U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
___________________
AMENDMENT NO. 2
TO
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
___________________
AMERICAN CUSTOM COMPONENTS, INC.
(Name of Small Business Issuer in Its Charter)
NEVADA 81-0478643
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3310 W. MACARTHUR BOULEVARD
SANTA ANA, CALIFORNIA 92704
(Address of Principal Executive Offices) (Zip Code)
(714) 662-2080
(Registrant's Telephone Number, Including Area Code)
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, par value $0.001
Title of Class
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TABLE OF CONTENTS
PART I
Item 1 Description of Business.
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Item 3 Description of Property.
Item 4 Security Ownership of Certain Beneficial Owners and
Management.
Item 5 Directors, Executive Officers, Promoters and Control
Persons.
Item 6 Executive Compensation.
Item 7 Certain Relationships and Related Transactions.
Item 8 Description of Securities.
PART II
Item 1 Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters.
Item 2 Legal Proceedings.
Item 3 Changes In and Disagreements With Accountants.
Item 4 Recent Sales of Unregistered Securities.
Item 5 Indemnification of Directors and Officers.
PART F/S
Financial Statements.
PART III
Item 1 Index to Exhibits.
Item 2 Description of Exhibits.
<PAGE>
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
American Custom Components, Inc., a Nevada corporation ("ACC-NV" or the
"Company"), was incorporated on December 31, 1991 as Rainbow Bridge
Services, Inc. ("Rainbow"). Effective August 15, 1997, Rainbow, which had
no assets or operations, acquired all of the outstanding common stock of
American Custom Components, Inc., a California corporation incorporated on
April 18, 1994 ("ACC-CA"). Following the acquisition, Rainbow changed its
name to American Custom Components, Inc. In October 1997, the Company
acquired ninety-eight percent (98%) of the issued and outstanding stock of
Caribbean Electronics, Ltd., a St. Lucian corporation incorporated on
February 13, 1986 ("CEL"). Effective January 31, 1998, the Company acquired
all of the outstanding common stock of K5 Plastics, Inc., a California
corporation incorporated on February 8, 1983 ("K5"). Finally, on March 16,
1999, the Company acquired all of the outstanding common stock of Loyd
International, Inc., a Wyoming corporation ("Loyd"). The Company is a
holding company for its four (4) subsidiaries, ACC-CA, CEL, K5 and Loyd.
Through its subsidiaries, the Company is engaged in the business of
providing electronic assemblies (connectors and related parts) for use in
multiple applications ranging from general commodities such as industrial
supply products to specialized components such as high technology computer
and peripheral interconnect systems. The Company offers design,
assembly/test and shipment of a wide variety of connector components and
offers the design, assembly and test of specialized tooling for use in the
production of various injected plastic molded products. The Company also
offers low cost subcontract assembly in its off shore production facility.
The Company has targeted five major market segments that all benefit from
the Company's offerings. Those segments are:
Telecommunication - Industrial - Medical - Computer
Peripheral - General Products
The Company offers its technology customers a solution to many of their
electronic connector needs. The primary products offered are connector and
interconnect systems and a variety of metal tools used in the production of
injected plastic components. Components used in the connector and
interconnect systems include plastic housings which are designed, tooled and
produced in-house, thereby reducing production costs.
Services include designing and building custom tooling for plastic injection
molding applications and designing and manufacturing interconnect components
using injected plastic housings and metal contacts.
The Company offers the customer low cost and fast turnaround on designs,
samples and production of both standard and custom interconnect systems.
The Company believes that its competitive advantage is its ability to
provide system level design support, faster than the competition, in a
market that traditionally relies on "catalog sales." The Company provides
services and products that create fast time-to-volume for its customers.
Its strategy is to identify the weaknesses of the competition, offer
products and services that satisfy customer needs and penetrate selected
market niches using its core competence for competitive advantage.
Customers currently include Motorola, Western Digital, Iomega, Allied
Manufacturers, Mattel, Polaris Pools, Calluna, GE Fanuc, Hughes Aircraft,
Thermador, Smartflex, Westlock, Medtrex, Linear Technology, Furon and Adflex.
The Company's strategy is to continue to expand its custom connector and
subcontract assembly business in Santa Ana, California and to continue
expanding its 12,000 square foot manufacturing capability in St. Lucia. The
Company intends to use the St. Lucia plant to assemble and distribute
products for worldwide customers and to undertake manufacturing and molding.
The Company intends to manufacture critical molds and tooling at the Santa
Ana facility and ship them to the St. Lucia plant for use in volume production.
The corporate offices of the Company and its subsidiaries are located at
3310 W. MacArthur Boulevard, Santa Ana, California 92704. The telephone
number is (714) 662-2080.
THE ELECTRONICS CONNECTOR MARKETPLACE
According to Ken Fleck in Electronic Buyers News, the worldwide electronic
connector sales by end-use equipment were approximately $23.4 billion in
1997 and will be approximately $24.9 billion in 1998. Virtually every
electric or electronic product utilizes electronic connectors of varying
sophistication. To date, the Company's principal activities in the
electronic connector marketplace have principally focused in the computer
disk drive segment of that
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marketplace. In recent years, this computer disk
drive industry has been driven by extremely high competitive pressures in
terms of storage capacity, performance and pricing, among other factors, and
is characterized by frequent new product introductions, short product life
spans, and the need for high quality and reliability. The Company seeks to
address this market with quick response times, which the Company also sells
to other segments such as industrial and telecommunications components.
Electronic connectors are generally comprised of contact material, generally
metallic, to transmit electric current, and insulating materials such as
nylon, to hold the contact material in proper positioning, to link the
connector to another connector or component and to insulate the contact
material. Connectors must be designed to accommodate the number and size of
electrical contacts to be joined, voltage and current, and to fit space and
other requirements. Precise manufacturing tolerances and quality control
are essential, since electrical short circuits or open circuits caused by a
connector can render equipment inoperable or cause expensive damage.
The Company's product cycle includes the following major stages: sales;
engineering and design; sourcing; tooling; manufacturing; packaging and
delivery, and to a lesser extent, contract customer repair work.
MARKETING AND SALES
The Company's sales efforts are primarily directed by the key managers of
each of the respective services; molding, mold tooling operations, sub
contract services, and connector/interconnect assemblies. The Company's
marketing strategy has been based on providing rapid design, engineering,
tooling, molding and assembly for its clients' custom connector
requirements. To date, the primary market for the Company's products has
been disk drive manufacturers, but the Company has also diversified its
marketing to aerospace firms building electronic assemblies for the U.S.
military, and tooling for injected plastic mold parts.
The Company primarily sells its products through numerous manufacturers
representatives, which can be terminated at any time. All sales orders are
subject to approval by the Company. No marketing or sales efforts are made
through subsidiaries of the Company.
MANUFACTURING, PACKAGING AND DELIVERY
The connector manufacturing process primarily consists of injection molding
and assembly. Where possible, and to provide higher quality and output, the
Company manufactures its own packaging materials. Since most of the
Company's products are small, many shipments can be made via overnight
delivery services or counter to counter airline freight to non-local
customers. The Company seeks to manufacture its products to applicable
specification requirements.
In October 1997 the Company acquired a 12,000 square foot assembly plant in
Vieux Fort, St. Lucia. The Company has used and intends to use the St.
Lucia plant to assemble for worldwide customers. The Company intends to
manufacture critical molds and tooling at the Santa Ana facility and ship
them to the St. Lucia plant by overnight delivery service. The St. Lucia
plant also performs subcontract assembly services.
In addition to its own manufacturing requirements, which are satisfied by
ACC-CA and K5, the Company also designs and manufactures tools for outside
customers.
The principal components of the Company's products include nylon and contact
materials such as brass, copper, nickel, gold, silver, aluminum, steel, tin,
solder, and nuts, screws and bolts. Prior to acceptance by the Company, all
materials and components undergo quality assurance procedures. All
materials and components used in the Company's products are available from
several sources. Although availability of such materials has been adequate
to date, no assurance can be given that cost increases or material shortages
or allocations imposed by suppliers in the future will not have a materially
adverse effect on the operations of the Company.
The Company's principal suppliers include Central MN Tool and Stamping,
Inc., Electronic Plating Services, Fry Steel Co., Hasco Internorm Corp.,
Nascal Interplex, Inc., Phantom Tool and Die, Plastic Resources, Inc.,
Precision Components, Safe Plating, Inc., and Skyler International.
<PAGE>
CUSTOMERS OF THE COMPANY
The Company currently has five customers that in the aggregate represent 65%
of the total sales for its last two fiscal years. One of its five major
customers filed for protection under the federal bankruptcy laws subsequent
to March 31, 1997. The Company has collected substantially all of its open
accounts receivable from such customer. The Company anticipates that it
will continue to rely upon these customers during the fiscal year ending
March 31, 1999.
The Company has diversified its customer base and, in fact, over the last
six months as much as 65% of total sales were to customers other than the
five mentioned above.
SIGNIFICANT ACQUISITIONS
In October 1997, the Company acquired ninety-eight percent (98%) of the
issued and outstanding stock of Caribbean Electronics, Ltd., a St. Lucian
corporation, for $25,000 cash, a $100,000 note at an interest rate of 8% per
annum, and 8,333 restricted shares of the Company's common stock. In
connection with the acquisition, the Company also assumed certain accounts
payable of approximately $25,000. Caribbean Electronics, Ltd. is an
electronic parts assembly business located on the island of St. Lucia. The
acquisition was accounted for as a purchase. The acquisition of Caribbean
Electronics, Ltd. included acquisition of a manufacturing and assembly
facility which the Company intends to utilize for its existing and new
customers.
Effective January 31, 1998 the Company acquired K5 Plastics, Inc. ("K5"), a
tooling and mold manufacturer through the purchase of one hundred percent
(100%) of its issued and outstanding shares of stock. The Company acquired
K5 for $42,000 in cash, a $50,000 note at an interest rate of 10% per annum,
and 25,000 shares of restricted common stock. Also, the Company delivered
60,000 warrants with an exercise price of $3.00. Of these warrants, 30,000
are exercisable at any time in the next two to five years and the remaining
30,000 are exercisable at any time in the next three to six years. The
Company has also assumed a K5 note payable to Union Bank of California in
the amount of approximately $12,000 bearing an interest rate of 11% per
annum and a line of credit to Union Bank of California with an outstanding
principal balance of approximately $50,000 at an adjustable interest rate
currently at 11.25%.
On March 16, 1999, the Company acquired all of the issued and outstanding
stock of Loyd International, Inc., a Wyoming corporation. In connection
with the transaction, (i) the Company's then-largest shareholder, Martin
Tony Walk, exchanged an aggregate of 4,972,000 shares of common stock for
500,000 shares of Series A Convertible Preferred Stock, (ii) the Company
issued an aggregate of 1,600,000 shares of common stock to Edward Loyd, the
sole shareholder of Loyd International, Inc., and an Officer and Director of
the Company, (iii) the Company paid the sum of $11,000 to Mr. Walk and
entered into a consulting contract with him, (iv) the Company entered into
an Assignment of Assets and Assumption of Liabilities with Mr. Walk with
respect to the assets and liabilities of the Company as they related to
Tagnology, Inc., and (v) the Company agreed to assume all tax liabilities of
Mr. Walk incurred as a result of the transaction.
Management does not currently have any plans or arrangements for additional
acquisitions or other new ventures.
PATENTS AND OTHER INTELLECTUAL PROPERTY
The Company and its subsidiaries generally own the design rights for the
connectors it manufactures, but does not generally rely upon patent
protection for its connectors but rather believes that the short lifespan
and time to market for products provides sufficient intellectual property
protection for its products. There can be no assurance that competitors of
the Company do not have competing patents which may preclude certain aspects
of the Company's designs, that competitors may reverse engineer and create
competitive products to those of the Company or that other technological
protection can be obtained for the Company's products. No assurance can be
given that patents will be granted on future patent applications. The
Company has one trademark application pending.
GOVERNMENT REGULATION
The Company believes it is in compliance with federal, state and local
regulations with respect to environmental protection. The Company does not
anticipate that costs of compliance with such regulations will have a
material effect on its capital expenditures, earnings or competitive position.
<PAGE>
The Company, through its CEL subsidiary, operates in a foreign jurisdiction
and, as set forth in the auditor's report, is exposed to certain risks
associated therewith. These risks include currency differences and
fluctuations, political events and the status of relationships among
governments, labor restrictions, and overall market and economic conditions.
Specifically, it is imperative that the government of St. Lucia continue to
support business on the island through training and assisting in appeasing
union negotiators as well as continue to make improvements to roads,
communication, and port facilities. Asian economic volatility has currently
slowed sales growth within the market. Management believes that its
marketing plan and the marketing plans of its major customers are well
positioned to deal with such uncertainties.
EMPLOYEES
The Company and its subsidiaries have approximately 100 employees (42 of
which are primarily part-time), including two officers, seven administrative
personnel, four in engineering, 79 in manufacturing, and eight in quality
control. Sales and marketing is undertaken primarily by four external sales
representation firms. Other than officers and directors, none of the
Company's subsidiaries have employees.
RESEARCH AND DEVELOPMENT
The Company expended approximately $190,000 in fiscal year 1998 for research
and development activities related to its manufacturing processes. Of such
amount, approximately $50,000 was reimbursed to the Company from its
customers. None of the Company's subsidiaries expended material sums for
research and development.
COMPETITION
The Connector Business
The electronic connector business consists of a few very large entities,
each with annual sales over $1 billion per year. These companies include
AMP, Berg, Robinson Nugent, Molex, and many smaller companies with annual
revenues between $10 million and $100 million. The Company is small
compared to the marketplace, and competes against its larger competitors by
offering "custom application" components in a shorter time and for a lower
cost. The Company is able to compete on cost as a result of its off-shore
manufacturing. In the event, however, that its more-adequately financed and
larger competition were to focus their efforts on shorter turn-around times,
they could materially erode the Company's market share and have a material
adverse effect on the Company's financial performance.
The Tooling Business
The Company entered the plastic tooling business when it acquired K5. K5
was in the business of selling tooling services and mold making to a set of
customers at the time of the acquisition, and the Company continues to
support and expand the outside customer base inherited in the acquisition.
The Company also uses the capabilities of K5 for its in-house manufacturing
of tools used in the production of plastic components used in final assemblies.
The tooling industry consists of competitors that make their own tooling for
their own use, as well as small to medium sized companies that sell to
outside customers. The majority of the competition in the tooling segment
are very small machine shops, privately held and located in the United
States. The Company, through K5, offers a unique set of capabilities with
very fast turn around times that give customers a quick time-to-market.
However, existing customers could elect to vertically integrate and provide
the now-subcontracted services in-house, a move which, if followed by a
substantial number of the Company's customers, could have a materially
adverse effect on the Company's financial performance.
Subcontract Services Business
The Company entered the subcontract services business when it acquired CEL.
CEL was in the business of providing subcontract manufacturing services to
outside customers. The Company uses CEL both as an in-house manufacturing
plant with low cost labor as well as a plant to service outside customers
inherited in the acquisition.
<PAGE>
Competition in the Caribbean region is minimal, with most of the competition
for these services coming from the Far East. The Company uses the CEL
facilities for shipment to customers located in the European Economic
Community as the island nation is a protectorate of Great Britain and
participates in the European Trading Community. If competitors were to
locate on the island of St. Lucia, the Company could be effected by the
reduced skilled labor available to the Company.
YEAR 2000 DISCLOSURE
In the fiscal year ended March 31, 1998, the Company began the process of
identifying, evaluating, and implementing changes to its computer programs
necessary to address the Year 2000 issue. The Company has currently
addressed its internal Year 2000 issue by modification of existing programs
and conversions to new programs. While the Company is confident that it has
successfully completed the assessment and remediation of its computer
software, there can be no assurance that the necessary modifications and
conversions will be adequate or completely thorough, which could have a
material adverse effect on its results of operations. The total cost to the
Company associated with the required modifications and conversions was not
material to the Company's results of operations and financial position and
was expensed as incurred.
ITEM 2 - MANAGEMENT'S DISCUSSION OF ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains certain forward-looking statements that
are subject to business and economic risks and uncertainties, and the
Company's actual results could differ materially from those forward-looking
statements. The following discussion regarding the financial statements of
the Company should be read in conjunction with the financial statements and
notes thereto.
OVERVIEW
The Company, together with its subsidiaries, has its primary operations
located in Santa Ana, California where it is currently engaged in the
business of designing and manufacturing electronic components and plastic
injection tools for computers, disk drives, computer systems, military
applications, medical, telecommunications and certain industrial devices.
In August 1997, the Company (which at the time was named Rainbow Bridge
Services, Inc., a Nevada corporation ("Rainbow")) acquired all of the
outstanding common stock of ACC-CA in a business combination described as a
"reverse acquisition." As such, the historical financial statements are
those of ACC-CA and the accounts of Rainbow have been reflected in the
consolidated financial statements from the August 1997 date of the
acquisition. In October 1997, the Company acquired ninety-eight percent
(98%) of the issued and outstanding stock of Caribbean Electronics, Ltd.
("CEL"), an electronic components manufacturer, housed in a leased 12,000
square foot assembly plant located on the island of St. Lucia. As of
January 31, 1998, the Company acquired one-hundred percent (100%) of the
issued and outstanding stock and assumed certain debts of K5 Plastics, Inc.,
a California corporation ("K5"), a mold and tooling manufacturer and a
previous vendor. K5 has been consolidated with the Company's Santa Ana
facility.
RESULTS OF OPERATIONS
REVENUES
During the fiscal years ended March 31, 1998 and 1997, the Company's
revenues were derived principally from the following products:
i. Electrical components for disk drives
ii. Military and industrial connectors
For the year ended March 31, 1998, revenues were $2,583,094. This is an
increase of 4.4% from $2,473,095 recorded for the year ended March 31, 1997.
The increase was due to increased sales efforts arising from the Company's
external sales force. For the fiscal year ended March 31, 1996, revenues
were $718,748.
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GROSS MARGINS
The Company realized a gross margin of $1,059,399 reported for the year
ended March 31, 1998. This is an increase of 47.2% over $719,652 for the
year ended March 31, 1997. The increase is due to a shift of some final
assembly operations from Southern California to the plant in St. Lucia,
which provided a lower cost of labor and favorable overall economic
conditions for the region. The gross margin as a percentage of revenues was
41% for the year ended March 31, 1998 and 29% for the year ended March 31,
1997. The Company realized a gross margin of $256,659 for the fiscal year
ended March 31, 1996. The gross margin as a percentage of revenues was 36%
for the fiscal year ended March 31, 1996.
Operating income was a negative $672,998 for the year ended March 31, 1998.
This is a decrease of 558% from $147,019 recorded for the year ended March
31, 1997. The decrease is due to a decrease in sales volume during the last
three months of the fiscal year. Selling, general, and administrative
(SG&A) expenses were increased during the second and third quarter in
response to indications of continued increasing sales. The reaction time to
correct this expense increase resulted in lower income from operations,
which also resulted in a decreased net income. Operating income was a
negative $71,758 for the fiscal year ended March 31, 1996.
OPERATING COSTS AND EXPENSE
Operating costs and expenses increased by $1,159,764 (203%) for the year
ended March 31, 1998 as compared to the year ended March 31, 1997. The
increase was due primarily to the increased cost of sales associated with
sales commissions to representatives and the hiring of certain key
personnel. These new employees come from some of the Company's largest
customers, bringing with them certain knowledge specific to the industry.
Operating costs and expenses increased by $244,216 (74%) for the fiscal year
ended March 31, 1997 as compared to the fiscal year ended March 31, 1996.
OTHER OPERATING EXPENSE
Total other operating expenses, consisting primarily of bad debt expense,
payroll taxes, rent, telephone and utilities, printing, and office supplies,
increased by $296,050 (226%) for the year ended March 31, 1998 as compared
to the year ended March 31, 1997. This increase was due in large part to
the conversion of a significant percentage of the Company's labor force from
independent contractors to Company employees. Total other operating
expenses decreased by $11,555 (8%) for the fiscal year ended March 31, 1997
as compared to the fiscal year ended March 31, 1996.
NET INCOME
Net income for the year ended March 1998 was a negative $773,263 compared to
$77,342 for the year ended March 1997, a 1100% decrease. As stated earlier,
this decrease was due primarily to a decreased sales volume during the last
three months of the fiscal year while SG&A expenses were increased during
the second and third quarter in response to indications of continued
increasing sales.
ASSETS AND LIABILITIES
Total assets increased from $759,145 as of the year ended March 1997 to
$1,486,046 as of the year ended March 1998. This increase of 95% was due
primarily to the inclusion of assets as a result of the acquisitions of CEL
and K5. Inventory increased from $75,410 as of the year ended March 1997 to
$227,465 (201%) as of the year ended March 1998 due to a slow down in
shipments during the first quarter of 1998. Net property and equipment
increased from $245,556 as of the year ended March 1997 to $750,371 (a 205%
increase) as of the year ended March 1998 primarily as a result of the
acquisitions described above.
Total liabilities increased from $791,276 for the period ended March 1997 to
$1,119,606 (a 41% increase) for the period ended March 1998 due to an
increase in accounts payable (an increase from $238,708 to $456,977, or 91%)
and the addition of notes payable, net of current portion. The accounts
payable increase resulted from increased trade payables as the CEL and K5
acquisitions occurred. The other increase in total liabilities came from
the creation of notes payable during the reverse merger.
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SHAREHOLDERS EQUITY
Shareholders Equity increased from a negative $32,131 as of the period ended
March 1997 to $366,440 as of the period ended March 1998. This increase of
1240% reflects the negative earnings reported for the period ended March
1998 ($773,263) and the issuance of shares and related additional paid-in
capital raised during the fiscal year from private offerings of the
Company's securities ($1,171,834).
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 1998
Sales for the six months ended September 1998 were $832,011. Gross profit
was $410,614, or 49.35%, an increase of 8.3% over the period ended March 31,
1998. The Company's net income was a negative $57,794.
Sales continued to decline following the end of the 1998 fiscal year,
primarily due to a slow down in the marketplace. The decrease in sales
occurred faster than the Company could adjust the SG&A costs, thus resulting
in a net loss for the period. However, overhead expenses were reduced as a
percentage of sales.
Total assets increased from $1,486,046 to $1,712,961, while inventory was
reduced from $227,465 to $161,643. Owners equity increased from $366,440 to
$616,146.
LIQUIDITY AND CAPITAL RESOURCES
In August 1997, the Company (which at the time was designated Rainbow Bridge
Services, Inc., a Nevada corporation ("Rainbow")) acquired all of the
outstanding common stock of American Custom Components, Inc., a California
corporation ("ACC-CA") in a business combination described as a reverse
acquisition. For accounting purposes, the acquisition has been treated as
the acquisition of Rainbow (the Company) by ACC-CA. Immediately prior to
the acquisition, Rainbow had 832,752 shares of stock outstanding. As part
of the reorganization, the Company issued 7,447,000 shares to the
shareholders of ACC-CA in exchange for 7,447 shares of common stock in
ACC-CA. In addition, the Company issued options to purchase 1,100,000
shares of its common stock to certain consultants and employees. The
Company subsequently changed its name from Rainbow to American Custom
Components, Inc., a Nevada corporation. The Company is currently
experiencing growth beyond its financial resources. The Company intends to
acquire additional funds through establishing a bank lending relationship
and additional equity financing. Although management currently is
negotiating with several funding sources, no specific plans or arrangements
have been made for said financing. There can be no assurance that the
Company will be successful in obtaining any such funding.
In October 1997, the Company acquired ninety-eight percent (98%) of the
issued and outstanding stock of Caribbean Electronics, Ltd., a St. Lucian
corporation ("CEL"), for $25,000 cash, a $100,000 note payable with interest
at 8% per annum, and 8,333 restricted shares of the Company's common stock.
In connection with the acquisition, the Company also assumed certain
accounts payable of approximately $25,000. Caribbean Electronics, Ltd. is
an electronic contract assembly business located on the island of St. Lucia.
The acquisition was accounted for as a purchase.
Effective January 31, 1998 the Company acquired K5 Plastics, Inc. ("K5"), a
tooling and mold manufacturer through the purchase of one hundred percent
(100%) of its issued and outstanding shares of stock. The Company acquired
K5 for $42,000 in cash, a $50,000 note at an interest rate of 10% per annum,
and 25,000 shares of restricted common stock. Also, the Company delivered
60,000 warrants with an exercise price of $3.00. Of these warrants, 30,000
are exercisable at any time in the next two to five years and the remaining
30,000 are exercisable at any time in the next three to six years. The
Company has also assumed a K5 note payable to Union Bank of California in
the amount of approximately $12,000 bearing an interest rate of 11% per
annum and a line of credit to Union Bank of California with an outstanding
principal balance of approximately $50,000 at an adjustable interest rate
currently at 11.25%.
In connection with a private offering of securities which was made by the
Company in the Third Calendar Quarter of 1997, the Company entered into
three (3) Note Purchase Agreements with accredited purchasers under Rule 504
of Regulation D promulgated under the Securities Act of 1933 wherein the
purchasers purchased an aggregate of $374,700 in Notes convertible at the
greater of (i) 83% of the closing bid price of the Company's common stock,
or
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(i) $4.98. As of the date hereof, all of the Notes have been converted
into an aggregate of 75,241 shares of the Company's Common Stock.
In connection with a private offering of securities which was made by the
Company in the Fourth Calendar Quarter of 1997 and the First Quarter of
1998, the Company sold an aggregate of 245,000 restricted shares of Common
Stock to accredited investors under Rule 506 of Regulation D and Section
4(2) of the Securities Act of 1933 at a price of $1.75 per share, resulting
in net proceeds to the Company of $428,750.
In connection with a private offering of securities which was made by the
Company in the First and Second Calendar Quarters of 1998, the Company sold
an aggregate of 49,514 restricted shares of Common Stock to accredited
investors under Rule 506 of Regulation D and Section 4(2) of the Securities
Act of 1933 at a price of $1.75 per share, resulting in net proceeds to the
Company of $86,650.
In connection with a private offering of securities which was made by the
Company in the Second Calendar Quarter of 1998, the Company sold 80,000
shares of Common Stock to accredited investors under Rule 504 of Regulation
D and Section 4(2) of the Securities Act of 1933 at a price of $1.25 per
shares, resulting in net proceeds to the Company of $100,000.
In connection with a private offering of securities which was made by the
Company in the Second Calendar Quarter of 1998, the Company sold 225,000
restricted shares of Common Stock to accredited investors under rule 506 of
Regulation D and Section 4(2) of the Securities Act of 1933 at a price of
$0.70 per share, resulting in net proceeds to the Company of $112,500.
In addition to current liabilities of $846,131 at March 31, 1998, the
Company has $273,475 of long term debt. The March 31, 1998 outstanding debt
has been increased by $328,330 (42%) since March 31, 1997.
During fiscal 1998, the Company continued its management plan of
diversification of its product lines into emerging markets through continued
acquisitions and new products development. This plan was begun with the
establishment of the St. Lucia production facilities. The objective of the
expansion program is to achieve a geographic and economic relationship with
the emerging markets. While there can be no assurance that such funding can
be obtained, the Company plans to finance future acquisitions through both
capital raised from future private placements as well as through the direct
issuance of the Company's common stock.
On March 16, 1999, the Company acquired all of the issued and outstanding
stock of Loyd International, Inc., a Wyoming corporation. In connection
with the transaction, (i) the Company's then-largest shareholder, Martin
Tony Walk, exchanged an aggregate of 4,972,000 shares of common stock for
500,000 shares of Series A Convertible Preferred Stock, (ii) the Company
issued an aggregate of 1,600,000 shares of common stock to Edward Loyd, the
sole shareholder of Loyd International, Inc., and an Officer and Director of
the Company, (iii) the Company paid the sum of $11,000 to Mr. Walk and
entered into a consulting contract with him, (iv) the Company entered into
an Assignment of Assets and Assumption of Liabilities with Mr. Walk with
respect to the assets and liabilities of the Company as they related to
Tagnology, Inc., and (v) the Company agreed to assume all tax liabilities of
Mr. Walk incurred as a result of the transaction.
PROPOSED FUTURE OPERATIONS
The Company has historically been engaged in the business of design and
manufacture of electronic components and interconnect systems for the
computer disk drive industry. The Company's Management has recently
determined to broaden the Company's business plan from a disk drive
connector manufacturer to now offering its technology customers a more
complete solution to their interconnect and systems integration needs and to
penetrating additional market places. The Company designs its products to
customer specifications using sophisticated engineering facilities;
manufactures its molds and other necessary tooling; and manufacturing
components and assemblies.
<PAGE>
FORWARD LOOKING STATEMENTS
Certain of the statements contained in this report involve risks and
uncertainties. The future results of the Company could differ materially
from those statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this report.
While the Company believes that these statements are accurate, the
Company's business is dependent upon general economic conditions and various
conditions specific to technology-based industries. Accordingly, future
trends and results cannot be predicted with certainty.
It is imperative that the St. Lucia government continues to support business
on the island through training and assisting in appeasing union negotiators
as well as continues to make improvements to roads, communication and port
facilities. Asian economic volatility has currently slowed sales growth
within the market. To date, the Company has not experienced any problems
relating to currency translation nor does management anticipate any problems
in the future. Notwithstanding the foregoing, however, there exists certain
risks related to currency translation and there can be no assurances that
these risks, if they materialize, will not have a material adverse effect on
the operations and earnings of the Company.
While the Company plans to acquire/develop additional sales and gain synergy
from acquisitions, difficulties and expenses may be encountered in
integrating the newly acquired operations with those of the Company already
in place.
The Company has not experienced a material adverse impact of such risks and
uncertainties and does not anticipate such an impact. However, no assurance
can be given that such risks and uncertainties will not affect the Company's
future results of operations or its financial position.
ITEM 3 - DESCRIPTION OF PROPERTY
Effective November 1, 1995, the Company began leasing approximately 4,050
square feet of administrative office and warehouse space in Anaheim,
California at a monthly rental rate of approximately $2,171.00. The
premises were sublet to a tenant in an amount equal to the Company's
obligations under the lease. The lease expired October 31, 1998, and the
Company has no further obligations related to the Anaheim premises.
Effective December 1, 1997, the Company began leasing approximately 12,185
square feet of administrative office, warehouse, and manufacturing space in
Santa Ana, California at a monthly rental rate of approximately $6,702.00
per month. The rent increases to approximately $6,945 and $7,185 in years
two and three, respectively, of the lease. The lease expires November 30,
2000.
In September 1997 the Company acquired a 12,000 square foot manufacturing
facility in St. Lucia in connection with its acquisition of Caribbean
Electronics, Inc.
In connection with the acquisition of K5 in January 1998, the Company
assumed an obligation for a lease of approximately 3,000 square feet in
Huntington Beach, California. The monthly rental is approximately $1,760
per month and runs through February 2000. The Company is currently seeking
to sublet or be released from this obligation by the existing landlord.
Management believes that the Company had adequate insurance coverage on all
of its owned properties.
<PAGE>
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1999, certain information
with respect to the Company's equity securities believed by the Company to
be owned of record or beneficially by (i) each Director of the Company; (ii)
each person who owns beneficially more than 5% of each class of the
Company's outstanding equity securities; and (iii) all Directors and
Executive Officers as a group.
<TABLE>
Title Percent of
of Class Name and Address of Beneficial Owner Common Stock Outstanding
<S> <C> <C> <C>
Common Stock Edward Loyd 1,600,000 19.3%
3310 W. MacArthur Blvd
Santa Ana, CA 92704
Common Stock John Groom 1,100,000(1) 11.8%
3301 W. MacArthur Blvd
Santa Ana, CA 92704
Common Stock John Fritch - -
3301 W. MacArthur Blvd
Santa Ana, CA 92704
Common Stock Steve Kakuk 73,000(2) -
3301 W. MacArthur Blvd
Santa Ana, CA 92704
All Directors and Officers as a Group (3) 2,700,000 29.0%
</TABLE>
_____________________
(1) Includes warrants to acquire 1,000,000 shares of common stock at an
exercise price of $0.375 per share, exercisable until October 13,
2004. In the event of Mr. Groom's voluntary resignation as an
employee of the Company, the Company shall have to right to
terminate 41,667 warrants for each month between Mr. Groom's last
full month of employment and January 1, 2000.
(2) Does not include an aggregate of 60,000 warrants held by Mr. Kakuk
to purchase common stock of the Company at a purchase price of $3.00
per share. Of these warrants, 30,000 are exercisable at any time in
the next 2 to 5 years and the remaining 30,000 are exercisable at
any time in the next three to six years.
The Company believes that the beneficial owners of securities listed above,
based on information furnished by such owners, have sole investment and
voting power with respect to such shares, subject to community property laws
where applicable. Beneficial ownership is determined in accordance with the
rules of the Commission and generally includes voting or investment power
with respect to securities. Shares of stock subject to options or warrants
currently exercisable, or exercisable within 60 days, are deemed outstanding
for purposes of computing the percentage of the person holding such options
or warrants, but are not deemed outstanding for purposes of computing the
percentage of any other person.
ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names and ages of the current directors
and executive officers of the Company, the principal offices and positions
with the Company held by each person and the date such person became a
director or executive officer of the Company. The executive officers of the
Company are elected annually by the Board of Directors. The directors serve
one year terms and until their successors are elected. The executive
officers serve terms of one year or until their death, resignation or
removal by the Board of Directors. There are no family relationships
between any of the directors and executive officers. In addition, there was
no arrangement or understanding between any executive officer and any other
person pursuant to which any person was selected as an executive officer.
<PAGE>
The directors, executive officers, and significant employees of the Company
are as follows:
<TABLE>
Name Age Positions
<S> <C> <C>
John Groom 52 Director, President, Chief Executive Officer (1998)
Edward Loyd 55 Chief Financial Officer, Secretary (1999)
John Fritch 51 Director (1998)
Steve Kakuk 63 General Manager, Tooling and Mold Operations (1998)
</TABLE>
JOHN GROOM joined the Company as its President in January 1998 and assumed
the position of Chief Executive Officer in June 1998. From July 1996 until
November 1997, Mr. Groom was Senior Vice President of Operations, Division
Plant Manager and Chief Technical Officer for CMC Industries, Inc., a
telecommunications manufacturing firm. From November 1995 until June 1996,
Mr. Groom was Executive Director, Operations of JTS Corp., a computer disk
drive designer and manufacturer. From April 1987 until November 1995, Mr.
Groom held numerous positions at Seagate Technology International, a disk
drive manufacturer, most recently holding the position of Senior Director of
Engineering after promotion from his position as Director of Engineering,
Far East Operations. Mr. Groom brings years of international management
with operations development experience and extensive business knowledge of
Singapore, Malaysia, Hong Kong, Indonesia, Taiwan, Japan, Korea and India.
EDWARD LOYD joined the Company as its Chief Financial Officer in January
1999 and became a Director in March 1999. Prior to joining the Company, Mr.
Loyd was the President of Loyd International, Inc., a company he started in
the late 1970's. Loyd International, Inc. was the first for-profit
procurement agency providing procurement services to foreign governments to
whom the United States Government granted loans through its Agency of
International Development (AID) programs. Mr. Loyd has held various
executive level positions and brings signifiant international experience
relating to trade and the European Common Market. He has spent more than 25
years in the United Kingdom and throughout the continent as well as Asia,
South America, and Africa. In 1977, he started EBL Holdings, a company
specializing in mergers and acquisitions. In 1982, he started Vinceport
United Kingdom and Vinceport Canada, handling multi-lateral contracts
throughout the world for Canadian Export, Crown Agents, and Commonwealth
Development Corporation. He targeted worldside trade and financed the
trades through organizations such as Hermes, Kofax and ECGD and the U.S.
Import/Export Bank. Sales exports of goods and services exceed $150 million.
JOHN FRITCH joined the Company's Board of Directors in January of 1998, and
served as its Chairman, Chief Financial Officer, and Secretary from June
1998 until January 1999, when Mr. Fritch was removed as Chairman and as an
Officer of the Corporation. From April 1997 until May 1998 he has been the
Director of Materials at Hughes Data Systems, a computer integration firm.
From September 1996 until April 1997 Mr. Fritch was Director of Corporate
Materials for Sanmina Corporation, a contract manufacturer in the
telecommunications industry. From May 1995 until May 1996, Mr. Fritch was
Senior Vice President of JTS Corporation, a disk drive manufacturer. From
October 1994 until May 1995, Mr. Fritch was Vice President of Commodity
Management for Conner Peripherals, Inc., a disk drive manufacturer. From
June 1986 until October 1994, Mr. Fritch was Director of Commodity
Management for Western Digital Corporation, a disk drive manufacturer. Mr.
Fritch is a graduate of Pepperdine University's Graduate School of Business
and Management and is currently active as a University Adjunct Instructor at
the University of Phoenix Graduate School of Business. He is a member is
good standing with NYU's Delta Mu Delta Society.
STEVE KAKUK joined the Company as the General Manager, Tooling and Mold
Operations in January of 1998 when K5, of which Mr. Kakuk was the founder
and controlling owner, was acquired by the Company. Mr. Kakuk has over
thirty years experience in all aspects of manufacturing management,
including product design, prototyping, and tooling design and is proficient
in all phases of plastic mold making. Mr. Kakuk's previous experience
includes the formation of an international partnership known as Humbros,
Inc. (from 1990 to 1993), as well as founding and growing a Downey,
California molding and moldmaking business known as K.R.K (from July 1976 to
September 1982). Mr. Kakuk attended the Los Angeles Trade Technical
Institute where he received certification in plastics.
ITEM 6 - EXECUTIVE COMPENSATION
Under the terms of his employment contract, John Groom is entitled to
receive the following compensation in 1998: (i) a cash bonus of $30,000,
(ii) salary at the annual rate of $110,000 per year for the period from
January 1, 1998
<PAGE>
through March 31, 1998, (ii) salary at the annual rate of
$135,000 per year for the period from April 1, 1998 through June 30, 1998,
and (iii) salary at the annual rate of $175,000 per year for the period from
July 1, 1998 through December 31, 1998. As of October 30, 1998, Mr. Groom
has voluntarily elected to defer the cash bonus, and has been paid salary in
the aggregate sum of $67,116, resulting in total deferred bonus and salary
compensation of $82,464. On October 13, 1998, Mr. Groom was granted
warrants to acquire 1,000,000 shares of the Company's Common Stock at an
exercise price of $0.375 exercisable until October 13, 2004. In the event
of Mr. Groom's voluntary resignation as an employee of the Company, the
Company shall have to right to terminate 41,667 warrants for each month
between Mr. Groom's last full month of employment and January 1, 2000.
No other Officer or Director receives or has received any compensation from
the Company, other than reimbursement for direct out-of-pocket expenses in
connection with attendance at meetings of the Board of Directors.
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows certain compensation information for
services rendered in all capacities during each of the prior three (3)
fiscal years. Other than as set forth herein, no executive officer's salary
and bonus exceeded $100,000 in any of the applicable years. The following
information includes the dollar value of base salaries, bonus awards, the
number of stock options granted and certain other compensation, if any,
whether paid or deferred.
SUMMARY COMPENSATION TABLE
<TABLE>
Annual Compensation Long Term Compensation
Awards Payouts
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Principal Salary Bonus Compensation Awards Options Payouts Compensation
Position Year ($) ($) ($) ($) SARs (#) ($) ($)
John Groom 1998 129,693 30,000 -0- -0- 1,000,000 -0- -0-
John Fritch 1998 110,190 -0- 11,613 -0- -0- -0- -0-
Martin Anthony Walk 1998 7,924 -0- -0- -0- -0- -0- -0-
1997 20,485 -0- -0- -0- -0- -0- -0-
1996 31,500 -0- -0- -0- -0- -0- -0-
Inge Lundegaard 1998 65,383 -0- -0- -0- -0- -0- -0-
1997 19,696 -0- -0- -0- -0- -0- -0-
1996 27,393 -0- -0- -0- -0- -0- -0-
Michael Robert Orton1998 45,914 -0- -0- -0- 100,000 -0- -0-
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
NUMBER OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SAR's
OPTIONS/SAR's GRANTED TO EMPLOYEES EXERCISE OF BASE PRICE
NAME GRANTED (#) IN FISCAL YEAR ($/Sh) EXPIRATION DATE
John Groom -0- -0- N/A N/A
John Fritch -0- -0- N/A N/A
Michael Robert Orton 100,000 100% $0.01 N/A
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING VALUE OF UNEXERCISED
OPTIONS/SARS AT FY-END IN-THE-MONEY OPTION/SARS
SHARES ACQUIRED ON (#) AT FY-END ($)
NAME EXERCISE (#) VALUE REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
John Groom -0- -0- -0- -0-
John Fritch -0- -0- -0- -0-
Michael Robert Orton 100,000 35,740 -0- -0-
</TABLE>
COMPENSATION OF DIRECTORS
No Officer or Director receives any compensation from the Company, other
than reimbursement for direct out-of-pocket expenses in connection with
attendance at meetings of the Board of Directors.
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1997, the Company (which at the time was designated Rainbow Bridge
Services, Inc., a Nevada corporation ("Rainbow")) acquired all of the
outstanding common stock of American Custom Components, Inc., a California
corporation ("ACC-CA") in a business combination described as a reverse
acquisition. For accounting purposes, the acquisition has been treated as
the acquisition of Rainbow (the Company) by ACC-CA. The Company's
historical financial statements are those of ACC-CA, and the accounts of
Rainbow have been reflected in the consolidated financial statements from
the August 1997 date of the acquisition. Immediately prior to the
acquisition, Rainbow had 832,752 shares of stock outstanding. As part of
the reorganization, the Company issued 7,447,000 shares to the shareholders
of ACC-CA in exchange for 7,447 shares of common stock in ACC-CA. Such
shares include the shares owned by the officers and directors of the Company
at the time of the transaction. In addition, the Company issued options to
purchase 1,100,000 shares of its common stock to certain consultants and
employees, including 900,000 options issued to The Michelson Group.
In August 1997 the Company entered into a consulting agreement with The
Michelson Group for financial consulting pursuant to which the Company
issued to The Michelson Group 900,000 options to purchase common stock and
pays The Michelson Group $6,000 per month in consulting fees through the
period ending August 1999. The consulting agreement requires that the
Company obtain the consent of The Michelson Group for the issuance of
additional shares or the incurrence of additional indebtedness other than in
the ordinary course of business.
<PAGE>
In March 1998, Pegasus, Inc. loaned the Company the sum of $100,000 to
assist with temporary cash flow needs. The loan was repaid in full in April
1998. At the dates of the loan and its repayment, Pegasus, Inc. was
controlled by Martin Tony Walk, majority shareholder and then officer of the
Company. There were no written documents evidencing the transaction.
On March 16, 1999, the Company acquired all of the issued and outstanding
stock of Loyd International, Inc., a Wyoming corporation. In connection
with the transaction, (i) the Company's then-largest shareholder, Martin
Tony Walk, exchanged an aggregate of 4,972,000 shares of common stock for
500,000 shares of Series A Convertible Preferred Stock, (ii) the Company
issued an aggregate of 1,600,000 shares of common stock to Edward Loyd, the
sole shareholder of Loyd International, Inc., and an Officer and Director of
the Company, (iii) the Company paid the sum of $11,000 to Mr. Walk and
entered into a consulting contract with him, (iv) the Company entered into
an Assignment of Assets and Assumption of Liabilities with Mr. Walk with
respect to the assets and liabilities of the Company as they related to
Tagnology, Inc., and (v) the Company agreed to assume all tax liabilities of
Mr. Walk incurred as a result of the transaction.
ITEM 8 - DESCRIPTION OF SECURITIES
COMMON STOCK
The Company's Articles of Incorporation authorize the issuance of
24,000,000 shares of Common Stock, $0.001 par value per share, of which
8,284,515 shares were issued and outstanding as of March 31, 1999. Holders
of shares of Common Stock are entitled to one vote for each share on all
matters to be voted on by the stockholders. Holders of Common Stock have no
cumulative voting rights. Holders of shares of Common Stock are entitled to
share ratably in dividends, if any, as may be declared, from time to time by
the Board of Directors in its discretion, from funds legally available
therefor. In the event of a liquidation, dissolution or winding up of the
Company, the holders of shares of Common Stock are entitled to share pro
rata all assets remaining after payment in full of all liabilities. Holders
of Common Stock have no preemptive rights to purchase the Company's common
stock. There are no conversion rights or redemption or sinking fund
provisions with respect to the common stock. All of the outstanding shares
of Common Stock are fully paid and non-assessable.
PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of 1,000,000
shares of preferred stock, $0.001 par value. The Company's Board of
Directors has authority, without action by the shareholders, to issue all or
any portion of the authorized but unissued preferred stock in one or more
series and to determine the voting rights, preferences as to dividends and
liquidation, conversion rights, and other rights of such series. The
issuance of preferred stock may also include restricting dividends on the
common stock, dilute the voting power of the common stock, and/or impair the
liquidation rights of the holders of common stock.
In connection with the March 16, 1999 transaction involving Loyd, the Board
of Directors of the Company authorized 500,000 shares of common stock
designated Series A Convertible Preferred Stock, and issued all 500,000
shares to Mr. Walk. The Series A Convertible Preferred Stock shall have the
following rights, privileges and preferences:
1. Dividend Provisions. Each share of Preferred Stock shall be
entitled to receive a cumulative dividend equal to $0.08 per annum, payable
on March 31, June 30, September 30, and December 31 of each year. Each
share of Preferred Stock shall rank on a parity with each other share of
Preferred Stock with respect to dividends.
2. Liquidation Provisions. The Series A Convertible Preferred Stock
shall not have any rights to assets or proceeds from sale of assets of the
Company in the event of liquidation.
3. Conversion Provisions. The holders of the Series A Preferred
Stock shall have no conversion rights.
4. Call Provisions. The shares of Series A Preferred Stock shall,
at the sole discretion of the Board of Directors of the Corporation, be
callable, in whole or in part, from time to time or at any time, at a price
of $0.80 per share. Notwithstanding the foregoing, however, the Corporation
may not call the shares of Series A Preferred Stock unless all dividends
have been paid in full to the holders of the Preferred Stock as of the time
of call.
<PAGE>
5. Voting Provisions. The Preferred Stock shall have no voting
rights.
TRANSFER AGENT
The transfer agent for the Common Stock is Alpha Tech Stock Transfer, 4505
S. Wasatch Boulevard, Suite 205, Salt Lake City, Utah 84124.
<PAGE>
PART II
ITEM 1 - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
MARKET INFORMATION
From July 1997, the Company's Common Stock was quoted without price (name
only) under the symbol "RBBS" on the Nasdaq Electronic Bulletin Board. On
October 20, 1997, following the acquisition of American Custom Components,
Inc., a California corporation, by Rainbow Bridge Services, Inc., a Nevada
corporation, the Company's Common Stock began trading under the symbol "ACCM".
The following table sets forth the high and low bid prices for shares of the
Company Common Stock for the periods noted, as reported by the National
Daily Quotation Service and the NASD Non-NASDAQ Bulletin Board. Quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions.
<TABLE>
BID PRICES
YEAR PERIOD HIGH LOW
<S> <C> <C> <C>
1997 Third Quarter. . . . . . . . . . . . . . . . 11.625 3.00
Fourth Quarter . . . . . . . . . . . . . . . 9.5 5.00
1998 First Quarter. . . . . . . . . . . . . . . . 5.5 4.125
Second Quarter . . . . . . . . . . . . . . . 4.75 1.422
Third Quarter. . . . . . . . . . . . . . . . 2.438 0.50
Fourth Quarter . . . . . . . . . . . . . . . 0.75 0.15
1999 First Quarter. . . . . . . . . . . . . . . . 0.53 0.16
</TABLE>
STOCKHOLDERS
As of March 31, 1999, the Company had 8,284,515 shares of Common Stock
outstanding and held by approximately 139 shareholders of record.
DIVIDENDS
The Company has not paid cash dividends on its Common Stock in the past and
does not anticipate doing so in the foreseeable future.
The Company will begin paying dividends on its outstanding shares of Series
A Convertible Preferred Stock beginning June 30, 1999.
ITEM 2 - LEGAL PROCEEDINGS
The Company is presently, has been, and may from time to time be involved in
various claims, lawsuits, disputes with third parties, actions involving
allegations of discrimination, or breach of contract actions incidental to
the operation of its business. The Company is not currently involved in any
such litigation which it believes could have a materially adverse effect on
its financial condition or results of operations.
ITEM 3 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Effective October 24, 1997, Kelly & Company, Certified Public Accountants,
were engaged by the Company as their principal accountant to audit the
Company's financial statements. There have been no changes in accountants
or disagreements of the type required to be reported under this Item 3
between the Company and its independent
<PAGE>
auditors since their date of
engagement, nor during the Company's two most recent fiscal years or any
later interim period.
ITEM 4 - RECENT SALES OF UNREGISTERED SECURITIES
In connection with a private offering of securities which was made by the
Company in the third quarter of 1997, the Company entered into three (3)
Note Purchase Agreements under Rule 504 of Regulation D promulgated under
the Securities Act of 1933 wherein the purchaser, a limited partnership
accredited as that term is defined under Regulation D, purchased an
aggregate of $374,700 in Notes convertible at the greater of (i) 83% of the
closing bid price of the Company's common stock, or (i) $4.98. As of the
date hereof, all of the Notes have been converted into an aggregate of
75,241 shares of the Company's Common Stock.
In connection with a private offering of securities which was made by the
Company in the Fourth Quarter of 1997 and the First Quarter of 1998, the
Company sold an aggregate of 245,000 restricted (as that term is defined
under Rule 144 of the Securities Act of 1933) shares of Common Stock under
Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933 to
accredited investors at a price of $1.75 per share, resulting in net
proceeds to the Company of $428,750.
In August 1997, the Company acquired all of the outstanding common stock of
ACC in a business combination described as a reverse acquisition. As part
of the reorganization, the Company issued 7,447,000 shares to the
shareholders of ACC, all sophisticated investors given full access to the
books and records of the Comapny, in exchange for 7,447 shares of common
stock in ACC. Such shares include the shares owned by officers and
directors of the Company as set forth in the Section "Security Ownership of
Certain Beneficial Owners and Management" hereunder. In addition, the
Company issued options to purchase 1,100,000 shares of its common stock to
certain consultants and employees, including 900,000 options issued to The
Michelson Group. All of the issuances were under an exemption under Section
4(2) of the Securities Act of 1933.
In December 1997, the Company issued 8,333 shares of restricted (as that
term is defined under Rule 144 of the Securities Act of 1933) common stock
to George Kimble, an accredited investor, in connection with the acquisition
of Caribbean Electronics, Ltd. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations Liquidity and Capital
Resources." The issuance was exempt under Section 4(2) of the Securities
Act of 1933.
In January 1998, the Company issued 25,000 shares of restricted (as that
term is defined under Rule 144 of the Securities Act of 1933) common stock
to Steve Kakuk, an accredited investor, in connection with the acquisition
by the Company of K5 Plastics, Inc. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations Liquidity and
Capital Resources." The issuance was exempt under Section 4(2) of the
Securities Act of 1933.
In January 1998, the Company issued 3,500 shares of restricted (as that term
is defined under Rule 144 of the Securities Act of 1933) common stock to Hal
Gardner, an accredited investor, in consideration for the cancellation of
note indebtedness. The issuance was exempt under Section 4(2) of the
Securities Act of 1933.
In January 1998, the Company issued 10,000 shares of restricted (as that
term is defined under Rule 144 of the Securities Act of 1933) common stock
to Frank Liger, an accredited investor, for services in connection with
introducing the Company to new technology clients. The issuance was exempt
under Section 4(2) of the Securities Act of 1933.
In February 1998, the Company issued 10,000 shares of restricted (as that
term is defined under Rule 144 of the Securities Act of 1933) common stock
to MRC Legal Services Corporation, an accredited investor and the Company's
securities counsel, in consideration for certain legal services. The
issuance was exempt under Section 4(2) of the Securities Act of 1933.
In connection with a private offering of securities which was made by the
Company in the First and Second Quarters of 1998, the Company sold an
aggregate of 49,514 restricted (as that term is defined under Rule 144 of
the Securities Act of 1933) shares of Common Stock under Rule 506 of
Regulation D and Section 4(2) of the Securities
<PAGE>
Act of 1933 to accredited investors at a price of $1.75 per share, resulting in
net proceeds to the Company of $86,650.
In July 1998, the Company issued 50,000 shares of restricted (as that term
is defined under Rule 144 of the Securities Act of 1933) common stock to MRC
Legal Services Corporation, an accredited investor, as compensation to M.
Richard Cutler for serving on the Company's Board of Directors. The
issuance was exempt under Section 4(2) of the Securities Act of 1933.
In April 1998, the Company issued a convertible Note to Sinecure Holdings,
Inc., an accredited (as that term is defined under Regulation D) purchaser
under Rule 504 of Regulation D promulgated under the Securities Act of 1933.
The principal amount of the Note was $7,304. The Note was converted into
an aggregate of 2,000 shares of the Company's Common Stock.
In May 1998, the Company sold 80,000 shares of its Common Stock for an
aggregate sum of $100,000 to Dremer Holdings, Inc., an accredited purchaser
under Rule 504 of Regulation D promulgated under the Securities Act of 1933.
In May 1998, the Company issued 8,571 shares of restricted (as that term is
defined under Rule 144 of the Securities Act of 1933) common stock to MRC
Legal Services Corporation, an accredited investor and the Company's
securities counsel, in consideration for certain legal services. The
issuance was exempt under Section 4(2) of the Securities Act of 1933.
In June 1998, the Company issued an aggregate of 40,000 shares of restricted
(as that term is defined under Rule 144 of the Securities Act of 1933)
common stock to Harold James Prow and Miguel Gill, two (2) employees of the
Company, in exchange for certain deferred compensation. The issuance was
exempt under Section 4(2) of the Securities Act of 1933.
In June 1998, the Company issued an aggregate of 10,000 shares of
restricted (as that term is defined under Rule 144 of the Securities Act of
1933) common stock to Hal Gardner, an accredited investor, in exchange for
interest compensation on a promissory note held by Mr. Gardner. The
issuance was exempt under Section 4(2) of the Securities Act of 1933.
In June 1998, the Company issued an aggregate of 450,000 shares of
restricted (as that term is defined under Rule 144 of the Securities Act of
1933) common stock under Rule 506 of Regulation D and Section 4(2) of the
Securities Act of 1933 to Primex U.S.A., Inc., an accredited purchaser as
that term is defined under Regulation D. Of those shares, Primex has
purchased 225,000 shares at $0.50 per share, resulting in net proceeds to
the Company of $112,500, and the balance of the shares have been returned to
the Company's treasury. In connection with this sale, the Company issued
5,000 shares of restricted common stock to Christopher S. Bromley as a
finders fee.
In June 1998, the Company issued an aggregate of 100,000 shares of
restricted common stock to Charles Rosenblum, an accredited investor,
pursuant to an exercise of options issued under Rule 506 and Section 4(2) of
the Securities Act of 1933.
In connection with an anticipated sale of securities to Oxford
International, Inc. ("Oxford") under Rule 506 of Regulation D and Section
4(2) of the Securities Act of 1933, the Company issued 3,000,000 shares of
restricted common stock to Oxford in July 1998. In April 1999, all of these
shares were returned to the Company and subsequently retired.
In September 1998, the Company sold an aggregate of 21,429 restricted (as
that term is defined under Rule 144 of the Securities Act of 1933) common
stock under Rule 506 of Regulation D and Section 4(2) of the Securities Act
of 1933 to Greg Harris, Jeng Ching Hung, and George Brook, all sophisticated
investors given full access to the books and records of the Company, for
$0.70 per share, resulting in net proceeds to the Company of $15,000.
In October 1998, the Company issued 200,000 shares of restricted common
stock to The Michelson Group, Inc., an accredited investor, in consideration
for the cancellation of outstanding open account indeptedness. The issuance
was exempt under Section 4(2) of the Securities Act of 1933.
<PAGE>
In November 1998, the Company sold an aggregate of 26,667 shares of common
stock under Section 4(2) of the Securities Act of 1933 toJeffrey Willmann, a
sophisticated individual given full access to the Company's books and
records, at a price of $0.375 per share, resutling in net proceeds to the
Company of $10,000.
In November 1998, the Company issued 40,000 shares of common stock to MRC
Legal Services Corporation, an accredited entity, in consideration for the
cancellation of outstanding open account indebtedness. This issuance was
exempt under Section 4(2) of the Securities Act of 1933.
In November 1998, the Company sold an aggregate of 13,334 shares of common
stock under Section 4(2) of the Securities Act of 1933 to Robert Karinchak,
a sophisticated individual given full access to the Company's books and
records, at a price fo $0.375 per share, resulting in net proceeds to the
Company of $5,000.
In November 1998, the Company issued 100,000 shares of common stock to
National Capital Merchant Group, Ltd., an accredited entity, in accordance
with the terms of an agreement. The issuance was exempt under Section 4(2)
of the Securities Act of 1933.
In November 1998, the Company issued 20,000 shares of common stock to
Prototype and Short Rund Services, Inc., an accredited entity, in
consideration for the cancellation of outstanding open account indeptedness.
This issuance was exempt under Section 4(2) of the Securities Act of 1933.
In January 1999, the Company issued an aggregate of 130,000 shares of
restricted common stock to Makenna, Delaney & Sullivan, Inc., an accredited
entity, pursuant to the terms of a financial public relations agreement.
This issuance was exempt under Section 4(2) of the Securities Act of 1933.
In March 1999, the Company issued an aggregate of 1,600,000 shares of
restricted common stock to Edward Loyd, an accredited investor, in
accordance with the terms of that certain Reorganization and Stock Purchase
Agreement relating to the acquisition by the Company of Loyd International,
Inc. This issuance was exempt under Section 4(2) of the Securities Act of
1933.
In March 1999, the Company issued 150,000 shares of restricted common stock
to MRC Legal Services Corporation, an accredited entity, in consideration
for the cancellation of outstanding open account indeptedness. This
issuance was exempt under Section 4(2) of the Securities Act of 1933.
In March 1999, the Company issued an aggregate of 728,174 shares of common
stock to a total of thirteen (13) individuals or entities, each
sophisticated investors given full access to the books and records of the
Company, in exchange for the cancellation of debts, notes, and open account
indebtedness. The issuances were exempt under Rule 506 and Section 4(2) of
the Securities Act of 1933.
As described above, certain securities sold in unregistered transactions
were restricted as that term is defined under Rule 144 of the Securities Act
of 1933. In general, under Rule 144, subject to the satisfaction of certain
other conditions, a person, including an affiliate of the Company, who has
beneficially owned restricted shares of Common Stock for at least one year
is entitled to sell, in certain brokerage transactions, within any
three-month period, a number of shares that does not exceed the greater of
1% of the total number of outstanding shares of the same class, or if the
Common Stock is quoted on Nasdaq or a stock exchange, the average weekly
trading volume during the four calendar weeks immediately preceding the
sale. A person who presently is not and who has not been an affiliate of
the Company for at least three months immediately preceding the sale and who
has beneficially owned the shares of Common Stock for at least two years is
entitled to sell such shares under Rule 144 without regard to any of the
volume limitations described above.
ITEM 5 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation Laws of the State of Nevada and the Company's Bylaws provide
for indemnification of the Company's Directors for liabilities and expenses
that they may incur in such capacities. In general, Directors and Officers
are indemnified with respect to actions taken in good faith in a manner
reasonably believed to be in, or not opposed to, the best interests of the
Company, and with respect to any criminal action or proceeding, actions that
<PAGE>
the indemnitee had no reasonable cause to believe were unlawful.
Furthermore, the personal liability of the Directors is limited as provided
in the Company's Articles of Incorporation.
Beginning in December, 1997, the Company maintains a policy of Directors and
Officers Liability Insurance with an aggregate coverage limit of $1,000,000.
<PAGE>
PART F/S
FINANCIAL STATEMENTS
The Financial Statements required by this Item are included at the end of
this report beginning on Page F-1.
PART III
ITEM 1 - INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
*(2) Agreement and Plan of Reorganization
*(2.1) Amendment to Agreement and Plan of Reorganization
(2.2) Reorganization and Stock Purchase Agreement
*(3.1) Articles of Incorporation
*(3.2) Certificate of Amendment of Articles of Incorporation
*(3.3) Bylaws
*(4.1) Agreement for the Sale of Convertible Notes to Generation
Capital Associates and Waiver
*(4.2) Escrow Agreement for the Convertible Notes issued to Generation
Capital Associates
*(4.3) Convertible Note issued to Generation Capital Associates dated
October 6, 1997
*(4.4) Convertible Note issued to Generation Capital Associates dated
October 10, 1997
*(4.5) Convertible Note issued to Generation Capital Associates dated
October 20, 1997
*(10.1) Standard Industrial/Commercial Multi-Tenant Lease dated October
19, 1995 for premises located at 1515 S. Sunkist Street, Suites
E & F, Anaheim, CA.
*(10.2) Commercial Lease subleasing Anaheim property to Com-Quest
dated November 25, 1997.
*(10.3) Promissory Note issued to Don Furness dated December 1, 1995
*(10.4) Michelson Group Corporate Development Agreement dated July 30, 1997
*(10.5) Two (2) Option Agreements to the Michelson Group dated August 22,
1997
*(10.6) Agreement with Greg Bogart dated August 15, 1997
*(10.7) Promissory Note to George Kimble dated October 30, 1997 related
to Caribbean Electronics, Inc. Acquisition
*(10.8) Settlement Agreement and General Mutual Release with Charles L.
Rosenblum dated October 13, 1997
*(10.9) Standard Industrial/Commercial Single-Tenant Lease dated October
16, 1997 for the premises located at 3310 W. MacArthur
Boulevard, Santa Ana, California.
*(10.10) Employment Agreement for Michael R. Orton dated October 20, 1997
*(10.11) Amendment to Employment Agreement for Michael R. Orton dated
March 28, 1998
*(10.12) Engagement Agreement for Alpha Tech Stock transfer dated October
24, 1997
*(10.13) Agreement for the Purchase and Sale of Factory in Malaysia dated
December 11, 1997
*(10.14) Employment Agreement for John Groom dated January 1, 1998
*(10.15) Promissory Note to Steve Kakuk dated January 31, 1998 related to
K5 Acquisition
*(10.16) Escrow Agreement dated January 31, 1998 related to K5 Acquisition
*(10.17) Warrant issued to Steve Kakuk dated January 31, 1998 related to
K5 Acquisition
*(10.18) Warrant issued to Steve Kakuk dated January 31, 1998 related to
K5 Acquisition
*(10.19) Employment Agreement for Steve Kakuk dated January 31, 1998
*(10.20) Employment Agreement for Inge Lundegaard dated February 4, 1998
*(10.21) Warrant issued to Ronald J. Richard dated February 6, 1998
*(10.22) Warrant issued to John Fritch dated February 25, 1998
*(10.23) Termination of Warrant issued to John Fritch dated March 28, 1998
*(10.24) Stock Purchase Agreement for Acquisition of Caribbean
Electronics, Inc.
(continued on next page)
<PAGE>
*(10.25) Stock Purchase Agreement for Acquisition of K5 Plastics, Inc.
*(10.26) Employment Agreement for John Fritch dated May 1, 1998
*(10.27) Warrant issued to John Groom dated October 13, 1998
*(10.28) Warrant issued to Johh Fritch dated October 13, 1998
(10.29) Form of Agreement entered into between the Company and certain
of its creditors
*(21) List of Subsidiaries
*(23) Consent of Kelly & Company, Inc., Independent Public Accountants
____________________
* Previously Filed
ITEM 2 - DESCRIPTION OF EXHIBITS
Not applicable
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of
1934, the registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN CUSTOM COMPONENTS, INC.
Date: April 9, 1999 By:/s/ John Groom
John Groom
Chief Executive Officer
REORGANIZATION AND STOCK PURCHASE AGREEMENT
by and between
AMERICAN CUSTOM COMPONENTS, INC.
a Nevada corporation
and certain of its shareholders
and
LOYD INTERNATIONAL, INC.
a Wyoming corporation
and its shareholder
<PAGE>
REORGANIZATION AND STOCK PURCHASE AGREEMENT
REORGANIZATION AND STOCK PURCHASE AGREEMENT ("Agreement"),
dated March 16, 1999, by and among American Custom Components, Inc.,
a Nevada corporation (hereinafter referred to as "ACCM"), Martin
Tony Walk (hereinafter referred to as "Walk"), Loyd International,
Inc., a Wyoming corporation (hereinafter referred to as "Loyd") and
Edward Loyd, an individual (the "Loyd Shareholder"). Each of ACCM,
Walk, Loyd, and the Loyd Shareholder shall be referred to herein as
a "Party" and collectively as the "Parties."
W I T N E S S E T H
WHEREAS, Walk and Loyd have executed those certain agreements
dated February 13, 1999 and March 4, 1999, attached hereto as
Exhibits "A" and "B", respectively, and desire to further define the
terms of those agreements herein and to replace those agreements
with this Agreement;
WHEREAS, the Loyd Shareholder owns 100% of the issued and
outstanding common stock of Loyd (the "Loyd Shares") as set forth in
Exhibit "C" attached hereto;
WHEREAS, Walk is the owner of 5,372,000 shares of common stock
of ACCM (the "Walk Shares");
WHEREAS, Walk desires to exchange 4,972,000 of the Walk Shares
for 500,000 shares of ACCM Series A Convertible Preferred Stock, the
rights, preferences and privileges of which are set forth in Exhibit
"D" attached hereto.
WHEREAS, the Loyd Shareholder desires to sell and ACCM desires
to purchase the Loyd Shares in accordance with the terms set forth
herein;
NOW THEREFORE, in consideration of the premises and
respective mutual agreements, covenants, representations and
warranties herein contained, it is agreed between the parties hereto
as follows:
ARTICLE 1
SALE AND PURCHASE OF THE SHARES
1.1 Transactions Involving Walk.
1.1.1 Exchange of the Walk Shares. At the date of the signing
of this Agreement as provided in Section 3.1 hereto (the "Closing"),
subject to the terms and conditions herein set forth, and on the
basis of the representations, warranties and agreements herein
contained, Walk shall tender to ACCM 4,972,000 of the Walk Shares
and shall receive in exchange 500,000 shares of Series A Convertible
Preferred Stock. The balance of the Walk Shares, representing
400,000 shares of ACCM common stock, shall be retained by Walk.
Walk shall be responsible for any and all
<PAGE>
obligations owing to Paul
Montclair and/or Generation Capital Associates arising out of
transactions entered into between Walk and those respective parties.
1.1.2 Payment to Walk. As additional consideration for the
transactions discussed herein, on the Closing date, ACCM shall
pay to Walk or Walk's designee(s) the sum of Eleven Thousand
Dollars ($11,000).
1.1.3 Consulting Contract. As a material term of this
Agreement, ACCM agrees to execute a two (2) year consulting
agreement ("Consulting Agreement") with Walk in form and
substance substantially similar to Exhibit "E" attached hereto.
1.1.4 Assignment of Certain Assets and Liabilities. Effective
on the Closing Date, ACCM shall execute an Assignment of Assets
and Liabilities in substantially the form set forth as Exhibit
"F" attached hereto, wherein ACCM assigns to Walk the
technology and assets associated with Tagnology, Inc. and Walk
assumes all ACCM liabilities associated with the same.
1.1.5 Assumption of Tax Liabilities. Any tax liabilities
incurred by Walk as a result of the transactions contemplated
herein will be assumed and timely paid by ACCM, up to the sum
of $200,000.
1.1.6 General Mutual Release. Effective on the date of this
Agreement, each of ACCM and Walk shall release and discharge
the other, their affiliates, divisions, predecessors,
successors and assigns, and each and all of their present and
former agents, officers, directors, attorneys, and employees,
from and against any and all claims, agreements, contracts,
covenants, representations, obligations, losses, liabilities,
demands and causes of action which each may now or hereafter
have or claim to have against the other arising out of or
pertaining to their relationship and contractual dealings prior
to the date hereof. This release of claims and defenses shall
not alter the prospective duties between the parties under this
Agreement. It is understood and agreed by ACCM and Walk that
all rights under Section 1542 of the Civil Code of California,
which provides as follows:
"A general release does not extend to claims which
the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if
known by him must have materially affected his
settlement with the debtor."
are hereby expressly waived. Each of ACCM and Walk
acknowledges and agrees that they understand the consequences
of a waiver of Section 1542 of the California Civil Code and
assumes full responsibility for any and all injuries,
damages, losses or liabilities that may hereinafter arise out
of or be related to matters released hereunder. Each of ACCM
and Walk understands and acknowledges that the significance
and consequence of this waiver of Section 1542 of the Civil
Code is that even if such party should eventually suffer
additional damages arising out of the subject matter hereof,
it will not be permitted to make any claim for those damages.
Furthermore, each party acknowledges that they intend these
<PAGE>
consequences even as to claims for damages that may exist as
of the date of this Agreement but which a party does not know
exists, and which, if known, would materially affect each
party's decision to execute this Agreement, regardless of
whether each party's lack of knowledge is the result of
ignorance, oversight, error, negligence, or any other cause.
1.2 Sale of the Loyd Shares. At the Closing, subject to the
terms and conditions herein set forth, and on the basis of the
representations, warranties and agreements herein contained, the
Loyd Shareholder shall sell to ACCM and ACCM shall purchase from the
Loyd Shareholder, all of the Loyd Shares. As consideration for the
receipt of the Loyd Shares, ACCM shall cause to be issued to the
Loyd Shareholder an aggregate of 1,500,000 shares of ACCM common
stock bearing an appropriate 144 restrictive legend.
1.2.1 Issuance of Shares to the Loyd Shareholder. In addition
to the transaction described in paragraph 1.2 above, as
consideration for the advancement of $70,000 by the Loyd Shareholder
to ACCM for working capital purposes, ACCM shall issue an additional
100,000 shares of restricted common stock to the Loyd Shareholder.
1.3 Instruments of Conveyance and Transfer. At the Closing,
Walk shall deliver to ACCM certificates representing 4,972,000 of
the Walk Shares. At the Closing, ACCM shall deliver to Walk
certificates representing 500,000 shares of ACCM Series A
Convertible Preferred Stock. At the closing, ACCM shall deliver to
the Loyd Shareholder certificates representing an aggregate of
1,500,000 shares of ACCM common stock.
1.4 Termination of Earlier Agreements. Upon execution of
this Agreement, those certain agreements between Walk and Loyd dated
February 13, 1999 and March 4, 1999 are terminated in their entirety
and replaced hereby.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Loyd and the Loyd
Shareholder. To induce Walk and ACCM to enter into this Agreement
and to consummate the transactions contemplated hereby, Loyd and the
Loyd Shareholder represent and warrant, as of the date hereof and as
of the Closing, as follows:
2.1.1 Loyd and the Loyd Shareholder have the full right,
power and authority to enter into this Agreement and to carry
out and consummate the transaction contemplated herein. This
Agreement constitutes the legal, valid and binding obligation
of Loyd and the Loyd Shareholder.
2.1.2 Corporate Existence and Authority of Loyd. Loyd is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Wyoming. It has all
requisite corporate power, franchises, licenses, permits and
authority to own its properties and assets and to carry on
its business as it has been and is being conducted. It is
<PAGE>
in good standing in each state, nation or other jurisdiction
wherein the character of the business transacted by it makes
such qualification necessary.
2.1.3 Capitalization of Loyd. The authorized equity
securities of Loyd consists of 1,000 shares of common stock,
of which 100 shares are issued and outstanding. No other
shares of capital stock of Loyd are issued and outstanding.
All of the issued and outstanding shares have been duly and
validly issued in accordance and compliance with all
applicable laws, rules and regulations and are fully paid and
nonassessable. There are no options, warrants, rights,
calls, commitments, plans, contracts or other agreements of
any character granted or issued by Loyd which provide for the
purchase, issuance or transfer of any shares of the capital
stock of Loyd nor are there any outstanding securities
granted or issued by Loyd that are convertible into any
shares of the equity securities of Loyd, and none is
authorized. Loyd is not obligated or committed to purchase,
redeem or otherwise acquire any of its equity. All presently
exercisable voting rights in Loyd are vested exclusively in
its outstanding shares of common stock, each share of which
is entitled to one vote on every matter to come before it's
Shareholder, and other than as may be contemplated by this
Agreement, there are no voting trusts or other voting
arrangements with respect to any of Loyd's equity securities.
2.1.4 Subsidiaries. "Subsidiary" or "Subsidiaries" means
all corporations, trusts, partnerships, associations, joint
ventures or other Persons, as defined below, of which a
corporation or any other Subsidiary of such corporation owns
not less than twenty percent (20%) of the voting securities
or other equity or of which such corporation or any other
Subsidiary of such corporation possesses, directly or
indirectly, the power to direct or cause the direction of the
management and policies, whether through ownership of voting
shares, management contracts or otherwise. "Person" means
any individual, corporation, trust, association, partnership,
proprietorship, joint venture or other entity. There are no
Subsidiaries of Loyd.
2.1.5 Execution of Agreement. The execution and delivery
of this Agreement does not, and the consummation of the
transactions contemplated hereby will not: (a) violate,
conflict with, modify or cause any default under or
acceleration of (or give any party any right to declare any
default or acceleration upon notice or passage of time or
both), in whole or in part, any charter, article of
incorporation, bylaw, mortgage, lien, deed of trust,
indenture, lease, agreement, instrument, order, injunction,
decree, judgment, law or any other restriction of any kind to
which either the Loyd Shareholder or Loyd are a party or by
which either of them or any of their properties are bound;
(b) result in the creation of any security interest, lien,
encumbrance, adverse claim, proscription or restriction on
any property or asset (whether real, personal, mixed,
tangible or intangible), right, contract, agreement or
business of the Loyd Shareholder or Loyd (exception of London
Office Lease); (c) violate any law, rule or regulation of any
federal or state regulatory agency; or (d) permit any federal
or state regulatory agency to impose any restrictions or
limitations of any nature on the Loyd Shareholder or Loyd or
any of their respective actions.
<PAGE>
2.1.6 Taxes.
2.1.6.1 All taxes, assessments, fees,
penalties, interest and other governmental charges
with respect to Loyd which have become due and
payable on the date hereof have been paid in full or
adequately reserved against by Loyd, (including
without limitation, income, property, sales, use,
franchise, capital stock, excise, added value,
employees' income withholding, social security and
unemployment taxes), and all interest and penalties
thereon with respect to the periods then ended and
for all periods thereto;
2.1.6.2 There are no agreements, waivers or
other arrangements providing for an extension of time
with respect to the assessment of any tax or
deficiency against Loyd, nor are there any actions,
suits, proceedings, investigations or claims now
pending against Loyd, nor are there any actions,
suits, proceedings, investigations or claims now
pending against Loyd in respect of any tax or
assessment, or any matters under discussion with any
federal, state, local or foreign authority relating
to any taxes or assessments, or any claims for
additional taxes or assessments asserted by any such
authority, and there is no basis for the assertion of
any additional taxes or assessments against Loyd, and
2.1.6.3 The consummation of the transactions
contemplated by this Agreement will not result in the
imposition of any additional taxes on or assessments
against Loyd.
2.1.7 Disputes and Litigation. There is no suit, action,
litigation, proceeding, investigation, claim, complaint, or
accusation pending, threatened against or affecting Loyd or
any of its properties, assets or business or to which Loyd is
a party, in any court or before any arbitrator of any kind or
before or by any governmental agency (including, without
limitation, any federal, state, local, foreign or other
governmental department, commission, board, bureau, agency or
instrumentality), and there is no basis for such suit,
action, litigation, proceeding, investigation, claim,
complaint, or accusation; (b) there is no pending or
threatened change in any environmental, zoning or building
laws, regulations or ordinances which affect or could affect
Loyd or any of its properties, assets or businesses; and (c)
there is no outstanding order, writ, injunction, decree,
judgment or award by any court, arbitrator or governmental
body against or affecting Loyd or any of its properties,
assets or business. There is no litigation, proceeding,
investigation, claim, complaint or accusation, formal or
informal, or arbitration pending, or any of the aforesaid
threatened, or any contingent liability which would give rise
to any right of indemnification or similar right on the part
of any director or officer of Loyd or any such person's
heirs, executors or administrators as against Loyd.
2.1.8 Compliance with laws. Loyd has at all times been,
and presently is, in full compliance with, and has not
received notice of any claimed violation of, any applicable
federal, state, local, foreign and other laws, rules and
regulations. Loyd has filed all returns, reports and other
documents and furnished all information required or requested
by any
<PAGE>
federal, state, local or foreign governmental agency
and all such returns, reports, documents and information are
true and complete in all respects. All permits, licenses,
orders, franchises and approvals of all federal, state, local
or foreign governmental or regulatory bodies required of Loyd
for the conduct of its business have been obtained, no
violations are or have been recorded in respect of any such
permits, licenses, orders, franchises and approvals, and
there is no litigation, proceeding, investigation,
arbitration, claim, complaint or accusation, formal or
informal, pending or threatened, which may revoke, limit, or
question the validity, sufficiency or continuance of any such
permit, license, order, franchise or approval. Such permits,
licenses, orders, franchises and approvals are valid and
sufficient for all activities presently carried on by Loyd.
2.1.9 Guaranties. Loyd has not guaranteed any dividend,
obligation or indebtedness of any Person; nor has any Person
guaranteed any dividend, obligation or indebtedness of Loyd.
2.1.10 Books and Records. Loyd keeps its books, records and
accounts (including, without limitation, those kept for
financial reporting purposes and for tax purposes) in
accordance with good business practice and in sufficient
detail to reflect the transactions and dispositions of its
assets, liabilities and equities. The minute books of the
Loyd contain records of its shareholders' and directors'
meetings and of action taken by such shareholders and
directors. The meeting of directors and shareholders
referred to in such minute books were duly called and held,
and the resolutions appearing in such minute books were duly
adopted. The signatures appearing on all documents contained
in such minute books are the true signatures of the persons
purporting to have signed the same. A true and accurate
balance sheet of Loyd as of the Closing Date, as well as an
income statement and statement of cash flows from March 31,
1998 to the Closing Date are attached hereto as Exhibit "G".
Further, a true and correct balance sheet as of March 31,
1998 and an income statement and statement of cash flows for
the year ended March 31, 1998 are attached hereto as Exhibit
"H".
2.2 Representations and Warranties of ACCM. To induce
Loyd and the Loyd Shareholder to enter into this Agreement and to
consummate the transactions contemplated hereby, ACCM represents and
warrants, as of the date hereof and as of the Closing, as follows:
2.2.1 Corporate Existence and Authority of ACCM. ACCM is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada. It has all
requisite corporate power, franchises, licenses, permits and
authority to own its properties and assets and to carry on
its business as it has been and is being conducted. It is in
good standing in each state, nation or other jurisdiction in
each state, nation or other jurisdiction wherein the
character of the business transacted by it makes such
qualification necessary.
2.2.2 Capitalization of ACCM. The authorized equity
securities of ACCM consists of 24,000,000 shares of common
stock, of which 13,778,341 shares are issued and outstanding
as of February 16, 1999, and 1,000,000 shares of Preferred
Stock, of which no
<PAGE>
shares are issued and outstanding prior to
the date hereof. No other shares of capital stock of ACCM
are issued and outstanding. All of the issued and
outstanding shares have been duly and validly issued in
accordance and compliance with all applicable laws, rules and
regulations and are fully paid and nonassessable. All
presently exercisable voting rights in ACCM are vested
exclusively in its outstanding shares of common stock, each
share of which is entitled to one vote on every matter to
come before it's shareholders, and other than as may be
contemplated by this Agreement, there are no voting trusts or
other voting arrangements with respect to any of ACCM's
equity securities.
2.2.3 Subsidiaries. ACCM currently has three subsidiaries,
namely American Custom Components, Inc., a California
corporation, K5 Plastics, Inc., a California corporation, and
Caribbean Electronics, Inc.
2.2.4 Execution of Agreement. The execution and delivery
of this Agreement does not, and the consummation of the
transactions contemplated hereby will not: (a) violate,
conflict with, modify or cause any default under or
acceleration of (or give any party any right to declare any
default or acceleration upon notice or passage of time or
both), in whole or in part, any charter, article of
incorporation, bylaw, mortgage, lien, deed of trust,
indenture, lease, agreement, instrument, order, injunction,
decree, judgment, law or any other restriction of any kind to
which ACCM is a party or by which it or any of its properties
are bound; (b) result in the creation of any security
interest, lien, encumbrance, adverse claim, proscription or
restriction on any property or asset (whether real, personal,
mixed, tangible or intangible), right, contract, agreement or
business of ACCM; (c) violate any law, rule or regulation of
any federal or state regulatory agency; or (d) permit any
federal or state regulatory agency to impose any restrictions
or limitations of any nature on ACCM or any of its actions.
ARTICLE 3
CLOSING AND DELIVERY OF DOCUMENTS
3.1 Closing. The Closing shall be deemed to have occurred as
of the date of signing of this Agreement. Subsequent to the
signing, the following shall occur as a single integrated transaction:
3.2 Delivery by Walk and ACCM:
(a) Walk shall deliver to ACCM that portion of the Walk
Shares and all instruments of conveyance and transfer required
by Section 1.1.
(b) ACCM shall deliver to Walk 500,000 shares of ACCM Series
A Convertible Preferred Stock and all instruments of conveyance
and transfer required by Section 1.1.
(c) ACCM shall deliver to the Loyd Shareholder an aggregate
of 1,500,000 shares of ACCM common stock and all instruments of
conveyance and transfer required by Section 1.2.
<PAGE>
3.3 Delivery by the Loyd Shareholder:
(a) The Loyd Shareholder shall deliver to ACCM all of the
Loyd Shares and all instruments of conveyance and transfer
required by Section 1.2.
ARTICLE 4
CONDITIONS, TERMINATION, AMENDMENT AND WAIVER
4.1 Condition Precedent. This Agreement, and the
transactions contemplated hereby, shall be subject to the approval
of the Board of Directors of ACCM and Loyd, and, if necessary, the
respective shareholders thereof.
4.2 Termination. Notwithstanding anything to the
contrary contained in this Agreement, this Agreement may be
terminated and the transactions contemplated hereby may be abandoned
at any time prior to the Closing by the mutual consent of all of the
parties;
4.3 Waiver and Amendment. Any term, provision, covenant,
representation, warranty or condition of this Agreement may be
waived, but only by a written instrument signed by the party
entitled to the benefits thereof. The failure or delay of any party
at any time or times to require performance of any provision hereof
or to exercise its rights with respect to any provision hereof shall
in no manner operate as a waiver of or affect such party's right at
a later time to enforce the same. No waiver by any party of any
condition, or of the breach of any term, provision, covenant,
representation or warranty contained in this Agreement, in any one
or more instances, shall be deemed to be or construed as a further
or continuing waiver of any such condition or breach or waiver of
any other condition or of the breach of any other term, provision,
covenant, representation or warranty. No modification or amendment
of this Agreement shall be valid and binding unless it be in writing
and signed by all parties hereto.
ARTICLE 5
COVENANTS
5.1 To induce Walk and ACCM to enter into this Agreement
and to consummate the transactions contemplated hereby, and without
limiting any covenant, agreement, representation or warranty made
the Loyd Shareholder covenant and agree as follows:
5.1.1 Notices and Approvals. The Loyd Shareholder agree:
(a) to give and to cause Loyd to give all notices to third
parties which may be necessary or deemed desirable by ACCM in
connection with this Agreement and the consummation of the
transactions contemplated hereby; (b) to use its best efforts
to obtain and to cause Loyd to obtain, all federal and state
governmental regulatory agency approvals, consents, permit,
authorizations, and orders necessary or deemed desirable by
ACCM in connection with this Agreement and the consummation
of the transaction contemplated hereby; and (c) to use its
best efforts to obtain, and to cause Loyd to obtain, all
consents and authorizations of any other third parties
necessary or deemed desirable by ACCM in connection with this
Agreement and the consummation of the transactions
contemplated hereby.
<PAGE>
5.1.2 Information for ACCM's Statements and Applications.
The Loyd Shareholder and Loyd and their employees,
accountants and attorneys shall cooperate fully with ACCM in
the preparation of any statements or applications made by
ACCM to any federal or state governmental regulatory agency
in connection with this Agreement and the transactions
contemplated hereby and to furnish ACCM with all information
concerning the Loyd Shareholder and Loyd necessary or deemed
desirable by ACCM for inclusion in such statements and
applications, including, without limitation, all requisite
financial statements and schedules.
5.1.3 Access to Information. ACCM, together with its
appropriate attorneys, agents and representatives, shall be
permitted to make the full and complete investigation of the
Loyd Shareholder and Loyd and have full access to all of the
books and records of the other during reasonable business
hours. Notwithstanding the foregoing, such parties shall
treat all such information as confidential and shall not
disclose such information without the prior consent of the
other.
5.2 To induce the Loyd Shareholder to enter into this
Agreement and to consummate the transactions contemplated hereby,
and without limiting any covenant, agreement, representation or
warranty made ACCM covenants and agrees as follows:
5.2.1 Access to Information. The Loyd Shareholder, together
with their appropriate attorneys, agents and representatives,
shall be permitted to make the full and complete
investigation of ACCM and have full access to all of the
books and records of the other during reasonable business
hours. Notwithstanding the foregoing, such parties shall
treat all such information as confidential and shall not
disclose such information without the prior consent of the
other.
ARTICLE 6
MISCELLANEOUS
6.1 Expenses. Except as otherwise specifically provided
for herein, whether or not the transactions contemplated hereby are
consummated, each of the parties hereto shall bear all taxes of any
nature (including, without limitation, income, franchise, transfer
and sales taxes) and all fees and expenses relating to or arising
from its compliance with the various provisions of this Agreement
and such party's covenants to be performed hereunder, and except as
otherwise specifically provided for herein, each of the parties
hereto agrees to pay all of its own expenses (including, without
limitation, attorneys and accountants' fees and printing expenses)
incurred in connection with this Agreement, the transactions
contemplated hereby, the negotiations leading to the same and the
preparations made for carrying the same into effect, and all such
taxes, fees and expenses of the parties hereto shall be paid prior
to Closing.
6.2 Notices. Any notice, request, instruction or other
document required by the terms of this Agreement, or deemed by any
of the parties hereto to be desirable, to be given to any other
party hereto shall be in writing and shall be given by prepaid
telegram or delivered or mailed by registered or certified mail,
postage prepaid, with return receipt requested, to the following
addresses:
<PAGE>
TO ACCM:
American Custom Components, Inc.
3310 W. MacArthur Blvd.
Santa Ana, CA 92704
Attn: John Groom, President
with a copy to:
M. Richard Cutler, Esq.
The Law Offices of M. Richard Cutler
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
TO LOYD OR THE LOYD SHAREHOLDER:
Edward Loyd
423 E. Promontory Point Dr.
Newport Beach, CA 92660
with a copy to:
Robin Waterer
1 Templar St.
London EE5 9JB, England
The persons and addresses set forth above may be changed from
time to time by a notice sent as aforesaid. If notice is given by
delivery in accordance with the provisions of this Section, said
notice shall be conclusively deemed given at the time of such
delivery. If notice is given by mail in accordance with the
provisions of this Section, such notice shall be conclusively deemed
given forty-eight (48) hours after deposit thereof in the United
States mail. If notice is given by telegraph in accordance with the
provisions of this Section, such notice shall be conclusively deemed
given at the time that the telegraphic agency shall confirm delivery
thereof to the addressee.
6.3 Entire Agreement. This Agreement, together with the
Schedule and exhibits hereto, sets forth the entire agreement and
understanding of the parties hereto with respect to the transactions
contemplated hereby, and supersedes all prior agreements,
arrangements and understandings related to the subject matter
hereof. No understanding, promise, inducement, statement of
intention, representation, warranty, covenant or condition, written
or oral, express or implied, whether by statute or otherwise, has
been made by any party hereto which is not embodied in this
Agreement, or exhibits hereto or the written statements,
certificates, or other documents delivered pursuant hereto or in
connection with the transactions contemplated hereby, and no party
hereto shall be bound by or liable for any alleged understanding,
promise, inducement, statement, representation, warranty, covenant
or condition not so set forth.
<PAGE>
6.4 Survival of Representations. All statements of fact
(including financial statements) contained in the Schedule, the
exhibits, the certificates or any other instrument delivered by or
on behalf of the parties hereto, or in connection with the
transactions contemplated hereby, shall be deemed representations
and warranties by the respective party hereunder. All
representation, warranties agreements and covenants hereunder shall
survive the Closing and remain effective regardless of any
investigation or audit at any time made by or on behalf of the
parties or of any information a party may have in respect thereto.
Consummation of the transactions contemplated hereby shall not be
deemed or construed to be a waiver of any right or remedy possessed
by any party hereto, notwithstanding that such party knew or should
have known at the time of Closing that such right or remedy existed.
6.5 Incorporated by Reference. All documents (including,
without limitation, all financial statements) delivered as part
hereof or incident hereto are incorporated as a part of this
Agreement by reference.
6.6 Remedies Cumulative. No remedy herein conferred upon
and Party is intended to be exclusive of any other remedy and each
and every such remedy shall be cumulative and shall be in addition
to every other remedy given hereunder or now or hereafter existing
at law or in equity or by statute or otherwise.
6.7 Execution of Additional Documents. Each party hereto
shall make, execute, acknowledge and deliver such other instruments
and documents, and take all such other actions as may be reasonably
required in order to effectuate the purposes of this Agreement and
to consummate the transactions contemplated hereby.
6.8 Finders' and Related Fees. Each of the parties
hereto is responsible for, and shall indemnify the other against,
any claim by any third party to a fee, commission, bonus or other
remuneration arising by reason of any services alleged to have been
rendered to or at the instance of said party to this Agreement with
respect to this Agreement or to any of the transactions contemplated
hereby.
6.9 Governing Law. This Agreement has been negotiated
and executed in the State of California and shall be construed and
enforced in accordance with the laws of such state.
6.10 Forum. Each of the parties hereto agrees that any
action or suit which may be brought by any party hereto against any
other party hereto in connection with this Agreement or the
transactions contemplated hereby may be brought only in a federal or
state court in Orange County, California.
6.11 Binding Effect and Assignment. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and
their respective heirs, executors, administrators, legal
representatives and assigns.
6.12 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. In
<PAGE>
making proof of this Agreement, it shall not be necessary to produce
or account for more than one such counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, as of the date first written hereinabove.
AMERICAN CUSTOM COMPONENTS, INC.
a Nevada corporation ("ACCM")
/s/ John Groom
By: John Groom
Its: President
LOYD INTERNATIONAL, INC.
a Wyoming corporation ("LOYD")
/s/ Edward Loyd
By:_______________________________
Its: _______________________________
MARTIN TONY WALK ("WALK")
/s/ Martin Tony Walk
Martin Tony Walk
"THE LOYD SHAREHOLDER"
/s/ Edward Loyd
Edward Loyd
<PAGE>
Exhibit "A"
Agreement Between Walk and Loyd
dated February 13, 1999
Letter of conditions for the sale of ACC to Loyd International.
Feb. 13, 1999
Martin T. Walk agreement.
A) Sale of tools and all rights for Tagnology shelf tag system
currently held by ACC to Martin T. Walk. The tools and
rights have an approximate value of $80,000 for the tools
with forecasted revenue by Tagnology based on 50 store
installation of $500,000 per year for the current connectors
and cable sets. Total cost to Mr. Walk would be $1.00.
B) ACC to assign current Tagnology debt of approximately
$9,000.00, now in default to Martin T. Walk.
C) Loyd International to sign a private purchase contract for
Mr. Walk's shares (approximately 5,192,000 shares) for
$400,000. The $400,000 will be paid in terms, structured
with the least income tax exposure to Mr. Walk.
D) Loyd International will provide a $100,000 note paid over a
3-year period on a quarterly basis at 10% interest. This
note represents Mr. Walk's deferred salary for 1998.
E) Mr. Walk to retain 300,000 shares of stock.
F) Loyd International will assume all tax liability for shares
sold by Mr. Walk where the funds were invested back into the
company.
G) Mr. Walk to sign an agreement that he will not recruit ACC
staff.
H) All other funds provided to ACC by Mr. Walk shall be
considered paid in capital.
I) Agreement per the above to be signed by Feb 15, 1999.
Estimated stock position summary after sale.
Estimated fully diluted 10,473,340 shares (3 million redeemed from Oxford)
Addition 144 stock to Loyd 2,600,000 shares
Total dilution 12,973,340 shares
Sale of Walk Stocks to Loyd 5,192,000 shares
144 Stock issued to Loyd 2,600,000 shares (@$0.15 per shares $390,000)
Total Loyd Shares 7,792,000 shares
Loyd percent of ownership 60%
/s/ Martin T. Walk /s/ Edward Loyd
Martin T. Walk Edward Loyd, President
on behalf of Loyd International
<PAGE>
Exhibit "B"
Agreement Between Walk and Loyd
dated March 4, 1999
AGREEMENT
This AGREEMENT is an amendment to the February 13, 1999 agreement
between Ed Loyd as President of Loyd International and Martin T.
Walk as major stockholder of American Custom Components, Inc.
This amendment affects the paragraphs of said agreement as follows:
1. Paragraph C is further defined as follows: WALK shall
receive *$400,000 worth of preferred stock in American Custom
Components, Inc. Said Preferred stock shall pay a dividend of 10%
per annum payable quarterly. Said stock shall be convertible into
American Custom Components, Inc. common stock at any time after 24
months at WALK's option and at 80% of the then market price of the
common stock.
2. Paragraph D is amended as follows: The company agrees to
retain **WALK as a Consultant at $75,000.00 per year with a 5%
commission on sales which he develops. Company to pay all expenses
including car with the prior approval of John Groom. This agreement
to commence April 1, 1999 for a period of two years.
3. Paragraph E is amended to read that Walk is to be
compensated for the 100,000 shaers of sotck sold to Montclair. Walk
to retain 300,000 shares of American Custom Components, Inc. common
stock.
4. Additionally, Loyd to pay Irving Walk $6,000.00 and Tony
Walk $5,000.
* Min redeemable after 24 months
** Company to provide a separate consulting contract to Walk.
Dated: March 4, 1999
/s/ Martin T. Walk /s/ Edward Loyd
Martin T. Walk Edward Loyd, President
Loyd International
<PAGE>
Exhibit "C"
Loyd Shareholder
Edward Loyd is the holder of 100% of the issued and
outstanding shares of common stock of Loyd International, Inc.,
consisting of 100 shares.
<PAGE>
Exhibit "D"
Certificate of Designation
of
Series A Convertible Preferred Stock
AMERICAN CUSTOM COMPONENTS, INC.
CERTIFICATE OF DESIGNATION
SERIES A CONVERTIBLE PREFERRED STOCK
John Groom and Edward Loyd hereby certify that they are
the President and Secretary, respectively, of American Custom
Components, Inc., a Nevada corporation (hereinafter referred
to as the "Corporation" or the "Company"); that, pursuant to
the Corporation's Articles of Incorporation, as amended, and
the General Corporation Law of the State of Nevada, the Board
of Directors of the Corporation adopted the following
resolutions on March 4, 1999; and that none of the Series A
Convertible Preferred Stock has been issued.
1. Creation and Designation of Series A
Convertible Preferred Stock. There is hereby created a series
of preferred stock consisting of 500,000 shares and designated
as the Series A Preferred Stock (the "Preferred Stock"),
having the voting powers, preferences, relative,
participating, optional and other special rights and the
qualifications, limitations and restrictions thereof that are
set forth below.
2. Dividend Provisions. Each share of Preferred
Stock shall be entitled to receive a cumulative dividend equal
to $0.08 per annum, payable on March 31, June 30, September
30, and December 31 of each year. Each share of Preferred
Stock shall rank on a parity with each other share of
Preferred Stock with respect to dividends.
3. Liquidation Provisions. The Series A
Convertible Preferred Stock shall not have any rights to
assets or proceeds from sale of assets of the Company in the
event of liquidation.
4. Conversion Provisions. At any time or from time
to time after March 8, 2001, the holders of the Series A
Convertible Preferred Stock shall have the right, but not the
obligation, to convert the Series A Convertible Preferred
Stock into shares of common stock of ACCM on the following terms:
A. For purposes of conversion only, each shares of
Series A Convertible Preferred Stock shall have a value of $0.80.
B. Upon conversion, the aggregate dollar value of
all the Series A Convertible Preferred Stock being converted
shall be converted into common stock based upon 80% of the
common stock's average bid price for the 30 days immediately
preceding the date of conversion.
C. The holders of the Series A Convertible
Preferred Stock shall exercise their conversion rights by
completing the attached Notice of Conversion and delivering it
to the Company.
<PAGE>
5. Call Provisions. The shares of Series A
Convertible Preferred Stock shall, at the sole discretion of
the Board of Directors of the Corporation, be callable, in
whole or in part, from time to time or at any time, at a price
of $0.80 per share. Notwithstanding the foregoing, however,
the Corporation may not call the shares of Series A
Convertible Preferred Stock unless all dividends have been
paid in full to the holders of the Preferred Stock as of the
time of call.
6. Notices. Any notices required by the
provisions of this Certificate of Designation to be given to
the holders of shares of Preferred Stock shall be deemed given
if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at its address appearing on
the books of the Corporation.
7. Voting Provisions. The Preferred Stock shall
have no voting rights.
IN WITNESS WHEREOF, the Company has caused this
Certificate of Designation of Series A Convertible Preferred
Stock to be duly executed by its President and attested to by
its Secretary and has caused its corporate seal to be affixed
hereto this 16th day of March, 1999.
By: /s/ John Groom By: /s/ Edward Loyd
John Groom, President Edward Loyd, Secretary
<PAGE>
CONVERSION NOTICE
(To be executed upon Conversion of Series A Convertible
Preferred Stock)
To: American Custom Components, Inc. (the "Company")
The undersigned hereby irrevocably elects to exercise
the right, represented by that certain Certificate of
Designation of Series A Convertible Preferred Stock (the
"Preferred Stock") as adopted by the Company's Board of
Directors on March 4, 1999, and by Preferred Stock Certificate
No. _______, attached hereto, to convert ______________ shares
of Preferred Stock into __________ shares of Common Stock
("Common Stock") of the Company according to the Conversion
Ratio set forth in the Certificate of Designation. The
undersigned requests that certificates for the Common Stock be
registered in the name of
______________________________________________________________whose
address is
________________________________________________________ and
that such certificates be delivered to
_______________________________________________whose address
is_____________________________________________. If said
number of shares of Preferred Stock is less than all of the
shares of Preferred Stock currently held by the undersigned,
the undersigned requests that a new Preferred Stock
Certificate representing the number of shares held by the
undersigned after giving effect to the conversion herein be
registered in the name of _____________________________whose
address is _________________________________and that such
Preferred Stock Certificate be delivered to
_____________________________whose address is
___________________________________.
Dated: Signature:___________________________
(Signature must conform in all respects
to name of holder as specified on the
Preferred Stock Certificate)
<PAGE>
Exhibit "E"
Consulting Agreement
AMERICAN CUSTOM COMPONENTS, INC.
CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement"), made and
entered into as of this 1st day of April, 1999 by and between
American Custom Components, Inc., a Nevada corporation ("ACC"
or the "Company") and Martin Tony Walk ("Walk" or the
"Consultant").
RECITALS
WHEREAS, Consultant has significant experience and
potential sales contacts within the industry in which ACC
currently operates;
WHEREAS, ACC wishes to engage the consulting services
of Consultant; and
WHEREAS, Consultant wishes to provide ACC with
consulting services.
NOW, THEREFORE, in consideration of the mutual promises
herein contained, the parties hereto hereby agree as follows:
1. CONSULTING SERVICES
ACC hereby authorizes, appoints and engages the
Consultant to perform the following services in accordance
with the terms and conditions set forth in this Agreement:
The Consultant will consult with ACC concerning the
preparation of the Company's brochures, contracts, and other
sales materials to be used by the Company and its sales force
and independent representatives. In addition, Consultant will
provide the Company and its agents with potential sales
contacts and will communicate and negotiate with potential
sales contacts in order to consummate sales on behalf of the
Company. The parties hereto acknowledge that the value of
Consultants services shall be measured by a combination of the
following: development of existing and new markets,
developmemt of a monthly, quarterly and annual sales plan,
increased sales or revenues, education, preparation, and
positioning within the marketplace. Consultant shall maintain
a minimum margin of thirty percent for all sales developed.
Margin shall be defined as the amount that remains after all
direct costs, consultant fees, consultant expenses and sales
commissions is deducted. Consultant shall provide all
information required to develop a quotation as defined in the
companies "request for quotation" (RFQ) documents. Consultant
shall not perform any services by, for, or on behalf of the
Company without the consent of the Company and shall take
direction with respect to Consultants activities hereunder
from the Company.
2. TERM OF AGREEMENT
This Agreement shall be in full force and effect as of
the date hereof and for a period of two (2) years herefrom.
ACC shall have the right to terminate this Agreement in the
event of a breach of its
<PAGE>
terms by the Consultant or the death
or assignment for the benefit of creditors of the Consultant.
Consultant shall have the right to terminate this Agreement if
ACC fails to comply with the terms of this Agreement,
including without limitation its responsibilities for
compensation as set forth in this Agreement.
3. COMPENSATION TO CONSULTANT
a. Consultant shall receive cash consideration in
the amount of Thirty Six Dollars and Six Cents
($36.06) per hour, not to exceed Seventy Five
Thousand Dollars ($75,000) in any 12 month
period (the "Compensation"), payable within
fifteen (15) days of delivery by Consultant to
the Company of an invoice documenting
performance of services on behalf of the Company.
b. In addition to the Compensation set forth above,
Consultant shall receive a commission equal to
five percent (5%) of the gross revenues received
by the Company as a result of Consultants
efforts. Said commission shall be paid on the
first of the month following the receipt of
revenues by the Company. In addition, the
Company shall reimburse Consultant for all
reasonable expenses incurred by Consultant while
performing direct services for the Company under
this Agreement and pre-approved by the Company's
President, including automobile expenses up to a
maximum of $500 per month.
4. REPRESENTATIONS AND WARRANTIES OF CONSULTANT
Consultant represents and warrants to and agrees
with ACC that:
a. This Agreement has been duly authorized,
executed and delivered by Consultant.
This Agreement constitutes the valid,
legal and binding obligation of
Consultant, enforceable in accordance
with its terms, except as rights to
indemnity hereunder may be limited by
applicable federal or state securities
laws, and except as such enforceability
may be limited by bankruptcy,
insolvency, reorganization or similar
laws affecting creditor's rights
generally; and
b. The consummation of the transactions
contemplated hereby will not result in
any breach of the terms or conditions
of, or constitute a default under, any
agreement or other instrument to which
Consultant is a party, or violate any
order, applicable to Consultant, of any
court or federal or state regulatory
body or administrative agency having
jurisdiction over Consultant or over any
of its property, and will not conflict
with or violate the terms of
Consultants's current employment.
c. The parties hereto acknowledge and agree
that ACC shall have the right to refuse
any course of action proposed by
Consultant and to refuse any customer or
sale identified by Consultant or any
other source. Further, Consultant will
abide by all the policies and procedures
of the Company in effect from time to
time. Consultant shall provide and
maintain necessary documentation to
support the companies ISO 9001 and ISO
9002 certification requirements.
<PAGE>
d. Consultant agrees that he shall not
perform any services, either as an
employee, independent contractor, or
otherwise, for any other company without
the express written permission of the
Company. Further, all properties,
patents, trademarks, formulas,
inventions, etc. which are developed by
or involving Consultant while performing
services for the Company, and for a
period of one (1) year after the
temination of this Agreement, shall be
the property of the Company.
5. REPRESENTATIONS AND WARRANTIES OF ACC
ACC hereby represents, warrants, covenants to and
agrees with Consultant that:
a. This Agreement has been duly authorized,
and executed by ACC. This Agreement
constitutes the valid, legal and binding
obligation of ACC, enforceable in
accordance with its terms, except as
rights to indemnity hereunder may be
limited by applicable federal or state
securities laws, except in each case as
such enforceability may be limited by
bankruptcy, insolvency, reorganization
or similar laws affecting creditor's
rights generally.
b. There is not now pending or, to the
knowledge of ACC, threatened, any
action, suit or proceeding to which ACC
is a party before or by any court or
governmental agency or body which might
result in a material adverse change in
the financial condition of ACC. The
performance of this Agreement and the
consummation of the transactions
contemplated hereby will not result in a
breach of the terms or conditions of, or
constitute a default under, any statute,
indenture, mortgage or other material
Agreement or instrument to which ACC is
a party, or violate any order,
applicable to ACC, or governmental
agency having jurisdiction over ACC or
over any of its property.
c. The parties hereto agree that ACC shall be
responsible for any and all costs and expenses
reasonably incurred by Consultant in performing
his duties hereunder, including but not limited
to legal fees, printing costs, fees paid to
third-party professionals, etc. No expense to
be reimbursed by ACC shall be incurred by
Consultant without the prior written approval of
ACC.
6. INDEPENDENT CONTRACTOR
Both ACC and the Consultant agree that the Consultant
will act as an independent contractor in the performance of
his duties under this Agreement. Nothing contained in this
Agreement shall be construed to imply that Consultant, or any
employee, agent or other authorized representative of
Consultant, is a partner, joint venturer, agent, officer or
employee of ACC. Neither party hereto shall have any
authority to bind the other in any respect vis a vis any third
party, it being intended that each shall remain an independent
contractor and responsible only for its own actions.
7. ARBITRATION
If a dispute or claim shall arise between the parties with
respect to any of the terms or provisions of this Agreement,
or with respect to the performance by any of the parties under
this Agreement, then the parties agree that the dispute shall
be arbitrated in Orange County, California, before a single
<PAGE>
arbitrator, in accordance with the rules of either the
American Arbitration Association ("AAA") or Judicial
Arbitration and Mediation Services, Inc./Endispute
("JAMS/Endispute"). The selection between AAA and
JAMS/Endispute rules shall be made by the claimant first
demanding arbitration. The arbitrator shall have no power to
alter or modify any express provisions of this Agreement or to
render any award which by its terms affects any such
alteration or modification. The parties to the arbitration
may agree in writing to use different rules and/or
arbitrator(s). In all other respects, the arbitration shall
be conducted in accordance with Part III, Title 9 of the
California Code of Civil Procedure. The parties agree that
the judgment award rendered by the arbitrator shall be
considered binding and may be entered in any court having
jurisdiction as stated in Paragraph 10 of this Agreement. The
provisions of this Paragraph shall survive the termination of
this Agreement.
8. NOTICES
Any notice, request, demand, or other communication given
pursuant to the terms of this Agreement shall be deemed given
upon delivery, if hand delivered or sent via facsimile, or
Forty-Eight (48) hours after deposit in the United States
mail, postage prepaid, and sent certified or registered mail,
return receipt requested, correctly addressed to the addresses
of the parties indicated below or at such other address as
such party shall in writing have advised the other party.
If to ACC:
American Custom Components, Inc.
3310 W. MacArthur Boulevard
Santa Ana, CA 92704
Attention: John Groom, President
Facsimile No: 714-662-2081
with a copy to:
Law Offices of M. Richard Cutler
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Attn: M. Richard Cutler, Esq.
Facsimile No: 949-719-1988
If to Consultant:
Martin Tony Walk
177 Promontory West
Newport Beach, CA 92660
Facsimile No.: 949-675-0833
9. ASSIGNMENT
This contract shall inure to the benefit of the parties
hereto, their heirs, administrators and successors in
interest. This Agreement shall not be assignable by either
party hereto without the prior written consent of the other.
<PAGE>
10. CHOICE OF LAW AND VENUE
This Agreement and the rights of the parties hereunder shall
be governed by and construed in accordance with the laws of
the State of California including all matters of construction,
validity, performance, and enforcement and without giving
effect to the principles of conflict of laws. Any action
brought by any party hereto shall be brought within the State
of California, County of Orange.
11. NONDISCLOSURE
Each party hereto agrees to keep the terms of this
Agreement and the transactions contemplated hereby as
confidential and shall not disclose such information to any
third party, other than professional advisors utilized to
negotiate and consummate the transactions contemplated hereby.
The parties hereto agree that in the event there is a breach
of the foregoing confidentiality provision, the damage to the
parties hereto would be difficult to estimate and as a result,
in the event of such a breach, the non-breaching party, in
addition to any and all other remedies allowed by law, would
be entitled to injunctive relief enjoining the actions of the
breaching party.
12. ENTIRE AGREEMENT
Except as provided herein, this Agreement, including
exhibits, contains the entire agreement of the parties, and
supersedes all existing negotiations, representations, or
agreements and all other oral, written, or other
communications between them concerning the subject matter of
this Agreement. There are no representations, agreements,
arrangements, or understandings, oral or written, between and
among the parties hereto relating to the subject matter of
this Agreement that are not fully expressed herein.
13. SEVERABILITY
If any provision of this Agreement is unenforceable, invalid,
or violates applicable law, such provision, or unenforceable
portion of such provision, shall be deemed stricken and shall
not affect the enforceability of any other provisions of this
Agreement.
14. CAPTIONS
The captions in this Agreement are inserted only as a matter
of convenience and for reference and shall not be deemed to
define, limit, enlarge, or describe the scope of this
Agreement or the relationship of the parties, and shall not
affect this Agreement or the construction of any provisions
herein.
15. COUNTERPARTS
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which
shall together constitute one and the same instrument.
<PAGE>
16. MODIFICATION
No change, modification, addition, or amendment to this
Agreement shall be valid unless in writing and signed by all
parties hereto.
17. ATTORNEYS FEES
Except as otherwise provided herein, if a dispute should
arise between the parties including, but not limited to
arbitration, the prevailing party shall be reimbursed by the
non-prevailing party for all reasonable expenses incurred in
resolving such dispute, including reasonable attorneys' fees.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the Effective Date.
"ACC" "CONSULTANT"
American Custom Components, Inc. Martin Tony Walk
a Nevada corporation
/s/ John Groom /s/ Martin Tony Walk
By: John Groom
Its: President
<PAGE>
Exhibit "F"
Assignment of Assets and Assumption of Liabilities
ASSIGNMENT OF ASSETS
AND
ASSUMPTION OF LIABILITIES
This Assignment of Assets and Assumption of Liabilities
("Assignment and Assumption") is executed this 1st day of
March, 1999, between Martin Tony Walk ("Walk") and American
Custom Components, Inc. ("ACCM").
WHEREAS, ACCM is the holder of certain assets and
technology related to Tagnology, Inc. (the "Tagnology Assets")
as set forth on Exhibit "F1" attached hereto;
WHEREAS, ACCM is indebted to Tagnology is the
approximate sum of $9,000 (the "Tagnology Debts");
WHEREAS, ACCM desires to assign the Tagnology Assets to
Walk and Walk desires to assume the Tagnology Debts;
NOW, THEREFORE, for good and mutual consideration, the
receipt of which is hereby acknowledged:
1. ACCM hereby assign all of the Tagnology Assets
to Walk.
2. Walk hereby expressly assumes all of the
Tagnology Debts.
EXECUTED as of the date first written above.
/s/ Martin Tony Walk AMERICAN CUSTOM COMPONENTS, INC.
Martin Tony Walk
/s/ John Groom
By: John Groom
Its: President
<PAGE>
Exhibit "G"
Loyd Financial Statements as of Closing Date
<PAGE>
Exhibit "H"
Loyd Financial Statements as of March 31, 1998
<PAGE>
Exhibit I
<TABLE>
<S> <C> <C> <C> <C>
Inventory for
Tagnology
Assembly and Molding
Tools
Date: 3/8/99
Part# Description Location
Santa Ana St. Lucia
Tagnology Mold 4 cavity tool
including mold base 1
Print Part #s A0506600 Cover Connector-Rail End
A0516600 Cover Connector-Swing Arm
A0516606 Housing Connector-
Swing Arm
Tagnology
Tools for
Assembly Use
PHK 1/2" Steinel Type 1
Bases 6
Insert for Bases 7
</TABLE>
Note: Stamp tools shall be assigned to Mr. Walk if owned by
ACC. If not owned by ACC, no such requirement shall exist.
/s/ John Groom /s/ Tony Walk
3/8/99 3-8-99
John Groom Tony Walk
AGREEMENT
This AGREEMENT is entered into this ___th day of March 1999
by and between _________________________________ (hereinafter,
Creditor) and AMERICAN CUSTOM COMPONENTS, INC. (hereinafter, ACC).
Creditor is an owner of certain monetary debt and/or other
obligations which may be owed to him by ACC as a result of either,
loans provided to ACC for business purposes, or goods and/or
services provided to ACC in the ordinary course of business.
Creditors recognize that the financial situation of ACC is
such that the company has the option of informally restructuring
without the aid of the Court system or placing itself under the
protection of the courts. Creditor wishes to assist ACC in an
informal restructuring and enters into this agreement for that
purpose. Therefore, this is an all-inclusive agreement to settle
all claims and/or obligations, which may exist between the parties.
The purpose of this Agreement is to provide a vehicle by
which all claims, debt and obligations certain in the amount of $
________________ owed by ACC to Creditor can be EXCHANGED for ACC
common stock which is restricted pursuant to Section 144. This
exchange of Creditor's debt for ACC stock constitutes a full and
final settlement of all sums, debts and other obligations existing
now or in the past between Creditor and ACC. The parties hereto
expressly waive the provisions of California Civil Code section
1542, which has been separately bargained for and expressly
consented to. Civil Code Section 1542 provides in part:
"A general release does not extend to claim to which
a creditor does not know or suspect to exist in his
favor at the time of executing the release, which if
known by him must have materially affected his
settlement with the debtor..."
THEREFORE, THE PARTIES AGREE AS FOLLOWS:
A. ACC shall issue one share of ACC common stock to Creditor
for each $1.25 in debt, claims, and obligations currently owed by
ACC to Creditor.
B. Therefore pursuant to Paragraph A, ACC shall issue,
forthwith, _____________ shares of its common stock to Creditor in
exchange for the debt, claims and obligations set forth above in the
amount of $ ___________.
C. All issued common stock is restricted for the period of
one year pursuant to Section 144 of the applicable SEC regulations.
D. ACC may repurchase, at its option, the common stock
issued above at the price of $1.50 within twelve months of the date
set forth above.
<PAGE>
E. Creditor is not required to sell his shares to ACC as
provided in Paragraph D, and may sell his shares to any person at
any time, at his discretion.
F. Creditor acknowledges that the consideration for this
transaction is to assist ACC in restructuring its financial position
without court assistance.
G. This agreement is binding upon both parties and Creditor
acknowledges that he has been fully advised of the inherent risk in
this transaction.
H. The parties to this Agreement, and each of them,
acknowledge that (1) this Agreement and its reduction in final
written form is a result of extensive good faith negotiations
between the parties; (2) the parties have carefully reviewed and
examined this Agreement prior to executing it; and (3) the parties
have carefully clarified any apparent ambiguities in this Agreement
and agree that California Civil Code Section 1654 as it applies to
ambiguity is not to be construed against the drafting party.
I. This Agreement constitutes the full and entire agreement
between the parties hereto and each such party acknowledges that
there is no oral agreement, oral and/or written between the parties
hereto. This is an integrated agreement as defined in California
Code of Civil Procedure Section 1856 (a) and (b) as this writing is
intended to be a complete and exclusive statement of the terms of
the parties agreement with respect to the subject matter hereof.
J. This Agreement is entered into in and shall be governed
by the laws of the State of California
_____________________________ ________________________________
American Custom Components, Inc.
by John Groom, President Creditor
