with respect to the merger, consolidation,
reorganization, partial or complete liquidation, or dissolution of
the corporation.
(c) The notice shall be personally delivered or mailed by first
class mail to each shareholder of record at the last known address
thereof, as the same appears on the books of the corporation, and the
giving of such notice shall be deemed delivered the date the same is
deposited in the United States mail, postage prepaid. If the address of
any shareholder does not appear upon the books of the corporation, it
will be sufficient to address any notice to such shareholder at the
principal office of the corporation.
(d) The written certificate of the person calling any meeting,
duly sworn, setting forth the substance of the notice, the time and
place the notice was mailed or personally delivered to the several
shareholders, and the addresses to which the notice was mailed shall be
prima facie evidence of the manner and fact of giving such notice.
Section 1.05 Waiver of Notice. If all of the shareholders of the
corporation shall waive notice of a meeting, no notice shall be required, and,
whenever all of the shareholders shall meet in person or by proxy, such
meeting shall be valid for all purposes without call or notice, and at such
meeting any corporate action may be taken.
Section 1.06 Determination of Shareholders of Record.
(a) The Board of Directors may at any time fix a future date as
a record date for the determination of the shareholders entitled to
notice of any meeting or to vote or entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action. The record
date so fixed shall not be more than sixty (60) days prior to the date
of such meeting nor more than sixty (60) days prior to any other action.
When a record date is so fixed, only shareholders of record on that date
are entitled to notice of and to vote at the meeting or to receive the
dividend, distribution or allotment of rights, or to exercise their
rights, as the case may be, notwithstanding any transfer of any shares
on the books of the corporation after the record date.
(b) If no record date is fixed by the Board of Directors, then
(1) the record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; (2) the record date for
determining shareholders entitled to give consent to corporate action in
writing without a meeting, when no prior action by the Board of
Directors is necessary, shall be the day on which written consent is
given; and (3) the record date for determining shareholders for any
other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto, or the
sixtieth (60th) day prior to the date of such other action, whichever is
later.
Section 1.07 Quorum: Adjourned Meetings.
(a) At any meeting of the shareholders, a majority of the issued
and outstanding shares of the corporation represented in person or by
proxy, shall constitute a quorum.
(b) If less than a majority of the issued and outstanding shares
are represented, a majority of shares so represented may adjourn from
time to time at the meeting, until holders of the amount of stock
required to constitute a quorum shall be in attendance. At any such
adjourned meetingat which a quorum shall be present, any business may be
transacted which might have been transacted as originally called. When
a shareholders' meeting is adjourned to another time or place, notice
need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken, unless
the adjournment is for more than ten (10) days in which event notice
thereof shall be given.
Section 1.08 Voting.
(a) Each shareholder of record, such shareholder's duly
authorized proxy or attorney-in-fact shall be entitled to one (1) vote
for each share of stock standing registered in such shareholder's name
on the books of the corporation on the record date.
(b) Except as otherwise provided herein, all votes with respect
to shares standing in the name of an individual on the record date
(included pledged shares) shall be cast only by that individual or such
individual's duly authorized proxy or attorney-in-fact. With respect to
shares held by a representative of the estate of a deceased shareholder,
guardian, conservator, custodian or trustee, votes may be cast by such
holder upon proof of capacity, even though the shares do not stand in
the name of such holder. In the case of shares under the control of a
receiver, the receiver may cast votes carried by such shares even though
the shares do not stand in the name of the receiver provided that the
order of the court of competent jurisdiction which appoints the receiver
contains the authority to cast votes carried by such shares. If shares
stand in the name of a minor, votes may be cast only by the
duly-appointed guardian of the estate of such minor if such guardian has
provided the corporation with written notice and proof of such
appointment.
(c) With respect to shares standing in the name of a corporation
on the record date, votes may be cast by such officer or agents as the
by-laws of such corporation prescribe or, in the absence of an
applicable by-law provision, by such person as may be appointed by
resolution of the Board of Directors of such corporation. In the event
no person is so appointed, such votes of the corporation may be cast by
any person (including the officer making the authorization) authorized
to do so by the Chairman of the Board of Directors, President or any
Vice President of such corporation.
(d) Notwithstanding anything to the contrary herein contained,
no votes may be cast by shares owned by this corporation or its
subsidiaries, if any. If shares are held by this corporation or its
subsidiaries, if any, in a fiduciary capacity, no votes shall be cast
with respect thereto on any matter except to the extent that the
beneficial owner thereof possesses and exercises either a right to vote
or to give the corporation holding the same binding instructions on how
to vote.
(e) With respect to shares standing in the name of two or more
persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, husband and wife as community property, tenants by
the entirety, voting trustees, persons entitled to vote under a
shareholder voting agreement or otherwise and shares held by two or more
persons (including proxy holders) having the same fiduciary relationship
respect in the same shares, votes may be cast in the following manner:
(1)If only one such person votes, the votes of such person
binds all.
(2)If more than one person casts votes, the act of the majority
so voting binds all.
(3)If more than one person casts votes, but the vote is evenly
split on a particular
matter, the votes shall be deemed cast proportionately as split.
(f) Any holder of shares entitled to vote on any matter may cast
a portion of the votes in favor of such matter and refrain from casting
the remaining votes or cast the same against the proposal, except in the
case of elections of directors. If such holder entitled to vote fails
to specify the number of affirmative votes, it will be conclusively
presumed that the holder is casting affirmative votes with respect to
all shares held.
(g) If a quorum is present, the affirmative vote of holders of a
majority of the shares represented at the meeting and entitled to vote
on any matter shall be the act of the shareholders, unless a vote of
greater number or voting by classes is required by the laws of the State
of Nevada, the Articles of Incorporation and these By-Laws.
Section 1.09 Proxies. At any meeting of shareholders, any holder of
shares entitled to vote may authorize another person or persons to vote by
proxy with respect to the shares held by an instrument in writing and
subscribed to by the holder of such shares entitled to vote. No proxy shall
be valid after the expiration of six (6) months from the date of execution
thereof, unless coupled with an interest or unless otherwise specified in the
proxy. In no event shall the term of a proxy exceed seven (7) years from the
date of its execution. Every proxy shall continue in full force and effect
until its expiration or revocation. Revocation may be effected by filing an
instrument revoking the same or a duly-executed proxy bearing a later date
with the secretary of the corporation.
Section 1.10 Order of Business. At the annual shareholders meeting,
the regular order of business shall be as follows:
(1)Determination of shareholders present and existence of
quorum;
(2)Reading and approval of the minutes of the previous meeting
or meetings;
(3)Reports of the Board of Directors, the president, treasurer
and secretary of the
corporation, in the order named;
(4)Reports of committee;
(5)Election of directors;
(6)Unfinished business;
(7) New business;
(8)Adjournment.
Section 1.11 Absentees Consent to Meetings. Transactions of any
meeting of the shareholders are as valid as though had at a meeting duly-held
after regular call and notice if a quorum is present, either in person or by
proxy, and if, either before or after the meeting, each of the persons
entitled to vote, not present in person or by proxy (and those who, although
present, either object at the beginning of the meeting to the transaction of
any business because the meeting has not been lawfully called or convened or
expressly object at the meeting to the consideration of matters not included
in the notice which are legally required to be included therein), signs a
written waiver of notice and/or consent to the holding of the meeting or an
approval of the minutes thereof. All such waivers, consents, and approvals
shall be filed with the corporate records and made a part of the minutes of
the meeting. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person objects at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
if such objection is expressly made at the beginning. Neither the business to
be transacted at nor the purpose of any regular or special meeting of
shareholders need be specified in any written waiver of notice, except as
otherwise provided in Section 1.04(b) of these By-Laws.
Section 1.12 Action Without Meeting. Any action which may be taken by
the vote of the shareholders at a meeting may be taken without a meeting if
consented to by the holders of a majority of the shares entitled to vote or
such greater proportion as may be required by the laws of the State of Nevada,
the Articles of Incorporation, or these ByLaws. Whenever action is taken by
written consent, a meeting of shareholders needs not be called or noticed.
ARTICLE II
DIRECTORS
Section 2.01 Number, Tenure and Qualification. Except as otherwise
provided herein, the Board of Directors of the corporation shall consist of at
least one (1) but no more than nine (9) persons, who shall be elected at the
annual meeting of the shareholders of the corporation and who shall hold
office for one (1) year or until their successors are elected and qualify.
Section 2.02 Resignation. Any director may resign effective upon
giving written notice to the chairman of the Board of Directors, the
president, or the secretary of the corporation, unless the notice specifies a
later time for effectiveness of such resignation. If the Board of Directors
accepts the resignation of a director tendered to take effect at a future
date, the Board or the shareholders may elect a successor to take office when
the resignation becomes effective.
Section 2.03 Reduction in Number. No reduction of the number of
directors shall have the effect of removing any director prior to the
expiration of his term of office.
Section 2.04 Removal.
(a) The Board of Directors or the shareholders of the
corporation, by a majority vote, may declare vacant the office of a
director who has been declared incompetent by an order of a court of
competent jurisdiction or convicted of a felony.
Section 2.05 Vacancies.
(a) A vacancy in the Board of Directors because of death,
resignation, removal, change in number of directors, or otherwise may be
filled by the shareholders at any regular or special meeting or any
adjourned meeting thereof or the remaining director(s) by the
affirmative vote of a majority thereof. A Board of Directors consisting
of less than the maximum number authorized in Section 2.01 of ARTICLE II
constitutes vacancies on the Board of Directors for purposes of this
paragraph and may be filled as set forth above including by the election
of a majority of the remaining directors. Each successor so elected
shall hold office until the next annual meeting of shareholders or until
a successor shall have been duly-elected and qualified.
(b) If, after the filling of any vacancy by the directors, the
directors then in office who have been elected by the shareholders shall
constitute less than a majority of the directors then in office, any
holder or holders of an aggregate of five percent (5%) or more of the
total number of shares entitled to vote may call a special meeting of
shareholders to be held to elect the entire Board of Directors. The
term of office of any director shall terminate upon such election of a
successor.
Section 2.06 Regular Meetings. Immediately following the adjournment
of, and at the same place as, the annual meeting of the shareholders, the
Board of Directors, including directors newly elected, shall hold its annual
meeting without notice, other than this provision, to elect officers of the
corporation and to transact such further business as may be necessary or
appropriate. The Board of Directors may provide by resolution the place, date
and hour for holding additional regular meetings.
Section 2.07 Special Meetings. Special meetings of the Board of
Directors may be called by the chairman and shall be called by the chairman
upon the request of any two (2) directors or the president of the corporation.
Section 2.08 Place of Meetings. Any meeting of the directors of the
corporation may be held at its principal office in the State of Nevada, or at
such other place in or out of the United States as the Board of Directors may
designate. A waiver or notice signed by the directors may designate any place
for the holding of such meeting.
Section 2.09 Notice of Meetings. Except as otherwise provided in
Section 2.06, the chairman shall deliver to all directors written or printed
notice of any special meeting, at least three (3) days before the date of such
meeting, by delivery of such notice personally or mailing such notice first
class mail, or by telegram. If mailed, the notice shall be deemed delivered
two (2) business days following the date the same is deposited in the United
States mail, postage prepaid. Any director may waive notice of any meeting,
and the attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, unless such attendance is for the express purpose of
objecting to the transaction of business threat because the meeting is not
properly called or convened.
Section 2.10 Quorum: Adjourned Meetings.
(a) A majority of the Board of Directors in office shall
constitute a quorum.
(b) At any meeting of the Board of Directors where a quorum is
not present, a majority of those present may adjourn, from time to time,
until a quorum is present, and no notice of such adjournment shall be
required. At any adjourned meeting where a quorum is present, any
business may be transacted which could have been transacted at the
meeting originally called.
Section 2.11 Action Without Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken without a meeting if a written consent thereto is signed by all
of the members of the Board of Directors or of such committee. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board of Directors or committee. Such action by written consent shall have
the same force and effect as the unanimous vote of the Board of Directors or
committee.
Section 2.12 Telephonic Meetings. Meetings of the Board of Directors
may be held through the use of a conference telephone or similar
communications equipment so long as all members participating in such meeting
can hear one another at the time of such meeting. Participation in such a
meeting constitutes presence in person at such meeting.
Section 2.13 Board Decisions. The affirmative vote of a majority of
the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors.
Section 2.14 Powers and Duties.
(a) Except as otherwise provided in the Articles of
Incorporation or the laws of the State of Nevada, the Board of Directors
is invested with the complete and unrestrained authority to manage the
affairs of the corporation, and is authorized to exercise for such
purpose as the general agent of the corporation, its entire corporate
authority in such manner as it sees fit. The Board of Directors may
delegate any of its authority to manage, control or conduct the current
business of the corporation to any standing or special committee or to
any officer or agent and to appoint any persons to be agents of the
corporation with such powers, including the power to sub-delegate, and
upon such terms as may be deemed fit.
(b) The Board of Directors shall present to the shareholders at
annual meetings of the shareholders, and when called for by a majority
vote of the shareholders at a special meeting of the shareholders, a
full and clear statement of the condition of the corporation, and shall,
at request, furnish each of the shareholders with a true copy thereof.
(c) The Board of Directors, in its discretion, may submit any
contract or act for approval or ratification at any annual meeting of
the shareholders or any special meeting properly called for the purpose
of considering any such contract or act, provided a quorum is present.
The contract or act shall be valid and binding upon the corporation and
upon all the shareholders thereof, if approved and ratified by the
affirmative vote of a majority of the shareholders at such meeting.
(d) In furtherance and not in limitation of the powers conferred
by the laws of the State of Nevada, the Board of Directors is expressly
authorized and empowered to issue stock of the Corporation for money,
property, services rendered, labor performed, cash advanced,
acquisitions for other corporations or for any other assets of value in
accordance with the action of the Board of Directors without vote or
consent of the shareholders and the judgment of the Board of Directors
as to the value received and in return therefore shall be conclusive and
said stock, when issued, shall be fully-paid and non-assessable.
Section 2.15 Compensation. The directors shall be allowed and paid all
necessary expenses incurred in attending any meetings of the Board, but shall
not receive any compensation for their services as directors until such time
as the corporation is able to declare and pay dividends on its capital stock.
Section 2.16 Board Officers.
(a) At its annual meeting, the Board of Directors shall elect,
from among its members, a chairman to preside at the meetings of the
Board of Directors. The Board of Directors may also elect such other
board officers and for such term as it may, from time to time, determine
advisable.
(b) Any vacancy in any board office because of death,
resignation, removal or otherwise may be filled by the Board of
Directors for the unexpired portion of the term of such office.
Section 2.17 Order of Business. The order of business at any meeting
of the Board of Directors shall be as follows:
(1)Determination of members present and existence of quorum;
(2)Reading and approval of the minutes of any previous meeting
or meetings;
(3)Reports of officers and committeemen;
(4)Election of officers;
(5)Unfinished business;
(6) New business;
(7)Adjournment.
ARTICLE III
OFFICERS
Section 3.01 Election. The Board of Directors, at its first meeting
following the annual meeting of shareholders, shall elect a president, a
secretary and a treasurer to hold office for one (1) year next coming and
until their successors are elected and qualify. Any person may hold two or
more offices. The Board of Directors may, from time to time, by resolution,
appoint one or more vice presidents, assistant secretaries, assistant
treasurers and transfer agents of the corporation as it may deem advisable;
prescribe their duties; and fix their compensation.
Section 3.02 Removal; Resignation. Any officer or agent elected or
appointed by the Board of Directors may be removed by it whenever, in its
judgment, the best interest of the corporation would be served thereby. Any
officer may resign at any time upon written notice to the corporation without
prejudice to the rights, if any, of the corporation under any contract to
which the resigning officer is a party.
Section 3.03 Vacancies. Any vacancy in any office because
of death, resignation, removal, or otherwise may be filled by the
Board of Directors for the unexpired portion of the term of such
office.
Section 3.04 President. The president shall be the general manager and
executive officer of the corporation, subject to the supervision and control
of the Board of Directors, and shall direct the corporate affairs, with full
power to execute all resolutions and orders of the Board of Directors not
especially entrusted to some other officer of the corporation. The president
shall preside at all meetings of the shareholders and shall sign the
certificates of stock issued by the corporation, and shall perform such other
duties as shall be prescribed by the Board of Directors.
Unless otherwise ordered by the Board of Directors, the president shall
have full power and authority on behalf of the corporation to attend and to
act and to vote at any meetings of the shareholders of any corporation in
which the corporation may hold stock and, at any such meetings, shall possess
and may exercise any and all rights and powers incident to the ownership of
such stock. The Board of Directors, by resolution from time to time, may
confer like powers on any person or persons in place of the president to
represent the corporation for these purposes.
Section 3.05 Vice President. The Board of Directors may elect one or
more vice presidents who shall be vested with all the powers and perform all
the duties of the president whenever the president is absent or unable to act,
including the signing of the certificates of stock issued by the corporation,
and the vice president shall perform such other duties as shall be prescribed
by the Board of Directors.
Section 3.06 Secretary. The secretary shall keep the minutes of all
meetings of the shareholders and the Board of Directors in books provided for
that purpose. The secretary shall attend to the giving and service of all
notices of the corporation, may sign with the president in the name of the
corporation all contracts authorized by the Board of Directors or appropriate
committee, shall have the custody of the corporate seal, shall affix the
corporate seal to all certificates of stock duly issued by the corporation,
shall have charge of stock certificate books, transfer books and stock
ledgers, and such other books and papers as the Board of Directors or
appropriate committee may direct, and shall, in general perform all duties
incident to the office of the secretary. All corporate books kept by the
secretary shall be open for examination by any director at any reasonable
time.
Section 3.07 Assistant Secretary. The Board of Directors may appoint
an assistant secretary who shall have such powers and perform such duties as
may be prescribed for him by the secretary of the corporation or by the Board
of Directors.
Section 3.08 Treasurer. The treasurer shall be the chief financial
officer of the corporation, subject to the supervision and control of the
Board of Directors, and shall have custody of all the funds and securities of
the corporation. When necessary or proper, the treasurer shall endorse on
behalf of the corporation for collection checks, notes and other obligations,
and shall deposit all monies to the credit of the corporation in such bank or
banks or other depository as the Board of Directors may designate, and shall
sign all receipts and vouchers for payments made by the corporation. Unless
otherwise specified by the Board of Directors, the treasurer shall sign with
the president all bills of exchange and promissory notes of the corporation,
shall also have the care and custody of the stocks, bonds, certificates,
vouchers, evidence of debts, securities and such other property belonging to
the corporation as the Board of Directors shall designate, and shall sign all
papers required by law, by these By-laws or by the Board of Directors to be
signed by the treasurer. The treasurer shall enter regularly in the books of
the corporation, to be kept for that purpose, full and accurate accounts of
all monies received and paid on account of the corporation and whenever
required by the Board of Directors, the treasurer shall render a statement of
any or all accounts. The treasurer shall at all reasonable times exhibit the
books of account to any directors of the corporation and shall perform all
acts incident to the position of treasurer subject to the control of the Board
of Directors. The treasurer shall, if required by the Board of Directors,give
a bond to the corporation in such sum and with such security as shall be
approved by the Board of Directors for the faithful performance of all the
duties of the treasurer and for restoration to the corporation in the event of
the treasurer's death, resignation, retirement, or removal from office, of all
books, records, papers, vouchers, money and other property belonging to the
corporation. The expense of such bond shall be borne by the corporation.
Section 3.09 Assistant Treasurer. The Board of Directors may appoint
an assistant treasurer who shall have such powers and perform such duties as
may be prescribed by the treasurer of the corporation or by the Board of
Directors, and the Board of Directors may require the assistant treasurer to
give a bond to the corporation in such sum and with such security as it may
approve,for the faithful performance of the duties of assistant treasurer, and
for the restoration to the corporation, in the event of the assistant
treasurer's death, resignation, retirement or removal from office, of all
books, records, papers, vouchers, money and other property belonging to the
corporation. The expense of such bond shall be borne by the corporation.
ARTICLE IV
CAPITAL STOCK
Section 4.01 Issuance. Shares of capital stock of the corporation
shall be issued in such manner and at such times and upon such conditions as
shall be prescribed by the Board of Directors.
Section 4.02 Certificates. Ownership in the corporation shall be
evidenced by certificates for shares of stock in such form as shall be
prescribed by the Board of Directors, shall be under the seal of the
corporation and shall be signed by the president or the vice president and
also by the secretary or an assistant secretary. Each certificate shall
contain the name of the record holder, the number, designation, if any, class
or series of shares represented, a statement of summary of any applicable
rights, preferences, privileges, or restrictions thereon, and a statement that
the shares are assessable, if applicable. All certificates shall be
consecutively numbered. The name and address of the shareholder, the number
of shares, and the date of issue shall be entered on the stock transfer books
of the corporation.
Section 4.03 Surrender: Lost or Destroyed Certificates. All
certificates surrendered to the corporation, except those representing shares
of treasury stock, shall be canceled and no new certificates shall be issued
until the former certificate for a like number of shares shall have been
canceled, except that in case of a lost, stolen, destroyed or mutilated
certificate, a new one may be issued therefor. However, any shareholder
applying for the issuance of a stock certificate in lieu of one alleged to
have been lost, stolen, destroyed or mutilated shall, prior to the issuance of
a replacement, provide the corporation with his, her or its affidavit of the
facts surrounding the loss, theft, destruction or mutilation and an indemnity
bond in an amount and upon such terms as the treasurer, or the Board of
Directors, shall require. In no case shall the bond be in amount less than
twice the current market value of the stock and it shall indemnify the
corporation against any loss, damage, cost or inconvenience arising as a
consequence of the issuance of a replacement certificate.
Section 4.04 Replacement Certificate. When the Articles of
Incorporation are amended in any way affecting the statements contained in the
certificates for outstanding shares of capital stock of the corporation or it
becomes desirable for any reason, including, without limitation, the merger or
consolidation of the corporation with another corporation or the
reorganization of the corporation, to cancel any outstanding certificate for
shares and issue a new certificate therefor conforming to the rights of the
holder, the Board of Directors may order any holders of outstanding
certificates for shares to surrender and exchange the same for new
certificates within a reasonable time to be fixed by the Board of Directors.
The order may provide that a holder of any certificate(s) ordered to be
surrendered shall not be entitled to vote, receive dividends or exercise any
other rights of shareholders until the holder has complied with the order
provided that such order operates to suspend such rights only after notice and
until compliance.
Section 4.05 Transfer of Shares. No transfer of stock shall be valid
as against the corporation except on surrender and cancellation by the
certificate therefor, accompanied by an assignment or transfer by the
registered owner made either in person or under assignment. Whenever any
transfer shall be expressly made for collateral security and not absolutely,
the collateral nature of the transfer shall be reflected in the entry of
transfer on the books of the corporation.
Section 4.06 Transfer Agent. The Board of Directors may appoint one or
more transfer agents and registrars of transfer and may require all
certificates for shares of stock to bear the signature of such transfer agent
and such registrar of transfer.
Section 4.07 Stock Transfer Books. The stock transfer books shall be
closed for a period of ten (10) days prior to all meetings of the shareholders
and shall be closed for the payment of dividends as provided in Article V
hereof and during such periods as, from time to time, may be fixed by the
Board of Directors, and, during such periods, no stock shall be transferable.
Section 4.08 Miscellaneous. The Board of Directors shall have the
power and authority to make such rules and regulations not inconsistent
herewith as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of the capital stock of the
corporation.
ARTICLE V
DIVIDENDS
Section 5.01Dividends may be declared, subject to the provisions of the
laws of the State of Nevada
and the Articles of Incorporation, by the Board of Directors at any regular or
special meeting and may be paid in cash, property, shares of corporate stock,
or any other medium. The Board of Directors may fix in advance a record date,
as provided in Section 1.06 of these By-laws, prior to the dividend payment
for the purpose of determining shareholders entitled to receive payment of any
dividend. The Board of Directors may close the stock transfer books for such
purpose for a period of not more than ten (10) days prior to the payment date
of such dividend.
ARTICLE VI
OFFICES; RECORDS; REPORTS; SEAL AND FINANCIAL MATTERS
Section 6.01 Principal Office. The principal office of the corporation
in the State of Nevada shall be the Law Offices of Max C. Tanner, 2950 East
Flamingo Road, Suite G, Las Vegas, Nevada 89121, and the corporation may have
an office in any other state or territory as the Board of Directors may
designate.
Section 6.02 Records. The stock transfer books and a certified copy of
the By-laws, Articles of Incorporation, any amendments thereto, and the
minutes of the proceedings of the shareholders, the Board of Directors, and
committees of the Board of Directors shall be kept at the principal office of
the corporation for the inspection of all who have the right to see the same
and for the transfer of stock. All other books of the corporation shall be
kept at such places as may be prescribed by the Board of Directors.
Section 6.03 Financial Report on Request. Any shareholder or
shareholders holding at least five percent (5%) of the outstanding shares of
any class of stock may make a written request for an income statement of the
corporation for the three (3) month, six (6) month, or nine (9) month period
of the current fiscal year ended more than thirty (30) days prior to the date
of the request and a balance sheet of the corporation as of the end of such
period. In addition, if no annual report for the last fiscal year has been
sent to shareholders, such shareholder or shareholders may make a request for
a balance sheet as of the end of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year. The
statement shall be delivered or mailed to the person making the request within
thirty (30) days thereafter. A copy of the statements shall be kept on file
in the principal office of the corporation for twelve (12) months, and such
copies shall be exhibited at all reasonable times to any shareholder demanding
an examination of them or a copy shall be mailed to each shareholder. Upon
request by any shareholder, there shall be mailed to the shareholder a copy of
the last annual, semiannual or quarterly income statement which it has
prepared and a balance sheet as of the end of the period. The financial
statements referred to in this Section 6.03 shall be accompanied by the report
thereon, if any, of any independent accountants engaged by the corporation or
the certificate of an authorized officer of the corporation that such
financial statements were prepared without audit from the books and records of
the corporation.
Section 6.04 Right of Inspection.
(a) The accounting books and records and minutes of proceedings
of the shareholders and the Board of Directors and committees of the
Board of Directors shall be open to inspection upon the written demand
of any shareholder or holder of a voting trust certificate at any
reasonable time during usual business hours for a purpose reasonably
related to such holder's interest as a shareholder or as the holder of
such voting trust certificate. This right of inspection shall extend to
the records of the subsidiaries, if any, of the corporation. Such
inspection may be made in person or by agent or attorney, and the right
of inspection includes the right to copy and make extracts.
(b) Every director shall have the absolute right at any
reasonable time to inspect and copy all books, records and documents of
every kind and to inspect the physical properties of the corporation
and/or its subsidiary corporations. Such inspection may be made in
person or by agent or attorney, and the right of inspection includes the
right to copy and make extracts.
Section 6.05 Corporate Seal. The Board of Directors may, by
resolution, authorize a seal, and the seal may be used by causing it, or a
facsimile, to be impressed or affixed or reproduced or otherwise. Except when
otherwise specifically provided herein, any officer of the corporation shall
have the authority to affix the seal to any document requiring it.
Section 6.06 Fiscal Year. The fiscal year-end of the corporation shall
be the calendar year or such other term as may be fixed by resolution of the
Board of Directors.
Section 6.07 Reserves. The Board of Directors may create, by
resolution, out of the earned surplus of the corporation such reserves as the
directors may, from time to time, in their discretion, think proper to provide
for contingencies, or to equalize dividends or to repair or maintain any
property of the corporation, or for such other purpose as the Board of
Directors may deem beneficial to the corporation, and the directors may modify
or abolish any such reserves in the manner in which they were created.
ARTICLE VII
INDEMNIFICATION
Section 7.01 Indemnification. The corporation shall, unless prohibited
by Nevada Law, indemnify any person (an "Indemnitee") who is or was involved
in any manner (including, without limitation, as a party or a witness) or is
threatened to be so involved in any threatened, pending or completed action
suit or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, including without limitation, any action, suit or proceeding
brought by or in the right of the corporation to procure a judgment in its
favor (collectively, a "Proceeding") by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other entity or enterprise, against all Expenses and Liabilities actually
and reasonably incurred by him in connection with such Proceeding. The right
to indemnification conferred in this Article shall be presumed to have been
relied upon by the directors, officers, employees and agents of the
corporation and shall be enforceable as a contract right and inure to the
benefit of heirs, executors and administrators of such individuals.
Section 7.02 Indemnification Contracts. The Board of Directors is
authorized on behalf of the corporation, to enter into, deliver and perform
agreements or other arrangements to provide any Indemnitee with specific
rights of indemnification in addition to the rights provided hereunder to the
fullest extent permitted by Nevada Law. Such agreements or arrangements may
provide (i) that the Expenses of officers and directors incurred in defending
a civil or criminal action, suit or proceeding, must be paid by the
corporation as they are incurred and in advance of the final disposition of
any such action, suit or proceeding provided that, if required by Nevada Law
at the time of such advance, the officer or director provides an undertaking
to repay such amounts if it is ultimately determined by a court of competent
jurisdiction that such individual is not entitled to be indemnified against
such expenses, (iii) that the Indemnitee shall be presumed to be entitled to
indemnification under this Article or such agreement or arrangement and the
corporation shall have the burden of proof to overcome that presumption, (iii)
for procedures to be followed by the corporation and the Indemnitee in making
any determination of entitlement to indemnification or for appeals therefrom
and (iv) for insurance or such other Financial Arrangements described in
Paragraph 7.02 of this Article, all as may be deemed appropriate by the Board
of Directors at the time of execution of such agreement or arrangement.
Section 7.03 Insurance and Financial Arrangements. The corporation
may, unless prohibited by Nevada Law, purchase and maintain insurance or make
other financial arrangements ("Financial Arrangements") on behalf of any
Indemnitee for any liability asserted against him and liability and expenses
incurred by him in his capacity as a director, officer, employee or agent, or
arising out of his status as such, whether or not the corporation has the
authority to indemnify him against such liability and expenses. Such other
Financial Arrangements may include (i) the creation of a trust fund, (ii) the
establishment of a program of self-insurance, (iii) the securing of the
corporation's obligation of indemnification by granting a security interest or
other lien on any assets of the corporation, or (iv) the establishment of a
letter of credit, guaranty or surety.
Section 7.04 Definitions. For purposes of this Article:
Expenses. The word "Expenses" shall be broadly construed and,
without limitation, means (i) all direct and indirect costs incurred,
paid or accrued, (ii) all attorneys' fees, retainers, court costs,
transcripts, fees of experts, witness fees, travel expenses, food and
lodging expenses while traveling, duplicating costs, printing and
binding costs, telephone charges, postage, delivery service, freight or
other transportation fees and expenses, (iii) all other disbursements
and out-of-pocket expenses, (iv) amounts paid in settlement, to the
extent permitted by Nevada Law, and (v) reasonable compensation for time
spent by the Indemnitee for which he is otherwise not compensated by the
corporation or any third party, actually and reasonably incurred in
connection with either the appearance at or investigation, defense,
settlement or appeal of a Proceeding or establishing or enforcing a
right to indemnification under any agreement or arrangement, this
Article, the Nevada Law or otherwise; provided, however, that "Expenses"
shall not include any judgments or fines or excise taxes or penalties
imposed under the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") or other excise taxes or penalties.
Liabilities. "Liabilities" means liabilities of any
type whatsoever, including, but not limited to, judgments or
fines, ERISA or other excise taxes and penalties, and
amounts paid in settlement.
Nevada Law. "Nevada Law" means Chapter 78 of the Nevada Revised
Statutes as amended and in effect from time to time or any successor or
other statutes of Nevada having similar import and effect.
This Article. "This Article" means Paragraphs 7.01 through 7.04
of these bylaws or any portion of them.
Power of Stockholders. Paragraphs 7.01 through 7.04, including
this Paragraph, of these Bylaws may be amended by the stockholders only
by vote of the holders of sixty-six and two-thirds percent (66 2/3%) of
the entire number of shares of each class, voting separately, of the
outstanding capital stock of the corporation (even though the right of
any class to vote is otherwise restricted or denied); provided, however,
no amendment or repeal of this Article shall adversely affect any right
of any Indemnitee existing at the time such amendment or repeal becomes
effective.
Power of Directors. Paragraphs 7.01 through 7.04 and this
Paragraph of these Bylaws may be amended or repealed by the Board of
Directors only by vote of eighty percent (80%) of the total number of
Directors and the holders of sixty-six and two-thirds percent (66 2/3)
of the entire number of shares of each class, voting separately, of the
outstanding capital stock of the corporation (even though the right of
any class to vote is otherwise restricted or denied); provided, however,
no amendment or repeal of this Article shall adversely affect any right
of any Indemnitee existing at the time such amendment or repeal becomes
effective.
ARTICLE VIII
BY-LAWS
Section 8.01 Amendment. Amendments and changes of these By-Laws may be
made at any regular or special meeting of the Board of Directors by a vote of
not less than all of the entire Board, or may be made by a vote of, or a
consent in writing signed by the holders of a majority of the issued and
outstanding capital stock.
Section 8.02 Additional By-Laws. Additional by-laws not inconsistent
herewith may be adopted by the Board of Directors at any meeting of the Board
of Directors at which a quorum is present by an affirmative vote of a majority
of the directors present or by the unanimous consent of the Board of Directors
in accordance with Section 2.11 of these By-laws.
CERTIFICATION
I, the undersigned, being the duly elected Presient of the Corporation,
do hereby certify that the foregoing By-laws were adopted by the Board of
Directors on the 13th day of June, 1996.
/s/ Richard Mangiarelli
-----------------------
Richard Mangiarelli, President
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