<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the year ended March 31, 1998
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
Commission file number: 001-14001
CUMETRIX DATA SYSTEMS CORP.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-4574138
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
957 LAWSON ST.
INDUSTRY, CALIFORNIA 91748
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (626) 965-6899
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
<TABLE>
<CAPTION>
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ------------------------
<S> <C>
Common Stock Boston Stock Exchange
</TABLE>
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT: NONE
Indicate by check mark whether the Registrant: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the last 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation 5-K is not contained herein, and will not be contained
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of voting and non-voting stock held by
non-affiliates of the Registrant, based upon the closing sales price of the
Common Stock on the NASDAQ National Market on July 28, 1998 was $19,176,650.
The number of shares of the Registrant's Common Stock outstanding as of
July 28, 1998, was 7,452,500.
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<PAGE>
GENERAL
Cumetrix Data Systems Corp. (the "Company") hereby amends its Annual
Report on Form 10-K for the fiscal year ended March 31, 1998, by deleting its
responses for Items 10, 11, 12 and 13 contained in its Annual Report on Form
10-K filed on June 29, 1998 and replacing such sections with the following:
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS
<TABLE>
<CAPTION>
NAME POSITION WITH COMPANY AGE DIRECTOR SINCE
- ------------------------------------------------------------ ------------------------------ --- ---------------
<S> <C> <C> <C>
Max Toghraie................................................ Chief Executive Officer and 35 1997
Director of the Company
James Ung................................................... President and Director 36 1996
Nancy Hundt................................................. Director 29 1996
Mei Yang.................................................... Secretary, Treasurer and 35 1996
Director
David Tobey................................................. Director 37 1997
Philip Alford............................................... Director 44 1998
</TABLE>
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
EXECUTIVE OFFICER
NAME POSITION WITH COMPANY AGE SINCE
- ------------------------------------------------------------ --------------------------- --- -----------------
<S> <C> <C> <C>
Jeff Toghraie............................................... Chief Operating Officer 30 1998
Carl L. Wood................................................ Chief Financial Officer 46 1998
Stephen T. Schaffert........................................ Chief Technology Officer 47 1998
</TABLE>
BUSINESS EXPERIENCE
DIRECTORS
MAX TOGHRAIE has served as the Chief Executive Officer of the Company since
September 1997, and as a director since April 1997. He has also served as a
consultant to the Company since its inception in April of 1996. Mr. Toghraie
served as a trading group manager for D'Argent Inc., an international trading
company from 1992 through December 1996. During the past 5 years, he has been
involved with various privately held development stage companies as a director
and/or consultant. Mr. Toghraie is a member of the audit committee of the Board
of Directors. Max Toghraie and Jeff Toghraie, the Chief Operating Officer of the
Company, are brothers.
<PAGE>
JAMES UNG is a co-founder of the Company and has served as its President
since April 1997 and as a director since the Company's inception in April of
1996. From February 1992 until joining the Company, Mr. Ung was Director of
Operations of American Systec Corporation, a privately held systems
distribution and configuration company in Brea, California. From 1989 to
1992, Mr. Ung served as Vice President of Marketing at PC Systems Design, a
California based systems integration and distribution company. Mr. Ung is
married to Mei Yang.
NANCY HUNDT has served as a director of the Company since its inception in
April of 1996. Ms. Hundt is a co-founder of the Company. She has a background in
the optical industry and has served as a representative of the American Board of
Opticianery, an optical industry retail group. Ms. Hundt acts as a consultant to
the optical industry and has served over the last five years as Chief Operating
Officer of Academy Optical, Inc. Ms. Hundt is a member of the audit and
compensation committees of the Board of Directors.
MEI YANG has served as a director of the Company since its inception in
April of 1996. Ms. Yang has served as the Secretary and Treasurer of the Company
since March 1997. From 1990 to 1996, Ms. Yang was the Chief Operating Officer of
American Systec Corporation, a privately held systems distribution and
configuration company in Brea, California.
DAVID TOBEY has served as a director of the Company since July 1997. Mr.
Tobey was the founder and President and CEO of Computer-Aided Software
Integration ("CASI") from February 1995 to March 1998 and was a significant
stockholder of CASI, a subsidiary of Datatec Systems, Inc. (formerly Glasgal
Communications, Inc.), a Nasdaq traded company. He also founded and served as
the Executive Director of the Integrating Technology Consortium, an integration
standards, certification and education organization focused on the hospitality
industry from June 1994 to October 1997. Prior to founding CASI in February
1995, Mr. Tobey was the Senior Vice President of Corporate Services from April
1993 to April 1995 for Hotel Information Systems where he was responsible for
articulating and managing the development of strategic initiatives and corporate
operations in marketing, product development and professional services. From
September 1986 to April 1994, Mr. Tobey was the founder and served as Chairman
and CEO of Stratcon, a systems integration company in the legal market and later
as CTO of Automation Partners, into which Stratcon merged in 1990. Mr. Tobey has
also consulted with numerous technology and service companies and is a frequent
speaker at international conferences on technology and management topics. Mr.
Tobey is a member of the compensation committee.
PHILIP ALFORD has served as a director of the Company since February 1998.
Mr. Alford is the co-founder and Chairman and acting Chief Financial Officer of
Verix Software, a position he has held since July 1997. Prior to joining Verix
Software, a business software developer, Mr. Alford was employed by Tekelec, a
publicly traded company, from 1985 to December 1996, where he served primarily
as its Chief Financial Officer and from 1994 to 1996 as its President, Chief
Executive Officer and director. Tekelec is a supplier of diagnostic and
switching systems to the communications industry. After leaving Tekelec, Mr.
Alford served as an independent management consultant. Mr. Alford is a member of
the audit and compensation committees.
EXECUTIVE OFFICERS
JEFF TOGHRAIE has served as the Chief Operating Officer of the Company since
June 1998. Mr. Toghraie has been an advisor to the Company since its inception
in April 1996. From 1992 to 1996, Mr. Toghraie was a private investor and a
financial consultant with Strafford Group, a privately held investment firm. Mr.
Toghraie and Max Toghraie, Chief Executive Officer of the Company, are brothers.
<PAGE>
CARL L. WOOD has served as Chief Financial Officer of the Company since
February 1998. From September 1996 to June 1997, Mr. Wood served as Corporate
Controller and Director of Management Information Systems at Murad, Inc. in
El Segundo, California, a cosmetic retail business specializing in high-end
skin care products. From 1989 to September 1996, Mr. Wood was Corporate
Controller and Vice President, Finance, and subsequently the Chief Financial
Officer of 99 Cents Only Stores in Los Angeles, California, a deep discount
retailer of general merchandise.
STEPHEN T. SCHAFFERT has served as Chief Technology Officer of the Company
since May 11, 1998. From August 1996 to April 1997, Mr. Schaffert served as
Configuration Centers Manager and then Operations Vice President for
Computer-Aided Software Integration, Inc. ("CASI"). From May 1997 to April 1998,
he was a Process Engineering Specialist for Datatec Systems, Inc., CASI's
parent. From September 1994 to August 1996, Mr. Schaffert worked for KTA Inc.,
an MPE Engineering firm as a systems administrator/ manager. From April 1991 to
September 1994, Mr. Schaffert worked for Digital Equipment Corp. as a LAN
Engineer. During the past 20 years, Mr. Schaffert has worked at Novell, Digital
Equipment Corp., GTSI, Automation Partners and other computer and networking
industry companies.
COMPLIANCE WITH BENEFICIAL OWNERSHIP REPORTING RULES
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors, and
persons who beneficially own more than 10% of a registered class of the
Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission
("Commission"). Such officers, directors, and stockholders are required by
Commission regulations to furnish the Company with copies of all such reports
that they file. Prior to the consummation of the initial public offering of
the Common Stock of the Company on April 8, 1998, the officers, directors and
beneficial owners of more than 10% of the Company's Common Stock ("reporting
persons") were not required to file reports under Section 16(a). Therefore,
no filings with respect to any reporting persons under Section 16(a) were
required for the year ended March 31, 1998.
Based solely upon a review of copies of reports furnished to the Company on
or after April 8, 1998 and written representations received by the Company from
the reporting persons, the Company believes that all Section 16(a) filing
requirements applicable to the Company's reporting persons have been complied
with to date.
ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the Chief Executive
Officer and each of the most highly compensated executive officers whose
individual remuneration exceeded $100,000 for the year ended March 31, 1998
(the "Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
COMPENSATION
--------------------- -------------
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS(1)
- ----------------------------------------------------------- --------- ---------- -------------
<S> <C> <C> <C>
Max Toghraie(2)............................................ 1998 $ 96,000 126,046
Director and Chief Executive Officer
James Ung(3)............................................... 1998 $154,985 98,645
Director and President
Tommy Tang(4).............................................. 1998 $ 12,000 0
President
</TABLE>
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(1) All stock options to Messrs. Toghraie and Ung were granted under the
Company's 1997 Stock Option Plan.
(2) Mr. Toghraie was appointed Chief Executive Officer of the Company in
September 1997. Prior to Mr. Toghraie's appointment, there was no Chief
Executive Officer of the Company.
(3) Mr. Ung is married to Mei Yang, Director, Secretary and Treasurer of the
Company. Ms. Yang receives salary of $72,000 per year and received options
to purchase 27,402 shares of Common Stock from the 1997 Stock Option Plan on
July 1, 1997, which options are exercisable at $2.70 per share and expire
July 1, 2007. As of March 31, 1998, 10,274 of such options were exercisable.
From March 1997 to September 1997, Ms. Yang received was compensated at an
annual salary of $45,600 per year. For the entire year ended March 31, 1998,
Ms. Yang received $54,328.
(4) Mr. Tang was President of the Company until May 1997.
<PAGE>
STOCK OPTION GRANTS
The following table sets forth information regarding stock options granted
during the year ended March 31, 1998 to the Named Executives.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF STOCK
NUMBER OF GRANTED PRICE APPRECIATION FOR
SECURITIES TO EMPLOYEES EXERCISE OR OPTION TERM
UNDERLYING IN BASE PRICE EXPIRATION ----------------------
NAME OPTIONS GRANTED FISCAL YEAR ($/SH) DATE 5% ($) 10%($)
- ---------------------------------------- --------------- -------------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Max Toghraie............................ 126,046 32.84% $2.70 7/1/07 $214,028 $542,389
James Ung(1)............................ 98,645 25.70% $2.70 7/1/07 $167,501 $424,480
</TABLE>
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(1) James Ung is married to Mei Yang, Secretary, Treasurer and Director of the
Company. During the last fiscal year, Ms. Yang received options to purchase
27,402 shares of Common Stock. Ms. Yang's options were 7.14% of the total
options granted to employees in the last fiscal year. The exercise price on
Ms. Yang's options is $2.70 per share. The expiration date of Ms. Yang's
options is July 1, 2007. The potential realizable value at at assumed annual
rates of stock appreciation for the option term is $46,529 at an assumed
rate of 5% and $117,914 at an assumed rate of 10%.
YEAR END OPTIONS
The following table sets forth information regarding unexercised options
held by the Named Executives. No options were exercised during the year ended
March 31, 1998:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF IN-THE MONEY
NUMBER OF UNEXERCISED OPTIONS OPTIONS AT FISCAL YEAR
AT FISCAL YEAR END END(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ----------------------------------------------------- ----------------------------- ----------------------------
<S> <C> <C>
Max Toghraie......................................... 47,263/78,783 $108,704/$181,201
James Ung(2)......................................... 36,989/61,656 $85,075/$141,808
</TABLE>
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(1) There was no public market for the Company's Common Stock at fiscal year
end. For purposes of valuing in-the-money options at fiscal year end, an
assumed value of $5.00 per share for the Common Stock, which price is the
initial public offering price of the Company's Common Stock, is used.
(2) Mr. Ung is married to Mei Yang, Secretary, Treasurer and Director of the
Company. At the end of the last fiscal year, Ms. Yang had 10,274 unexercised
exercisable options and 17,127 unexercised unexercisable options. The value
of Ms. Yang's exercisable in-the-money options at fiscal year end was
$23,630, and the value of Ms. Yang's unexercisable in-the-money options at
fiscal year end was $39,392.
<PAGE>
EMPLOYMENT AND OTHER COMPENSATORY AGREEMENTS
The Company has entered into an employment agreement with Max Toghraie to
serve as Chief Executive Officer. The agreement is for an initial term of
five years commencing July 1, 1997 and will automatically be extended for
consecutive periods of one year unless the Company elects to terminate the
agreement. Mr. Toghraie is entitled to an annual base salary of $192,000 and
has been issued options to to purchase 126,046 shares of the Company's Common
Stock at $2.70 per share pursuant to the Company's 1997 Stock Option Plan.
The Company will also provide Mr. Toghraie with other customary benefits,
including health, life and disability insurance, an automobile allowance and
reimbursement for ordinary business expenses. If Mr. Toghraie's employment is
terminated "without cause," all of his options immediately vest, and he will
be entitled to receive a payment equal to the then effective base salary for
the lesser of the remainder of the term of the agreement, and 24 months.
The Company has entered into an employment agreement with James Ung to serve
as President. The agreement is for an initial term of five years commencing July
1, 1997 and will automatically be extended for consecutive periods of one year
unless the Company elects to terminate the agreement. Mr. Ung's base salary from
July 1, 1997 until September 30, 1997 was $144,000 per annum, and effective
September 30, 1997 increased to $192,000. Mr. Ung has been issued options to
purchase 98,645 shares of the Company's Common Stock at $2.70 per share pursuant
to the Company's 1997 Stock Option Plan. The Company will also provide Mr. Ung
customary benefits, including health, life and disability insurance, an
automobile allowance and reimbursement for ordinary business expenses. If Mr.
Ung's employment is terminated "without cause" he will be entitled to receive a
payment equal to the then effective base salary for the lesser of the remainder
of the term of the agreement and six (6) months.
The Company has entered into an employment agreement with Mei Yang to serve
as Secretary and Treasurer. The agreement is for an initial term of five years
commencing July 1, 1997 and will automatically be extended for consecutive
periods of one year unless the Company elects to terminate the agreement. Ms.
Yang's base salary from June 1, 1997 until September 30, 1997 was $45,600 per
annum, and, effective September 30, 1997 increased to $72,000. Ms. Yang has been
issued options to purchase 27,402 shares of the Company's Common Stock at $2.70
per share pursuant to the Company's 1997 Stock Option Plan. The Company will
also provide Ms. Yang customary benefits, including health, life and disability
insurance, an automobile allowance and reimbursement for ordinary business
expenses.
In May 1998, the Company also entered into an employment agreement with Mr.
Schaffert which is terminable at will by either the Company or Mr. Schaffert. If
the Company terminates Mr. Schaffert's employment without cause (as defined in
the agreement) prior to May 1, 2000, Mr. Schaffert is entitled to receive as
severance his salary through May 1, 2000. If, after May 1, 2000, the Company
terminates Mr. Schaffert's employment agreement, Mr. Schaffert is entitled to
receive as severance his base salary for six (6) months. Under the terms of this
Agreement, Mr. Schaffert's annual base salary is $110,000. Mr. Schaffert is
entitled to receive an annual merit bonus of up to 10% of his annual base salary
upon satisfaction of certain criteria to be set by the Compensation Committee of
the Board of Directors. Any bonus is within the discretion of the Compensation
Committee of the Board of Directors. Upon voluntary termination of his
employment with the Company, he shall receive all accrued salary, bonus and
other benefits.
DIRECTOR COMPENSATION
All directors are reimbursed for out-of-pocket expenses in connection with
attendance at Board of Directors' and/or committee meetings and all directors
who are not executive officers or employees of the Company currently receive a
director's fee of $500 per meeting personally attended and $100 per meeting
telephonically attended for service as a director. The directors have also
received nonstatutory stock options, which, to date, have been approved by the
entire Board of Directors. Future grants of stock options will be administered
by the Compensation Committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS,
DIRECTORS AND OFFICERS
The following table sets forth certain information with respect to (i) each
director and nominee for director of the Company, (ii) the named executive
officers in the Summary Compensation Table on page 8, (iii) all directors and
executive officers of the Company as a group as of July 29, 1998, including the
number of shares of Common Stock beneficially owned by each of them, and (iv)
each person known by the Company to own beneficially more than 5% of the
outstanding shares of the Company's Common Stock. Unless otherwise indicated
below, the business address of each individual is the same as the address of the
Company's principal executive offices.
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL CLASS OF
OWNERSHIP OF COMMON
EXECUTIVE OFFICERS COMMON STOCK(1) STOCK
- -------------------------------------------------------------- ------------------ -----------
<S> <C> <C>
Max Toghraie(2)............................................... 61,046 *
James Ung(3) and Mei Yang(4).................................. 2,253,164 29.99%
Carl L. Wood(5)............................................... 4,998 *
Stephen T. Schaffert(6)....................................... 3,332 *
DIRECTORS
- --------------------------------------------------------------
Nancy Hundt(7)................................................ 2,194,634 29.44%
David Tobey(8)................................................ 7,421 *
Philip Alford(9).............................................. 3,000 *
All directors and executive officers as a group (7 persons)
(10)........................................................ 4,527,595 59.61%
</TABLE>
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* Less than 1%
(1) Includes shares issuable upon the exercise of options or warrants that are
exercisable within 60 days of the date of this Proxy Statement. The shares
underlying such options or warrants are deemed to be outstanding for the
purpose of computing the percentage of outstanding stock owned by such
persons individually and by each group of which they are a member, but are
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Chief Executive Officer and director of the Company. Consists of 61,406
shares issuable upon exercise of options. Mr. Toghraie's address is 957
Lawson Street, Industry, California 91748
(3) President and director of the Company. Mr. Ung and Ms. Yang are married.
Includes 47,776 shares issuable upon exercise of options. Mr. Ung's address
is 957 Lawson Street, Industry, California 91748
(4) Secretary, Treasurer and director of the Company Ms. Yang and Mr. Ung are
married. Includes 13,270 shares issuable upon exercise of options. Ms.
Yang's address is 957 Lawson Street, Industry, California 91748
(5) Chief Financial Officer of the Company. Consists of 4,998 shares issuable
upon exercise of options. Mr. Wood's address is 957 Lawson Street, Industry,
California 91748.
(6) Chief Technology Officer of the Company. Consists of 3,332 shares issuable
upon exercise of options. Mr. Schaffert's address is 957 Lawson Street,
Industry, California 91748.
(7) Includes 2,516 shares issuable upon exercise of options. Ms. Hundt's address
is 957 Lawson Street, Industry, California 91748.
(8) Consists of 7,421 shares issuable upon exercise of options. Mr. Tobey's
address is 1545 Shadowtree Ct., Colorado Springs, Colorado 80921.
(9) Consists of 3,000 shares issuable upon exercise of options. Mr. Alford's
address is 746 West Adams Boulevard, Suite 109, Los Angeles, California
90089.
(9) Includes 143,359 shares issuable upon exercise of options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Until March 1998 David Tobey, a director of the Company, was the founder
and the President, Chief Executive Officer and a principal stockholder of
Computer-Aided Software Integration, Inc. ("CASI"). CASI is a subsidiary of
Datatec Systems, Inc. ("Datatec"), formerly known as Glasgal Communications,
Inc. On March 9, 1998, Mr. Tobey resigned all positions with CASI and Datatec
and sold his entire equity interest in CASI to Datatec. Although the Company
believes that Mr. Tobey's departure from CASI and Datatec will have no
adverse effect on the Company's relationship with CASI and Datatec, there can
be no assurance that Mr. Tobey's resignation will not adversely effect the
Company's working relationship with CASI and Datatec. During his employment
at CASI and Datatec during which Mr. Tobey was a principal stockholder of
CASI, the Company and CASI entered into (i) a license agreement (the "CASI
<PAGE>
License") pursuant to which the Company received a worldwide, perpetual,
royalty-free, nonexclusive (except as to the countries comprising South
America (excluding Central America) and Malaysia where the license is
exclusive for a term of five years) and non-transferable license to reproduce
and use CASI's Integrator's Workbench Product Series ("IWPS") software
including CASI's Configurator and router software products, and (ii) a
reseller agreement (the "Reseller Agreement") pursuant to which the Company
may market, distribute and support CASI's products throughout the world. The
Company paid CASI a one-time license fee of $1,100,000. The license fee was
paid (i) by delivering to CASI a non-interest bearing promissory note in the
principal amount of $950,000 (the "CASI Note"), and (ii) a cash payment of
$150,000 funded by a loan to the Company in such amount by an officer of
Datatec (the "Datatec Loan") described below. In connection with its license
of the Configurator software from CASI, the Company issued to CASI a
contingent warrant (the "CASI Warrant") exercisable upon the Company's
default on payment of the $950,000 principal amount then due under the CASI
Note. The Company fully repaid the Datatec Loan and the CASI Note out of the
proceeds of its Initial Public Offering in April 1998. The CASI License was
fully paid and the Company has no further license fee obligations. Under the
CASI License, the Company is entitled to receive maintenance for the
Configurator software for a fee of $25,000 per annum, payable in equal
quarterly installments. Maintenance is limited to debugging and delivery to
the Company of any enhancements or upgrades to the Configurator software used
internally by CASI or released by CASI to its customer base. The Company is
also entitled to request that CASI provide enhancements and additional
features on CASI's licensed Configurator system specified by the Company.
CASI may develop such enhancements and features at CASI's expense and
incorporate them as part of CASI's generally released Configurator software,
or, if CASI declines to develop the enhancements and features at its own
expense, the Company is able to require CASI to perform such development
services at preferential rates and any resulting work product of CASI will be
owned by the Company. If CASI ceases to provide support or enhancements or
otherwise fails to perform its obligations to the Company, the Company's
remedies include access to CASI's source code for the Configurator software.
The Company's license to the Configurator software includes a license to
modify and maintain the source code from and after such time, if any, as the
Company receives access to the Configurator software source code.
In connection with the Datatec Loan, the Company executed a promissory note
(the "Datatec Note") in favor of the officer of Datatec who made the Datatec
Loan. The Datatec Note provided that the Company pay $50,000 on November 31,
1997 and $100,000 on February 28, 1998. The Datatec Note was fully paid out of
the proceeds of the initial public offering of the Common Stock of the Company
in April 1998.
The $950,000 principal amount of the CASI Note exceeded 5% of the Company's
total assets at the end of the fiscal year.
Under the Reseller Agreement, the Company has an exclusive right for a
period of five years to resell CASI's licensed software in South America
(excluding Central America) and Malaysia and a non-exclusive worldwide right (i)
to market, distribute, license and support the CASI's Configurator software in
object-code form, and (ii) to use CASI's Configurator software to provide
services to the Company's customers and sublicensees. CASI has agreed that it
will not enter into any agreement with a third party which provides for the
right to license or resell the CASI's Configurator software products in the
countries comprising Asia, the Pacific Rim, Japan or Australia without allowing
the Company a first right of refusal to create an agreement with such third
party as a distributor and/or sub-licensee and/or first offering the Company the
right to license or resell on terms and conditions, including price, equivalent
to those contained in the proposed third party agreement. CASI has retained the
right to use its software in Malaysia and South America only for CASI's own
configuration centers.
At the time the Company enterred into the CASI License and the Reseller
Agreement and executed the CASI Note and the Datatec Note, Stephen T. Schaffert,
Chief Technology Officer of the Company, was Configuration Centers Manager for
CASI.
The Company loaned approximately $40,000 aggregate principal amount to Mr.
Max Toghraie, the Chief Executive Officer of the Company and a director, in
exchange for a promissory note dated February 12, 1997, at a rate of 5.7% per
annum. The loan was fully repaid on June 16, 1997.
For the year ended March 31, 1998, the Company had sales of approximately
$1.39 million to and purchases of approximately $598,200 from Samax Technology,
Inc. ("Samax"), a Company owned by the mother of Mr. Max Toghraie and Mr. Jeff
Toghraie. At March 31, 1998, the Company had approximately $92,000 and $0
included in trade receivables and accounts payable, respectively, attributed to
<PAGE>
Samax. Although the Company is not currently making purchases from or sales to
Samax, if the Company determines that resuming purchases from or sales to Samax
in the future would be in the best interests of the Company, any such future
transactions would be negotiated on an arms-length basis and on terms and
conditions at least as favorable to the Company as those which would be obtained
from competitors of Samax.
The Company purchased 200,000 shares and 100,000 warrants in Evolutions,
Inc. ("Evolutions") for $100,000 which, at March 31, 1997, was personally
guaranteed by Max Toghraie. This guarantee was recorded as a receivable from a
director, Max Toghraie. Subsequent to June 13, 1997, the Board of Directors and
shareholders voted to release Max Toghraie from this guarantee as partial
inducement for Max Toghraie to accept additional management responsibilities at
the Company, including agreeing to become the Chief Executive Officer. The
Company determined, due to significant cash flow difficulties encountered by
Evolutions, that its investment is worthless. Accordingly, the Company
recognized a one-time loss of $100,000 during the first quarter of 1997 which
was included in selling, general and administrative expenses.
In June 1997, Mr. James Ung and Ms. Mei Yang signed individual guarantees of
the Company's credit facility with Finova Capital Corporation, which facility
was $7.5 million at March 31, 1998. As of March 31, 1998, the Company had a
payable to Finova Capital Corporation of approximately $5,853,429.
On December 3, 1997, the Company executed a lease for approximately 21,900
square feet of office and warehouse space in Industry, California. The lease
term is three years, and the base rent is $11,169 per month. On December 3,
1997, James Ung and Mei Yang signed an individual guarantee (the "Guarantee") of
the Company's obligations under the lease. The Guarantee terminated upon the
date the Company became a public company.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused to be signed on its behalf by the
undersigned, thereunto duly authorized.
CUMETRIX DATA SYSTEMS CORP.
------------------------------------------
(Registrant)
Date: July 29, 1998 By: /s/ MAX TOGHRAIE
---------------------------- -------------------------------------
Max Toghraie, Chief Executive Officer
SIGNATURES
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ MAX TOGHRAIE Chief Executive Officer July 29, 1998
- ---------------------------- and Director (Principal
Max Toghraie Executive Officer)
* President and Director July 29, 1998
- ----------------------------
James Ung
* Chief Operating Officer July 29, 1998
- ----------------------------
Jeff Toghraie
* Chief Financial Officer July 29, 1998
- ---------------------------- (Principal Financial and
Carl L. Wood Accounting Officer)
* Secretary, Treasurer and July 29, 1998
- ---------------------------- Director
Mei Yang
<PAGE>
* Director July 29, 1998
- ----------------------------
Nancy Hundt
* Director July 29, 1998
- ----------------------------
David Tobey
* Director July 29, 1998
- ----------------------------
Philip J. Alford
* By: /s/ MAX TOGHRAIE
-------------------------------
Max Toghraie, Attorney-in-fact
