UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
WIRELESS DATA SOLUTIONS, INC.
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(Name of Small Business Issuer in its charter)
Utah 93-0734888
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization.)
1016 Shores Acres Drive, Leesburg, Florida 34784
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(Address of principal executive offices) (Zip code)
Issuer's Telephone Number: (352) 323-1295
Securities to be Registered Pursuant to Section 12(b) of the Act: None
Securities to be Registered Pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
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(Title of Class)
FORWARD-LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, THIS FORM 10-SB CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS UNDER THE CAPTIONS "DESCRIPTION OF BUSINESS
OPERATIONS," AND "MANAGEMENT'S DISCUSSION AND ANALYSIS," INCLUDING STATEMENTS
CONCERNING (I) THE COMPANY'S STRATEGY, (II) THE COMPANY'S EXPANSION PLANS,
(III) THE MARKET FOR THE COMPANY'S PRODUCTS, (IV) THE EFFECTS OF GOVERNMENT
REGULATION OF THE COMPANY'S PRODUCTS AND (V) THE EFFECTS ON THE COMPANY OF
CERTAIN LEGAL PROCEEDINGS. BECAUSE SUCH STATEMENTS INVOLVE RISKS OF
UNCERTAINTIES, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR
IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED TO CONSIDER
SPECIFIC RISK FACTORS DESCRIBED HEREIN (SEE ITEM 6 "MANAGEMENT'S PLAN OF
OPERATIONS," UNDER THE SUBHEADING "FACTORS THAT COULD AFFECT THE COMPANY'S
ABILITY TO ACHIEVE ITS OBJECTIVES"). THE COMPANY UNDERTAKES NO OBLIGATION TO
PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR
CIRCUMSTANCES THAT MAY ARISE AFTER THE DATE HEREOF.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
A. Business Development and Organizational History
------------------------------------------------
Wireless Data Solutions, Inc. (the "Company") was organized under the
laws of the State of Oregon on March 7, 1984, under the name "Gold Genie
Worldwide, Inc." The Company was incorporated for the primary purposes of
manufacturing, assembling, selling and distributing mining equipment for
various uses, including the recovery of precious metals and gems.
The Company was initially authorized to issue 50,000,000 shares of common
stock with a par value of $.001 per share (the "Common Stock"), and 3,000,000
shares of preferred stock with a par value of $.002 per share. Upon the
Company's incorporation, the Board of Directors of the Company authorized the
issuance of 10,805,000 shares of the Common Stock to directors, executive
officers and persons who may be deemed to have been promoters or founders of
the Company for the total consideration of $129,893. Of such initially
authorized shares, 8,000,000 were issued to Heartland Diversified Industries,
Inc. ("Heartland"), from which the Company acquired all of the assets and
liabilities then held by Heartland, and 2,000,000 shares were issued to the
partners of Gold Genie Worldwide, the predecessor partnership to the Company.
On July 24, 1985, the Company publicly offered 4,000,000 units, at a
offering price of $0.125 per unit, with each unit consisting of one share of
the Common Stock and two warrants. The two warrants were designated as
Warrant A and Warrant B. Warrant A could be exercised to purchase one share
of Common Stock at a purchase price of $0.25, and Warrant B could be exercised
to purchase one share of Common Stock at a purchase price of $0.50. Total
proceeds from the public offering, net of issuance costs, including
underwriting fees of $75,908, amounted to $424,092.
On December 17, 1987, the Company entered into a Settlement Agreement and
Release (the "Settlement Agreement") with certain of the Company's
shareholders and directors (the "Settlement Shareholders"). The Settlement
Agreement became effective September 30, 1987, pursuant to which the Company
released its right to manufacture, distribute and sell the Gold Genie mining
machine, and conveyed to the Settlement Shareholders substantially all of the
Company's assets as in existence on September 30, 1987. In exchange for such
release, the Settlement Shareholders agreed to assume substantially all of the
Company's liabilities as in existence on September 30, 1987, and agreed to pay
to the Company a royalty of $10 per Gold Genie mining machine sold by the
Settlement Shareholders over the subsequent five-year period, which sales were
in no event to be less than 100 Gold Genie mining machines, and to return and
transfer to the Company 2,000,000 shares of the Common Stock held by the
Settlement Shareholders.
At the Company's annual shareholders meeting held June 4, 1988, the
shareholders of the Company approved a change of the Company's name to
"Products, Services & Technology Corporation." This name change was effected
on June 13, 1988, by the Company filing with the Secretary of State of the
State of Oregon a Certificate of Amendment to its Articles of Incorporation.
At the Company's annual shareholders meeting held March 31, 1989, the
shareholders of the Company approved a further amendment to the Company's
Articles of Incorporation to decrease the authorized capital of the Company to
25,000,000 shares of the Common Stock, retaining the par value at $.001 per
share, with appropriate adjustments to the stated capital and capital surplus
accounts of the Company. The shareholders voted to retain as authorized,
3,000,000 shares of preferred stock with a par value of $.002 per share.
On May 29, 1997, the Company's shareholders approved a change in the
Company's place of domestication to the State of Utah, which was effected on
June 2, 1997, pursuant to the Company filing Articles of Domestication with
the Utah Department of Commerce, Division of Corporations and Commercial Code
(the "Division"). Pursuant to requisite shareholder approval and in order to
better conform the Company's name to its primary business, on June 13, 1997,
the Company changed its name to "Wireless Data Solutions, Inc." by filing with
the Division, Articles of Amendment to its Articles of Incorporation.
B. Subsidiaries
PST Financial Corporation. On October 3, 1985, the Company organized
Gold Genie Party Programs, Inc., a Montana corporation, as a wholly-owned
subsidiary of the Company. By Articles of Amendment to the Articles of
Incorporation, duly approved by the sole shareholder, and filed with the
Montana Secretary of State, the name of the corporation was changed to PST
Financial Corporation ("PST Financial"). PST Financial has had minimal
operations since its inception. At present, PST Financial is, in effect, a
"shell" company with no assets, liabilities, nor sales.
Distributed Networks, Inc. On April 19, 1988, the Company entered into
an agreement to acquire all of the outstanding shares of Distributed Networks,
Inc., a California corporation ("Dinet"), in exchange for 8,500,000 shares of
the Company's Common Stock. As part of the acquisition, the Company provided
$200,000 to Dinet for working capital, and in September, 1988, new management
was hired at Dinet. At the time it was acquired, Dinet was primarily engaged
in the development and marketing of technology relating to the digital
recording systems industry. The majority of Dinet's revenues were derived
from sales to Dictaphone Corp., based on contracts which were set to expire in
1989. Dinet also had developed a basic design for a product known as a Mobile
Data Terminal ("MDT"), which was named "Data Mate." Dinet has focused its
continuing operations on the growing MDT market, marketing electronic
communications equipment primarily to vehicle fleet owners.
C. Former Subsidiaries
---------------------
Bernard, Lee & Edwards Securities, Inc. On January 3, 1989, Pro America
Securities, Inc. ("Pro America"), a Delaware corporation, was organized as a
wholly-owned subsidiary of the Company. Pro America was formed to engage in
the business of a full-service securities firm. The Company provided initial
funding to Pro America of $25,000 on March 10, 1989, in exchange for 25 shares
of Pro America's common stock. At a special meeting of the shareholders of Pro
America held on November 6, 1990, an amendment to its Certificate of
Incorporation was unanimously approved to change the name of the corporation
to Bernard, Lee & Edward Securities, Inc. ("BLE").
On June 17, 1991, the National Association of Securities Dealers ("NASD")
issued a license to BLE, and BLE began business operations in September, 1991
as a broker-dealer member of the NASD. On March 27, 1996, the Company entered
into a Buy/Sell Agreement with Heartland (the "Heartland Agreement"), whereby
the Company agreed to sell to Heartland all of the common stock of BLE owned
by the Company. In exchange for such common stock, Heartland agreed to pay
the Company $164,000. At the time of such transaction, and as referenced
above, Heartland was a shareholder of the Company, owning approximately 22.9%
of the total issued and outstanding shares of the Company's Common Stock. To
date, Heartland has not paid any of the $164,000 which it agreed to pay.
D. Description of Business Operations
----------------------------------
Through its wholly-owned subsidiary, Dinet (all references hereafter to
the Company should be deemed to include Dinet), the Company is engaged in the
business of designing, manufacturing and marketing electronic digital
equipment, in several product categories.
1. Principal Products and Services
-------------------------------
The Data Mate.
The Data Mate is a wireless communication device that transmits
information in digital form over two-way radio. It may be installed in any
vehicles with conventional two-way radios. The Company estimates that there
are more than 14 million such vehicles in use today in the United States.
Because of such a large volume of users, conventional two-way radio
frequencies are being overwhelmed.
The Data Mate has been designed to relieve the growing two-way radio
congestion problem. In this regard, the Company has developed technology
whereby the Data Mate will interface with cellular telephone systems.
Cellular systems operate on two-way radio systems dedicated to telephone use.
By means of Cellular Digital Packet Data ("CDPD") technology, which underlies
software currently being developed by the Company, the Company's Data Mate can
be employed to deliver rapid, digital bursts of information during the small,
unused periods of airtime on a cellular system. The Data Mate is capable of
identifying a split-second of open airtime, during which time up to 255
characters of data can be transmitted.
Compared to traditional telephone and voice-transmission technology, the
Data Mate offers advantages such as increased confidentiality, accuracy, and
speed. Furthermore, the Data Mate is equipped to store messages when a
vehicle is unattended, to record dates and times of messages, and to send
emergency alarm messages. The Data Mate provides a direct link to the central
vehicle fleet operator, and can interface with computer systems for seamless
automated fleet communication and control.
The Data Mate offers additional optional features and accessories or
peripheral devices, such as: (i) real-time, central computerized vehicle
tracking, which can be employed to improve fleet efficiency and facilitate
rapid maintenance response and road-side assistance; (ii) credit card readers,
which can be employed by vehicles-for-hire, such as taxis, limousines, or by
transient service industries, such as plumbing repair; (iii) bar code readers,
used in businesses requiring inventory and parts control; and (iv) hard copy
printers, which can produce immediate, on-site invoices and receipts.
The first market for the Data Mate, ready-mix concrete trucks, was
identified by the Company in 1992. There are currently over 10,000 Data Mates
installed in ready-mix concrete trucks. In addition to ready-mix concrete
trucks, the Date Mate has been installed in the following types of vehicles:
sand and aggregate trucks, parcel delivery vans, helicopters, concrete cutting
and drilling vehicles, taxis, television cable trucks, ambulances, paratransit
vans, and plumbing trucks.
Software Products.
In late 1995, the Company established a plan to develop software products
to enhance vehicle fleet management. Such software products, some of which
are still currently in development, will be designed as turn-key packages that
will provide for comprehensive fleet management.
The Company's first software product, which is presently available for
commercial distribution, is an automatic vehicle tracking system which
superimposes a vehicle's location on a graphically-represented map installed
on a customer's central fleet control computer. This tracking system utilizes
the Global Positioning System (GPS), consisting of 24 Earth-orbiting
satellites deployed by the Department of Defense. Because reception of the
signals generated by GPS satellites is free and unencumbered, the Company's
mobile data terminals, such as the Data Mate, equipped with the Company's
tracking system software, can track each vehicle in a mobile fleet, anywhere
in the world. This product has recently formed an integral part of a
substantial order of the Company's Data Mates, bar code readers and
dispatching software by a large plumbing operation in California.
The development of other software products is currently in progress,
including the following:
Dispatching Software. This operating software, which is currently
in the development stage, consolidates centralized control of a vehicle fleet,
creating a multi-function computer system platform for fleet management,
billing and credit extension, among other things. Because similar operating
software is and may become available in the mobile fleet management industry,
the Company expects to compete by offering user-friendly, convenient software
at a favorable cost to the consumer. The Company expects to complete the
initial release of this software in November, 1997.
The following software products have already been completed and are being
marketed by the Company.
Mapping Software. As discussed above, the Company has completed
development and is actively marketing mapping software designed to track fleet
vehicles and display their location on a computer-generated map. The Company
intends to continue enhancing its mapping software, including the ongoing
development of add-on map modules. The creation of additional map modules for
new geographical regions will position the Company to market its mapping
software in various new markets.
Dinet Custom Software Interfaces. The Company has developed
several custom software interface products that allow the Company's
proprietary terminal and controller products to interface and communicate with
third-party software applications. Such interface products, called Dynamic
Link Libraries ("DLLs"), allow software developers to communicate with the
Company's mobile data terminals, such as the Data Mate. In essence, by
automatically handling the necessary interface timing and protocol, each DLL
enables a software programmer to integrate a differing software application
with the Company's Data Mate, without disclosing the Company's proprietary
software codes.
CDPD Software. CDPD software allows the interface of the Company's
Data Mates with cellular telephone systems. Marketing of the Company's CDPD
software will be targeted at cellular providers, among other industries. The
Company believes that the CDPD software will increase the efficiency and
profitability of cellular providers by facilitating the identification and
utilization of idle time on the cellular network between cellular telephone
calls to rapidly transmit substantial data packets. Use of the Company's CDPD
software can also result in a geographical expansion of the communication
capabilities of a vehicle fleet's central control, from a "local" range with
traditional two-way radio to a nationwide range with a cellular system.
2. Risk Factors That May Affect Operating Results
----------------------------------------------
Important factors that may cause results to differ from expectations
include, without limitation, the following:
Limited Market for Shares. There is currently only a limited market for
the Company's Common Stock. There can be no assurance that a larger market
for the Common Stock will ever be developed or maintained. Factors such as
the success or lack thereof of the Company's efforts to market its products
and services, competition, governmental regulations, and fluctuations in
operating results may all have an effect on the market for the Company's
Common Stock, which market may be volatile. The stock markets generally have
experienced, and will likely experience in the future, extreme price and
volume fluctuations which have affected the market price of the shares of many
small capital companies, and which have often been unrelated to the operating
results of such companies. Such broad market fluctuations, as well as general
economic and political conditions, may adversely affect the market price of
the Company's Common Stock in any market that develops.
Reliance on Key Personnel. The Company's performance is substantially
dependent on the performance of its executive officers and key employees. The
Company is dependent on its ability to retain and motivate highly-qualified
personnel, especially in management and technical positions. The Company does
not have a "key person" life insurance policy on any of its employees. The
loss of the services of any of its executive officers or other key employees
could have a material adverse effect on the business, operating results or
financial condition of the Company. The Company's future growth and success
also depends on its ability to identify, hire, train and retain other
qualified management and technical personnel in the future. There can be no
assurance that the Company will be able to identify, hire, train or retain
such personnel. The inability to hire and retain necessary personnel could
have a material adverse effect on the Company's business operations and
financial condition.
Penny Stock. The Company's securities are deemed "penny stock" as
defined in Rule 3a51-1 of the Securities and Exchange Commission. Such a
designation could have a material adverse effect on the development of the
public market for shares of the Company's Common Stock or, if such a market
develops, its continuation, since broker-dealers are required to personally
determine whether an investment in such securities is suitable for customers
prior to any solicitation of any offer to purchase these securities.
Compliance with procedures relating to sale by broker-dealers of "penny
stocks" may make it more difficult for purchasers of the Company's Common
Stock to resell their shares to third parties or to otherwise dispose of such
shares.
3. Distribution Methods
---------------------
Marketing Efforts.
Historically, the Company has marketed its products from Dinet's offices
in Oceanside, California, by advertising in trade journals, attending industry
trade shows, and through referrals. If the Company's profitability continues
to improve, it is anticipated that the Company will expand its marketing
efforts, with increased exposure in trade publications and at industry
conferences and trade shows.
Among the Company's primary marketing methods, the most effective has
been trade journal advertising. The Company believes that such advertising is
effective because many vehicle fleet operators employ staff whose sole
responsibility is vehicle communications. Such responsibility would include
research and study regarding industry developments, requiring attention to
trade publications.
Distribution Efforts.
Standard distribution practice in the mobile data terminal ("MDT")
industry has focused on sales direct from the manufacturer to mobile fleet
operators. The Company is engaged in this method of distribution, and employs
a sales force of three full-time salespeople and one part-time salesperson.
The Company's primary sales office is at Dinet's headquarters in Oceanside,
California, and the Company operates one satellite sales office in St. Cloud,
Minnesota, which is near Minneapolis. The Company's success in selling its
products direct to the end-user is, and the Company expects will continue to
be, dependent on the continued success of the Company's advertising efforts,
as well as the ability of the Company's sales force to build and maintain
contacts in the industry.
The Company believes that the industry's standard distribution practice
is limited in potential because of the typical manufacturer/end-user
relationship. Most MDT manufacturers do not produce comprehensive turnkey
systems for immediate implementation by mobile fleet operators. Instead, in
most cases, a manufacturer seeks to negotiate contracts with a mobile fleet
operator whereby the manufacturer produces MDTs that are designed to the
mobile fleet operator's specifications. Because the manufacturer and mobile
fleet operator must agree on numerous details, including the underlying
software configuration, the process of negotiation can be lengthy and
expensive. The time-consuming sales process has limited the development of a
retail dealer network, since dealers, as "middlemen," often require faster
turn-around and greater volume to realize a reasonable profit margin.
The Company's products have been developed as comprehensive, turnkey MDT
systems, designed to be implemented by most mobile fleet operators without
significant alteration or reconfiguration. As a result, the Company believes
that it can develop a retail dealer network. The Company plans to establish
five regional offices in the United States which will be supervised by sales
managers who will develop and support a retail dealer network in their
respective region. The Company has already opened its first such regional
office in St. Cloud, Minnesota, and is developing a uniform program of
operation which will provide the foundation for other offices to be opened
over time, as justified by market development.
The Company believes that its products are accorded a favorable
reputation in the industry and that its ongoing development of a retail dealer
network will result in increased sales. However, there can be no assurance
that the Company's efforts to market its products either direct to end-users
or through retail dealers will be successful.
4. Competition
-----------
The MDT market is expanding and is intensely competitive. The Company
competes directly with other companies that offer similar MDT hardware and
software to mobile fleet operators. In so competing, the Company emphasizes
the low cost, comprehensive, turnkey convenience and overall compatibility of
its products. However, many of the Company's competitors have substantially
greater name recognition and financial resources than the Company. Some of
the leading companies in the industry are Mentor, Data Express, Command Data,
and GSMI (Gandolph). There can be no assurance that the Company's business
and results of operations will not be affected materially by market conditions
and competition in the future.
5. Proprietary Rights
------------------
Certain elements of the Company's software and hardware constitute
confidential trade secrets that the Company protects through software
modification in a manner that no one person can understand the make-up of the
system used by the Company. The Company has never experienced an unauthorized
public disclosure of any confidential trade secrets to its knowledge.
6. Government Approvals
--------------------
The Company's mobile data terminals, or Data Mates, are subject to
regulation by the Federal Communications Commission (FCC) under FCC
Regulations Part 15. Such regulations require that operation of the Data Mate
be subject to supervision by a controller situated at a "home base" location.
The Company's controller was tested in accordance with the requirements of FCC
Regulations Part 15, and satisfied such requirements.
7. Effect of Governmental Regulations
---------------------------------
The Company has satisfied the requirements of FCC Regulations Part 15,
which is the only material fee regulation pertinent to the Company's products
or services. As with any business, other governmental regulations and
requirements may have a substantial effect on the Company's business
operations.
8. Research and Development Expenses
---------------------------------
The Company spent approximately $50,000 on research and development
efforts in fiscal year 1995, approximately $200,000 in fiscal year 1996 and
approximately $198,000 on such efforts in fiscal year 1997. The Company's
research and development efforts are directed toward the development of new
products, rather than the enhancement of existing products. The Company bases
the sales price for existing products on the nature of the product, market
conditions and market norms, and competition, and therefore, it is not
possible for the Company to estimate the extent to which the Company's
research and development expenses are borne directly by customers.
9. Environmental Compliance
------------------------
To date, the Company's operations do not implicate any environmental laws
or regulations.
10. Employment Matters
-------------------
The Company currently employs 18 employees, of which 17 are full-time
employees.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Fiscal Years 1996 and 1997
--------------------------
Revenues increased approximately $300,000 from approximately $2.1 million
in fiscal 1996 to approximately $2.4 million in fiscal 1997. This increase is
partially a result of substantial sales of a new product model offered by the
Company. The increase is also attributable to the Company's continued
penetration in the ready-mix cement segment of the market, along with repeat
sales to the Company's existing customer base. In addition, the Company has
been able to further penetrate other market segments such as taxis and
paratransit. Other income resulted from consulting fees received from
Heartland Diversified Industries, Inc., which purchased BLE from the Company
pursuant to an agreement dated March 27, 1996 (the "Heartland Agreement").
The Company's gross profit margin on product sales decreased by
approximately 6.5% from 59.18% in 1996 to 52.68% in 1997. The decrease in
gross profit margin resulted from the large dollar amount of sales of a new
mobile data terminal produced by the Company. The Company has been able to
reduce its cost of producing this new mobile data terminal and expects that
with greater economies of scale in the future, the cost to produce this new
terminal will decrease. Typically, the gross profit margin as a percentage of
product sales will vary plus or minus five points based on the package of
products sold. Certain models have been in production longer; consequently,
the Company is realizing some economies of scale, through more efficient
purchasing and manufacturing.
Operating expenses increased approximately $270,000 from approximately
$880,000 in 1996 to approximately $1.15 million in 1997. This increase was
directly related to the increased cost of developing mapping software and
related modules, and the development of a new micro processor to be used in
all mobile data terminals produced by the Company. The Company anticipates
that these expenditures will generate benefits which should enhance the
Company's ability to achieve profits through greater economies of scale and
decreased costs in future years. As a result of the increase in operating
expenses being disproportionately higher than the corresponding increase in
product sales, the Company's net income for 1997 was lower than for 1996.
Income tax expense increased by approximately $19,500, from $9,500 in
1996 to approximately $29,000 in 1997. This increase was a direct result of
Dinet's increased profitability in 1996 over 1995 and as a result of Dinet
having used all of its state net loss carry forward. As a result of its
increased profitability and its inability to carry forward any past net loss,
Dinet, has become subject to California state income tax.
As a result of the Heartland Agreement, minority interests no longer have
a share in the income of the Company. The impacts of the sale are shown under
the discontinued operations section.
Accounts receivables increased by approximately $430,000 from
approximately $330,000 in 1996 to approximately $760,000 in 1997. There are
two principal reasons for such increase. First, the Company entered into a
large contract of approximately $190,000 which required special payment terms
in order for the Company to gain a competitive edge. As of September 30,
1997, the amount owed under such contract was approximately $133,000. The
customer had agreed to pay a minimum of $10,000 per month on such contract and
is current in its scheduled payments as of the date of this Registration
Statement. As of January 1, 1998, the outstanding balance owed under such
contract was approximately $84,000. Second, the Company made certain
shipments of new software product which contained programming errors. As a
result of these errors, several customers withheld payment until the software
could be corrected. The Company continues to work with these customers in an
effort to collect on unpaid accounts. Payments are currently being made as
expected.
Inventory decreased by approximately $110,000 from approximately $350,000
in 1996 to approximately $240,000 in 1997. Inventory decrease was a result of
agreements with suppliers of raw materials whereby the Company is now able to
purchase raw materials at lower prices and whereby inventory arrivals approach
"just in time" status.
The Company does not maintain high equipment levels because it outsources
most product assembly which would otherwise require major capital expenditures
for equipment. The equipment that is purchased is expensed in accordance with
IRS guidelines. Management does not expect that the Company will make any
major capital expenditures in the near future.
Accounts payable increased approximately $229,000 from approximately
$183,000 in 1996 to approximately $412,000 in 1997. This increase resulted
somewhat from increased sales activity. The increase also resulted from
working capital borrowed from Brian Watts which is secured by accounts
receivable of the Company. See Certain Relationships and Related Transactions
Certain Factoring Arrangements and Notes to Financial Statements. As of
September 30, 1997, the Company owed $112,000 to Mr. Watts under such
arrangements.
The accrued salaries reflected in the financial statements result from a
period between October 1989 and September 1994 when salaries were not paid to
certain officers of the Company as a means of preserving Company funds.
During that period, Michael B. McLaughlin, Patrick Makovec and Brian Watts
received substantially no salary. At fiscal year end 1997, the balance owed
for unpaid and accrued salaries and related payroll taxes was $692,132.
Interest has not been charged on the unpaid and accrued salaries. Salaries
have been paid on a current basis from October 1994 to present. In 1996,
although $50,000 of the unpaid and accrued salaries was shown as a current
liability, none was paid. No formal arrangement has been established for the
payment of unpaid and accrued salaries. However, the Company intends to pay
approximately $100,000 per year of unpaid and accrued salaries until such time
as the amount is reduced to zero. Notwithstanding, however, payments thereon
are subject to the Company's profitability and cash flow requirements. No
payments of unpaid and accrued salary have been made over the last 22 months.
In January, 1996, the Company's President, Michael B. McLaughlin,
exercised options on 25,000 shares of common stock at $.05 per share. In
addition, outside consulting services were purchased in exchange for 10,000
shares. Heartland Diversified Industries, Inc. purchased stock for a total of
$48,000, which is shown as a receivable from related entity.
In the third quarter of FY1996, the Company entered into a personal
service contract with a public relations firm. Management anticipates that
services to be rendered to the Company thereunder will increase industry
awareness of the Company and its products.
In the first quarter of FY1997, 20,000 shares were issued to outsiders as
payment for certain consulting and public relations services. During the
third quarter of FY1997, the Company sold 87,500 shares of Common Stock to
raise $35,000 which is to be used for working capital. In the fourth quarter
the Company sold 37,500 shares of Common Stock to raise an additional $15,000
for working capital. See Recent Sales at Unregistered Securities.
ITEM 3. DESCRIPTION OF PROPERTY.
Office Space
------------
The Company leases offices in three locations: (1) Oceanside, California;
(2) St. Cloud, Minnesota; and (3) Leesburg, Florida. The Oceanside office
houses the headquarters of Dinet. The Company leases 5,200 square feet of
space at the Oceanside office for a total rent of $2,621 per month. The term
of the Oceanside lease is one year, renewable for additional one-year terms
from September to September each year. The St. Cloud office consists of 850
square feet of leased space, leased on month-to-month basis for $250 per
month. The Leesburg office, which is the Company's headquarters, consists of
300 square feet of leased space, leased on a month-to-month basis for $100 per
month.
At present, management believes that the Company's current space is
adequate for its needs. However, the Company may require additional space in
the future if growth continues to occur. In such event, the Company will seek
to obtain favorable lease terms on any necessary additional space.
Investment Policies
-------------------
It is the Company's policy to generally avoid investments in illiquid
assets such as real estate and manufacturing equipment. With regard to excess
funds and retained earnings, the Company generally invests such funds in money
market funds or treasury funds. The Company typically funds ongoing
operations from cash flow, and generally does not have significant funds
available for long-term investment.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Security Ownership of Certain Beneficial Owners
-----------------------------------------------
The following table sets forth the shareholdings of those persons who own
more than five percent of the Company's common stock as of December 31, 1997:
Number of Shares Percentage of Total
Name of Shareholder Beneficially Owned Outstanding Shares
- ------------------- ------------------ ------------------
Heartland Diversified 1,815,320 22.23%
Industries, Inc.
Patrick L. Makovec 2,711,983(1) 33.01%
Michael B. McLaughlin 2,768,568(2) 34.51%
(1) Includes 1,815,320 shares of Common Stock owned by Heartland. As a
result of being a director and 15.6% shareholder of Heartland, Mr. Makovec
shares investment and voting control over the Common Stock held by Heartland.
Mr. Makovec disclaims beneficial ownership of these shares pursuant to Rule
13d-4 under the Exchange Act.
(2) Includes 1,815,320 shares of Common Stock owned by Heartland. As a
result of being a director, president and a 35% shareholder of Heartland, Mr.
McLaughlin shares investment and voting control over the Common Stock held by
Heartland. Mr. McLaughlin disclaims beneficial ownership of these shares
pursuant to Rule 12d-4 under the Exchange Act.
Security Ownership of Management
--------------------------------
The following table sets forth the shareholdings of the Company's
directors and executive officers as of December 31, 1997:
<TABLE>
<CAPTION>
Number of Percentage of Total
Name of Officer or Director Position or Title Shares Owned Outstanding Shares
- --------------------------- ----------------- ------------ ------------------
<S> <C> <C> <C>
Michael B. McLaughlin Chairman, President 2,768,568 (1) 34.51%
and CEO; Chairman
and Secretary of
Dinet
Patrick L. Makovec Director, CFO, 2,711,983(2) 33.01%
Treasurer and
Secretary;
Director, President
and Treasurer of
Dinet
Brian J. Watts Director, Vice 311,750 03.82%
President and
General Manager of
Dinet
Brian Blankenburg Director 5,000 Less than 1%
Directors and Executive Officers as a Group
(4 persons) 5,797,301(1)(2) 71.00%
</TABLE>
(1) Includes 1,815,320 shares of Common Stock owned by Heartland. As a
result of being a director and 15.6% shareholder of Heartland, Mr. Makovec
shares investment and voting control over the Common Stock held by Heartland.
Mr. Makovec disclaims beneficial ownership of these shares pursuant to Rule
13d-4 under the Exchange Act.
(2) Includes 1,815,320 shares of Common Stock owned by Heartland. As a
result of being a director, president and a 35% shareholder of Heartland, Mr.
McLaughlin shares investment and voting control over the Common Stock held by
Heartland. Mr. McLaughlin disclaims beneficial ownership of these shares
pursuant to Rule 12d-4 under the Exchange Act.
Changes in Control
------------------
At present, there are no arrangements or pledges of the Company's
securities which may result in a change in control of the Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The following table sets forth the name, age and position of all current
directors and executive officers of the Company and its principal subsidiary,
Dinet. These persons will serve until the next annual meeting of the
stockholders or until their successors are elected or appointed and qualified,
or until their prior resignation or termination. The Company has no employees
who are not executive officers, but who are expected to make a significant
contribution to the Company's business operations.
Name of Person Position or Title
- -------------- -----------------
Michael B. McLaughlin President, Chief Executive Officer and Chairman;
Chairman and Secretary of Dinet
Patrick L. Makovec Chief Financial Officer, Director, Treasurer and
Secretary; Director, President and Treasurer of
Dinet
Brian Watts Director, Vice President and General Manager of
Dinet
Brian Blankenburg Director
Background Information
----------------------
Michael B. McLaughlin, age 59, has served as Chairman of the Board of the
Company since its inception in March, 1984. In January, 1989, he was elected
CEO and Secretary, and in April, 1996, he was elected President of the
Company. Prior to joining the Company, Mr. McLaughlin was engaged in the
securities industry in Minneapolis, Minnesota, from 1965 to 1975, as a broker
and manager of various investment concerns. Following such experience, he was
involved in investment management in the farming and real estate industries.
In 1981, he was elected Chairman and President of Heartland Diversified
Industries, Inc., a Montana corporation which at the time was involved
primarily in the management of mining properties and investments, which
positions he continues to hold. Heartland is currently the Company's largest
shareholder and a non-operating holding company. Mr. McLaughlin is also the
Chief Executive Officer of BLE, a National Association of Securities Dealers
licensed broker-dealer located in Florida. He is resident in the Company's
Leesburg, Florida office.
Patrick L. Makovec, age 55, has served as a Director of the Company since
December, 1987. He is currently also serving as Treasurer of the Company, to
which position he was elected in December, 1986. In September, 1988, Mr.
Makovec was elected as the President of Dinet, a position which he continues
to hold. Mr. Makovec's responsibilities include oversight of the Company's
accounting systems and financial reporting. He is the former President of Tel
Corp Leasing in St. Cloud, Minnesota, and received a Masters of Science in
Business from the University of Wisconsin-Madison in May, 1974. Mr. Makovec
is also currently the Treasurer and Financial Operations Officer of Heartland
Diversified Industries, Inc., the Company's largest shareholder.
Brian J. Watts, age 62, has been a Director, Vice President and General
Manager of Dinet since September, 1988. Prior to that time, Mr. Watts had
been employed by Dinet as a consultant since November, 1986. He is a native
of London, England, and arrived in the United States in September, 1964,
subsequently becoming a citizen. From November, 1964 until June, 1972, Mr.
Watts was Sales Administrator for Sprague Electric. Thereafter, until March,
1976, he served as Operations Manager for AVX Corp., and subsequently worked
as Administrator and General Manager of Coded Communications until January,
1988. He is resident in the Company's Oceanside, California office.
Brian B. Blankenburg, age 52, was elected as a Director of the Company in
June, 1997. Mr. Blankenburg is a partner in the Business Development Group
("BDG"), which provides consulting services in the areas of strategic
planning, sales and marketing, management, acquisitions, funding, market
research, due diligence and computer analysis. BDG has offices in Seattle,
Milwaukee, Minneapolis, and Montgomery, the latter of which is managed by Mr.
Blankenburg. Prior to joining BDG, from January, 1993 to October, 1996, Mr.
Blankenburg served as Executive Vice President, and later President, of Hudson
Industries, a holding company with assets in transportation and other
industries. While at Hudson Industries, Mr. Blankenburg led the strategic
repositioning of that company's business and the doubling of sales in four
years. From March, 1990 to December, 1992, Mr. Blankenburg operated a
business consulting company, Blankenburg & Bendt. From March, 1987 to March,
1990, he was Vice President of Sales at Pies, Inc. Prior to that time, Mr.
Blankenburg held various management positions with International Multifoods,
Beatrice, Green Giant and Hormel Company. He is a 1971 graduate of the
University of Minnesota, where he received a B.A. in advertising. His
continuing education has included the Beatrice Executive Marketing School at
the J.L. Kellogg Graduate School of Business, Northwestern University, as well
as studies at the University of Pennsylvania Wharton School of Business.
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth the total compensation paid to the
Company's President and other four most highly-compensation employees during
the Company's past three fiscal years.
Name
And
Principal Fiscal
Position Year Salary
- ---------- ------ ------
Michael B. McLaughlin 1997 $84,000
President and CEO 1996 $84,000
1995 $84,000
Patrick L. Makovec 1997 $60,000
Treasurer, Secretary 1996 $60,000
and CFO 1995 $60,000
Brian J. Watts 1997 $63,000
Vice President 1996 $63,000
1995 $50,000
No other compensation was given to any of the above-listed employees
during the relevant time periods. Except for providing standard-form health
insurance to its employees, during such time period, the Company did not pay
any bonuses, or grant any stock awards, options or stock appreciation rights,
or pay any other form of compensation or perquisites.
In January, 1996, Michael B. McLaughlin exercised certain options granted
to him under the Company's executive incentive stock option plan (discussed
below), for the purchase of 25,000 shares of the Common Stock at an exercise
price of $0.05 per share.
Executive Incentive Stock Option Plan
-------------------------------------
Under an incentive stock option plan ("ISOP") approved by the Company's
shareholders, 500,000 shares of its Common Stock have been authorized for
issuance to officers and other key employees. Exercise prices for options
granted under such ISOP are determined by the Company's Board of Directors at
the time of grant, at prices intended to reflect the fair market value of the
Company's Common Stock on the date of grant. Options granted under the ISOP
can remain effective for no more than ten years from the date of grant. As of
August 30, 1997, options to purchase 450,000 shares of the Common Stock had
been granted under the ISOP. As of August 30, 1997, options remained
outstanding for the purchase of 245,000 shares of the Common Stock, all of
which are exercisable at $0.05 per share.
Management Incentive Earnings Plan
----------------------------------
Under a management incentive earnings plan ("MIEP"), which is effective
for five years beginning April 1, 1996 and ending March 31, 2001, officers and
key employees are eligible to receive warrants to purchase the Common Stock,
if certain earnings criteria are met. Specifically, warrants would have been
issued if the Company had generated after-tax per share profits of at least
$0.06 by March 31, 1997. That threshold target is graduated annually in $0.06
per share increments. Therefore, as of March 31, 2001, in order for any
officer or key employee to be eligible to receive warrants under the MIEP, the
Company must achieve after-tax per share profits of at least $0.30. The
warrant exercise price is $0.50 per share of Common Stock. If, at the end of
any year under the MIEP, the criteria for issuance of the warrants is not
achieved, the number of warrants available for issuance under the MIEP is
reduced by 20%. The MIEP initially authorized the issuance of warrants
exercisable for a maximum of 500,000 shares of Common Stock per participant,
with a corresponding maximum on the number of warrants that may be issued
under the MIEP of 1,500,000. As of the end of the first year of the MIEP,
which ended on March 31, 1997, none of the participants was eligible to
receive any warrants. As a result, the maximum number of warrants that can be
issued under the plan was reduced to 1,200,000. When issued, the warrants
will be exercisable for a period of five years.
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.
There are no arrangements whereby any of the Company's directors was
compensated during the Company's last fiscal year for any service provided as
a director.
Employment Contracts and Termination of Employment and Change-in-Control
------------------------------------------------------------------------
Arrangements
------------
Except as specifically provided in this Section, there are no employment
contracts, compensatory plans or arrangements, including payment to be
received by the Company, with respect to any director or executive officer of
the Company which could 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 any of 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.
The Company has agreed to provide severance payments to certain of its
officers in an amount equal to one year's salary, in the event of a hostile or
unfriendly takeover of the Company, or in the event that such officer's
employment with the Company is terminated for any reason other than for fraud.
Voluntary resignation by such officer reduces the available severance pay by
25%. In addition, if the Company becomes obligated for such severance pay,
the Company will also be obligated to pay applicable bonuses, accrued unpaid
salaries and reimbursable expenses, as well as the cost of benefits for one
year. To date, the Company has agreed to such arrangements pursuant to a
resolution of the Board of Directors of the Company, dated as of April 13,
1989, with Patrick L. Makovec and Michael B. McLaughlin.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Except as expressly set forth in this Item 7, there have been no material
transactions, series of similar transactions, or currently proposed
transactions, to which the Company or any of its subsidiaries has or is to be
a party, in which the amount involved exceeded or shall exceed $60,000 and in
which any director or executive officer, or any security holder who is known
to the Company to own of record or beneficially more than five percent of the
Company's common stock, or any member of the immediate family of the foregoing
persons, had a material interest.
Sale of Bernard, Lee & Edwards Securities, Inc.
-----------------------------------------------
On March 27, 1996, the Company entered into the Heartland Agreement with
Heartland, whereby the Company agreed to sell to Heartland all of the common
stock of its subsidiary, BLE. BLE was organized in January, 1989, under the
corporate name "Pro America Securities, Inc." for the purpose of engaging in
the business of a full-service securities firm. In exchange for all of the
BLE stock owned by the Company, Heartland agreed to pay the Company the
principal amount of $148,500, together with interest in the amount of $15,500,
within twelve months after March 31, 1996. As of January 1, 1998, however,
Heartland has made no payments under the Heartland Agreement. If no payments
are made in fiscal year ending 1998, the Company intends to charge additional
interest on the principal amount, in an amount to be determined at a later
date.
At the time of the transactions contemplated by the Heartland Agreement,
and as referenced above, Heartland was a shareholder of the Company, owning
approximately 22.9% of the total issued and outstanding shares of the Common
Stock. Heartland is a privately-held company which was engaged in general
investment activities, primarily focusing on farming and real estate
investments. Currently, the Company is non-operating. The Company's Chairman
and President, Michael B. McLaughlin, is the President and 35% shareholder of
Heartland. Patrick L. Makovec, a Director and the Chief Financial Officer of
the Company, is a 15.6% shareholder of Heartland.
Certain Factoring Arrangements
------------------------------
Brian J. Watts, Vice President and General Manager of Dinet, and members
of Mr. Watt's immediate family, have on various occasions loaned funds to
Dinet, which loans are secured by individual sales invoices generated by
Dinet. The loans are to be repaid upon Dinet's collection of the receivables
represented by such sales invoices. Loan amounts and terms of repayment vary
greatly from loan to loan. Interest is charged on each loan at a rate of
0.0075% per week with a maximum interest charge of 4.5% of the total amount of
each loan. In fiscal year 1995, the Watts family loaned Dinet a total of
$320,000, upon which amount the Company has paid interest in the amount of
$9,400. In fiscal year 1996, the Watts family loaned Dinet a total of
$220,000, upon which amount the Company has paid interest in the amount of
$9,500. In fiscal year 1997, the Watts family advanced a total of $523,000 to
Dinet, upon which amount interest has accrued in the amount of $25,000.
ITEM 8. DESCRIPTION OF SECURITIES.
The Company is authorized to issue a total of 25,000,000 shares of Common
Stock and 3,000,000 shares of Preferred Stock.
The holders of Common Stock are entitled to one vote per share on each
matter submitted to a vote at a meeting of the stockholders. The shares of
Common Stock do not carry cumulative voting rights in the election of
directors.
Shareholders of the Company do not have pre-emptive rights to acquire
additional shares of Common Stock or other securities of the Company. The
Common Stock is not subject to redemption rights and carries no subscription
or conversion rights. In the event of liquidation of the Company, the shares
of Common Stock are entitled to share equally in corporate assets after
satisfaction of all liabilities. All shares of the Common Stock now
outstanding are fully paid and non-assessable.
At present, the Company has not issued any shares of Preferred Stock.
The Company's Articles of Incorporation provide that the Board of Directors
may designate and determine the preferences, limitation and relative rights of
the Preferred Stock, prior to any issuance thereof.
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.
PART II
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
------------------
The Common Stock is currently listed in the "pink sheets" of the NQB and
the OTC Bulletin Board of the NASD under the symbol "SOLU." During the past
two fiscal years, there has been only a limited public market for the Common
Stock, and there can be no assurance that a more robust public market for the
Common Stock will develop or be maintained in the future.
The high and low bid prices for shares of the Common Stock for each
quarter within the last two fiscal years are as follows:
Quarter Ending: High Bid Low Bid
- --------------- -------- -------
December 31, 1995 7/16 3/8
March 31, 1996 1/2 7/16
June 30, 1996 9/16 7/16
September 30, 1996 1 1/4 7/8
December 31, 1996 1 1/8 3/4
March 31, 1997 3/4 5/8
June 30, 1997 1 1/2 7/16
September 30, 1997 [15/16] [7/8]
The above-listed bid prices were obtained from market makers in the
Company's Common Stock and do not necessarily reflect actual transactions, or
retail mark-ups, mark-downs or commissions.
Outstanding Options, Warrants or Calls to Purchase the Company's Common
Stock
As discussed above in Part I, Item 6, "Executive Compensation," there are
currently outstanding options, granted pursuant to the Company's incentive
stock option plan, to purchase 245,000 shares of Common Stock at an exercise
price of $0.05 per share.
On June 16, 1997, the Company's Board of Directors approved the grant of
an option to purchase 50,000 "unregistered" and "restricted" shares of the
Company's Common Stock at an exercise price of $1.00 per share. This option
was granted to Tom Costa, a computer/Internet and public relations consultant,
in connection with the Company's engagement of the consultant to perform
services for the Company related to the consultant's expertise. The option
vests in cumulative and progressive increments, based on a scheduled timetable
of specified performance criteria. The option is exercisable for a period of
24 months from the date of grant and will expire on June 15, 1999.
Securities Holders
------------------
The number of record holders of the Common Stock as of December 31, 1997
was approximately 323.
Dividends
---------
The Company has not declared any cash dividends with respect to its
Common 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. There are no material restrictions limiting, or that are
likely to limit, the Company's ability to pay dividends on the Common Stock.
ITEM 2. LEGAL PROCEEDINGS.
The Company is not a party to any pending legal proceeding. To the
knowledge of the Company, no federal, state or local governmental agency is
presently contemplating any proceeding against the Company. No director,
executive officer or affiliate of the Company or owner of record or
beneficially of more than five percent of the Common Stock is a party adverse
to the Company or has a material interest adverse to the Company in any legal
proceeding.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
James J. Harned, Certified Public Accountant, audited the Company's
financial statements for the fiscal years ended September 30, 1996 and
September 30, 1997. These financial statements accompany this Registration
Statement.
No reports or financial statements prepared by James J. Harned for and
concerning the Company have contained an adverse opinion, or a disclaimer of
opinion, nor were any such reports or financial statements qualified or
modified as to uncertainty, audit scope, or accounting principles. During the
engagement of James J. Harned, which engagement is ongoing, there have been no
disagreements on any matter of accounting principles and practices, financial
statement disclosure, or auditing scope or procedure, that if not resolved to
the satisfaction of James J. Harned, would have caused him to make reference
to the subject matter of the disagreements in connection with any audit of the
Company.
The Company has not been advised by James J. Harned that internal
controls necessary for the Company to develop reliable financial statements do
not exist nor that information came to its attention that led it to no longer
be able to rely on management's representations or that made it unwilling to
be associated with the financial statements prepared by management. The
Company has not been advised by James J. Harned of the need to expand
significantly the scope of the Company's audit, nor has the Company been
advised that any information has come to the attention of James J. Harned that
on further investigation may (i) materially impact the fairness or reliability
of either a previously issued audit report or the underlying financial
statements, or the financial statements issued or to be issued covering the
fiscal period subsequent to the date of the most recent financial statements
covered by an audit report, or (ii) cause James J. Harned to be unwilling to
rely on management's representations or be associated with the Company's
financial statements.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
Effective October 3, 1996, the Company's Board of Directors approved the
issuance of 10,000 shares of the Common Stock to each of Mark A. Gomes, a
financial consultant for the Company, and John Zielinski, a public relations
and business consultant for the Company, in exchange for services rendered to
the Company by each. The Company offered the Common Stock in reliance on an
exemption from registration under Section 4(2) of the Securities Act of 1933,
as amended (the "Securities Act"). Certificates representing such shares bear
legends indicating that such shares are "unregistered" and "restricted," and
may only be sold pursuant to an applicable exemption from registration set
forth in relevant securities laws.
On April 7, 1997, the Company's Board of Directors approved the sale of a
maximum of 125,000 shares of the Common Stock at a purchase price of $0.40 per
share to eight different shareholders. The Company offered the Common Stock
in reliance on an exemption from registration under Section 4(2) of the
Securities Act. As of July 8, 1997, all of the shares offered by the Company
pursuant to such sale had been sold, resulting in receipt by the Company of
$50,000 in capital funding. Certificates representing such shares bear
legends indicating that such shares are "unregistered" and "restricted," and
may only be sold pursuant to an applicable exemption from registration set
forth in relevant securities laws.
On April 15, 1997, the Company entered into an agreement with a public
relations firm, which agreement is attached as an exhibit to this Registration
Statement, pursuant to which the Company obtains advertising, marketing and
general public relations assistance designed to increase awareness of the
Company and its products in the marketplace. In exchange for these services,
and in order to reduce initial cash payments for the public relations
services, the Company agreed to issue to the public relations personnel
300,000 shares of the Common Stock. On October 15, 1997, the public relations
agreement was amended to increase the number of shares to be issued by
150,000, for a total number of 450,000 shares of Common Stock to be issued in
exchange for public relations services. As of August 30, 1997, none of such
shares had been issued, and pursuant to the agreement will be issued following
the effectiveness of certain securities registration statements, including
this Form 10-SB, to be filed with the Securities and Exchange Commission. In
the event that the Company is unable to file such securities registration
statements, or such registration statements are not effective within a
reasonable time, the Company will issue such shares called for by the
agreement, as amended, as "unregistered" and "restricted" stock. The public
relations firm engaged by the Company has agreed to reimburse the Company for
certain expenses incurred by the Company in connection with preparation of the
applicable securities' registration statements.
Effective December 12, 1997, the Company's Board of Directors approved
the sale of 724,008 shares of the Common Stock at a purchase price of $250,000
in the aggregate, to Holden Holdings, a non-U.S. Person. The Company issued
such shares to the investor without registration, as being exempt from, or not
subject to, the registration requirements of the US Securities Act of 1933, on
the basis that the offer and sale of shares was occurring outside of the
United States in accordance with the provisions of Regulation S promulgated
pursuant to the Securities Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 16-10a-902(1) of the Utah Revised Business Corporation Act
authorizes a Utah corporation to indemnify any director against liability
incurred in any proceeding if he or she acted in good faith and in a manner 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 16-10a-902(4) prohibits a Utah corporation from indemnifying a
director in a proceeding by or in the right of the corporation in which the
director was adjudged liable to the corporation or in a proceeding in which
the director was adjudged liable on the basis that he or she improperly
received a personal benefit. Otherwise, Section 16-10a-902(5) allows
indemnification for reasonable expenses incurred in connection with a
proceeding by or in the right of the corporation.
Unless limited by the Articles of Incorporation, Section 16-10a-905
authorizes a director to apply for indemnification to the court conducting the
proceeding or another court of competent jurisdiction. Section 16-10a-907(1)
extends this right to officers of a corporation as well.
Unless limited by the Articles of Incorporation, Section 16-10a-903
requires that a corporation indemnify a director who was successful, on the
merits or otherwise, in defending any proceeding to which he or she was a
party against reasonable expense incurred in connection therewith. Section
16-10a-907(1) extends this protection to officers of a corporation as well.
Pursuant to Section 16-10a-904(1), the corporation may advance a
director's expenses incurred in defending any proceeding upon receipt of an
undertaking and a written affirmation of his or her good faith belief that he
or she has met the standard of conduct specified in Section 16-10a-902.
Unless limited by the Articles of Incorporation, Section 16-10a-907(2) extends
this protection to officers, employees, fiduciaries and agents of a
corporation as well.
Regardless of whether a director, officer, employee, fiduciary or agent
has the right to indemnify under the Utah Revised Business Corporation Act,
Section 16-10a-908 allows the corporation to purchase and maintain insurance
on his or her behalf against liability resulting from his or her corporate
role.
Article IV of the Company's Articles of Incorporation provides for the
indemnification, to the fullest extent permitted by the Utah Revised Business
Corporation Act or any other applicable law as in effect from time to time, of
any director of the Company for liability to the corporation or to its
shareholders for monetary damages for any action taken, or any failure to take
any action, as a director.
PART F/S
Financial Statements.
Audited Financial Statements for Fiscal Years Ending September 30,
1996 and September 30, 1997
Independent Auditor's Report
Consolidated Balance Sheet at September 30, 1996 and September 30,
1997
Consolidated Statement of Income at September 30, 1996 and September
30, 1997
Consolidated Statement of Stockholder's Equity
Consolidated Statement of Cash Flows at September 30, 1996 and
September 30, 1997
Notes to Financial Statements
JAMES J. HARNED
Certified Public Accountant
1316 Christopher Court
Bel Air, Maryland 21014
Bus.: (410) 838-5948 Fax: (410) 838-1843
January 12, 1998
INDEPENDENT AUDITOR'S REPORT
I have audited the consolidated balance sheet of Wireless Data Solutions, Inc.
and subsidiaries as at September 30, 1997 and the related consolidated
statement of earnings, stockholders equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
These standards require that I plan and conduct the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. 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. I believe that my audit provides a reasonable basis
for that opinion.
In my opinion, the consolidated balance sheet and statements of stockholders'
equity (deficiency) referred to above present fairly, in all material
respects, the financial position of Wireless Data Solutions, Inc. and
Subsidiaries as at September 30, 1997 in conformity with generally accepted
accounting principles, applied consistently.
/s/ James J. Harned
- -------------------
James J. Harned, C.P.A.
Bel Air, MD 21014
Wireless Data Solutions, Inc. And Subsidiaries
Consolidated Balance Sheet
As At September 30
1997 1996
---- ----
ASSETS
Current Assets
- --------------
Cash and cash equivalents $83,330 $92,879
Accounts receivable, net of $6,000
allowance for doubtful accounts (Note 1) 761,586 332,640
Receivable from Heartland Diversified (Note 2) 82,000
Inventory (Note 1) 240,735 349,442
---------- ----------
Total current assets 1,085,651 856,961
---------- ----------
Fixed Assets (Note 1)
- ---------------------
Office fixtures and equipment 15,033 15,033
Leasehold improvements 12,894 12,894
---------- ----------
Sub-Total 27,927 27,927
Less: Accumulated depreciation
and amortization 27,927 27,927
---------- ----------
Net fixed assets 0 0
---------- ----------
Other Assets
- ------------
Due from related parties (Note 2) 244,442 111,500
Deferred service contract (Note 8) 196,100
Security deposits 3,113 3,113
---------- ----------
Total other assets 443,655 114,613
---------- ----------
Total Assets $1,529,306 $971,574
========== ==========
ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
REPORT JAMES J. HARNED, C.P.A.
Wireless Data Solutions, Inc. And Subsidiaries
Consolidated Balance Sheet
As At September 30
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
LIABILITIES
1997 1996
---- ----
Current Liabilities
- -------------------
Accounts Payable $411,800 $182,825
Current portion of other liabilities 12,924 56,719
Service contract payable in stock (Note 8) 196,400
Advances from customers 17,969 9,800
Other accrued liabilities 62,343 13,395
---------- ----------
Total current liabilities 701,436 262,739
Other Liabilities
- -----------------
Accrued salaries, related payroll
taxes, reimbursable expenses
payable to officers 692,132 692,132
Less: current portion 0 50,000
---------- ----------
Total other liabilities 692,132 642,132
---------- ----------
TOTAL LIABILITIES 1,393,568 904,871
---------- ----------
Minority interests in consolidated
subsidiaries 20,000 20,000
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, no par value;
3,000,000 shares authorized:
no shares issued or outstanding
Common stock, no par value;
25,000,00 shares authorized:
8,019,720 shares issued and outstanding
at 9/30/96 and 8,164,720 at 9/30/97 8,165 8,020
Common stock options outstanding 11,250 11,250
Additional paid-in capital 1,378,485 1,321,830
Deficit (1,233,389) (1,245,624)
---------- ----------
Sub-Total 164,511 96,476
Receivable from related entity
for sale of common stock (48,773) (48,773)
---------- ----------
Total Stockholders' Equity (DEFICIENCY) 115,738 46,703
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) $1,529,306 $971,574
========== ==========
ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
JAMES J. HARNED, C.P.A.
Wireless Data Solutions, Inc. And Subsidiaries
Consolidated Statement of Earnings
For The Fiscal Year Ended September 30
1997 1996
---- ----
REVENUES
Net product sales $2,358,902 $2,049,580
Other 48,000 41,975
---------- ----------
Total revenues 2,406,902 2,091,555
COST OF SALES
Products 1,138,907 836,607
---------- ----------
Total costs of sales 1,138,907 836,607
---------- ----------
Gross Profit 1,267,995 1,254,948
Operating Expenses 1,148,042 879,021
---------- ----------
Income before interest and taxes 119,953 375,927
Interest expense 29,252 9,500
---------- ----------
Income before taxes 90,701 366,427
Income taxes (Note 1) 9,114 3,838
---------- ----------
Income before minority interests 81,587 362,589
Minority interests 0 0
----------- ----------
Income from continuing operations 81,587 362,589
Discontinued operations
- -----------------------
Loss from operations of former
subsidiary (11,069)
Gain on sale of former subsidiary 135,893
----------
Net Income $81,587 $487,413
----------- ----------
Net Earnings per share of
common stock $0.0100 $0.0607
----------- ----------
ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
REPORT JAMES J. HARNED, C.P.A.
Wireless Data Solutions, Inc. And Subsidiaries
Formerly Known As Products, Services & Technology Corporation and Subsidiaries
Consolidated Statement of Stockholders' Equity
For the Fiscal Year Ended September 30, 1996
<TABLE>
<CAPTION>
Common Additional
Common Stock Options Paid-In
Stock Outstanding Capital Deficit Total
-------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1995 $ 7,816 $ 11,250 $ 1,320,921 $(1,738,572) $ (398,585)
------------
Net Earnings for the year ended
September 30, 1996 487,413 487,413
Issuance of common stock 10 10
Exercise of common stock options 25 25
Stock issued to non-related
parties for service 169 909 6,613
-------- ----------- -----------
Discount on legal services 5,535
-------------
Sub-Total 8,020 11,250 1,321,830 (1,245,624) 95,476
-------- ------------ ----------- ------------- ----------
Receivable from related entity
for sale of common stock (48,773)
-----------
Balance at September 30, 1996 $ 8,020 $ 11,250 $ 1,321,830 $(1,245,624) $ 46,703
======= =========== =========== ============= ===========
ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS REPORT
JAMES J. HARNED, C.P.A.
</TABLE>
Wireless Data Solutions, Inc. And Subsidiaries
Consolidated Statement of Stockholders' Equity
For The Fiscal Year Ended September 30, 1997
<TABLE>
<CAPTION>
Common Additional
Common Stock Options Paid-In
Stock Outstanding Capital Deficit Total
-------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1996 $ 8,020 $ 11,250 $ 1,321,830 $(1,245,624) $ 95,476
-------------
Net Earnings for the year ended
September 30, 1996 81,587 81,587
Issuance of common stock 145 56,655 56,800
-------- ----------
Prior period adjustment re:
underaccrual (Note 10) (69,352) (69,352)
------------ -----------
Sub-Total 8,165 11,250 1,378,485 (1,233,389) 164,511
-------- ------------ ---------- ------------ -----------
Receivable from related entity
for sale of common stock (48,773)
-----------
Balance at September 30, 1996 $ 8,165 $ 11,250 $1,378,485 $(1,233,389) $ 115,738
======= ============ ========== ============ ===========
ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS REPORT
JAMES J. HARNED,C.P.A.
</TABLE>
Wireless Data Solutions And Subsidiaries
Consolidated Statement of Cash Flows
For The Fiscal Year Ended September 30
1997 1996
--------------- --------------
Operating Activities:
Net Income $ 81,587 $ 487,413
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization (1,429)
Prior period adjustment (69,352) 5,535
Changes in Operating Assets and Liabilities:
Increase in accounts receivable & other (346,946) (231,842)
(Increase) Decrease in inventory 108,707 (159,566)
Decrease in other assets (196,100) 923
Increase in accounts payable 228,974 89,770
Increase in advances from customers 8,169 4,800
(Decrease) Increase in other payable 201,553 (11,876)
--------------- ---------------
Net cash provided by operating activities 16,592 183,728
--------------- ---------------
Investing Activities:
Proceeds of miscellaneous assets 0 3,570
--------------- ---------------
Financing Activities:
Increase in due from related parties (132,942) (105,970)
Increase in security deposits (195)
Increase (Decrease)in due to related parties and
related expenses 50,000 (4,606)
Decrease in minority interest in subsidiaries (64,519)
Proceeds of issuance of common stock 56,800 1,114
--------------- ---------------
Net cash provided by financing activities (26,142) (174,176)
--------------- ---------------
Net increase in cash (9,550) 13,122
Cash at beginning of period 92,880 79,758
--------------- ---------------
Cash at end of period $ 83,330 $ 92,880
=============== ===============
ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS REPORT
JAMES J. HARNED, C.P.A.
Wireless Data Solutions, Inc. And Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997
1. Organization and Summary of Significant Accounting Policies
Principles of Consolidation
---------------------------
The accompanying financial statements include the accounts of Wireless
Data Solutions, Inc. (WDS) and the following majority-owned subsidiaries:
Subsidiary % of Common Stock Owned
---------- -----------------------
Distributed Networks, Inc. (Dinet) 100
PST Financial Corporation (PFC) 100
WDS, Dinet, and PFC are hereinafter referred to as the Company.
All significant intercompany accounts have been eliminated in
consolidation.
Organization
-------------
WDS, which is headquartered in Florida, has approximately 350 shareholders
of record as of September 30, 1997. WDS's common stock is traded on the OTC
Bulletin Board. WDS is not currently required to file quarterly or annual
financial reports with the Securities and Exchange Commission (SEC). WDS,
however, filed with the SEC for reporting status, and has not yet received
approval.
Dinet designs and markets fleet management and control systems for the
two-way mobile radio and cellular (CDPD)markets. It's customers include
ready-mix concrete suppliers, taxi-cab companies, parcel delivery services,
public transportation, etc. From its offices in Oceanside, California, Dinet
sells to customers on a nationwide basis; since September 30, 1994, Dinet has
begun selling in the international market with clients in Mexico, Canada,
South America, and Malaysia.
PFC has been a dormant entry for several years and does not have any
significant operations.
Trade Accounts Receivable
--------------------------
Bad debts are reported using the allowance method.
Notes to Consolidated Financial Statements
September 30, 1997
Page 2
Inventories
-----------
Raw materials and the related component of work-in-progress inventory are
recorded at lower of cost or market using the first-in, first-out method of
accounting for inventory.
Property and Equipment
----------------------
All equipment, fixtures and leasehold improvements have been fully
depreciated and amortized, and have no value on the books of the Company.
Office Space
------------
The Company maintains office ane warehouse space in three locations-
Oceanside, California; St. Cloud, Minnesota; and Leesburg, Florida. The
Oceanside location houses the offices of Dinet. The Company leases 5,200
square feet of office space for a rent of $2,261 per month for yearly
renewable lease periods. The St. Cloud office is leased on a month to month
basis at $250 per month, and consists of 850 square feet. The Leesburg
office, which constitutes the Company headquarters, consists of 300 square
feet, leased monthly for $100.
Income Taxes
-------------
Dinet files separate federal and California income tax returns based on a
February 28/29 fiscal years. There are no significant differences in
reporting revenue or expenses for financial statement purposes vs. income tax
purposes.
WDS has not filed tax returns as a result of incurring substantial prior
losses. The tax losses can be carried forward for 15 years. The Company's
net operating loss carryforwards (NOL) are listed as follows:
Year
- ----
FYE 9-30-85 Loss $ 156,640
FYE 9-30-86 Loss 350,448
FYE 9-30-87 Loss 63,220
FYE 9-30-88 Loss 77,463
FYE 9-30-89 Loss 28,235
FYE 9-30-90 Loss 155,830
FYE 9-30-91 Loss 73,336
FYE 9-30-92 Loss 60,078
FYE 9-30-93 Loss 162,125
Notes to Consolidated Financial Statements
September 30, 1997
Page 3
FYE 9-30-94 Loss 90,040
FYE 9-30-95 Profit (208,147)
FYE 9-30-96 Profit (327,141)
FYE 9-30-97 Profit ( 81,587)
-----------
Total NOL Carryforward $ 600,540
2. Related Party Transactions and Relationships
A. The names and relationships of the related parties referred to in these
notes are set forth below:
Mike McLaughlin, CEO-President of WDS, Chairman and Secretary of Dinet, and
approximately 12% stockholder of WDS.
Pat Makovec, Dinet President/PST Treasurer and Secretary and 10.3% stockholder
of WDS.
Heartland Diversified Industries, Inc., a non-operating entity which is 35%
owned by Mr. McLaughlin and 15% by Mr. Makovec. Heartland is a 22.4%
stockholder of WDS.
Brian Watts, Dinet vice-president and general manager and a 4% stockholder of
WDS. Mr. Watts also factors the Company's accounts receivable and has
received approximately $25,000 in fees for his factoring services.
3. Preferred Stock.
In a 1991/1992 private offering, Dinet sold 20 shares of $1,000 face value
preferred stock, each of which is convertible into 800 share of Dinet common
stock. The 12% annual non-cumulative dividend increased to 25% in January of
1995. This preferred stock is callable upon payment of (1) an 18% premium
(which decreased to 15% in January, 1995) for each year the stock is
outstanding and (2) all accrued dividends; the call premium is cumulative.
Notes to Consolidated Financial Statements
September 4, 1997
Page 4
4. Stock Options and Warrants
Incentive Stock Options
-----------------------
Under an incentive stock option plan (ISOP) approved by WDS's
stockholders, 500,000 shares of common stock have been authorized/reserved for
issuance to officers and other key employees. Exercise price for options
granted under the ISOP shall generally not be less than the estimated fair
market value of the stock at the date of grant; option periods may not exceed
ten years. At September 30, 1997 options for 450,000 shares have been
granted. Options outstanding at that date, which are exercisable at 5 cents
per share, are summarized as follows:
Options Outstanding Expiration Date
- ------------------- ---------------
20,000 11/98
225,000 12/99
--------
245,000
-------
Management Incentive Earnings Plan
-----------------------------------
Under a management incentive earnings plan (MIEP), officers and employees
could receive warrants based on a minimum after tax profit per share of common
stock on a fully diluted basis which would include any warrants issued. The
MIEP will be in existence for five year beginning on April 1, 1996 and ending
on March 31, 2001. The warrant exercise price is $.50 per share of common
stock. These officers and employees will receive warrants in accordance with
a schedule of after tax profits of $.06 per share by March 31, 1997 graduated
annually by $.06 per share increments. Therefore, at the end of the fifth
year - March 31, 2001, an after tax profit of $.30 per share must be achieved.
At the start of the plan no participant could receive more than 500,000
warrants, and the maximum number of warrants that could be issued was
1,500,000. The first year of the plan has expired and participants were not
eligible for any warrants. At the end of each year if the targeted earnings
are not achieved, the number of warrants available are reduced by 20%. The
maximum number of warrants that could be issued under the plan is now
1,200,000, and the minimum number that could be issued if the goal is reached
in the last year of the plan is 614,000. The life of the warrants if issued
is five years.
5. Commitments and Contingencies
Notes To Consolidated Financial Statements
September 30, 1997
Page 5
The Company has entered into a golden parachute agreement under which it is
obligated to certain WDS officers- in the event of hostile or friendly
takeover, or if any such officer is terminated for any reason other than
allegations of fraud- for severance pay equal to one year's salary. Voluntary
resignation reduces the amount by 25%. All liabilities for bonuses, back
salaries and reimbursable expenses will be paid, and the cost of benefits will
be paid for one year.
6. Accrued Salaries and Expenses Payable
Over the course of five years, certain officers and key employees elected
to leave the major portion of their salaries and expenses as a way of infusing
additional cash in WDS thereby enabling WDS to continue its growth pattern.
Such salaries and expenses will be disbursed as management determines,
assuming cash flow is adequate. All related salaries and tax items have been
expensed so that there will be no effect on future earnings.
7. Geographic Areas
All sales are managed as a single enterprise. However, in compliance with
SFAS 14, "Financial Reporting for Segments of a Business Enterprise", the
United States is reported as a separate geographic area.
Area 1997 1996
- ---- ---- ----
United States Revenues $2,104,194 $1,740,276
Americas Revenues 302,708 303,865
Asia Pacific Revenues 0 47,414
---------- ----------
Totals $2,406,902 $1,153,981
8. Deferred Service Contract
In April of 1997, WDS entered into a consulting agreement whereby the
Consultants would function as public relations, provide services relating to
establishing WDS as a reporting company, and other services not related to
capital formation, and the company would compensate the Consultants with cash
and common stock. The agreed upon
Notes to Consolidated Financial Statements
September 30, 1997
Page 6
compensation was $10,000 in cash and 300,000 shares of common stock. The
total value of the services to be provided was $206,400.
9. Subsequent Events
In October of 1997, the Company extended the Consulting agreement outlined
in Note 8 to include an additional 150,000 shares of common stock.
10. Prior Period Adjustments
The Company made a prior period adjustment to its earnings as a result of
an under-accrual of California state income taxes. Under the tax laws of the
State of California, operating loss carryforwards are reduced by one-half.
This resulted in the aforementioned under-accrual.
11. Sale of Bernard Lee Edwards Securities, Inc.
Formerly a subsidiary, 670 shares of Bernard Lee & Edwards Securities, Inc.
("BLE") was sold in March, 1996 to Heartland Diversified Industries Inc. for
$164,000. The 670 shares represented all of the holdings by PST of BLE. This
was approximately 64% ownership. Prior to the sale, BLE operated under the
accrual method of accounting. The terms of payment from Heartland was secured
by a promissory note and is reflected on the Company's balance sheet, as well
as the statement of cash flows. The note has not been collected as at
December 7, 1997.
PART III
ITEM 1. FINANCIAL STATEMENTS AND EXHIBITS.
The following exhibits are filed as a part of this Registration
Statement.1
Exhibit
Number Description
- ------- -----------
2.1* Agreement dated March 1, 1984, between Heartland Oil & Mineral
Corporation and Gold Genie Worldwide, an Oregon partnership
2.2* Buy/Sell Agreement dated March 1, 1984, between the Company
and Heartland Oil & Mineral Corporation
3.1* Articles of Incorporation of Gold Genie Worldwide, Inc., filed
on March 7, 1984
3.2* Certificate of Amendment to the Articles of Incorporation of
Products, Services and Technology Corporation, filed on June
13, 1988
3.3* Articles of Domestication of Products, Services and Technology
Corporation, filed on June 2, 1997
3.4* Articles of Amendment to the Articles of Incorporation of
Products, Services and Technology Corporation, filed on June
13, 1997
3.5* Bylaws of Products, Services and Technology Corporation dated
as of June 2, 1997
10.1* Settlement Agreement and Release dated December 17, 1987,
between Heartland Diversified Industries, Inc., the Company,
and certain individuals
10.2* Agreement, dated April 19, 1988, by and between the Company,
Heartland Diversified Industries, Inc., Distributed Networks,
Inc., and certain shareholders of Distributed Networks, Inc.
10.3* Buy/Sell Agreement, dated March 27, 1996, by and between the
Company and Heartland Diversified Industries, Inc.
10.4 Consulting Agreement dated April 15, 1997, among Products,
Services & Technology Corporation, David Wood and Henry Hanson
11* Statement regarding computation of per share earnings
21* List of Subsidiaries
24* Power of Attorney
27* Financial Data Schedule
99* Gold Genie Worldwide, Inc. Offering Prospectus, dated July 24,
1985
1 Summaries of all exhibits contained in this Registration Statement are
modified in their entirety by reference to such exhibits.
* Previously filed.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this Amendment No. 1 to Form 10-SB to be signed on its
behalf by the undersigned, thereunto duly authorized.
WIRELESS DATA SOLUTIONS, INC.
Date: February 12, 1998 By: /s/ Michael B. McLaughlin
--------------------------
Michael B. McLaughlin
President and Chief Executive
Officer
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is made this 15th day of
April, 1997, by and among Products, Services & Technology Corp., an Oregon
corporation, and its successors and assigns, whose principal place of business
is located at 1016 Shores Acres Drive, Leesburg, Florida 34748 (the "Company")
and David wood, a North Carolina resident with an address of 7720 Arboretum
Drive, Suite 103, Charlotte, North Carolina 28270, and Henry Hanson, a Montana
resident with an address of 2217 Canyon Drive, Billings, Montana 59102
(collectively, the "Consultants"). The Consultants executed and delivered
this Agreement by the execution and delivery of the Counterpart Signature
Pages which are designated as Exhibits "A" and "B" hereof.
R E C I T A L S
WHEREAS, the Board of Directors of the Company has agreed to adopt a
written investor relations agreement for compensation of two individual
Consultants, who are natural persons, for agreed upon services previously
performed and to be performed; and
WHEREAS, the Company desires to engage the Consultants to provide
services at the request of and subject to the satisfaction of its management,
and may avail itself of the services of the Consultants during the term
hereof; and
WHEREAS, the Consultants have previously provided certain services at the
request and subject to the approval of the management of the Company; and
WHEREAS, a general description of the nature of the agreed-upon services
performed and to be performed by the respective Consultants under this
Agreement is listed in the Counterpart Signature Pages attached hereto; and
WHEREAS, the Company and the Consultants intend that this Agreement shall
be a "written compensation agreement" as defined in Rule 405 of the Securities
and Exchange Commission (the "SEC")pursuant to which the Company may issue
"freely tradeable" shares of its common stock as payment for services rendered
pursuant to an S-8 Registration Statement to be filed with the SEC by the
Company.
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, it is agreed:
A G R E E M E N T
1. Consultant Services. The Company hereby acknowledges the employment
of the Consultants and the Consultants hereby acknowledge acceptance of such
employment, and have performed or will perform the services requested by
management of the Company to the Company's satisfaction during the term
hereof. Subject to the terms and conditions of this Agreement, the
Consultants shall continue to provide consulting services at the request of
the Company in connection with its general operations and projects during the
term hereof. Any and all services performed by the Consultants shall be
performed in accordance with the requests of the management of the Company.
The services performed by the Consultants hereunder have been personally
rendered by the Consultants and no one acting for or on behalf of the
Consultants, except those persons normally employed by the Consultants in
rendering services to others, such as secretaries, bookkeepers and the like.
2. Compensation. In consideration of the services performed and to be
performed by the Consultants hereunder, shares of the Company's common stock
shall be issued to the Consultants according to the following schedule (the
"Shares"):
Name of Consultant Number of Shares
------------------ ----------------
David Wood 260,000
Henry Hanson 40,000
3. Delivery of Shares. Subject to the filing and effectiveness of the
SEC Forms, as provided for and defined in Paragraph 4 of this Agreement, and
any applicable state securities filings covering the Shares, and also subject
to Paragraph 5 of this Agreement, one or more certificates representing such
Shares shall be delivered to the respective Consultants, at their respective
addresses listed above, unless another address shall be provided to the
Company by any Consultant in writing prior to the creation of such
certificates.
4. Preparation of Securities Registration Forms; Payment of Fees.
Except as provided in Paragraph 5, the parties understand and agree that the
issuance of the Shares and any Renewal Term Shares (as defined below) shall
occur after the filing with the SEC and effectiveness of all required
Registration Statements and other necessary securities documents, including,
without limitation, a Form 10-SB General Form for Registration and a Form S-8
Registration Statement (the "SEC Forms"). Upon execution of this Agreement,
the Company shall take such actions as are reasonably necessary to effect the
preparation and filing of the SEC Forms, including the engagement of the
services of a competent professional or professionals. In order to facilitate
the Company's preparation and filing of these documents, David Wood agrees to
pay all costs and expenses, or, if applicable, to reimburse the Company for
all costs and expenses, arising from or in connection with the preparation and
filing of the SEC Forms.
5. Failing to Register Securities; Issuance of Restricted Shares. If
the Shares or Renewal Term Shares (as defined below) are not capable of
registration with the SEC as set forth in Paragraph 4 prior to the expiration
of this Agreement pursuant to Paragraph 11, the parties agree that the Shares,
and Renewal Term Shares if applicable, shall be issued to the Consultants as
"restricted" shares. In such circumstance, the transferability of the Shares,
and Renewal Term Shares if applicable, will be restricted by the Securities
Act of 1933, as amended (the "Act"), and applicable state securities laws and
regulations, and neither the Shares nor the applicable Renewal Term Shares
will be eligible to be sold unless they are subsequently registered or an
exemption from registration is available. If the Shares or Renewal Term
Shares are issued as "restricted" shares, the certificates representing such
Shares or Renewal Term Shares will bear appropriate legends referring to the
restrictions on resale and transferability imposed by the Act and applicable
state securities laws and regulations. If the Shares or Renewal Term Shares
are issued as "restricted" shares, the Company shall use its best efforts to
prepare and file a registration statement covering such Shares or Renewal Term
Shares by the earliest practicable date.
6. Additional Compensation. In further consideration of services
performed or to be performed by David Wood, one of the Consultants hereunder,
the Company shall pay to David Wood a total of $10,000 as follows: $5,000
upon execution of this Agreement; and $5,000 on or before thirty (30) days
after the execution of this Agreement.
7. Expenses. The Company shall initially pay for all ordinary and
necessary out-of-pocket expenses incurred by Consultants on behalf of the
Company prior to delivery of the Shares to the Consultants pursuant to
Paragraph 3 hereof, in connection with the services performed or to be
performed by the Consultants hereunder. The Consultants shall furnish such
receipts or other evidence of payment of such expenses as may be reasonably
requested by the Company to substantiate the same. Following delivery of the
Shares pursuant to Paragraph 3 hereof, each Consultant shall reimburse the
Company for all amounts initially paid by the Company for such ordinary and
necessary out-of-pocket expenses incurred by such Consultant on behalf of the
Company pursuant to this paragraph.
8. Limitation on Nature of Services. None of the services performed or
to be performed by the Consultants and paid for by the issuance of shares of
common stock of the Company are or shall be services related to any "capital
raising" transaction.
9. Confidential Information. The Consultants acknowledge that in the
course of performance of services under this Agreement, it has had or will
have access to and has acquired or will acquire Confidential Information (as
hereinafter described) concerning the Company, its business and operations.
Each of the Consultants agrees that he/she will not disclose any Confidential
Information to third parties or use any Confidential Information for any
purpose other than the performance of this Agreement except as disclosure may
be necessary or appropriate in the course of performing this Agreement. For
purposes of this Agreement, the term "Confidential Information" shall include
all information relating to the business of the Company and all processes,
services and other activities engaged in by the Company during the term of
this Agreement; provided, however, that the term "Confidential Information"
shall not include any information which at the time of disclosure to the
Consultant is in the public domain, or which subsequently becomes a part of
the public domain by publication or otherwise through no fault of the
Consultant, or which is subsequently disclosed to the Consultant or its
employees by a third party not in violation of any rights or obligations owed
by such third party to the Company.
10. Indemnification. Each party to this Agreement (hereinafter an
"Indemnifying Party") hereby agrees to indemnify each of the other parties to
this Agreement (hereinafter an "Indemnified Party") for and hold the
Indemnified Party harmless against the following: (a) any and all loss,
liability or damage resulting from any breach or nonfulfillment of any
agreement or obligation of the Indemnifying Party under this Agreement; (b)
any losses, damages, fees, settlements, or other costs or expenses resulting
from any misstatement of a material fact or omission of a material fact by the
Indemnifying Party contained herein or contained in the S-8 Registration
Statement of the Company to be filed hereunder, to the extent that any such
misstatement or omission contained in the Registration Statement was based
upon information supplied by the Indemnifying Party; and (c) any and all
actions, suits, proceedings, damages, assessments, judgements, settlements,
costs and expenses, including reasonable attorneys' fees, incurred by the
Indemnified Party as a result of the failure or refusal of the Indemnifying
Party to defend any claim incident to or otherwise honor the foregoing
provisions after having been given notice of and an opportunity to do so.
If any claim or liability shall be asserted against an Indemnified Party
which would give rise to a claim by the Indemnified Party against an
Indemnifying Party for Indemnification under the provisions of this Paragraph
10, the Indemnified Party shall promptly notify the Indemnifying Party in
writing of the same, subject to the prior approval of the Indemnified Party,
which approval shall not be unreasonably withheld, the Indemnifying Party
shall be entitled at its own expense to compromise or defend any such claim.
The Indemnifying Party shall keep the Indemnified Party informed of
developments with respect to such claim, including any litigation, and the
Indemnified Party shall not compromise or settle any action, claim, demand or
litigation without the prior written consent of the Indemnifying Party, in
breach of which the Indemnified Party shall have no right to indemnification
under this Agreement in respect of such compromise or settlement.
11. Term; Expiration. The "Effective Date" of this Agreement is the
date of execution hereof. This Agreement shall remain in effect until
expiration as hereinafter provided. This Agreement shall expire on the date
that is six (6) months after the Effective Date, unless extended in accordance
with Paragraph 12 hereof. Notwithstanding the foregoing, expiration of this
Agreement pursuant to this Paragraph shall not alter or excuse the parties'
obligations under Paragraph 3 or Paragraph 4 of this Agreement.
12. Option to Renew.
12.1 Exercise of Option. The parties agree that the Company shall
have an option to renew this Agreement as to Consultant David Wood for an
additional renewal term of six (6) months. The Company may exercise such
option to renew by providing written notice of such exercise to Consultant
David wood no later than thirty (30) days before the expiration of this
Agreement pursuant to Paragraph 11 hereof.
12.2 Renewal Term Compensation. If the Company exercises such
option to renew, the terms and provisions of this Agreement shall continue to
apply, except that additional compensation of up to 250,000 shares of the
Company's common stock (the "Renewal Term Shares") shall be paid to Consultant
David Wood in consideration of the services to be performed by Consultant
David Wood during such renewal term. In consultation with Consultant David
Wood, the Company shall determine the exact number of shares of the Company's
common stock to be paid to Consultant David Wood as Renewal Term Shares, after
considering the value of the services to be performed by Consultant David Wood
during such renewal term and the market value of shares of the Company's
common stock during the period immediately preceding the commencement of such
renewal term.
13. Independent Contractors. The Company and the Consultants agree that
the Consultants are independent contractors for all services performed and to
be performed under the terms and conditions of this Agreement and shall not be
deemed to be the Company's agent for any purpose whatsoever and are not
granted any right or authority under this Agreement to assume or create any
obligation or liability, whether express or implied, absolute or contingent,
on the Company's behalf, or to bind the Company in any manner. The
Consultants shall be liable for any FICA taxes, withholding or other similar
taxes or charges arising from the issuance of any shares of the Company's
common stock to any Consultant or any other compensation received hereunder,
and the Consultants shall indemnify and hold harmless the Company therefrom;
it is understood by the parties that the value of all such items has been
taken into account by the parties in determining the amount of compensation
for services rendered by the Consultants hereunder.
14. Representations and Warranties of the Company. The Company
represents and warrants to, and covenants with, the Consultants as follows:
14.1 Corporate Status. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Oregon.
14.2 Registration Statement of Form S-8. The Company shall provide
to the Consultants prior to the issuance and delivery of any Shares or Renewal
Term Shares a copy of each of the following: the SEC Forms; this Agreement;
all quarterly, annual or current reports or other documents incorporated by
reference into such Registration Statement; and any other similar reports
filed or publicly disseminated following the effective date of any such
Registration Statement.
14.3 Securities Laws. The Company shall fully comply with any and
all federal and state securities laws, rules and regulations governing the
issuance of any of the Shares or Renewal Term Shares.
14.4 Reports with the SEC. Upon the filing and effectiveness of a
Form 10-SB, the Company will be required to file reports with the SEC pursuant
to Section 15(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), and the Company agrees that after the filing and effectiveness of such
From 10-SB, and during the term of this Agreement and any renewal term
hereunder, it will file with the SEC all reports required to be filed by it,
and such reports will be true and correct in every material respect.
15. Representation and Warranties of Consultants. Each of the
Consultants individually represents and warrants to, and covenants with, the
Company as follows:
15.1 Employment. Each of the Consultants has hereby accepted
employment by the Company, and has agreed to perform and has performed the
services requested by management of the Company during the term hereof. The
services performed by the Consultants have been personally rendered by the
Consultants, and no one acting for or on behalf of the Consultants.
15.2 Sophisticated Investors. Each of the Consultants represents
and warrants that by reason of income, net assets, education background and
business acumen, he/she has the experience and knowledge to evaluate the risks
and merits attendant to an investment in shares of common stock of the
Company, either singly or through the aid and assistance of a competent
professional, and is fully capable of bearing the economic risk of loss of
his/her total investment in the Company.
15.3 Limitation on Services. None of the services rendered or to
be rendered by the Consultants and paid for by the issuance of the Shares or
Renewal Term Shares shall be services related to any "capital raising"
transaction.
15.4 Valid Obligation; No Conflicts. Execution of this Agreement
and performance of services hereunder by each Consultant constitutes valid and
binding obligations of such Consultant and his/her performance hereunder will
not violate any other agreement to which such Consultant is a party.
16. Miscellaneous Provisions.
16.1 Notices. All notices or other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be considered as properly given or made if hand delivered, mailed from within
the United States by certified or registered mail, or sent by prepaid telegram
to the applicable addresses appearing in the preamble to this Agreement, or to
such other address as a party may have designated by like notice forwarded to
the other parties hereto. All notices, except notices of change of address,
shall be deemed given when mailed or hand delivered and notices of change of
address shall be deemed given when received.
16.2 Further Assurances. At any time, and from time to time, after
the execution hereof, each party will execute such additional instruments and
take such action as may be reasonably requested by the other party to carry
out the intent and purposes of this Agreement.
16.3 Binding Agreement; Non-Assignability. Each of the provisions
and agreements herein contained shall be binding upon and enure to the benefit
of the personal representatives, heirs, devises, successors and permitted
assigns of the respective parties hereto; however, none of the rights or
obligations hereunder attaching to any Consultant may be assigned, without the
express written consent on the company, and none of the rights or obligations
hereunder attaching to the Company may be assigned, without the express
written consent of each of the Consultants.
16.4 Entire Agreement. This Agreement, and the other documents
referenced herein, constitute the entire understanding of the parties hereto
with respect to the subject matter hereof and supersedes and cancels any prior
agreement, representation or communication, whether oral or written, between
the parties relating to the transactions contemplated herein or subject matter
hereof. No amendment, modification or alteration of the terms hereof shall be
binding unless the same be in writing, dated subsequent to the date hereof and
duly approved and executed by each of the parties hereto.
16.5 Severability. Every provision of this Agreement is intended
to be severable. If any term or provision hereof is illegal or invalid for
any reason whatever, such illegality or invalidity shall not affect the
validity of the remainder of this Agreement.
16.6 Headings. The headings of this Agreement are inserted for
convenience and identification only, and are in no way intended to describe,
interpret, define or limit the scope, extent or intent hereof.
16.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16.8 Governing Law. This Agreement, and the application or
interpretation hereof, shall be governed exclusively by its terms and by the
laws of the State of Oregon. Venue for all purposes shall be deemed proper
within either: (a) Lake County, Florida; or (b) with respect to any action
relating to the rights or obligations hereunder of Consultant David Wood, the
County of Mecklenburg, North Carolina.
16.9 Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or a breach hereof, shall be settled by
arbitration, in accordance with the rules of the American Arbitration
Association, and the parties hereto agree to submit any such claim or
controversy to a competent arbitration body for resolution.
16.10 Legal Fees and Costs. If any action is initiated by any
party to this Agreement against another, arising out of or relating to the
alleged performance or non-performance of any right or obligation established
herein, or any dispute concerning the same, any and all fees, costs and
expenses reasonably incurred by each successful party or his assigns, or its
legal counsel in investigating, preparing for, prosecuting, defending against,
or providing evidence, producing documents or taking any other action in
respect of, such action shall be the joint and several obligation of and shall
be paid or reimbursed by the unsuccessful party.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement the day and year first written above.
PRODUCTS, SERVICES & TECHNOLOGY CORP.
By: /s/ Mike McLaughlin
------------------------------
Mike McLaughlin, President
EXHIBIT "A"
(Consulting Agreement)
COUNTERPART SIGNATURE PAGE
THIS COUNTERPART SIGNATURE PAGE for that certain Consulting Agreement
among Products, Services & Technology Corp. and the undersigned Consultant is
executed as of the date set forth below.
CONSULTANT
Date: April 15th, 1997 By: /s/ David Wood
-------------------------
David Wood
Services Performed and to be Performed:
Development, implementation and maintenance of
investor relations and market awareness program, through
the following methods, without limitation: direct mail
information; national financial publications; e-mail and Internet
financial publications; radio and television programs;
newsletters; and regular press releases. Interface with stock-
holders and market-makers. Assist in preparation of Company
informational materials.
EXHIBIT "B"
(Consulting Agreement)
COUNTERPART SIGNATURE PAGE
THIS COUNTERPART SIGNATURE PAGE for that certain Consulting Agreement
among Products, Services & Technology Corp. and the undersigned Consultant is
executed as of the date set forth below.
CONSULTANT
Date: 4/15/97 By: /s/ Henry Hanson
----------------
Henry Hanson
Services Performed and to be Performed:
General corporate organizational and investor
relations consulting, as requested by the Company.
