<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[ X ] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1999
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _________ to _________.
Commission file number: 333-79969
DURASWITCH INDUSTRIES, INC.
(Exact name of Small Business Issuer as Specified in Its Charter)
<TABLE>
<S> <C>
NEVADA 88-0308867
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
</TABLE>
234 S. EXTENSION ROAD,
MESA, ARIZONA 85210
(480) 586-3300
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes / / No /X/
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 7,495,594 shares of common
stock outstanding as of October 31, 1999.
Transitional Small Business Disclosure Format (check one): Yes /X/ No / /
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<PAGE> 3
DURASWITCH INDUSTRIES INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Audited) (Unaudited)
ASSETS December 31, 1998 September 30, 1999
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 143,860 $ 7,262,119
Accounts receivable (net of allowance for doubtful accounts
of $9,346 in 1998 and 1999)
136,078 231,806
Loan to Camplex / Concept W Corporation
-- 150,000
Inventory (Note 2)
235,567 487,304
Prepaid expenses and other current assets
76,640 148,629
------------ ------------
Total current assets
592,145 8,279,858
------------ ------------
PROPERTY AND EQUIPMENT - Net (Note 3)
167,672 472,925
GOODWILL - Net
662,767 608,046
PATENTS AND OTHER ASSETS
105,246 89,453
============ ============
Total assets $ 1,527,830 $ 9,450,282
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 221,243 $ 205,538
Accrued expenses and other current liabilities
223,331 442,193
Line of credit
-- 75,000
Loans from officers
40,281 --
Current portion of notes and capital leases payable
132,985 243,913
------------ ------------
Total current liabilities
617,840 966,644
------------ ------------
LONG-TERM LIABILITIES:
Notes payable
107,701 72,060
Capital leases payable
50,014 69,486
------------ ------------
Total long-term liabilities
157,715 141,547
------------ ------------
Total liabilities
775,555 1,108,191
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 40,000,000 shares authorized
4,911,250 and 7,495,407 shares issued and
outstanding in 1998 and 1999, respectively
4,911 7,496
Preferred stock, no par value, 10,000,000 shares authorized,
no shares issued and outstanding
Additional paid-in capital 3,535,878 13,271,247
Accumulated deficit
(2,788,514) (4,789,389)
Promissory note receivable
-- (147,263)
------------ ------------
Total stockholders' equity
752,275 8,342,091
------------ ------------
============ ============
Total liabilities and stockholders' equity $ 1,527,830 $ 9,450,282
============ ============
</TABLE>
See notes to financial statements
<PAGE> 4
DURASWITCH INDUSTRIES INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net sales $ 390,367 $ 442,983 $ 1,070,833 $ 1,300,762
Cost of goods sold
368,451 524,065 1,008,570 1,526,670
----------- ----------- ----------- -------------
Gross (loss) profit
21,916 (81,082) 62,263 (225,908)
----------- ----------- ----------- -------------
Operating expenses:
Selling, general and administrative
306,401 541,415 790,020 1,348,495
Research and development
91,136 182,558 274,719 433,670
----------- ----------- ----------- -------------
Total operating expenses
397,537 723,973 1,064,739 1,782,165
Loss from operations
(375,621) (805,055) (1,002,476) (2,008,073)
Other income (expense) - net
(2,268) 8,465 (20,293) 7,198
----------- ----------- ----------- -------------
Net loss
(377,889) (796,590) (1,022,769) (2,000,875)
Non cash discount on proceeds of
preferred
stock for beneficial conversion feature
-- -- (740,000) --
Net loss attributable to common stock
(377,889) (796,590) (1,762,769) (2,000,875)
Net loss per common share, basic and $ (0.09) $ (0.13) $ (0.41) $ (0.36)
diluted
Weighted average shares outstanding,
basic and diluted 4,289,358 6,147,580 4,254,560 5,541,136
</TABLE>
<PAGE> 5
DURASWITCH INDUSTRIES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,022,769) $(2,000,875)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
92,376 153,401
Gain on sale of equipment
-- (12,500)
Stock option compensation expense
1,049 10,093
Issuance of stock for services
22,330 8,500
Bad debt expense
10,866 --
Changes in operating assets and liabilities net of the
effects of acquisition:
Accounts receivable
(30,638) (95,728)
Inventory
188,769 (251,737)
Prepaid expenses and other current assets
(49,014) (71,989)
Accounts payable
(156,814) (15,705)
Accrued expenses and other current liabilities
51,220 218,862
----------- -----------
Net cash used in operating activities
(892,625) (2,057,678)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in patents and other assets
(23,752) (1,521)
Advance to Aztec Industries, Inc.
(58,246) --
Loan to Camplex/Concept W Corporation
-- (150,000)
Proceeds from sale of equipment
-- 12,500
Purchases of property and equipment
(57,443) (328,501)
----------- -----------
Net cash used in investing activities
(139,441) (467,522)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of stock
1,087,443 9,397,098
Principal payments on notes payable and capital leases
(50,025) (238,358)
Proceeds from notes payable to shareholders
-- 450,000
Net (decrease) increase in line of credit
(41,000) 75,000
Net change in loans from officers
(3,170) (40,281)
----------- -----------
Net cash provided by financing activities
993,248 9,643,459
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(38,818) 7,118,259
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
235,981 143,860
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 197,163 $ 7,262,119
=========== ===========
</TABLE>
<PAGE> 6
DURASWITCH INDUSTRIES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid for interest 44,228 61,602
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Acquisition of equipment through capital lease 57,873
Reduction of debt in connection with exercise of warrants 175,000
Purchase of Aztec Industries, Inc.:
Accounts receivable 157,856
Inventories 349,613
Prepaids and other current assets 5,134
Property and equipment 38,352
Goodwill 729,652
Accounts payable (224,021)
Accrued expenses (74,873)
Advances from the Company (58,246)
Line of credit (41,000)
Notes payable (287,124)
Leases payable (28,343)
Common stock (567,000)
</TABLE>
<PAGE> 7
NOTES TO THE INTERIM FINANCIAL STATEMENTS
NOTE 1:
BASIS OF PRESENTATION
The accompanying interim financial statements have been prepared by the Company
in accordance with the rules and regulations of the Securities and Exchange
Commission for interim reporting. Accounting policies utilized in the
preparation of financial information herein presented are the same as set forth
in the Company's annual financial statements. Certain disclosures and
information normally included in financial statements have been condensed or
omitted. In the opinion of the management of the Company, these financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the interim financial
statements. Interim results of operations are not necessarily indicative of the
results of operations for the full year.
NOTE 2:
<TABLE>
<CAPTION>
INVENTORIES DECEMBER 31, 1998 SEPTEMBER 30, 1999
Inventories consist of the following:
<S> <C> <C>
Raw materials $ 101,765 $ 179,273
Work in process 111,764 260,975
Finished goods 42,038 52,056
--------- ---------
Subtotal 255,567 492,304
--------- ---------
Less reserve (20,000) (5,000)
--------- ---------
Total $ 235,567 $ 487,304
========= =========
</TABLE>
NOTE 3:
<TABLE>
<CAPTION>
PROPERTY AND EQUIPMENT DECEMBER 31, 1998 SEPTEMBER 30, 1999
Property and Equipment consist of the following:
<S> <C> <C>
Computer equipment $ 81,341 $ 154,541
Office furniture and fixtures 24,759 110,075
Other machinery and equipment 116,378 210,279
Leasehold improvement -- 134,203
--------- ---------
Subtotal 222,478 609,098
--------- ---------
Less accumulated depreciation and amortization (54,806) (136,173)
--------- ---------
Total $ 167,672 $ 472,925
========= =========
</TABLE>
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 VS. THREE MONTHS ENDED SEPTEMBER 30, 1998
Net Sales:
We recorded net sales of $442,983 for the three months ended September 30, 1999,
the "1999 Period", compared to $390,367 for the three months ended September 30,
1998, the "1998 Period". Sales during the 1998 Period were attributable
primarily to sales of membrane type switches and graphic printing services
provided to pre-existing customers of Aztec, our wholly owned subsidiary. During
1998, using Aztec's sales and manufacturing capabilities, we began marketing our
patented technology and producing prototypes of custom-designed switches and
ICPs. During the 1999 Period, net sales increased based on higher volumes of
sales and market acceptance of our new switches and ICPs relying on our patented
technology rather than older membrane switch technology.
Cost of Goods Sold:
Cost of goods sold were $524,065 for the 1999 Period, compared to $368,451 for
the 1998 Period. The increase in cost of goods sold was primarily due to
increased manufacturing overhead and application engineering costs related to
developing an infrastructure to accommodate anticipated increased sales volumes
of new products using our patented technology.
Selling, General and Administrative expenses:
Selling, general and administrative expenses were $541,415 for the 1999 Period,
compared to $306,401 for the 1998 Period. The increase in selling, general and
administrative expenses was directly related to building an infrastructure to
accommodate expected sales and production growth, including increased labor
costs and increased occupancy costs relating to additional manufacturing and
office space in 1999. We anticipate continuing to increase our sales and
marketing staff while adding administrative personnel accordingly.
Research and Development:
Research and development expenses were $182,558 for the 1999 Period, compared to
$91,136 for the 1998 Period. The increased costs were attributed to additional
engineering personnel and equipment, in order to continue development and
testing of new product applications with our patented technologies.
Loss from Operations:
As a result of the factors described above, loss from operations increased to
$805,055 for the 1999 Period, compared to $375,621 for the 1998 Period.
Other Expense/Income:
Net other income was $8,465 for the 1999 Period, compared to net other expense
of $2,268 for the 1998 Period. The change from net other expense to net other
income was based on the investment of cash we received from our public equity
offering on September 1, 1999.
Net Loss:
As a result of the factors described above, net loss was $796,590 for the 1999
Period, compared to $377,889 for the 1998 Period.
<PAGE> 9
NINE MONTHS ENDED SEPTEMBER 30, 1999 VS. NINE MONTHS ENDED SEPTEMBER 30, 1998
Net Sales:
We recorded net sales of $1,300,762 for the nine months ended September 30,
1999, the "1999 Period", compared to $1,070,833 for the same period in 1998, the
"1998 Period". Sales during the 1998 Period were attributable primarily to sales
of membrane type switches and graphic printing services provided to pre-existing
customers of Aztec, our wholly owned subsidiary. Sales during the 1998 Period
were attributable primarily to sales of membrane type switches and graphic
printing services provided to pre-existing customers of Aztec, our wholly owned
subsidiary. During 1998, using Aztec's sales and manufacturing capabilities, we
began marketing our patented technology and producing prototypes of
custom-designed switches and ICPs. During the 1999 Period, net sales increased
based on higher volumes of sales and market acceptance of our new switches and
ICPs relying on our patented technology rather than older membrane switch
technology.
Cost of Goods Sold:
Cost of goods sold were $1,526,670 for the 1999 Period, compared to $1,008,570
for the 1998 Period. The increase in cost of goods sold was primarily due to
increased manufacturing overhead and application engineering costs related to
developing an infrastructure to accommodate anticipated increased sales volumes
of new products using our patented technology.
Selling, General and Administrative expenses:
Selling, general and administrative expenses were $1,348,495 for the 1999
Period, compared to $790,020 for the 1998 Period. The increase in selling,
general and administrative expenses was directly related to building an
infrastructure to accommodate expected sales and production growth, including
increased labor costs and increased occupancy costs relating to additional
manufacturing and office space in 1999. We anticipate continuing to increase our
sales and marketing staff while adding administrative personnel accordingly.
Research and Development:
Research and development expenses were $433,670 for the 1999 Period, compared to
$274,719 for the 1998 Period. The increased costs were attributed to additional
engineering personnel and equipment, in order to continue development and
testing of new product applications with our patented technologies.
Loss from Operations:
As a result of the factors described above, loss from operations increased to
$2,008,073 for the 1999 Period, compared to $1,002,476 for the 1998 Period.
Other Expense/Income:
Net other income was $7,198 for the 1999 Period, compared to net other expense
of $20,293 for the 1998 Period. The change from net other expense to net other
income was based on the investment of cash we received from our public equity
offering on September 1, 1999.
Net Loss:
As a result of the factors described above, net loss was $2,000,875 for the 1999
Period, compared to $1,762,769 for the 1998 Period.
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
The current ratio on September 30, 1999 was 8.6 to 1, compared to 1.0 to 1 on
December 31, 1998. Working capital on September 30, 1999 was $7,313,214,
compared to ($25,695) on December 31, 1998. The increase in working capital is
primarily attributed to an increase in cash from our public equity offering that
closed on September 1, 1999. The public offering generated cash of approximately
$8,198,000 after associated expenses.
Net cash used in operating activities for the nine months ended September 30,
1999 was $2,032,125, consisting primarily of net losses, an increase in
inventory and accounts receivable, which was partially offset by depreciation
and amortization and an increase in accrued expenses.
Net cash used in investing activities for the nine months ended September 30,
1999 was $493,075, consisting primarily of a $150,000 loan to Camplex/Concept W
Corporation and purchases of property and equipment. The loan to Camplex was
made in anticipation of an acquisition of Camplex, which we subsequently
abandoned.
Net cash provided by financing activities for the nine months ended September
30, 1999 was $9,643,459, consisting primarily of net proceeds from the sale
public offering partially offset by payments on notes, leases and loans.
In December 1998, we obtained a $150,000 bank line of credit, May 1999, we
renegotiated the line of credit, which allows us to borrow up to a total of
$250,000 at the prime rate plus 2% and matures in May 2000. Outstanding
borrowings on the line of credit are secured by a lien on our inventory,
accounts receivable and bank accounts. As of September 30,1999, $75,000 was
outstanding under the line of credit.
As part of the Aztec acquisition, we assumed a note payable, due March 31, 2002,
which requires monthly payments of principal and interest of $4,536 with
interest at 13.2% per year. This note is secured by a lien on some of our
property and manufacturing equipment. As of September 30, 1999, we owed $114,288
on this note payable. Also in connection with the Aztec acquisition, we assumed
an unsecured note payable to one of Aztec's former owners, due January 31, 2000,
which carried imputed interest at 8.0% per year. As of September 30, 1999, we
owed $13,604 on this note payable.
During the nine months period ended September 30, 1999, we entered into various
capital leases for the purchase of property and equipment. These capital leases
bear interest at rates ranging from 11.7% to 24.0%. As of September 30, 1999,
future principal payments under our existing capital leases were approximately
$108,000.
In August 1999, we borrowed $150,000 from a stockholder. This loan matures on
December 31, 1999 and bears an annual interest rate of 10%. On September 30,
1999, the outstanding balance was $150,000.
At December 31, 1998, we had approximately $2,284,000 in net operating loss
carry forwards available for federal income tax purposes. We have not recognized
any benefit from these operating loss carry forwards, which are subject to
significant restriction under current tax law and begin to expire in 2011.
As of September 30, 1999, the company had purchase orders outstanding in the
amount of $2,292,000.
<PAGE> 11
On August 26, 1999, the Company filed a registration statement with the
Securities and Exchange Commission to issue 2,000,000 shares of the Company's
common stock at $5.00 per share. The offering was concluded after all shares
available were sold. The underwriter of the stock offering was Cruttenden Roth.
The net proceeds from the offering were $8,195,504, which is net of $1,804,496
in costs paid by the Company related to the offering, of which $42,990 consisted
of direct or indirect payments to officers or directors of the Company. As of
September 30, 1999, the net proceeds have been used for the following: repayment
of indebtness of $238,358, repayment of the bank line of credit of $83,964,
purchases of capital assets of $51,465 and working capital of $7,821,717, of
which $7,262,119 from the net proceeds remains in cash.
We have experienced significant operating losses since our inception. We expect
our capital expenditure and working capital requirements in the foreseeable
future to increase depending on the rate of our expansion, our operating
results, and other adjustments in our operating plan as needed in response to
competition or unexpected events. We believe that the net proceeds from our
recent public offering, together with available borrowings and our current cash
and cash equivalents, will be sufficient to meet our anticipated cash needs for
working capital, capital expenditures and required debt payments through fiscal
2000. If we are unable to meet our liquidity requirements or if our liquidity
requirements increase, we may require additional financing. The sale of
additional equity or convertible debt securities could result in additional
dilution to our stockholders. There can be no assurance that financing will be
available in sufficient amounts or on terms we find acceptable, if at all.
YEAR 2000 COMPLIANCE:
Our business depends on the operation of numerous systems that could potentially
be impacted by Year 2000 related problems. Those systems include, among others:
- - computer hardware and software systems used by us to deliver services to
our customers, including hardware and custom and off-the-shelf software
supplied by third parties;
- - communications networks, such as the internet, which we use to help market
our products by providing information to our existing customers and
potential customers;
- - internal information technology and non-information technology systems of
our customers and suppliers;
- - computer hardware and software systems we use internally to manage our
business, including hardware and custom and off-the-shelf software supplied
by third parties; and
- - non-information technology systems and services we use in our business,
such as telephone systems and HVAC systems.
We have completed an internal review of the hardware and software systems and
communication networks we use to deliver services to our customers and to manage
our business, including non-information technology systems. We have recently
purchased software upgrades, computer systems and a phone system, which we
believe are all Year 2000 compliant at a total cost of approximately $125,000.
We believe that all of the hardware and software we utilize in our business are
Year 2000 compliant, including non-information technology systems. Therefore, we
do not anticipate any additional expenditures to bring our systems into
compliance. However, failure of currently owned equipment or software to operate
properly with regard to the Year 2000 could require us to incur unanticipated
expenses to remedy any problems, which could have a material adverse effect on
our business, financial condition and results of operations.
<PAGE> 12
The success of our efforts may depend on the success of third parties in dealing
with their Year 2000 issues. Many of these parties may not be Year 2000
compliant, and the impact of widespread supplier failure on our business is
difficult to determine. We have surveyed our key suppliers regarding their Year
2000 compliance programs and status. We have concluded that most of our key
suppliers are compliant or planning to be compliant prior to December 1999. As a
contingency against failure of a key supplier to provide us with needed material
or services, we have identified alternative sources for our key suppliers. We
are also developing additional contingency plans to deal with any other issues
that might arise because a key supplier is not Year 2000 compliant. We believe
that we have identified alternative third-party suppliers and implemented any
other necessary contingency plans.
The failure of a key supplier to become Year 2000 compliant could produce a
scenario in which that supplier is not able to supply us with needed material or
services and, as a result, we would not be able to provide a customer with
product until the supplier became Year 2000 compliant. We believe that we can
minimize the chances that this scenario will occur by identifying alternative
suppliers. No assurances can be given, however, that alternative third-party
suppliers will be successful in meeting our requirements or, if met, that the
terms of the arrangement will be as favorable as those of our current suppliers,
which could increase our expenses and have a material adverse effect on our
business, financial condition, and results of operations.
Any failure to address any unforeseen Year 2000 issue could adversely affect our
business, financial condition, and results of operations.
<PAGE> 13
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITY AND USE OF PROCEEDS
On August 26, 1999, the Company filed a registration statement with the
Securities and Exchange Commission to issue 2,000,000 shares of the Company's
common stock at $5.00 per share. The offering was concluded after all shares
available were sold. The underwriter of the stock offering was Cruttenden Roth.
The net proceeds from the offering were $8,195,504, which is net of $1,804,496
in costs paid by the Company related to the offering, of which $42,990 consisted
of direct or indirect payments to officers or directors of the Company. As of
September 30, 1999, the net proceeds have been used for the following: repayment
of indebtness of $238,358, repayment of the bank line of credit of $83,964,
purchases of capital assets of $51,465 and working capital of $7,821,717, of
which $7,262,119 from the net proceeds remains in cash.
ITEM 5. OTHER INFORMATION
Our board of directors agreed collectively that a reduction in the size of the
board would be in the best interest of shareholders. Two of our directors, J.
Thomas Webb and Steven R. Green, voluntarily submitted resignations effective
October 23, 1999. Both agreed to be available for consulting to us should the
need arise. As a result, we now have five directors, which includes two outside
directors. There were no disagreements related to these resignations, therefore,
no further disclosure is required under Form 8-K.
In connection with the reduction of the number of directors on the board, on
September 29, 1999, the directors unanimously approved an amended and restated
bylaw of DuraSwitch. This amendment increased the quorum requirement at all
meeting of the Board of Directors or any committee thereof, to a majority of the
total number of directors of the entire then authorized Board of Director or
such committee. A copy of this Amended and restatement bylaw is attached to this
Form 10-QSB as Exhibit 3.2
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See attached exhibit list
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
<TABLE>
<CAPTION>
DuraSwitch Industries, Inc.
(Registrant)
<S> <C>
Date: November 12, 1999 By: /s/ R. Terren Dunlap
---------------------------------------------------------------
R. Terren Dunlap, Chief Executive Officer and
Chairman of the Board (Principal Executive Officer)
Date: November 12, 1999 By: /s/ Robert J. Brilon
-----------------------------------------------------------------
Robert J. Brilon, President, Chief Financial
Officer, Secretary and Treasurer
(Principal Financial and Accounting Officer)
</TABLE>
<PAGE> 15
DuraSwitch Industries, Inc.
Exhibit Index to Quarterly Report on Form 10-QSB
For the Quarterly Period Ended September 30, 1999
<TABLE>
<CAPTION>
Exhibit Incorporated by
No. Description Reference to: Filed Herewith:
- --- ----------- ------------- ---------------
<S> <C> <C> <C>
3.1 Articles of Incorporation Form SB-2 filed with the SEC
of Registrant on August 26, 1999
3.2 Amend and Restated Bylaws X
of Registrant
4.1 Articles 3, 4, 5, and 7 of the Form SB-2 filed with the SEC
Amended and Restated on August 26, 1999
Articles of Incorporation of
DuraSwitch Industries, Inc.
(included in Exhibit 3.1)
4.2 Articles II, III, and VII of the Form SB-2 filed with the SEC
Amended and Restated on August 26, 1999
Bylaws of DuraSwitch
Industries, Inc.
(included in Exhibit 3.1)
4.3 Specimen Common Stock Form SB-2 filed with the SEC
Certification on August 26, 1999
10.1 Employment and Separation Form SB-2 filed with the SEC on
Agreement dated May 1, 1997 August 26, 1999
by and between Registrant and
R. Terren Dunlap
10.1.1 July 30, 1999 Amendment to Form SB-2 filed with the SEC on
R. Terren Dunlap Employment August 26, 1999
Separation Agreement
10.2 Employment and Separation Form SB-2 filed with the SEC on
Agreement dated May 1, 1997 August 26, 1999
by and between Registrant and
Anthony J. Van Zeeland
10.2.1 July 30, 1999 Amendment to Form SB-2 filed with the SEC on
Anthony J. Van Zeeland Employment August 26, 1999
Separation Agreement
10.3 Employment and Separation Form SB-2 filed with the SEC on
Agreement dated November 20, 1998 August 26, 1999
by and between DuraSwitch Industries,
Inc. and J. Thomas Webb
10.4 Employment and Separation Form SB-2 filed with the SEC on
Agreement dated November 20, 1998 August 26, 1999
by and between DuraSwitch Industries,
Inc. and Robert J. Brilon
</TABLE>
<PAGE> 16
<TABLE>
<S> <C> <C> <C>
10.5 Registrant's 1997 Stock Option Plan Form SB-2 filed with the SEC on
August 26, 1999
10.6 Form of Grant Letter pursuant to 1997 Form SB-2 filed with the SEC on
Stock Option Plan August 26, 1999
10.7 Registrant's 1999 Stock Option Plan Form SB-2 filed with the SEC on
August 26, 1999
10.8 Form of Representative's Warrants Form SB-2 filed with the SEC on
August 26, 1999
10.9 Series A Convertible Stock and Warrant Form SB-2 filed with the SEC on
Purchase Agreement dated June 30, August 26, 1999
1998 by and among DuraSwitch
Industries, Inc. and Blackwater
Capital Partners, L.P. and
Blackwater Capital Group, L.L.C.
10.10 Registration Rights Agreement dated Form SB-2 filed with the SEC on June
30, 1998, by and between August 26, 1999
DuraSwitch Industries, Inc.
and Blackwater Capital Group, L.L.C.
10.11 Registration Rights Agreement dated Form SB-2 filed with the SEC on June
30, 1998, by and between August 26, 1999
DuraSwitch Industries, Inc.
and Blackwater Capital Partners, L.P.
10.12 Letter agreement dated May 14, 1998, Form SB-2 filed with the SEC on as
amended July 14, 1998, by and August 26, 1999
between DuraSwitch Industries, Inc.
and Duff & Phelps Securities, LLC
10.12A Agreement to terminate dated X
September 13, 1999 between
DuraSwitch Industries, Inc.
and Duff & Phelps Securities, LLC
10.13 Promissory Note of DuraSwitch Form SB-2 filed with the SEC on
Industries, Inc. dated January 30, 1998, August 26, 1999
As amended December 31, 1998, in
The aggregate amount of $164,000
Payable to Anthony G. Shumway
10.14 Warrant to Purchase 182,199 shares Form SB-2 filed with the SEC on of
Common Stock of DuraSwitch August 26, 1999
Industries, Inc. issued June
30, 1998 And held by Duff &
Phelps Securities, LLC
</TABLE>
<PAGE> 17
<TABLE>
<S> <C> <C> <C>
10.15 Standard Sublease dated October 15, Form SB-2 filed with the SEC on
1998, as amended February 2 ,1999, August 26, 1999
by and between 234 South Extension,
L.L.C. and DuraSwitch Industries, Inc.
10.16 Management Services Agreement Form SB-2 filed with the SEC on
dated May 1, 1997 by and between August 26, 1999
Total Switch, Inc. and VanDun, LLC
10.17 Agreement for Assignment of Present Form SB-2 filed with the SEC on
and Future Inventions in Certain August 26, 1999
Subject Matter dated May 1, 1997 by
And between Total Switch, Inc. and
Anthony J. Van Zeeland
10.18 Ericsson, Inc. purchase order dated Form SB-2 filed with the SEC on
April 7, 1999 (portions of the exhibit August 26, 1999
have been omitted pursuant to a
request for confidential treatment)
23.1 Consent of Deloitte & Touche Form SB-2 filed with the SEC on
August 26, 1999
23.2 Consent of Quarles & Brady LLP Form SB-2 filed with the SEC on
August 26, 1999
27 Financial Data Schedule X
</TABLE>
<PAGE> 1
EXHIBIT 3.2
UNANIMOUS CONSENT OF DIRECTORS
OF
DURASWITCH INDUSTRIES, INC.
The undersigned, being all of the directors of DuraSwitch Industries,
Inc., a Nevada corporation (the "Company"), do hereby consent and agree to the
adoption of the following resolutions pursuant to Section 78.315 of the General
Corporation Law of the State of Nevada:
AMENDED AND RESTATED BYLAWS
RESOLVED, that the Bylaws of the Company are hereby amended and
restated in their entirety effective as of September 29, 1999, as set
forth on Exhibit "A" attached hereto and incorporated herein by
reference.
GENERAL AUTHORITY
RESOLVED, that all acts and deeds heretofore done or actions taken by
any director or any officer or agent of the Company for and on behalf
of the Company in entering into, executing, acknowledging or attesting
any instruments or documents in carrying out the terms and intentions
of the foregoing resolution, and each of them, are hereby in all
respects ratified, approved and affirmed.
FURTHER RESOLVED, that this consent may be executed in one or more
counterparts, each of which shall be deemed an original, and all of
which shall be taken to be one and the same instrument, with the same
effect as if all parties had signed the signature page hereof.
This consent shall have the same force and effect as the unanimous vote of the
directors at a meeting duly called, convened and held in accordance with the
law, the Articles of Incorporation and the Bylaws of the Company.
Dated as of September 29, 1999.
/s/ R. Terren Dunlap /s/ Anthony J. Van Zeeland
- -------------------------------- ------------------------------
R. Terren Dunlap Anthony J. Van Zeeland
/s/ Michael A. Van Zeeland /s/ John W. Hail
- -------------------------------- ------------------------------
Michael A. Van Zeeland John W. Hail
/s/ William E. Peelle /s/ J. Thomas Webb
- -------------------------------- ------------------------------
William E. Peelle J. Thomas Webb
/s/ Steven R. Green
- --------------------------------
Steven R. Green
Being all of the Board of Directors
<PAGE> 2
EXHIBIT A
AMENDED & RESTATED
BYLAWS
OF
DURASWITCH INDUSTRIES, INC.
a Nevada corporation
(As Adopted September 29, 1999)
ARTICLE I
OFFICES
1.1. Registered Office. The registered office of the Corporation in the
State of Nevada, shall be in the City of Carson City, State of Nevada.
1.2. Other Offices. The Corporation also may have offices at such other
places both within and without the State of Nevada as the Board of Directors may
from time to time determine or the business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
2.1. Stockholder Meetings.
(a) Time and Place of Meetings. Meetings of the stockholders
shall be held at such times and places, either within or without the State of
Nevada, as may from time to time be fixed by the Board of Directors and stated
in the notices or waivers of notice of such meetings.
(b) Annual Meeting. Annual meetings of stockholders shall be
held at such date and time as may be set and stated in the notice of the
meeting. At the annual meeting, stockholders shall elect a board of directors
and transact such other business as properly may be brought before the annual
meeting.
(c) Special Meetings. Special meetings of the stockholders of
the Corporation for any purpose or purposes may be called at any time only by
the Chairman of the Board, or the Board of Directors pursuant to a resolution
approved by a majority of the whole Board of Directors, or at the request in
writing of shareholders owning at least 51% of the capital stock issued and
outstanding and entitled to vote. Business transacted at any special meeting of
the stockholders shall be limited to the purposes stated in the notice of such
meeting.
(d) Notice of Meetings. Except as otherwise provided by law,
the Articles of
<PAGE> 3
Incorporation or these Bylaws, written notice of each meeting of the
stockholders shall be given not less than ten days nor more than sixty days
before the date of such meeting to each stockholder entitled to vote thereat,
directed to such stockholder's address as it appears upon the books of the
Corporation, such notice to specify the place, date, hour and purpose or
purposes of such meeting. If mailed, such notice shall be deemed to be given
when deposited in the United States mail, postage prepaid, addressed to the
stockholder at his address as it appears on the stock ledger of the Corporation.
When a meeting of the stockholders is adjourned to another time and/or place,
notice need not be given of such adjourned meeting if the time and place thereof
are announced at the meeting of the stockholders at which the adjournment is
taken, unless the adjournment is for more than thirty days or unless after the
adjournment a new record date is fixed for such adjourned meeting, in which
event a notice of such adjourned meeting shall be given to each stockholder of
record entitled to vote thereat. Notice of the time, place and purpose of any
meeting of the stockholders may be waived in writing either before or after such
meeting and will be waived by any stockholder by such stockholder's attendance
thereat in person or by proxy. Any stockholder so waiving notice of such a
meeting shall be bound by the proceedings of any such meeting in all respects as
if due notice thereof had been given.
(e) Quorum. Except as otherwise required by law, the Articles
of Incorporation or these Bylaws, the holders of not less than one-third of the
shares entitled to vote at any meeting of the stockholders, present in person or
by proxy, shall constitute a quorum and the affirmative vote of the majority of
such quorum shall be deemed the act of the stockholders. If a quorum shall fail
to attend any meeting of the stockholders, the presiding officer of such meeting
may adjourn such meeting from time to time to another place, date or time,
without notice other than announcement at such meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting of the stockholders as originally noticed. The foregoing
notwithstanding, if a notice of any adjourned special meeting of the
stockholders is sent to all stockholders entitled to vote thereat which states
that such adjourned special meeting will be held with those present in person or
by proxy constituting a quorum, then, except as otherwise required by law, those
present at such adjourned special meeting of the stockholders shall constitute a
quorum and all matters shall be determined by a majority of the votes cast at
such special meeting.
2.2. Determination of Stockholders Entitled to Notice and to Vote. To
determine the stockholders entitled to notice of any meeting of the stockholders
or to vote thereat, the Board of Directors may fix in advance a record date as
provided in Article VII, Section 7.1 of these Bylaws, or if no record date is
fixed by the Board of Directors, a record date shall be determined as provided
by law.
<PAGE> 4
2.3. Voting.
(a) Except as otherwise required by law, the Articles of
Incorporation or these Bylaws, each stockholder present in person or by proxy at
a meeting of the stockholders shall be entitled to one vote for each full share
of stock registered in the name of such stockholder at the time fixed by the
Board of Directors or by law at the record date of the determination of
stockholders entitled to vote at such meeting.
(b) Every stockholder entitled to vote at a meeting of the
stockholders may do so either (i) in person or (ii) by one or more agents
authorized by a written proxy executed by the person or such stockholder's duly
authorized agent, whether by manual signature, typewriting, telegraphic
transmission or otherwise as permitted by law. No proxy shall be voted on after
three years from its date, unless the proxy provides for a longer period.
(c) Voting may be by voice or by ballot as the presiding
officer of the meeting of the stockholders shall determine. On a vote by ballot,
each ballot shall be signed by the stockholder voting, or by such stockholder's
proxy, and shall state the number of shares voted.
(d) In advance of or at any meeting of the stockholders, the
Chairman of the Board may appoint one or more persons as inspectors of election
(the "Inspectors") to act at such meeting. Such Inspectors shall take charge of
the ballots at such meeting. After the balloting on any question, the Inspectors
shall count the ballots cast and make a written report to the secretary of such
meeting of the results. Subject to the direction of the Chairman of the Board,
the duties of such Inspectors may further include without limitation:
determining the number of shares outstanding and the voting power of each; the
shares represented at the meeting; the existence of a quorum; the authenticity,
validity, and effect of proxies; receiving votes, ballots, or consents; hearing
and determining all challenges and questions in any way arising in connection
with the right to vote; counting and tabulating all votes of consents and
determining when the polls shall close; determining the result; and doing such
acts as may be proper to conduct the election or vote with fairness to all
stockholders. An Inspector need not be a stockholder of the Corporation and any
officer of the Corporation may be an Inspector on any question other than a vote
for or against such officer's election to any position with the Corporation or
on any other questions in which such officer may be directly interested. If
there are three or more Inspectors, the determination, report or certificate of
a majority of such Inspectors shall be effective as if unanimously made by all
Inspectors.
2.4. List of Stockholders. The officer who has charge of the stock
ledger of the Corporation shall prepare and make available, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote thereat, showing the address of and the number of shares
registered in the name of each such stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to such meeting, either
at a place within the city where such meeting is to be held and which place
shall be specified in the notice of such meeting, or, if not so specified, at
the place where such meeting is to be held. The list
<PAGE> 5
also shall be produced and kept at the time and place of the meeting of the
stockholders during the whole time thereof, and may be inspected by any
stockholder who is present.
2.5. Action by Consent of Stockholders. A resolution in writing, signed
by Stockholders, representing a majority of those shares entitled to vote shall
be deemed to be the action of the Stockholders to the effect therein expressed
with the same force and effect as if the same had been duly passed by the same
vote at a duly convened meeting, and it shall be the duty of the Secretary of
the Corporation to record such Resolution in the Minute Book of the Corporation
under its proper date.
If stockholder action is taken without a meeting by less than unanimous
written consent, notice shall be given to those stockholders who have not
consented in writing.
2.6. Conduct of Meetings. The Chairman of the Board shall have full and
complete authority to determine the agenda, to set the procedures and order the
conduct of meetings, all as deemed appropriate by such person in his sole
discretion with due regard to the orderly conduct of business.
2.7. Notice of Agenda Matters. If a stockholder wishes to present to
the Chairman of the Board an item for consideration as an agenda item for a
meeting of stockholders, he must give timely notice to the Secretary of the
Corporation and give a brief description of the business desired to be brought
before the meeting. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than sixty days nor more than ninety days prior to the meeting; provided,
however, that if less than seventy days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the fifteenth day following the date on which such notice of the
date of the meeting was mailed or such public disclosure was made and provided
further that any other time period necessary to comply with federal proxy
solicitation rules or other regulations, if applicable, shall be deemed to be
timely.
ARTICLE III
BOARD OF DIRECTORS
3.1. General Powers. Unless otherwise restricted by law, the Articles
of Incorporation or these Bylaws as to action which shall be authorized or
approved by the stockholders, and subject to the duties of directors as
prescribed by these Bylaws, all corporate powers shall be exercised by or under
the authority of, and the business and affairs of the Corporation shall be
controlled by, the Board of Directors.
<PAGE> 6
3.2. Election of Directors.
(a) Number, Qualification and Term of Office. The authorized
number of directors of the Corporation shall be fixed from time to time by the
Board of Directors, but shall not be less than one nor more than nine. The exact
number of directors shall be determined from time to time by a resolution duly
adopted by a majority of the whole Board of Directors. Until changed by
resolution of the Board of Directors, the Board shall be set at seven members.
Each Director must beneficially own at all times at least $25,000 worth of
shares of the Corporation's capital stock, which amount shall be computed by
multiplying (1) the number of shares then held by the Director, by (2) the Fair
Market Value per share of such capital stock on the day the Director was
elected, provided that this share ownership requirement may be waived for any
Director upon a unanimous vote of the Board of Directors. The usual term for a
Director is three years. However, the Board of Directors initially shall be
divided into three groups of as equal number as possible, and each group shall
serve one, two and three year terms, respectively. If the current members of the
Board of Directors cannot agree on which Directors shall serve which terms, then
the matter will be decided by a vote of the stockholders at the annual meeting,
with the Directors receiving the most votes serving the longest terms. "Fair
Market Value" means (1) the reported closing price of the Corporation's stock on
an established stock market, (2) if such stock is not then listed on an
exchange, the last trade price per share for such stock in the over-the-counter
market as quoted on Nasdaq Over-the-Counter Bulletin Board, or (3) if such stock
is not listed or quoted as referenced above, an amount determined in good faith
by the Board of Directors.
(b) Resignation. Any director may resign from the Board of
Directors at any time by giving written notice to the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein, or if the time when such resignation shall become effective shall not
be so specified, then such resignation shall take effect immediately upon its
receipt by the Secretary; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
(c) Nomination of Directors. Candidates for director of the
Corporation shall be nominated only either by:
(i) the Chairman of the Board or the Board of
Directors, or
(ii) nomination at any stockholders' meeting by or on
behalf of any stockholder entitled to vote thereat.
<PAGE> 7
(d) Vacancies. Vacancies and new directorships resulting from
an increase in the authorized number of directors may be filled by a person
elected by a majority of the directors then in office, though less than a
quorum, or by the sole remaining director. Directors so chosen shall hold office
until their successors are duly elected at the annual meeting and qualified. If
no directors are in office, an election may be held as provided by statute.
3.3. Meetings of the Board of Directors.
(a) Regular Meetings. Regular meetings of the Board of
Directors shall be held without call, and without any requirement of notice, at
the following times:
(i) at such times as the Board of Directors shall
from time to time by resolution determine; and
(ii) one-half hour prior to any special meeting of
the stockholders and immediately following the adjournment of any
annual or special meeting of the stockholders.
(b) Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, or the Board of Directors
pursuant to a resolution approved by a majority of the whole Board of Directors.
Notice of the time and place of special meetings of the Board of Directors shall
be given by the Secretary or an Assistant Secretary of the Corporation, or by
any other officer authorized by the Board of Directors. Such notice shall be
given to each director personally or by mail, messenger, telephone or fax at
such director's business or residence address. Notice by mail shall be deposited
in the United States mail, postage prepaid, not later than the fifth day prior
to the date fixed for such special meeting. Notice by telephone or fax shall be
sent, and notice given personally or by messenger shall be delivered, at least
24 hours prior to the time set for such special meeting. Notice of a special
meeting of the Board of Directors need not contain a statement of the purpose of
such special meeting.
(c) Adjourned Meetings. A majority of directors present at any
regular or special meeting of the Board of Directors or any committee thereof,
whether or not constituting a quorum, may adjourn any meeting from time to time
until a quorum is present or otherwise, however, notice of the time and place of
holding any adjourned meeting shall be required as provided in Section 3.3(b) of
these Bylaws.
(d) Place of Meetings. Meetings of the Board of Directors,
both regular and special, may be held either within or without the State of
Nevada.
(e) Participation by Telephone. Members of the Board of
Directors or any committee may participate in any meeting of the Board of
Directors or committee through the use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another, and such participation shall constitute
<PAGE> 8
presence in person at such meeting.
(f) Quorum. At all meetings of the Board of Directors or any
committee thereof, a majority of the total number of directors of the entire
then authorized Board of Directors or such committee shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any such meeting at which there is a quorum shall be the act of the
Board of Directors or any committee, except as may be otherwise specifically
provided by law, the Articles of Incorporation or these Bylaws. A meeting of the
Board of Directors or any committee at which a quorum initially is present may
continue to transact business notwithstanding the withdrawal of directors so
long as any action is approved by at least a majority of the required quorum for
such meeting.
(g) Waiver of Notice. The transactions of any meeting of the
Board of Directors or any committee, however called and noticed or wherever
held, shall be as valid as though had at a meeting duly held after regular call
and notice, if a quorum be present and if, either before or after the meeting,
each of the directors not present signs a written waiver of notice, or a consent
to hold such meeting, or an approval of the minutes thereof. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
(h) Actions Requiring Supermajority Vote. The Board of
Directors may take the following acts only upon an affirmative vote of at least
two-thirds of the Directors present at any meeting of the Board of Directors at
which a quorum be present: (i) a sale of all or most of the assets of the
Corporation; (ii) merger of the Corporation with another entity; (iii) amendment
of the Bylaws; (iv) borrowing of funds in excess of $100,000; (v) terminating
officers of the Corporation without cause; (vi) dissolution of the Corporation;
or (vii) sale of all the Corporation's issued and outstanding capital stock.
3.5. Action Without Meeting. Any action required or permitted to be
taken by the Board of Directors at any meeting or at any meeting of a committee
may be taken without a meeting if all members of the Board of Directors or such
committee consent in writing and the writing or writings are filed with the
minutes of the proceedings of the Board of Directors or such committee.
3.6. Compensation of Directors. Unless otherwise restricted by law, the
Articles of Incorporation or these Bylaws, the Board of Directors shall have the
authority to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of committees of the Board of Directors may be allowed like
compensation for attending committee meetings.
3.7. Committees of the Board.
<PAGE> 9
(a) Committees. The Board of Directors may, by resolution
adopted by a majority of the Board of Directors, designate one or more
committees of the Board of Directors, each committee to consist of one or more
directors. Each such committee, to the extent permitted by law, the Articles of
Incorporation and these Bylaws, shall have and may exercise such of the powers
of the Board of Directors in the management and affairs of the Corporation as
may be prescribed by the resolutions creating such committee. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board of Directors. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. The
Board of Directors shall have the power, at any time for any reason, to change
the members of any such committee, to fill vacancies, and to discontinue any
such committee.
(b) Minutes of Meetings. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors when
required.
(c) Audit Committee. The Board of Directors may appoint an
Audit Committee consisting of at least two directors, none of whom shall be
employees of the Corporation. The Audit Committee shall review the financial
affairs and procedures of the Corporation from time to time with management and
meet with the auditors of the Corporation to review the financial statements and
procedures.
(d) Executive Committee. There may be an executive committee
consisting of at least one member of the Board of Directors elected by the whole
Board. Members of the executive committee shall serve at the pleasure of the
Board of Directors and each member of the executive committee may be removed
with or without cause at any time by the Board of Directors. Vacancies shall be
filled by the Board of Directors. The executive committee may exercise the
powers of the Board of Directors and the management of the business and affairs
of the corporation, but shall not possess any authority prohibited to it by law.
3.8. Interested Directors. In addition to the statutory and corporate
common law of Nevada, no contract or transaction between the Corporation and one
or more of its directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose
if (i) the material facts as to his or their relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of Directors
or the committee, and noted in the minutes and the Board of Directors or
committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in
<PAGE> 10
good faith by vote of the stockholders; or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or
ratified, by the Board of Directors, a committee thereof or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
ARTICLE IV
OFFICERS
4.1. Officers.
(a) Number. The officers of the Corporation shall be chosen by
the Board of Directors and may include a Chairman of the Board of Directors (who
must be a director as chosen by the Board of Directors) and may include a Chief
Executive Officer, President, Chief Operating Officer, Vice President, Secretary
and a Treasurer. The Board of Directors also may appoint one or more Assistant
Secretaries or Assistant Treasurers and such other officers and agents with such
powers and duties as it shall deem necessary. Any Vice President may be given
such specific designation as may be determined from time to time by the Board of
Directors. Any number of offices may be held by the same person, unless
otherwise required by law, the Certificate of Incorporation or these Bylaws. The
Board of Directors may delegate to any other officer of the Corporation the
power to choose such other officers and to prescribe their respective duties and
powers.
(b) Election and Term of Office. The officers shall be elected
annually by the Board of Directors at its regular meeting following the annual
meeting of the stockholders and each officer shall hold office until the next
annual election of officers and until such officer's successor is elected and
qualified, or until such officer's death, resignation or removal. Any officer
may be removed at any time, with or without cause, by a vote of the majority of
the whole Board of Directors. Any vacancy occurring in any office may be filled
by the Board of Directors.
(c) Salaries. The salaries of all officers of the Corporation
shall be fixed by the Board of Directors or a committee thereof from time to
time.
4.2. Chairman of the Board of Directors. The Chairman of the Board of
Directors, if there be a Chairman, shall preside at all meetings of the
stockholders and the Board of Directors and shall have such other power and
authority as may from time to time be assigned by the Board of Directors.
4.3. Chief Executive Officer. The Chief Executive Officer shall be the
top executive officer of the Corporation, and in the absence of the Chairman of
the Board, shall preside at all meetings of the stockholders and the Board of
Directors (if a Chairman of the Board has not been elected), and shall see that
all orders and resolutions of the Board of Directors are carried into effect.
Subject to the provisions of these Bylaws and to the direction of the Board of
Directors, the Chief Executive Officer shall have the general and active
management of the business of the
<PAGE> 11
Corporation, may execute all contracts and any mortgages, conveyances or other
legal instruments in the name of and on behalf of the Corporation, but this
provision shall not prohibit the delegation of such powers by the Board of
Directors to some other officer, agent or attorney-in-fact of the Corporation.
4.4. Chief Operating Officer. The Chief Operating Officer shall report
directly to the Chief Executive Officer, and shall be in charge of certain
operations of the Corporation, as may be assigned by the Chief Executive Officer
from time to time.
4.5. President. The President shall be the second highest executive
officer of the Corporation, and shall carry out the duties of the Chief
Executive Officer in the event that the Chief Executive Officer is absent or
unable to carry out such duties. The President shall be responsible for such
other duties as the Chief Executive Officer may assign from time to time.
4.6. Vice Presidents. In the absence or disability of the President,
the Vice Presidents in order of their rank as fixed by the Board of Directors,
or if not ranked, the Vice President designated by the Board of Directors, shall
perform all the duties of the President, and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the President. The Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them, respectively, by the Board of Directors
or these Bylaws.
4.7. Secretary and Assistant Secretaries. The Secretary shall record or
cause to be recorded, in books provided for the purpose, minutes of the meetings
of the stockholders, the Board of Directors and all committees of the Board of
Directors; see that all notices are duly given in accordance with the provisions
of these Bylaws as required by law; be custodian of all corporate records (other
than financial) and of the seal of the Corporation, and have authority to affix
the seal to all documents requiring it and attest to the same; give, or cause to
be given, notice of all meetings of the stockholders and special meetings of the
Board of Directors; and, in general, shall perform all duties incident to the
office of Secretary and such other duties as may, from time to time, be assigned
to him by the Board of Directors or by the President. At the request of the
Secretary, or in the Secretary's absence or disability, any Assistant Secretary
shall perform any of the duties of the Secretary and, when so acting, shall have
all the powers of, and be subject to all the restrictions upon, the Secretary.
4.8. Treasurer and Assistant Treasurers. The Treasurer shall keep or
cause to be kept the books of account of the Corporation and shall render
statements of the financial affairs of the Corporation in such form and as often
as required by the Board of Directors or the President. The Treasurer, subject
to the order of the Board of Directors, shall have custody of all funds and
securities of the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements. The Treasurer shall perform all other duties commonly
incident to his office and shall perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time. At the
<PAGE> 12
request of the Treasurer, or in the Treasurer's absence or disability, any
Assistant Treasurer may perform any of the duties of the Treasurer and, when so
acting, shall have all the powers of, and be subject to all the restrictions
upon, the Treasurer. Except where by law the signature of the Treasurer is
required, each of the Assistant Treasurers shall possess the same power as the
Treasurer to sign all certificates, contracts, obligations and other instruments
of the Corporation.
ARTICLE V
INDEMNIFICATION AND INSURANCE
5.1. Right to Indemnification. Subject to the terms and conditions of
this Article V, each officer or director of the Corporation who was or is made a
party or witness or is threatened to be made a party or witness to or is
otherwise involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans (hereinafter an "indemnitee"), whether
the basis of such proceeding is alleged action or inaction in an official
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law of Nevada ("GCL"), as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such indemnitee in
connection therewith and such indemnification shall continue as to an indemnitee
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the indemnitee's heirs, executors and administrators; provided,
however, that, except as provided in Section 5 hereof with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall include the right to be paid by
the Corporation the expenses incurred in defending any such proceeding in
<PAGE> 13
advance of its final disposition (hereinafter an "advancement of expenses");
provided, however, that, if the GCL requires, an advancement of expenses
incurred by an indemnitee shall be made only upon delivery to the Corporation of
an undertaking in the form then required by the GCL (if any), by or on behalf of
such indemnitee, with respect to the repayment of amounts so advanced
(hereinafter an "undertaking").
5.2. Right of Indemnitee to Bring Suit. If a claim under Section 5.1 of
this Article is not paid in full by the Corporation within sixty days after a
written claim has been received by the Corporation, except in the case of a
claim for an advancement of expenses, in which case the applicable period shall
be twenty days, the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole or
in part in any such suit or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the indemnitee
shall be entitled to be paid also the expenses of prosecuting or defending such
suit. In (i) any suit brought by the indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the indemnitee to
enforce a right to an advancement of expenses) it shall be a defense that, and
(ii) any suit by the Corporation to recover an advancement of expenses pursuant
to the terms of an undertaking the Corporation shall be entitled to recover such
expenses upon a final adjudication that, the indemnitee has not met the
applicable standard of conduct set forth in the GCL. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the GCL, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel or its stockholders) that the indemnitee
has not met such applicable standard of conduct, shall create a presumption that
the indemnitee has not met the applicable standard or conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right hereunder, or by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
burden of proving that the indemnitee is not entitled to be indemnified or to
such advancement of expenses under this Section or otherwise shall be on the
Corporation.
5.3. Specific Limitations on Indemnification. Notwithstanding anything
in this Article to the contrary, the Corporation shall not be obligated to make
any payment to any indemnitee with respect to any proceeding (i) to the extent
that payment is actually made to the indemnitee under any insurance policy, or
is made to indemnitee by the Corporation or an affiliate thereof otherwise than
pursuant to this Article, (ii) for any expense, liability or loss in connection
with a proceeding settled without the Corporation's written consent, which
consent, however, shall not be unreasonably withheld, (iii) for an accounting of
profits made from the purchase or sale by the indemnitee of securities of the
Corporation within the meaning of Section 16(b) of the Securities Exchange Act
of 1934, as amended, or similar provisions of any state statutory or common law,
(iv) where the indemnitee acted in bad faith or with gross negligence, or (v)
where prohibited by applicable law.
5.4. Contract. The provisions of this Article shall be deemed to be a
contract between
<PAGE> 14
the Corporation and each director and officer who serves in such capacity at any
time while such Section is in effect, and any repeal or modification thereof
shall not affect any rights or obligations then existing with respect to any
state of facts then or theretofore existing or any action, suit or proceeding
theretofore or thereafter based in whole or in part upon any such state of
facts.
5.5. Partial Indemnity. If the indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses, liabilities or losses incurred in connection with a
proceeding but not, however, for all of the total amount thereof, the
Corporation shall nevertheless indemnify the indemnitee for the portion thereof
to which the indemnitee is entitled. Moreover, notwithstanding any other
provision of this Article, to the extent that the indemnitee has been successful
on the merits or otherwise in defense of any or all claims relating in whole or
in part to a proceeding or in defense of any issue or matter therein, including
dismissal without prejudice, the indemnitee shall be indemnified against all
loss, expense and liability incurred in connection with the portion of the
proceeding with respect to which indemnitee was successful on the merits or
otherwise.
5.6. Non-Exclusivity of Rights. The rights to indemnification and to
the advancement of expenses conferred in this Article shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, the Articles of Incorporation, bylaw, agreement, vote of stockholders
or disinterested directors or otherwise.
5.7. Insurance. The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the GCL.
5.8. Indemnification of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses,
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article with respect to the indemnification and advancement
of expenses of directors and officers of the Corporation, or to such lesser
extent as may be determined by the Board of Directors.
5.9. Notice by Indemnitee and Defense of Claim. The indemnitee shall
promptly notify the Corporation in writing upon being served with any summons,
citation, subpoena, complaint, indictment, information or other document
relating to any matter, whether civil, criminal, administrative or
investigative, but the omission so to notify the Corporation will not relieve it
from any liability which it may have to the indemnitee if such omission does not
prejudice the Corporation's rights. If such omission does prejudice the
Corporation's rights, the Corporation will be relieved from liability only to
the extent of such prejudice; nor will such omission relieve the Corporation
from any liability which is may have to the indemnitee otherwise than under this
Article VII. With respect to any proceedings as to which the
<PAGE> 15
indemnitee notifies the Corporation of the commencement thereof:
(a) The Corporation will be entitled to participate therein at
its own expense; and
(b) The Corporation will be entitled to assume the defense
thereof, with counsel reasonably satisfactory to the indemnitee; provided,
however, that the Corporation shall not be entitled to assume the defense of any
proceeding (and this Section 5.9 shall be inapplicable to such proceeding) if
the indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Corporation and the indemnitee with respect to such
proceeding. After notice from the Corporation to the indemnitee of its election
to assume the defense thereof, the Corporation will not be liable to the
indemnitee under this Article V for any expenses subsequently incurred by the
indemnitee in connection with the defense thereof, other than reasonable costs
of investigation or as otherwise provided below. The indemnitee shall have the
right to employ its own counsel in such proceeding but the fees and expenses of
such counsel incurred after notice from the Corporation of its assumption of the
defense thereof shall be at the expense of the indemnitee unless:
(i) The employment of counsel by the indemnitee has
been authorized by the Corporation in writing; or
(ii) The Corporation shall not have employed counsel
to assume the defense in such proceeding or shall not have assumed such
defense and be acting in connection therewith with reasonable
diligence;
in each of which cases the fees and expenses of such counsel shall be at the
expense of the Corporation.
(c) The Corporation shall not settle any proceeding in any
manner which would impose any penalty or limitation on the indemnitee without
the indemnitee's written consent; provided, however, that the indemnitee will
not unreasonably withhold his consent to any proposed settlement.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1. Certificates for Shares. Unless otherwise provided by a resolution
of the Board of Directors, the shares of the Corporation shall be represented by
a certificate. The certificates of stock of the Corporation shall be numbered
and shall be entered in the books of the Corporation as they are issued. They
shall exhibit the holder's name and number of shares and shall be signed by or
in the name of the Corporation by (a) the Chairman of the Board of Directors,
the President or any Vice President and (b) the Treasurer, any Assistant
Treasurer, the Secretary or any Assistant Secretary. Any or all of the
signatures on a certificate may be facsimile. In case any officer of the
Corporation, transfer agent or registrar who has signed, or whose facsimile
<PAGE> 16
signature has been placed upon such certificate, shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, such
certificate may nevertheless be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issuance.
6.2. Classes of Stock.
(a) If the Corporation shall be authorized to issue more than
one class of stock or more than one series of any class, the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualification,
limitations, or restrictions of such preferences or rights shall be set forth in
full or summarized on the face or back of the certificate that the Corporation
shall issue to represent such class or series of stock; provided, that, except
as otherwise provided in Section 202 of the General Corporation Law of the State
of Nevada, in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificate that the Corporation shall issue to represent
such class or series of stock, a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative participating, optional or other special rights of each
class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences or rights.
(b) Within a reasonable time after the issuance or transfer of
uncertificated stock, the Corporation shall send to the registered owner thereof
a written notice containing the information required to be set forth or stated
on certificates pursuant to applicable law (including Sections 78.195, 78.205,
78.235 and 78.242 of the Nevada General Corporation Law) or a statement that the
Corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences or rights.
6.3. Transfer. Upon surrender to the Corporation or the transfer agent
of the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares, such uncertificated shares shall be canceled, issuance of
new equivalent uncertificated shares or certificated shares shall be made to the
person entitled thereto and the transaction shall be recorded upon the books of
the Corporation.
6.4. Record Owner. The Corporation shall be entitled to treat the
holder of record of any share or shares of stock as the holder in fact thereof,
and, accordingly, shall not be bound to recognize any equitable or other claim
to or interest in such share on the part of any other person, whether or not it
shall have express or other notice thereof, save as expressly provided by the
laws of the State of Nevada.
<PAGE> 17
6.5. Lost Certificates. The Board of Directors may direct a new
certificate or certificates or uncertificated shares to be issued in place of
any certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates or
uncertificated shares, the Board of Directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as the Board of Directors shall require and to
give the Corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
ARTICLE VII
MISCELLANEOUS
7.1. Record Date.
(a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of the stockholders
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights or entitled to exercise any rights
in respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty nor less than ten days prior to the
date of such meeting nor more than sixty days prior to any other action. If not
fixed by the Board of Directors, the record date shall be determined as provided
by law.
(b) A determination of stockholders of record entitled to
notice of or to vote at a meeting of the stockholders shall apply to any
adjournments of the meeting, unless the Board of Directors fixes a new record
date for the adjourned meeting.
(c) Holders of stock on the record date are entitled to notice
and to vote or to receive the dividend, distribution or allotment of rights or
to exercise the rights, as the case may be, notwithstanding any transfer of the
shares on the books of the Corporation after the record date, except as
otherwise provided by agreement or by law, the Articles of Incorporation or
these Bylaws.
7.2. Execution of Instruments. The Board of Directors may, in its
discretion, determine the method and designate the signatory officer or
officers, or other persons, to execute any corporate instrument or document or
to sign the corporate name without limitation, except where otherwise provided
by law, the Articles of Incorporation or these Bylaws. Such designation may be
general or confined to specific instances.
7.3. Voting of Securities Owned by the Corporation. All stock and other
securities of other corporations held by the Corporation shall be voted, and all
proxies with respect thereto
<PAGE> 18
shall be executed, by the person so authorized by resolution of the Board of
Directors, or, in the absence of such authorization, by the Chairman of the
Board.
7.4. Corporate Seal. A corporate seal shall not be requisite to the
validity of any instrument executed by or on behalf of the Corporation. If a
corporate seal is used, the same shall be at the pleasure of the officer
affixing seal either (a) a circle having on the circumference thereof the words
"DURASWITCH INDUSTRIES, INC." and in the center "Incorporated - 1993, Nevada,"
or (b) a seal containing the words "Corporate Seal" in the center thereof.
7.5. Construction and Definitions. Unless the context requires
otherwise, the general provisions, rules of construction and definitions in the
General Corporation Law of the State of Nevada and the Articles of Incorporation
shall govern the construction of these Bylaws.
7.6. Amendments. These Bylaws may be altered, amended or repealed by a
two-thirds majority vote of the Board of Directors or a simple majority vote of
the stockholders.
<PAGE> 1
EXHIBIT 10.12A
[DuraSwitch Logo]
[DURASWITCH INDUSTRIES, INC. LETTERHEAD]
September 13, 1999
Kevin R. Keuper, President
Duff & Phelps Securities, LLC
311 South Wacker Drive, Suite 4200
Chicago, IL 60606
Re: DuraSwitch Industries, Inc.
Dear Kevin:
This letter will serve as notice that DuraSwitch Industries, Inc. hereby
terminates the retention agreement with Duff & Phelps dated May 5, 1998 (as
amended July 14, 1998). As there are no active or on-going discussions as
contemplated by the agreement, we are considering the agreement terminated
effective October 13, 1999, thirty (30) days from the date of this notice.
This termination is by no means prompted by any dissatisfaction with your
services or professionalism. The executive management team at DuraSwitch
personally thanks you for bringing us Blackwater at a time of need. Your timing
was great and your advice has always been first rate. Thanks to your help we
were able to move forward to another stage of our business.
Kevin, should you ever need a reference given to some up-and-coming company in
search of funds or financial advice, don't hesitate to have them call me.
Sincerely,
/s/ Terry
R. Terren Dunlap
Chief Executive Officer
RTD:mjc
DuraSwitch(R).com
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE FORM 10-QSB FOR THE NINE MONTHS ENDED
9-30-99 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,262,119
<SECURITIES> 0
<RECEIVABLES> 241,152
<ALLOWANCES> (9,346)
<INVENTORY> 487,304
<CURRENT-ASSETS> 8,279,858
<PP&E> 609,098
<DEPRECIATION> (136,173)
<TOTAL-ASSETS> 9,450,282
<CURRENT-LIABILITIES> 966,644
<BONDS> 0
0
0
<COMMON> 7,496
<OTHER-SE> 8,334,595
<TOTAL-LIABILITY-AND-EQUITY> 9,450,282
<SALES> 1,300,762
<TOTAL-REVENUES> 1,300,762
<CGS> 1,526,670
<TOTAL-COSTS> 1,526,670
<OTHER-EXPENSES> 1,782,165
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7,198)
<INCOME-PRETAX> (2,000,875)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,000,875)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,000,875)
<EPS-BASIC> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
