SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For fiscal year ended June 30, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________.
Commission file number: 0-23769
AMERICOM USA, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-2068322
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
825 Buckley Road, Suite B, San Luis Obispo, California 93401
(Address of principal executive offices) (zip code)
Issuer's Telephone Number: 805/542-6705
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$.0001 par value per share.
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the last 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 X No _____.
Check if there is no disclosure of delinquent files in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Revenues for the year ended June 30, 2000, were $1,115,297.
As of August 31, 2000, the aggregate market value of the voting stock held by
non-affiliates, computed using the issuer's book value of ($568,622) or ($.01)
per share, was $0.
As of September 18, 2000, the number of shares of Common Stock outstanding was
42,696,746.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (check one): Yes _____ No X .
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Overview
AmeriCom USA, Inc. ("AmeriCom", and together with its wholly owned
subsidiaries, the "Company") is an emerging technology company focused on
developing innovative systems to facilitate advertising and commerce over the
Internet. The Company has recently decided to focus its resources primarily on a
proprietary Internet messaging technology known and marketed under the name
AdCast.
The AdCast system is an integrated message delivery system which
displays within a web browser non-scrollable messaging frames capable of
providing a full spectrum of rich media content including streaming audio and
video. The AdCast system can be used for a variety of purposes including:
o Internet advertising;
o B2B e-commerce;
o Content delivery; and
o Streaming media applications.
The Company believes its immediate commercial opportunity for AdCast is
in the Internet advertising industry. AmeriCom believes that AdCast, when used
with TrueManagement(TM), the Company's advertising campaign management system,
and when deployed on the Company's Direct and Interactive Network (the "DAI.Net
Network"), a virtual Internet advertising network made up of small to
medium-sized member websites, constitutes a unique Internet solution which
provides enhanced services to companies that advertise or conduct business via
the Internet.
In addition to maintenance, enhancement and support of AdCast and the
DAI.Net Network, the Company's technology group has an ongoing research and
development mission to design and develop new technologies in keeping with its
overall corporate mission. The Company has recently completed initial design and
prototyping of a new programming and peer to peer networking technology called
VOSX. In the coming months, the Company will examine the business case for VOSX
and determine its viability as a commercial product.
Company Background
AmeriCom was incorporated in Delaware in 1994 under the name AmeriCom
USA, Inc. to market MyLine. MyLine is a telecommunication system developed under
contract by RMC Diversified Associates International, Ltd. ("RMC"), a California
company, with Americom Ltd., a Turks and Caicos corporation ("Americom Ltd.")
unaffiliated with either AmeriCom or RMC. RMC was owned by Robert M. Cezar,
Chairman of the Board of Directors of AmeriCom. In April 1996, Americom Ltd.
sold the MyLine technology to Enhanced Service Providers LLC ("ESP"), a
Massachusetts corporation. As part of the sale, AmeriCom released its
international marketing rights to the MyLine technology to Americom Ltd. As
consideration, AmeriCom
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received $540,000 in cash and 161,000 shares of ESP common stock, which shares
were valued at $0 in AmeriCom's financial statements at the time of sale. The
MyLine technology has subsequently been acquired by AmeriCom. (See "Company
Acquisitions--MyLine Technology" below.) Following the release of the marketing
rights to the MyLine technology, AmeriCom was inactive until July 1998, when it
acquired, as a wholly-owned subsidiary, RMC, which had developed the AdCast and
TrueManagement(TM) technologies.
Corporate Restructuring
On December 4, 1998, AmeriCom merged with Chatsworth Acquisition
Corporation ("Chatsworth"), a Delaware corporation and a public shell, with
Chatsworth being the surviving corporation (the "Chatsworth Merger"). The
Chatsworth Merger took the form of a share exchange in which all of the shares
of AmeriCom were exchanged for 27,550,000 shares, or (91.8%), of the common
stock of Chatsworth. The Chatsworth Merger was accounted for under the reverse
take-over method of accounting. Thereafter, the name of Chatsworth was changed
to AmeriCom USA, Inc.
The primary objective of the Chatsworth Merger was to make AmeriCom a
public corporation and have its shares listed on the National Association of
Securities Dealers Over-The-Counter Bulletin Board system ("NASD OTCBB").
Subsequent to the Chatsworth Merger, application was made to the National
Association of Securities Dealers, Inc. ("NASD") for AmeriCom's stock to be
tradable on the NASD OTCBB. The NASD has not approved AmeriCom's application,
primarily due to concerns related to an insufficient number of shares of common
stock of Chatsworth being freely tradable prior to the merger with AmeriCom.
Company Acquisitions
Kiosk Software, Inc. On January 24, 1999, AmeriCom entered into an
Agreement and Plan of Reorganization with Kiosk Software, Inc., a California
corporation, pursuant to which Kiosk Software, Inc. merged with and into Kiosk
Acquisition Inc., a newly formed corporation wholly owned by AmeriCom. The
merger was consummated on February 8, 1999, at which time Kiosk Acquisition Inc.
changed its name to Kiosk Software, Inc. and Kiosk Software, Inc. became a
wholly owned subsidiary of AmeriCom. In the merger, the outstanding shares of
Kiosk Software, Inc. were exchanged for 1,000,000 shares of AmeriCom's common
stock at an exchange ratio of one-for-one. The outstanding options to purchase
shares of Kiosk Software, Inc. were exchanged for options to purchase the same
number of shares of AmeriCom's common stock under AmeriCom's 1999 Stock Option
Plan. Options to purchase 248,834 shares of AmeriCom's common stock at an
exercise price of $0.35 per share, 132,245 shares at an exercise price of $1.15
per share, and 65,539 shares at an exercise price of $1.04 per share were
granted to the former Kiosk Software, Inc. optionholders. In addition, AmeriCom
advanced Kiosk Software, Inc. $629,950 to pay its outstanding liabilities. Lori
S. Fisher, the principal shareholder of Kiosk Software, Inc. prior to the
merger, was appointed a director, president and chief operating officer of the
post merger Kiosk Software, Inc. subsidiary.
Kiosk Software, Inc. specializes in complete kiosk development services
including custom cabinet design and multimedia software development for a wide
variety of applications using its proprietary kiosk operating software. In June
2000, the Company completed the
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enhancement and extension of its current kiosk operating and remote management
systems and is now evaluating alternatives for marketing the software.
Jim and Jon Tech. On February 26, 1999, AmeriCom and its wholly-owned
subsidiary, RMC, entered into an Agreement and Plan of Reorganization with Jim
and Jon Tech, a California corporation ("J&J Tech"), to acquire J&J Tech and its
assets, including the J-Engine Tool (see "Company Technologies" below). The
agreement provided for the following consideration to be paid to the two
shareholders of J&J Tech, Jon Iverson and Jim Heintz: (i) 200,000 shares of
AmeriCom's common stock were divided pro rata between the two shareholders in
accordance with their original shareholdings in J&J Tech; (ii) options to
purchase 300,000 shares of AmeriCom's common stock were issued to each of the
two shareholders at an exercise price of $2.00 per share; and (iii) $100,000 in
cash was paid to each of the two shareholders. In addition, Jon Iverson was
elected president of RMC and Jim Heintz was elected RMC's chief technological
officer. RMC was subsequently liquidated in August 1999. The J-Engine Tool
technology is currently utilized by the Company through DAI.Net, Inc.
MyLine Technology. Effective March 11, 1999, AmeriCom entered into an
agreement with Americom Ltd. pursuant to which AmeriCom acquired all right,
title and interest to the MyLine technology from Americom Ltd. for an aggregate
consideration of (i) $538,000 in cash payable over a two year term, (ii) 500,000
shares of AmeriCom's common stock, and (iii) re-conveyance to Americom Ltd. of
all shares of ESP common stock owned by AmeriCom. The agreement was subsequently
amended to provide for payment of $503,000 in cash and 517,500 shares of
AmeriCom's common stock. The acquisition was completed on April 30, 1999. See
"Company Technologies" below.
Telespace, Ltd. On July 1, 1999, AmeriCom entered into a Merger
Agreement and Plan of Reorganization with Telespace Ltd., a Delaware corporation
("Telespace"). The agreement provided that AmeriCom would merge into Telespace
and the stockholders of the Company would exchange shares of AmeriCom's common
stock for 99.3% of the shares of Telespace. In addition, the holders of options
to purchase shares of AmeriCom would receive options to purchase the same number
of Telespace shares. If fully exercised, AmeriCom optionholders would have been
entitled to purchase, in the aggregate, approximately 24% of Telespace's
outstanding common stock (on a fully diluted basis). It was the parties'
intention that upon completion of the Telespace merger, all outstanding stock of
AmeriCom would be tradable on the NASD OTCBB.
The Telespace merger was conditioned on the occurrence of several
events, including the receipt of a limited offering merger permit and a
determination by the Department of Corporations of the State of California (the
"DOC"), following a Fairness Hearing, making available the Section 3(a)(10)
exemption under the Securities Act of 1933, as amended (the "Securities Act"),
and permitting AmeriCom's common stock to be freely tradable. On July 23, 1999,
an application for a limited offering merger permit and a request for a Fairness
Hearing before the DOC was submitted. However, due to various concerns raised by
the DOC relating to Telespace, the Telespace merger was terminated by mutual
consent and the DOC application was voluntarily withdrawn by Telespace.
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DigiCities, Inc. On July 1, 1999, AmeriCom executed a Memorandum of
Understanding with DigiCities, Inc., a California corporation ("DigiCities"),
pursuant to which (i) AmeriCom would acquire all of DigiCities outstanding
shares of common stock in exchange for 3,500,000 shares of AmeriCom's common
stock; (ii) AmeriCom would allocate options to purchase 1,500,000 shares of
AmeriCom's common stock to DigiCities employees; and (iii) Scott Carni would
remain a director and president of DigiCities and Chad Lems would remain a
director and vice president of DigiCities. The memorandum provided that the
DigiCities merger would be completed one day prior to the effective date of the
then proposed Telespace merger, but in any case no later than September 30,
1999. The parties executed a formal Agreement and Plan of Reorganization on
August 2, 1999.
However, in light of the termination of the Telespace merger, on
September 27, 1999, AmeriCom and DigiCities entered into a new Merger Agreement,
pursuant to which DigiCities merged with and into AmeriCom. The agreement
provided for the following: (i) AmeriCom's Certificate of Incorporation was
amended to change its authorized capital stock to 120,000,000 shares, of which
99,000,000 shares were designated as Class A common stock, $.0001 par value,
1,000,000 shares were designated as Class B common stock, $.0001 par value, and
20,000,000 shares were designated as preferred stock, $.0001 par value; (ii)
each outstanding share of AmeriCom's common stock was converted and exchanged
for one share of the new Class A common stock; (iii) all of the outstanding
shares of common stock of DigiCities were converted into 3,500,000 shares of
AmeriCom's Class A common stock; and (iv) options to purchase 1,500,000 shares
of AmeriCom's Class A common stock were issued to DigiCities employees under
AmeriCom's 1999 Stock Option Plan. AmeriCom's new Class A common stock has the
same rights and status as AmeriCom's old common stock. The DigiCities merger was
consummated on January 1, 2000.
In connection with the DigiCities merger, AmeriCom received a limited
offering merger permit following a Fairness Hearing with the DOC, permitting the
free trading of all of the then issued and outstanding shares of AmeriCom's
Class A common stock under federal securities laws.
DigiCities specialized in the marketing and development of websites for
small-to-medium sized businesses. DigiCities had commenced business in January
1999 by developing websites for business customers using a standardized layout
and format, and maintaining those websites on its own web servers located in
Santa Monica, California. As a result of the highly competitive nature of the
industry and developments not foreseen by AmeriCom at the time of the DigiCities
merger, the Company's revenues from website development and hosting services
have been significantly lower than expected. For these reasons, and due as well
to the Company's revision of its operating strategy to focus resources on the
AdCast system, the Company decided to discontinue its DigiCities activities and
to write down its DigiCities investment, resulting in a goodwill impairment of
approximately $6 million. In connection with such reorganization, the Company
was able to substantially reduce its workforce to 34 full-time employees and
close its San Francisco and Los Angeles facilities, resulting in a significant
reduction in expenses. As of June 30, 2000, DigiCities maintained approximately
24 websites and had no employees, and generated revenues of approximately
$18,909 since the merger.
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Marketing Agreement for Russia with Nicola Savoretti. On September 22,
1999, AmeriCom entered into a Memorandum of Understanding with Nicola Savoretti
(the "Savoretti MOU") providing for the appointment of Mr. Savoretti as
exclusive licensee to market AmeriCom's products in Russia. The Savoretti MOU
called for a term of 10 years with a renewal option for an additional 10-year
term. In consideration, Mr. Savoretti paid the Company a licensing fee of
$100,000, and the Company granted Mr. Savoretti an option to purchase 20,000
shares of the Company's common stock at an exercise price of $2.00 per share,
exercisable within one year. These options were never exercised and have since
expired.
The Company's Operations
The Company's operations currently are conducted through AmeriCom and
an operating subsidiary, DAI.Net, Inc. ("DAI.Net"). The Company recently
consolidated its operations, and the technologies, operations and employees of a
second wholly owned subsidiary, Kiosk Software Inc., have been brought into
AmeriCom. The Company is currently evaluating its plans for the K/OS suite of
kiosk operating software, Kiosk Software, Inc.'s principal product.
AmeriCom USA, Inc. Responsibility for the Company's research and
development, engineering, quality assurance, corporate marketing, and
administration is with the parent company AmeriCom. The technical operations of
DAI.Net are managed by the AmeriCom technology group. Pursuant to an Internet
Services and Co-Location Agreement with AboveNet Communications, Inc.
("AboveNet"), AmeriCom's server equipment is located at the facilities of
AboveNet in San Jose, California and AboveNet provides AmeriCom with basic
server maintenance and network provisioning.
Efforts with respect to the further development, evaluation and
implementation of the new programming and peer to peer networking technology
VOSX, and the re-engineering and expansion of the MyLine remotely programmable
personal communications system currently used by the Company and a small number
of customers, are being carried out by the AmeriCom technology group under the
leadership of Robert M. Cezar, the principal inventor of the technologies. This
group is also engaged in development of new technologies for the purpose of
enhancing and expanding the Company's principal Internet messaging capabilities.
DAI.Net, Inc. Until recently a division of AmeriCom, DAI.Net was
incorporated as a wholly owned subsidiary in September 2000. DAI.Net handles all
operational tasks associated with the acquisition of websites and the sales and
delivery of AdCast advertising to these sites, including the DAI Link Exchange
program ("DAILinx") (formerly e-Billboard Exchange program) and the
TrueManagement(TM) system. DAI.Net is organized into two divisions: Advertising
Sales Division, which is responsible for advertising sales, and Network
Operations Division, which is responsible for site acquisition and the delivery
of advertising to the sites.
AdCast advertisements are placed only on websites owned by persons who
have entered into agreements to carry the AdCast message window ("DAI.Net
Members") and participate in the DAI.Net Network. The Company is currently
displaying in excess of 5 million ads per day through the DAI.Net Network. Of
these, 74% are ads which promote products of advertisers and sponsors, and the
balance are unpaid ads which cross-promote the DAI.Net Network pursuant to
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DAILinx. The pricing structure for advertisers and sponsors is based on either
the number of visitors to a site where the ad is being displayed or the number
of responses to an ad by such visitors. Where pricing is based on the number of
visitors, it is generally measured in terms of cost per thousand ads served, or
"CPM." Pricing based on viewer response is typically measured in click through
events, such as cost per click, or "CPC."
In developing the DAI.Net Network, the Company initially concentrated
on websites focused on targeted audiences. The Company has since broadened the
type of websites on which it places AdCast advertising and, as of June 30, 2000,
had grown the DAI.Net Network to include over 1,100 websites with approximately
6.7 million unique visitors per month as reported by the Company's
TrueManagement(TM) system. DAI.Net Members receive a fee based on the number of
visitors to their website and/or advertising credits which may be used to
promote their websites on the DAI.Net Network.
The Company receives revenue from (i) sale of advertising space on the
DAI.Net Network and (ii) commissions from sales of merchandise from ads
displayed. The Company realized approximately $761,537 in Internet advertising
revenues in the fiscal year ended June 30, 2000.
Company Technologies
AdCast Technology. AdCast is a proprietary message delivery system
which displays, within a web browser, non-scrollable message frames. The AdCast
frameset occupies the bottom 10% of the viewer's screen. The AdCast message
window remains visible on the screen as the user navigates the website, both
within a page and from page to page, providing timed exposure to a targeted
series of 30-120 second messages containing a full spectrum of rich media
including streaming audio and video. The AdCast system facilitates four distinct
categories of Internet messaging, including (i) Internet advertising, (ii) B2B
e-commerce, (iii) content delivery, and (iv) streaming media applications. The
Company believes its immediate commercial opportunity for AdCast is in the
Internet advertising industry.
AdCast advertisements are placed only on websites of DAI.Net Members.
In addition, if a viewer transfers to a non-member website via a link displayed
on any DAI.Net Member's website, the advertisement will carry over to the new
website. The Company compensates DAI.Net Members for placing the AdCast message
window on their websites, and the Company sells the space to advertisers and
sponsors. The pricing structure for DAI.Net advertising is either CPM or CPC
based. Similar to television, AdCast ads can vary in length and can be viewed as
long as the viewer is "tuned in" to the same "channel" (website). However,
unlike television AdCast ads play only when the viewer or web surfer stays on
the DAI.Net Network.
Internet advertisers currently rely heavily on banner ads which have
well-publicized performance problems, some of which are listed below:
o Banners scroll off the screen and disappear as the
viewer moves down the web page below the fold.
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o Banners are tied to the web page and therefore disappear
as the viewer navigates the site from page to
page--often before they have had a chance to deliver
their message.
o Banner ad-servers charge the advertiser when the ad is
pulled from the server whether or not the viewer has
actually seen the ad.
o As a creative format, banners offer limited space and
lack the flexibility to deliver a complete commercial
message.
o Banners that attempt to deliver rich media, i.e.,
sophisticated animation, audio, or video content, bog
down websites and require cost-prohibitive network
support to serve them on conventional ad-serving
architecture.
Unlike conventional banners which are typically embedded within the web
page, the AdCast message window sits on top of the viewer's web browser, and
therefore remains visible as long as the viewer remains on the member website,
regardless of the viewer's page scrolling or site navigation activities.
TrueManagement(TM). TrueManagement(TM) provides a series of management
tools that enable users of the AdCast system to manage accounts, control
advertising campaign and view usage reports.
Some of the features of the TrueManagement(TM) system are:
o TrueManagement(TM) controls the number of exposures for
each ad per day and the number of times a given ad is
viewed by unique visitors. This helps create an evenly
distributed campaign by allowing the campaign manager to
control the number of times an ad is displayed.
o TrueManagement(TM) controls the sequencing of ads.
Although it is not possible to control the playlist by
exact sequencing, ads can be placed in priority levels.
o TrueManagement(TM) controls the distribution of ads. An
ad can be targeted to a specific site or page within
that site.
o TrueManagement(TM) lets administrators control ad
performance. Ad information can be changed at any time.
Ads that perform poorly can be replaced or turned off,
and campaigns can be recalculated.
TrueManagement(TM) also provides various audience measurements such as
the number of click-throughs, the number of times an advertisement is viewed and
the duration on a website. This data is provided to both advertisers and DAI.Net
Members, enabling them to make adjustments to their advertisements or websites,
respectively, to increase effectiveness by providing them with:
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o reliable audience measurement and historical data for
analysis and review;
o easy on-line access to the information generated by
DAI.Net Members and advertisers; and
o real-time visitor information, including information
concerning the total number of new visitors, daily
visitors, cumulative repeat visitors and cumulative
total visitors.
VOSX. The Company has recently completed initial design and prototyping
of a new programming and peer to peer networking technology called VOSX. The
Company believes VOSX will be a major advance in computer technology that allows
individuals with little or no computer programming background--educators,
artists and entertainers, business owners or anyone with knowledge to share--to
create comprehensive computer applications. Initially invented and prototyped by
Robert M. Cezar, VOSX was conceived as a new operating layer to run on top of
Windows, Linux, Palm-OS or any other operating system and execute a new
generation of simple, yet powerful computer directives through which people
without extensive computer training would be able to write their own
applications. The Company intends to file patent applications for VOSX and
preliminary documentation is being prepared for use in the patent application
process. In the meantime, the Company is relying on trade secret protection to
protect its proprietary interest in the product.
Kiosk Software Technology. Kiosk Operating Suite ("K/OS"). K/OS is a
fully developed kiosk developer tool kit which includes remote management, usage
and event logging, read/write access for standard Open Database Connectivity
(ODBC/JDBC) databases and program interfaces to common peripherals. K/OS enables
software programmers to easily create interactive business solutions, maintain
hardware and remotely manage public access kiosks. The system is designed to be
steadfastly reliable and easy to customize. K/OS can deliver any interactive,
multimedia content that can be viewed or played using Microsoft Internet
Explorer. The product provides system flexibility through its Java and ActiveX
interfaces.
TerraVista(TM), a significant component of K/OS, is an extension of
Microsoft's Internet Explorer and controls public access on the Internet by
serving as a programmable gateway to selected Internet sites. TerraVista(TM)
gives the system administrator the tools to focus a user's attention on those
portions of the Internet that have been pre-selected and approved.
TerraVista(TM) constrains the hardware to prevent the user from circumventing
the system. TerraVista(TM) is a fail-safe solution, ideal for use in academic
environments, libraries, correctional facilities, corporate visitor centers and
other public areas.
J-Engine Technology. Pursuant to the reorganization agreement with J&J
Tech, the Company acquired the J-Engine Tool to extend the Company's networking
services. The J-Engine Tool is a portable, scalable, modular approach to
building and managing websites. The J-Engine Tool provides Internet Service
Providers ("ISPs") with the ability to sell turnkey systems such as content
management and e-commerce to an unlimited number of users with unlimited
customization. The J-Engine Tool can be used to target both business-to-consumer
and business-to-business clients. This is achieved with the implementation of a
powerful layout function that allows customization, via on-line interface, all
the way from final web page design
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down to the look of the program interface layouts themselves. The J-Engine Tool
also allows the website manager to control access to the management system
developed for their website through specified password protection.
Fields can be added or deleted at will because the J-Engine Tool
technology is based on an object database. Java Servlets allow the program to be
implemented in virtually any environment and as a result, the J-Engine Tool's
modular architecture makes it easy to add new functionality as needed. This
could allow for example, a web polling or statistics module to be added to help
a user create a more compelling website. This means that not only will the
program meet today's e-commerce needs, it can be fashioned into any number of
new uses, virtually without limit.
The layout section allows for virtually unlimited control over commerce
page layouts, text and graphics, checkout screens, product layouts and even the
layout of the program and editor itself. This includes complete access to
database variables and programming constructs such as "if", "while", and others.
Complete control of all HTML elements is also possible.
Components of this technology have been integrated into the Company's
core technologies.
MyLine. MyLine is a programmable personal telecommunication system
which enables users to be reached at any telephone by means of a single
telephone number. The associated InstAccount product is a real time
communication accounting and management tool. The Company is considering plans
to re-engineer the MyLine technology to exploit the cost savings offered by
Internet Protocol Telephony and thus create a price and service competitive
product.
Marketing
The Company has determined that for the immediate future the most
effective way to market the AdCast system is through DAI.Net. Successful network
development and Internet advertising sales are synergistically related. That is,
to attract websites to the DAI.Net Network, the Company must be able to fill a
substantial portion of their inventory with paid advertising. Likewise,
advertising sales will depend on the number and quality of unique viewers these
websites represent.
The Company has hired marchFIRST, the world's largest interactive
advertising agency, as an outsourced marketing group to assist in strategy
development for growing DAI.Net and effectively marketing the network to
advertisers. The marketing campaign will be geared to optimize the synergistic
relationship between network development and advertising sales.
Advertising Sales
On February 7, 2000, AmeriCom entered into a representation agreement
with Interep Interactive, Inc. ("Interep") for the sale of advertising for the
DAI.Net Network. Interep is the Internet ad selling arm of Interep, Inc., a
major radio advertising firm with offices throughout the U.S. This agreement
will expire on November 7, 2000. The Company and Interep are currently
negotiating a new agreement.
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Research and Development
The Company has begun development of additional technologies. There is
no assurance that such technologies will ever become viable products or that the
Company will be able to market such products. In fiscal year ended June 30,
2000, the Company spent approximately $1,832,143 on research and development
activities as compared to approximately $168,510 in the prior year.
In August 1998, AmeriCom entered into a joint-development agreement
with Systeam SpA, an Italian company engaged in information technology,
consulting, software development and software support ("Systeam"). Under the
terms of the agreement, Systeam contracted to provide ongoing development of and
support for AmeriCom's technologies. In consideration, AmeriCom agreed to pay an
annual royalty equal to 8% of the worldwide revenues of AmeriCom for a period of
10 years, renewable for successive 10 year terms, provided that Systeam
continued to develop, implement, support and upgrade the technology during such
periods. AmeriCom has terminated this agreement with Systeam. A new agreement is
currently being negotiated.
In addition to maintenance, enhancement and support of AdCast and the
DAI.Net Network, the Company's technology group has an ongoing research and
development mission to design and develop new technologies consistent with the
overall corporate mission. The Company has recently completed initial design and
prototyping of a new programming and peer to peer networking technology called
VOSX. In the coming months, the Company will examine the business case for VOSX
and determine its viability as a commercial product.
Proprietary Rights
Three U.S. patents and one international patent have been filed for the
AdCast technology. Two of the Company's three claims have been awarded "first
action allowance" and the third claim is pending. Following is a summary of each
patent and its primary claims:
o The simultaneous launch of a non-scrollable advertising
frame (message window) in conjunction with a website,
and the delivery of timed display, rich media ad content
from a centralized system--first action allowance
awarded and U.S. patent (No. 6,128,651) issued effective
October 3, 2000;
o The use of the browser to host the list of
advertisements to be shown and to compute the processing
logic to determine and retrieve the next ad--first
action allowance awarded; and
o The ability to control, centrally, the frequency and
target demographics of an advertisement based on ad play
information computed and relayed by the browser--patent
pending.
There can be no assurance that the Company's awarded and pending patent
applications will afford protection against a competitor, or that any patents
issued to the Company could not be challenged, invalidated or circumvented by
others. Further, since patent applications in the
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United States are maintained in secrecy until patents issue, the Company cannot
be certain that others have not filed patent applications directed toward
inventions covered by its remaining pending patent application or that it was
the first to file the claims covered by that patent. There also can be no
assurance that the Company's technologies will not infringe patents or
proprietary rights of others or that licenses that might be required for the
Company's processes or products would be available on reasonable terms. The
extent to which the Company may be required to obtain licenses under other
proprietary rights, and the cost and the availability of such licenses are
unknown.
The Company also makes use of its trade secrets or "know-how" developed
in the course of its research and development. To the extent that the Company
relies upon trade secrets, un-patented know-how and the development of
improvements in establishing and maintaining a competitive advantage in the
market for the Company's products, there can be no assurance that such
proprietary technology will remain a trade secret or that others will not
develop substantially equivalent or superior technology to compete with the
Company's products.
The Company intends to file patent applications for VOSX and
preliminary documentation is being prepared for use in the patent application
process. In the meantime, the Company is relying on trade secret protection to
protect its proprietary interest in the product.
Competition
The Company faces competition from numerous companies, some of which
are more established, have greater market recognition, and have greater
financial and marketing resources than the Company. The Company's services
compete on the basis of certain factors, including a variety of viewer
demographics, price, duration of exposure of each advertisement, and the number
of visual impact of each advertisement. The market for the Company's services is
competitive, subject to rapid change and evolution as the Internet grows and
matures.
The Company's competitors include Doubleclick, Inc., 24/7 Media, Inc.
and Flycast, Inc., as well as other traditional banner advertising networks and
portals. More general competition for advertising revenues also comes from
conventional, non-internet advertising media such as television and radio.
Employees
As of September 30, 2000, the Company and its subsidiaries had a total
of 34 employees. This number includes 22 technicians/engineers and support
personnel, 7 marketing personnel and 5 administrative/management personnel.
Recent Developments Subsequent To Year End
On July 25, 2000, the Company and certain co-founders (including Lorne
Cezar, Robert M. Cezar, Helen E. Cooper, Winston Lee, David H. Loomis, Craig D.
Machado and Jayson Schwartz) entered into the Agreement to Terminate Stock
Options and Warrants whereby such stockholders agreed to surrender all of their
options to purchase 6,015,000 shares of the Company's Class A common stock and
warrants to purchase 800,000 shares of the Company's Class A common stock.
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On August 3, 2000, AmeriCom executed and delivered a promissory note in
favor of Sterling National Bank (the "Bank") evidencing a loan in the aggregate
principal amount of $1,000,000 (the "Note"). The Note will mature on November 1,
2000 and will bear interest, payable monthly, at a rate of 1% above the Bank's
base loan rate on the principal amount of the Note. As collateral for the Note,
the Company entered into a General Loan and Security Agreement, dated August 3,
2000 (the "Bank Security Agreement"), between the Company and the Bank, pursuant
to which the Company granted to the Bank a first priority security interest in
and lien on substantially all of the assets of the Company. As further security
for the Note, and at the request of the Company and the Bank, Giacomo Torrente,
a director of the Company, entered into a guaranty in favor of the Bank,
pursuant to which Mr. Torrente (i) guaranteed the obligations of the Company
under the Note and the Bank Security Agreement and (ii) deposited with the Bank
the sum of $1,000,000 (the "Deposit"). In consideration for Mr. Torrente making
the Deposit and entering into the guaranty, the Company and Kiosk Software,
Inc., a subsidiary of the Company, entered into a security agreement in favor of
Mr. Torrente, as secured party, dated as of August 3, 2000 (the "Torrente
Security Agreement"), pursuant to which the Company and Kiosk Software, Inc.
granted to Mr. Torrente a second priority security interest in and lien on
substantially all of the assets of the Company and Kiosk Software, Inc. On
September 15, 2000, the principal amount of the Note was increased to
$1,660,000. In connection with that increase, Mr. Torrente deposited an
additional $660,000 with the Bank and the Torrente Security Agreement was
amended to reflect this increase.
In September 2000, certain officers and employees (including Thomas J.
Hopfensperger, James Heintz, Trone L. Miller, Lori S. Fisher and Gary Hogue)
agreed to surrender options to acquire an aggregate of 2,350,000 shares of the
Company's Class A common stock.
ITEM 2. DESCRIPTION OF PROPERTY
AmeriCom's principal executive offices are located at 825 Buckley Road,
Suite B, San Luis Obispo, California 93401, where it leases an aggregate of
approximately 5,000 square feet of space. Accounting and administration, sales
and marketing and DAI.Net management are located in the San Luis Obispo space.
The lease for this space commenced on January 1, 2000 and terminated on
September 30, 2000. AmeriCom currently occupies this space on a month-to-month
basis with a monthly rent payment of $6,000.
AmeriCom's technology offices are located at 124 South Halcyon Road,
Arroyo Grande, California 93420, where it leases an aggregate of approximately
3,500 square feet of space. The lease is a month-to-month lease with rent
payments of $2,600 per month.
As a result of the DigiCities merger, AmeriCom also leases
approximately 6,224 square feet of space at 5855 Green Valley Circle, Culver
City, California 90230. The lease for this space commenced on August 12, 1999
and terminates on August 11, 2003 with a monthly lease payment of $8,860.2.
AmeriCom currently is negotiating with the landlord for an early termination or
assignment of this lease.
AmeriCom also leases approximately 1,431 square feet of space at 1901
South Bascom Avenue, Campbell, California 95008. The lease for this space
commenced on May 1, 1999 and
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terminates of April 30, 2002 with a monthly lease payment of $4,293. AmeriCom
sublets this space together with certain AmeriCom computer equipment and other
furnishings, to Systeam on a month-to-month basis with a monthly lease payment
of approximately $5,000.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's stockholders,
through the solicitation of proxies or otherwise, during the period covered by
this report.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
AmeriCom's Class A common stock is not currently listed for trading on
any stock exchange. On December 23, 1998, following the Chatsworth merger,
AmeriCom applied to the NASD for quotation of AmeriCom's common stock on the
NASD OTCBB. The NASD granted AmeriCom the trading symbol "AMUS" on January 30,
1999, but has not yet cleared AmeriCom's common stock for trading.
As of September 18, 2000, the Company had approximately 385
shareholders.
The Company has not paid or declared any dividends on its common stock
and it does not anticipate paying dividends on its common stock in the
foreseeable future.
Recent Sale of Unregistered Securities
In July 1999, AmeriCom issued an aggregate of 131,373 shares of its
common stock in connection with the conversion of three convertible promissory
notes it issued during 1999 having an aggregate principal amount of $260,000.
Those shares were issued at a conversion price of $2.00 per share and included
1,371 shares for accrued interest. The shares were issued pursuant to Section
4(2) of the Securities Act, as a transaction by an issuer not involving any
public offering.
On July 29, 1999, AmeriCom entered into a subscription agreement with a
foreign investor providing for the sale of 1,250,000 shares of its common stock.
The shares were sold at an offering price of $2.00 per share, with net proceeds
to AmeriCom of $2,500,000. The agreement provided for the proceeds to be held in
escrow, and conditioned release of the funds and completion of the sale upon
AmeriCom's stock being listed for trading on the NASD OTCBB. The condition to
the release of the funds was subsequently waived and the final cash
consideration was received by AmeriCom on February 16, 2000. The issuance was
made pursuant to Regulation S promulgated under the Securities Act.
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During the three months ended September 30, 1999, AmeriCom issued (i)
an aggregate of 523,996 shares of its common stock to non-U.S. persons pursuant
to Regulation S promulgated under the Securities Act, at offering prices ranging
from $1.50 to $2.00 per share, with net proceeds to AmeriCom of $786,773; (ii)
an aggregate of 433,062 shares of its common stock in connection with the
conversion of two promissory notes having an aggregate outstanding principal
amount of $473,913; and (iii) an aggregate of 101,000 shares of its common stock
for various legal and contracting services valued at $202,000.
During the three months ended December 31, 1999, AmeriCom issued (i) an
aggregate of 1,191,045 shares of its Class A common stock to non-U.S. persons
and accredited investors pursuant to Regulations S and D promulgated under the
Securities Act, at offering prices ranging from $2.00 to $4.00 per share, with
net proceeds to AmeriCom of $2,279,278; and (ii) an aggregate of 60,000 shares
of its common stock to various contractors and services suppliers for services
valued at $120,000.
On March 27, 2000, AmeriCom completed the sale of 100,000 shares of its
Class A common stock to an investment fund managed by D-Brain Capital Ltd. of
Tokyo, Japan, at an offering price of $5.00 per share, with net proceeds to
AmeriCom of $500,000. The shares were issued pursuant to Regulation S
promulgated under the Securities Act.
On May 18, 2000, AmeriCom completed the sale of 550,000 shares of its
Class A common stock to Megaweb Trading Ltd., a private financial company, of
which 520,000 shares are beneficially owned by Mr. Giacomo Torrente, a director
of AmeriCom, at an offering price of $5.00 per share. AmeriCom received net
proceeds of $2,750,000. The shares were issued pursuant to Regulation S
promulgated under the Securities Act.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
Having completed the proof of concept phase of its AdCast technology
development, and having grown the DAI.Net Network to reach approximately 6.7
million unique viewers per month, as reported by the TrueManagement(TM) system,
the Company believes that it is now poised to aggressively market the DAI.Net
Network to Internet advertisers as a next-generation alternative to major
websites. DAI.Net's unique selling proposition will be based on giving
advertisers and their creative talent the time and space to deliver a more
effective commercial message than is currently possible using conventionally
served banners. In developing its marketing plan for the DAI.Net Network, the
Company has consulted with a major Internet advertising agency and two leading
interactive advertising sales representative firms.
The Company believes that in order to succeed, DAI.Net must promulgate
the culture of an advertising network -- a media company -- a culture
substantially different from that of a technology company. The Company has
therefore established DAI.Net, as a wholly owned subsidiary with a separate
Board of Directors and a focus all its own. The Company's current strategy for
DAI.Net is to: (i) continue enhancement of its existing AdCast and networking
technologies; (ii) aggressively expand the DAI.Net Network; and (iii) market the
DAI.Net Network to advertisers based on its documented superior click-through
performance and unique
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ability to serve rich media ads without disrupting website performance. With
DAI.Net focused on the Internet advertising business, AmeriCom will continue
with existing and new technology development as well as technical support of
DAI.Net.
Based on the experience of the past 12 months of beta testing and
market exploration, The Company believes this strategy is the most direct path
to value for the AdCast technology. The Company anticipates revenue growth in
the fiscal year ending June 30, 2001; no earnings are anticipated. The Company
plans to finance continuing operating losses by means of debt and equity
securities offerings.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Fiscal Year Ended June 30, 2000 Compared to Fiscal Year Ended June 30,
1999
In the fiscal year ended June 30, 2000 ("fiscal 2000"), the Company
recognized revenues of $1,023,297 from business operations as compared with
$143,591 for the fiscal year ended June 30, 1999 ("fiscal 1999"). The increase
in revenue in fiscal 2000 was largely attributable to the Company's increased
efforts at selling advertising on the DAI.Net Newwork, with advertising revenue
coming to $761,537 as compared to virtually no advertising sales revenue in
fiscal 1999. The Company's cost of sales increased to $1,010,980 in fiscal 2000
from $121,873 in fiscal 1999, leaving a gross profit for fiscal 2000 of $12,317
as compared to $21,718 for fiscal 1999.
In fiscal 2000, the Company had total operating expenses of $19,213,029
resulting in a loss from operations of $19,200,712, as compared with total
operating expenses of $7,620,819 and a loss from operations of $7,599,101 in
fiscal 1999. The increase in operating expenses in fiscal 2000 was due primarily
to an increase in payroll costs from $1,612,659 in fiscal 1999 to $5,551,018 in
fiscal 2000, an increase in amortization expense from $353,206 in fiscal 1999 to
$2,037,537 in fiscal 2000, an increase in other general and administrative
expenses from $977,979 in fiscal 1999 to $3,513,449 in fiscal 2000, and a one
time charge of $5,970,848 for goodwill impairment in connection with the
shutting down of DigiCities in fiscal 2000 as compared to no goodwill impairment
in fiscal 1999.
The Company's net loss for fiscal 2000 was $19,769,002 or $0.51 per
share as compared to $7,700,999 or $0.26 per share for fiscal 1999. Included in
the net loss for fiscal 2000 was an extraordinary loss on the extinguishment of
debt of $347,408 as opposed to an extraordinary gain on the extinguishment of
debt for the previous year of $5,000.
Fiscal Year Ended June 30, 1999 Compared to Fiscal Year Ended June 30,
1998
In fiscal 1999 the Company recognized revenues of $143,591 as compared
with no revenues for the fiscal year ended June 30, 1998 ("fiscal 1998") during
which period the AdCast delivery system was being re-engineered to ensure its
ability to accommodate a large volume of advertising transactions. The Company
began beta testing of AdCast in February 1999.
Operating expenses increased substantially from $237,698 in fiscal 1998
to $7,620,819 in fiscal 1999 as the Company prepared the launch of AdCast,
resulting in a loss from operations that increased from $237,698 in fiscal 1998
to $7,599,101 in fiscal 1999. The increase in operating expenses in fiscal 1999
reflected primarily an increase in payroll costs from $163,289
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in fiscal 1998 to $1,612,659 in fiscal 1999, an increase in contract services
from $0 in fiscal 1998 to $717,623 in fiscal 1999, an increase in consulting
expense from $2,000 in 1998 to $3,417,418 in fiscal 1999, an increase in legal
fees from $28,100 in fiscal 1998 to $487,310 in fiscal 1999, and an increase in
other general and administrative costs from $39,116 in fiscal 1998 to $977,979
in fiscal 1999.
The Company's net loss for fiscal 1999 was $7,700,999 or $0.26 per
share as compared to $272,569 or $0.01 per share for fiscal 1998.
The following table provides a summary of selected financial data from
the Company's statement of operations:
<TABLE>
<CAPTION>
(in US$ thousands, except per share data)
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
June 30, 2000 June 30, 1999 June 30, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Revenues $ 1,023,297 $ 143,591 $ 0
Income (loss) from operations (19,200,712) (7,599,101) (272,569)
Income (loss) per share (0.51) (0.26) (0.01)
Total Assets 4,354,429 4,458,559 51,586
Long term debt, less current portion 0 200,000 0
Stockholder equity (deficiency) (568,622) (1,155,641) (1,726,543)
</TABLE>
Liquidity and Capital Resources
The Company's operations in future periods will be dependent upon the
availability of adequate liquid funds for continuing technology development,
capital expenditures and its ability to meet income deficits associated with the
operational roll-out of DAI.Net and its associated advertising services. In
order to meet its need for sufficient liquid funds, the Company has made the
following arrangements.
On January 29, 1999, the Company completed an offering of 2,350,000
shares of its common stock for an aggregate sales price of $3,687,500 to
investors located outside the United States through Asia Pacific Finance Group
Ltd., a British Virgin Island Corporation, pursuant to Regulation S of the
Securities Act. An additional 1,350,000 shares were sold to non-U.S. residents
prior to the formal Regulation S offering, at a total price of $485,000. Of the
combined total number of shares sold to non-U.S. residents, subscriptions for
300,000 shares were subsequently canceled because of the delay in arranging for
the Company's stock to be traded on the NASD OTCBB. Consequently, as of June 30,
1999, the final Regulation S offering included 2,050,000 shares sold for
$2,948,064 (after costs). Subsequent to June 30, 2000, an additional
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72,000 shares (aggregating $129,600 after costs) previously sold in the
Regulation S offering were canceled. As a result of these cancellations, the net
amount raised by the Regulation S offering, after costs, was $2,818,464.
On February 12, 1999, the Company's Board of Directors authorized
issuance of up to $5,000,000 of Convertible Subordinated Promissory Notes for
the purpose of raising liquid funds for working capital. These notes, payable in
full two years after issue, with annual interest of 6%, bear the right to
convert to shares of the Company's common stock at a conversion price of $2.00
per share. To date, $1,323,500 has been invested by way of purchases of these
promissory notes by individuals who qualify as accredited investors. As of June
30, 1999, notes totaling $1,187,422, including accrued interest, had been
converted into 593,711 shares of common stock. As of September 23, 1999, all the
notes issued had been converted to common stock. The sale and conversion of
these Notes was made pursuant to exemption provided by Section 4(2) and 4(6) of
the Securities Act.
During the fiscal year ending June 30, 1999, the Company sold a total
of 213,680 shares of common stock to other accredited investors for aggregate
consideration of $88,417, at an average price of $0.41 per share.
On July 29, 1999, the Company entered into a subscription agreement
with Giacomo Torrente, an accredited investor. The agreement provided for the
sale of 1,250,000 shares of the Company's common stock for a total price of
$2,500,000. The agreement provided for the sale price to be held in escrow, and
conditioned release of the funds and completion of the sale on the Company's
stock being listed for trading on the NASD OTCBB. The condition to the release
of the funds was subsequently waived and the final cash consideration was
received by AmeriCom on February 16, 2000. The issuance was made pursuant to
Regulation S promulgated under the Securities Act.
On March 27, 2000, the Company completed the sale of 100,000 shares of
its Class A common stock to an investment fund managed by D-Brain Capital Ltd.
of Tokyo, Japan. The total consideration for the placement, which was subject to
Regulation S of the Securities Act, was $500,000, or $5.00 per share.
On May 18, 2000, the Company completed the sale of 550,000 shares of
its Class A common stock to Megaweb Trading Ltd., a private financial company,
of which 520,000 shares are beneficially owned by Mr. Giacomo Torrente, a
director of AmeriCom. The aggregate consideration for the new issue was
$2,750,000, or $5.00 per share. The shares were issued pursuant to an exemption
from the registration requirements of the Securities Act pursuant to Regulation
S promulgated under the Securities Act.
On August 3, 2000, the Company executed and delivered a promissory note
in favor of Sterling National Bank (the "Bank") evidencing a loan in the
aggregate principal amount of $1,000,000 (the "Note"). The Note will mature on
November 1, 2000 and will bear interest, payable monthly, at a rate of 1% above
the Bank's base loan rate on the principal amount of the Note. As collateral for
the Note, the Company entered into a General Loan and Security Agreement, dated
August 3, 2000 (the "Bank Security Agreement"), between the Company and the
Bank, pursuant to which the Company granted to the Bank a first priority
security interest in
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and lien on substantially all of the assets of the Company. As further
security for the Note, and at the request of the Company and the Bank, Giacomo
Torrente, a director of the Company, entered into a guaranty in favor of the
Bank, pursuant to which Mr. Torrente (i) guaranteed the obligations of the
Company under the Note and the Bank Security Agreement and (ii) deposited with
the Bank the sum of $1,000,000 (the "Deposit"). In consideration for Mr.
Torrente making the Deposit and entering into the guaranty, the Company and
Kiosk Software, Inc., a subsidiary of the Company, entered into a security
agreement in favor of Mr. Torrente, as secured party, dated as of August 3, 2000
(the "Torrente Security Agreement"), pursuant to which the Company and Kiosk
Software, Inc. granted to Mr. Torrente a second priority security interest in
and lien on substantially all of the assets of the Company and Kiosk Software,
Inc. On September 15, 2000, the principal amount of the Note was increased to
$1,660,000. In connection with that increase, Mr. Torrente deposited an
additional $660,000 with the Bank and the Torrente Security Agreement was
amended to reflect this increase.
The Company considers that existing commitments and indications of
intent for equity and debt financing will be adequate to meet the Company's
operational funding requirements for the next 12 months. The Company cannot
guarantee, however, that those sources of funding will be realized, or that
internally generated funds will be developed sufficiently quickly to meet the
Company's needs if externally generated funds are exhausted. The Company
continues to incur liability for payment of goods and services supplied to the
Company which are not met in full within normal credit terms, and is thus
reliant on the continued goodwill and confidence of those vendors.
Through June 30, 2000, the Company has funded its operations primarily
through private placements of its securities. As of June 30, 2000, June 30, 1999
and June 30, 1998, the Company's working capital deficit was $4,105,781,
$2,776,554 and $1,741,377, respectively. Proceeds from private placements were
used for working capital.
FACTORS AFFECTING FUTURE OPERATING RESULTS
AmeriCom has incurred significant losses historically and may likely
incur future losses.
AmeriCom may not become profitable or significantly increase its
revenue. AmeriCom incurred a net loss of $272,569 and recorded no revenues for
the year ended June 30, 1998, a net loss of $7,700,999 with revenues of $143,591
in the year ended June 30, 1999, and a net loss of $19,769,002 with revenues of
$1,023,297 in the year ended June 30, 2000.
If use of the Internet and other communications networks based on
Internet protocols does not continue to grow, demand for AmeriCom's products may
not increase.
Increased demand for products depends in large part on the continued
growth of the Internet and Internet protocol-based networks and the widespread
acceptance and use of these mediums for electronic commerce and communications.
Because electronic commerce and communications over these networks are evolving,
it is impossible to predict the size of the market and its sustainable growth
rate. A number of factors may affect market size and growth rate. These factors
include the following:
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o The demand for electronic commerce and communications
may not increase, or may increase more slowly than
expected.
o The Internet infrastructure and communications services
to support electronic commerce may not be able to
continue to support the demands placed on them by
continued growth.
o The growth and reliability of electronic commerce and
communications could be harmed by delays in development
or adoption of new standards and protocols to handle
increased levels of activity or by increased
governmental regulation.
If AmeriCom does not respond to rapid technological changes, its
products and service offerings could become obsolete.
The markets served are characterized by rapidly changing technology,
emerging industry standards and frequent introduction of new products. The
introduction of products embodying new technologies and the emergence of new
industry standards may render products obsolete or less marketable. The process
of developing products and services is extremely complex and requires
significant, continuing development efforts. If AmeriCom fails to modify
existing products and develop new products that are responsive to changing
technology and standards and meet customer needs in a timely and cost effective
manner, business could be adversely affected.
If AmeriCom fails to establish and maintain strategic relationships,
its ability to develop and market products could be adversely affected.
The loss of any of existing strategic relationships, or the inability
to create new strategic relationships in the future, could adversely affect
AmeriCom's ability to develop and market products. AmeriCom depends on its
partners to develop and market products and to fund and perform their
obligations as contemplated by agreements with them. AmeriCom does not control
the time and resources devoted by partners to these activities.
These relationships may not continue or may require AmeriCom to spend
significant financial, personnel and administrative resources from time to time.
Resources may not be available to satisfy commitments, which may adversely
affect strategic relationships. Further, products and services may compete with
the products and services of AmeriCom's strategic partners. This competition may
adversely affect relationships with those strategic partners, which could
adversely affect business.
AmeriCom depends on key management personnel.
The Company's success will depend largely on the continuing efforts of
AmeriCom's executive officers and senior management, especially those of Robert
M. Cezar, Chairman of the Board of Directors. Business may be adversely affected
if the services of any key personnel become unavailable.
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There is significant competition in the industry for highly skilled
employees and failure to attract and retain technical personnel would adversely
affect business.
It may be impossible to successfully attract or retain highly skilled
employees. The inability to hire or retain highly qualified individuals may
impede AmeriCom's ability to develop, install, implement and service its
software and hardware systems, retain its customers, attract potential
customers, and otherwise efficiently conduct its operations. The information
technology industry is characterized by a high level of employee mobility, and
the market for highly qualified individuals in the computer-related fields is
intense.
This competition means there are fewer highly qualified employees
available to hire and the costs of hiring and retaining these individuals are
high. Even if it is possible to hire these individuals, it may be difficult to
retain them. Furthermore, there is increasing pressure to provide technical
employees with stock options and other equity interests, which may dilute
earnings per share.
Potential product defects could subject AmeriCom to claims from
customers.
Products as complex as those offered by AmeriCom may contain undetected
errors or result in failures when first introduced or when new versions are
released. Despite AmeriCom's product testing efforts and testing by current and
potential customers, it is possible that errors will be found in new products or
enhancements after commencement of commercial shipments.
The occurrence of product defects or errors could result in adverse
publicity, delay in product introduction, diversion of resources to remedy
defects, loss of or a delay in market acceptance or claims by customers against
us, or could cause AmeriCom to incur additional costs, any of which could
adversely affect business.
There may be exposure to potential liability for actual or perceived
failure to provide required products or services.
Because AmeriCom's customers rely on its products for critical
applications, there may be exposure to potential liability claims for damage
caused to an enterprise as a result of an actual or perceived failure of its
products. An actual or perceived breach of the enterprise network or data
security systems of a customer, regardless of whether the breach is attributable
to AmeriCom's products or solutions, could adversely affect AmeriCom's business
reputation. Furthermore, failure or inability to meet a customer's expectations
in the performance of services, or to do so in the time frame required by the
customer, regardless of responsibility for the failure, could result in a claim
for substantial damages by the customer, discourage customers from engaging
AmeriCom for these services, and damage AmeriCom's business reputation.
In addition, as a professional service provider, a portion of
AmeriCom's business involves employing people and placing them in the workplace
of other businesses. Therefore, there is also exposure to liability for actions
taken by employees while on assignment.
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AmeriCom operates in a market with intense competition from a number of
sources.
The markets for AmeriCom's products and services are intensely
competitive and, as a result, significant competition exists from a number of
different sources. It may be impossible to compete successfully as many of
AmeriCom's competitors are more established, benefit from greater name
recognition and have substantially greater financial, technical and marketing
resources.
In addition, there are several competitive start-up companies with
which AmeriCom competes from time to time. It is also expected that competition
will increase as a result of consolidation in the industry.
Third parties could obtain access to AmeriCom's proprietary information
or independently develop similar technologies because of the limited protection
for intellectual property.
AmeriCom's business, financial condition and operating results could be
adversely affected if any of AmeriCom's proprietary information or technologies
are appropriated by others. Notwithstanding the precautions taken, third parties
may copy or obtain and use AmeriCom's proprietary technologies, ideas, know-how
and other proprietary information without authorization or independently develop
technologies similar or superior to AmeriCom's technologies.
In addition, the confidentiality and non-competition agreements between
AmeriCom and its employees, contractors, and clients may not provide meaningful
protection of the proprietary technologies or other intellectual property in the
event of unauthorized use or disclosure.
Policing unauthorized use of technologies and other intellectual
property is difficult, particularly because the global nature of the Internet
makes it difficult to control the ultimate destination or security of software
or other data transmitted. Furthermore, the laws of other jurisdictions may
afford little or no effective protection of intellectual property rights.
AmeriCom may face claims of infringement of proprietary rights.
AmeriCom knows of no challenge that has been made against any of its
technologies or against its rights to such technologies and has no reason to
believe that any such challenge could be made, but whether or not its products
infringe on proprietary rights of third parties, infringement or invalidity
claims may be asserted or prosecuted against AmeriCom and significant expense in
defending them could be incurred.
If any claims or actions are asserted against AmeriCom, it may be
required to modify products or seek licenses for these intellectual property
rights. It may be impossible to modify products or obtain licenses on
commercially reasonable terms, in a timely manner or at all. Failure to do so
could adversely affect business.
Efforts to expand international operations are subject to a number of
risks.
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<PAGE>
AmeriCom is currently seeking to increase international sales. The
ability to expand international operations could be subject to a number of
risks, any of which could adversely affect AmeriCom's future international
sales, including increased collection risks and uncertain political, regulatory
and economic developments.
Stock prices could be extremely volatile.
The trading price of AmeriCom's common stock may be highly volatile as
a result of factors specific to AmeriCom or applicable to the market and
industry in general. These factors include:
o variations in the annual or quarterly financial results
of AmeriCom or its competitors;
o changes by financial research analysts in their
recommendations or estimates of earnings;
o conditions in the economy in general or in the industry;
o announcements of technological innovations or new
products or services by AmeriCom or its competitors; and
o unfavorable publicity or changes in applicable laws and
regulations, or their judicial or administrative
interpretations, affecting the industry.
In addition, the stock market has been subject recently to extreme
price and volume fluctuations. This volatility has significantly affected the
market prices of securities issued by many companies for reasons unrelated to
the operating performance of these companies. In the past, following periods of
volatility in the market price of a company's securities, some companies have
been sued by their stockholders. If AmeriCom were sued, it could result in
substantial costs and a diversion of management's attention and resources, which
could adversely affect business.
ITEM 7. FINANCIAL STATEMENTS
The financial statements for the Company are attached beginning on page
F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE>
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The directors and executive officers of the Company are as follows:
Name Age Title
---- --- -----
Robert M. Cezar 58 Chairman of the Board of Directors
Thomas J. Hopfensperger 49 Director and Chief Executive Officer of
AmeriCom USA, Inc. and President of
DAI.Net, Inc. Advertising Sales Division
Giacomo Torrente 43 Director
Lawrence M. Gress 54 Chief Financial Officer
Lori S. Fisher 45 President of Kiosk Software, Inc.
James Heintz 36 Chief Technology Officer
Trone L. Miller 55 Chief Operating Officer of AmeriCom USA,
Inc. and President of DAI.Net, Inc.
Network Operations Division
There are no agreements or understandings for any executive officer or
director to resign at the request of another person and none of the above-named
directors or executive officers is acting on behalf of or will act at the
direction of any other person.
Set forth below are the names of the directors and executive officers
of the Company, all positions and offices held with the Company, the period of
service, and business experience during at least the last five years:
ROBERT M. CEZAR has been Chairman of the Board of Directors of the
Company since 1994. Mr. Cezar was the Company's Chief Executive Officer from
1994 to 2000. From 1994 to 1998, Mr. Cezar also served as a Director, Chief
Executive Officer and President of RMC Diversified Associates International,
Ltd., a California company. From 1996 to 1998, Mr. Cezar was Vice President of
Engineering for Enhanced Service Providers LLC, a telecommunications company.
Mr. Cezar is the principal inventor of the AdCast and TrueManagement concepts.
THOMAS J. HOPFENSPERGER has been Chief Executive Officer since April
2000 and Director of the Company since December 1999. In addition, Mr.
Hopfensperger is President of DAI.Net, Inc.'s Advertising Sales Division and is
responsible for building a direct sales team and managing the performance of
outsource sales representatives. He previously served as President of the AdCast
Division and President and Chief Operating Officer of the Company. Prior to
AmeriCom, Mr. Hopfensperger served as a Director of New Media for ABC's Go
Network
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<PAGE>
affiliates in San Francisco. After serving in the Public Information Office of
the United States Air Force, Mr. Hopfensperger graduated from the University of
Wisconsin with a Bachelor of Arts degree in Communications Arts.
GIACOMO TORRENTE has been a Director of the Company since February
2000. Mr. Torrente previously served as Vice Chairman and Chief Executive
Officer of GAMMA CROMA S.p.A, a European manufacturer of cosmetic products. In
addition, Mr. Torrente was a Director of GEMINA S.p.A. He is also a corporate
finance and investment banking consultant with offices in Milan, Italy. Mr.
Torrente received his degree from the School of Law, University of Genoa, where
he graduated cum laude.
LAWRENCE M. GRESS has been Chief Financial Officer of the Company since
June 2000. For the previous five years, Mr. Gress headed ClearPath Resources, a
management consultancy specializing in business startups and turnarounds. For
the past year he has served on the Board of Directors of NTM Productions, Inc.,
a New York cable television programming startup. Mr. Gress received his M.A.
from the University of Northern Colorado where he was awarded a graduate
teaching fellowship.
LORI S. FISHER has been President of Kiosk Software, Inc. since 1993.
Ms. Fisher founded Kiosk Software, Inc. in 1993 and served as President and
Chairman until the company was acquired by AmeriCom in February 1999. Ms. Fisher
has 16 years managing software product development for IBM, University of
California at Davis and Dega Technology. Ms. Fisher has a Master's Degree in
Computer Science from the University of California at Davis, where she received
numerous professional development and academic achievement awards.
JAMES HEINTZ has been Chief Technology Officer since March 2000. As
co-inventor of the Company's systems and products he has co-authored the
Company's patent applications. Prior to joining AmeriCom, he served as Principle
of WayOutWare where he developed the J-Engine, a Java Servlet based
web-content/e-commerce engine. He consulted for Sun Microsystems under the
direction of Miko Matsumura on a Jini technology demonstration project.
Additionally, he developed Formbuster for Windows for Virtual Reality Labs, Inc.
TRONE L. MILLER has been the Chief Operating Officer of the Company
since April 2000. In addition, he has been the President of DAI.Net, Inc.'s
Network Operations Division since August 2000, the team responsible for all site
acquisition, advertising delivery management and virtual network development
activities. Prior to joining the Company, Mr. Miller served as President and
Chief Executive Officer of Gateway USA, a telecommunications company, and
managed several other startup companies.
Family Relationship
There are no family relationships between any of the directors and
executive officers.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than 10% of the Company's common stock, to file reports of ownership on
Form 3 and changes in ownership on
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<PAGE>
Form 4 or 5 with the Securities and Exchange Commission (the "SEC"). Such
directors, executive officers and 10% stockholders are also required by SEC
rules to furnish the Company with copies of all Section 16(a) forms they file.
Based solely upon its review of copies of such forms received by it, or on
written representations from certain reporting persons that no other filings
were required for such persons, the Company believes that, during the year ended
June 30, 2000, all Section 16(a) filing requirements applicable to its
directors, executive officers and 10% stockholders were complied with except as
follows:
o Mr. Robert M. Cezar filed one late Form 3 and one late
Form 4 to disclose two stock transactions in March 2000;
o Mr. Thomas J. Hopfensperger filed one late Form 3 to
report his appointment as Chief Executive Officer of the
Company;
o Mr. Giacomo Torrente has failed to file one Form 3 to
report his election as a director of the Company; and
o Mr. Lawrence M. Gress has failed to file one Form 3 to
report his appointment as Chief Financial Officer of the
Company.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth all plan and non-plan compensation
awarded to, earned by or paid to all individuals who served as the Company's
chief executive officer and its other most highly compensated executive officers
whose total annual salary and bonus exceeded $100,000 during the last completed
fiscal year (collectively, the "Named Executive Officers") for all services
rendered in all capacities during the fiscal years ended June 30, 1998, 1999 and
2000.
-25-
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Restricted Securities
Name and Salary Bonus Other Annual Stock Underlying
Principal Position Year ($) ($) Compensation ($) Award(s) ($) Options (#)
-------------------------------------- --------- ------------ ------------ ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas J. Hopfensperger, Chief 2000 $128,333 0 0 0 400,000(1)
Executive Officer of AmeriCom USA,
Inc. and President of DAI.Net,
Inc.'s Advertising Sales Division
Robert M. Cezar, 2000 137,500 (2)
Director 1999 11,150
1998
Lawrence M. Gress, 2000 23,333 0 0 0 230,000
Chief Financial Officer
Lori S. Fisher, 2000 100,000 0 0 0 443,762(3)
President of Kiosk Software, Inc. 1999 33,333 0 0 0
James Heintz, 2000 96,000 0 0 0 150,000(4)
Chief Technology Officer 1999 40,000 0 0 0
Trone L. Miller, 2000 96,000 0 0 0 200,000(5)
Chief Operating Officer of AmeriCom 1999 40,000 0 0 0
USA, Inc. and President of DAI.Net,
Inc.'s Network Operations Division
</TABLE>
-------------------
(1) Excludes options to acquire 1,000,000 shares of the Company's Class A
common stock which were surrendered in September 2000.
(2) Excludes options to acquire 935,000 shares of the Company's Class A
common stock which were surrendered in September 2000.
(3) Excludes options to acquire 200,000 shares of the Company's Class A
common stock which were surrendered in September 2000.
(4) Excludes options to acquire 150,000 shares of the Company's Class A
common stock which were surrendered in September 2000.
(5) Excludes options to acquire 500,000 shares of the Company's Class A
common stock which were surrendered in September 2000.
The Company and its subsidiaries do not currently have employment
agreements in place with its executive officers. All executive officers serve at
the pleasure of the Board of Directors.
-26-
<PAGE>
Stock Option Plan
On March 26, 1999, the Company established the 1999 Stock Option Plan
(the "1999 Plan") to serve as a vehicle to attract and retain the services of
key employees and to help such key employees realize a direct proprietary
interest in the Company. The 1999 Plan was ratified by the shareholders at the
annual meeting of Stockholders held on December 14, 1999. The 1999 Plan provides
for grants of up to 15,000,000 shares of the Company's Class A common stock as
either non-statutory or incentive stock options. Under the 1999 Plan, officers,
directors, consultants and employees of the Company are eligible for
participation. The exercise price of any incentive stock option granted under
the 1999 Plan may not be less than 100% of the fair market value of the Class A
common stock of the Company on the date of grant. The fair market value for
which an optionee may be granted incentive stock options in any calendar year
may not exceed $100,000. Shares subject to options under the 1999 Plan may be
purchased for cash. Unless a shorter period is established by the Company's
Board of Directors, an option granted under the 1999 Plan is exercisable for a
term of ten years. The 1999 Plan is administered by the Board of Directors and
its Compensation Committee, which has discretion to determine optionees, the
number of shares to be covered by each option, the exercise schedule, and other
terms of the options. The 1999 Plan may be amended, suspended, or terminated by
the Board of Directors, but no such action may impair rights under a previously
granted option. Each option is exercisable only so long as the optionee remains
employed by the Company. No option is transferable by the optionee other than by
will or the laws of descent and distribution. As of September 30, 2000, options
to acquire 6,326,447 shares of the Company's Class A common stock were
outstanding.
Options Granted in Last Fiscal Year
The following table sets forth options granted by the Company to the
Named Executive Officers during the last fiscal year.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Percentage of Total Options/
Options/ SARs Granted to Employees in Exercise Price
Name SARs Granted Fiscal Year (1) $/share Expiration Date
------------------------- ---------------- ------------------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Lawrence M. Gress 230,000 69% $5.00 June 1, 2010
</TABLE>
----------------------
(1) During the fiscal year ended June 30, 2000, the Company granted options
to acquire an aggregate of 333,000 shares of the Company's Class A
common stock to its employees.
No incentive stock options were exercised by the Named Executive
Officers during the fiscal year ended June 30, 2000.
Director Compensation
At this time, the Company does not pay its directors compensation for
their attendance at board meetings. Further, at this time, the Company does not
provide pension, retirement or similar benefits to its directors and executive
officers.
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<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of September 18,
2000, with respect to (i) each director of the Company, (ii) each named
executive officer, (iii) those persons known to the Company to beneficially own
more than 5% of the Company's Class A common stock, and (iv) all directors and
executive officers of the Company as a group. The information is determined in
accordance with Rule 13d-3 promulgated under the Exchange Act. Except as
indicated below, the beneficial owners have sole voting and dispositive power
with respect to the shares beneficially owned.
Percentage
Name and Address Number of Shares Beneficially Owned
---------------- ---------------- ------------------
Robert M. Cezar 14,163,012(1) 28.8%
1303 Grand Avenue, Suite 221
Arroyo Grande, California 93420
Thomas J. Hopfensperger 400,000(2) 0.8%
825 Buckley Road, Suite B
San Luis Obispo, California 93401
Giacomo Torrente 520,000 1.1%
825 Buckley Road, Suite B
San Luis Obispo, California 93401
Lawrence M. Gress 70,000(3) 0.1%
825 Buckley Road, Suite B
San Luis Obispo, California 93401
Lori S. Fisher 979,893(4) 2.0%
825 Buckley Road, Suite B
San Luis Obispo, California 93401
James Heintz 247,000(5) 0.5%
825 Buckley Road, Suite B
San Luis Obispo, California 93401
Trone L. Miller 200,000(6) 0.4%
825 Buckley Road, Suite B
San Luis Obispo, California 93401
All directors and executive officers 18,840,589(7) 38.3%
as a group (7 persons)
------------------
(1) Includes 4,548,370 shares held in the Robert M. Cezar trust.
(2) Includes 400,000 shares issuable under stock options exercisable
within 60 days.
(3) Includes 70,000 shares issuable under stock options exercisable
within 60 days.
(4) Includes 443,762 shares issuable under stock options exercisable
within 60 days.
(5) Includes 150,000 shares issuable under stock options exercisable
within 60 days.
(6) Includes 200,000 shares issuable under stock options exercisable
within 60 days.
(7) Includes 1,263,762 shares issuable under stock options exercisable
within 60 days.
-28-
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 1, 1999, the Company signed an agreement to merge with
Telespace Ltd. At the time of the transaction, Mr. Winston Lee was Vice
President, International Corporate Development, of the Company and the Chief
Executive Officer and majority shareholder of Telespace Ltd. The merger
transaction was terminated by mutual consent on September 8, 1999.
In July 1998 the Company acquired, as a wholly owned subsidiary, RMC.
At the time of this transaction Robert M. Cezar, David Loomis, Craig Machado and
Helen Cooper were officers, directors and, in the case of Mr. Cezar and Mr.
Loomis, principal stockholders of the Company, and officers, directors and
principal shareholders of RMC.
As of June 30, 1999, officers and relatives of officers had outstanding
loans to the Company of $638,145, representing approximately 48% of the total
notes and loans owed by the Company at that time. Of this amount $475,000 bears
interest at 10% per annum and is due March 27, 2000, and $3,145 bears interest
at 14% per annum and is payable on demand. The remaining loan amounts are
non-interest bearing. All of the loans from affiliates are unsecured and, except
for the $475,000 loan, are payable on demand.
On July 25, 2000, the Company and certain co-founders (including Lorne
Cezar, Robert M. Cezar, Helen E. Cooper, Winston Lee, David H. Loomis, Craig D.
Machado and Jayson Schwartz) entered into the Agreement to Terminate Stock
Options and Warrants whereby such stockholders agreed to surrender all of their
options to purchase 6,015,000 shares of the Company's Class A common stock and
warrants to purchase 800,000 shares of the Company's Class A common stock.
On August 1, 2000, AmeriCom, Robert M. Cezar, the Chairman of the Board
of Directors of the Company and certain stockholders of the Company (together,
the "Stockholders") and Giacomo Torrente, a director of the Company, entered
into a stockholders' agreement whereby the Stockholders and Mr. Torrente agreed
to transfer, assign and deliver to an escrow agent certificates evidencing their
respective shares in the Company upon the earlier of (i) October 30, 2000 or
(ii) the consummation of the private placement as contemplated and described in
the stockholders' agreement.
On August 3, 2000, AmeriCom executed and delivered a promissory note in
favor of Sterling National Bank (the "Bank") evidencing a loan in the aggregate
principal amount of $1,000,000 (the "Note"). The Note will mature on November 1,
2000 and will bear interest, payable monthly, at a rate of 1% above the Bank's
base loan rate on the principal amount of the Note. As collateral for the Note,
the Company entered into a General Loan and Security Agreement, dated August 3,
2000 (the "Bank Security Agreement"), between the Company and the Bank, pursuant
to which the Company granted to the Bank a first priority security interest in
and lien on substantially all of the assets of the Company. As further security
for the Note, and at the request of the Company and the Bank, Giacomo Torrente,
a director of the Company, entered into a guaranty in favor of the Bank,
pursuant to which Mr. Torrente (i) guaranteed the obligations of the Company
under the Note and the Bank Security Agreement and (ii) deposited
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<PAGE>
with the Bank the sum of $1,000,000 (the "Deposit"). In consideration for Mr.
Torrente making the Deposit and entering into the guaranty, the Company and
Kiosk Software, Inc., a subsidiary of the Company, entered into a security
agreement in favor of Mr. Torrente, as secured party, dated as of August 3, 2000
(the "Torrente Security Agreement"), pursuant to which the Company and Kiosk
Software, Inc. granted to Mr. Torrente a second priority security interest in
and lien on substantially all of the assets of the Company and Kiosk Software,
Inc. On September 15, 2000, the principal amount of the Note was increased to
$1,660,000. In connection with that increase, Mr. Torrente deposited an
additional $660,000 with the Bank and the Torrente Security agreement was
amended to reflect this increase.
In September 2000, certain officers and employees (including Thomas J.
Hopfensperger, James Heintz, Trone L. Miller, Lori S. Fisher and Gary Hogue)
agreed to surrender options to acquire an aggregate of 2,350,000 shares of the
Company's Class A common stock.
-30-
<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) The following documents are being filed as part of this report:
PAGE
----
(1) Financial Statements
Independent Auditor's Report - Weinberg & Company, P.A. .............F-1
Consolidated Balance Sheet as of June 30, 2000.......................F-2 to F-3
Consolidated Statements of Operations for the Years Ended
June 30, 2000 and 1999.............................................F-4
Consolidated Statements of Changes in Stockholders'
Deficiency for the Years Ended June 30, 2000 and 1999 .............F-5 to F-6
Consolidated Statements of Cash Flows for the Years Ended
June 30, 2000 and 1999.............................................F-7 to F-8
Notes to Consolidated Financial Statements ..........................F-9 to F-31
(2) Exhibits
--------
3.1 Certificate of Incorporation. Incorporated by reference from Exhibit
2.1 of the Registration Statement on Form 10-SB filed on February 11,
1998 (File No. 0-23769) (the "Form 10-SB).
3.2 By-Laws. Incorporated by reference from Exhibit 2.2 of the Form 10-SB.
3.3 Amendments to By-Laws of AmeriCom USA, Inc. Incorporated by reference
from Exhibit 1 of the Form 10-KSB for the year ended December 31, 1998.
10.1 Amended and Restated Stock Option Plan.
10.2 Stock Exchange Agreements, dated July 15, 1998, between
shareholders of RMC Diversified Associates International, Ltd. and
AmeriCom USA, Inc. Incorporated by reference from Exhibit 10 of the
Form 10-KSB for the year ended June 30, 1999.
10.3 Software Development Agreement, dated August 7, 1998, between AmeriCom
USA, Inc. and Systeam SPA. Incorporated by reference from Exhibit 1 of
the Form 8-K/A filed on February 18, 1999.
10.4 Agreement and Plan of Merger, dated November 23, 1998, between
Chatsworth Acquisition Corporation and AmeriCom USA, Inc.
-31-
<PAGE>
10.5 Agreement and Plan of Reorganization, dated January 24, 1999, among KSI
Acquisition, Inc., Kiosk Software, Inc., Lori Fisher and AmeriCom USA,
Inc. Incorporated by reference from Exhibit 1 of the Form 8-K filed on
February 23, 1999.
10.6 Agreement and Plan of Reorganization, dated February 26, 1999, between
Jim and Jon Tech and AmeriCom USA, Inc.
10.7 Internet Services and Co-Location Agreement, dated April 7, 1999,
between AmeriCom USA, Inc. and AboveNet Communications, Inc.
10.8 Agreement of Purchase and Sale and Exclusive Licensing of
Technology dated March 11, 1999 between Americom Ltd. and AmeriCom
USA, Inc. Incorporated by reference from Exhibit 1 of the Form 8-K
filed on May 17, 1999.
10.9 Merger Agreement and Plan of Reorganization, dated July 1, 1999,
between AmeriCom USA, Inc. and Telespace, Limited. Incorporated by
reference from Exhibit 2 of the Form 8-K filed on July 12, 1999.
10.10 Merger and Recapitalization Agreement and Plan of Reorganization,
dated September 27, 1999, between AmeriCom USA, Inc. and
DigiCities, Inc. Incorporated by reference from Exhibit 2 of the
Form 8-K filed on October 12, 1999.
10.11 Representation Agreement, dated February 7, 2000, between AmeriCom USA,
Inc. and Interep Interactive, Inc.
10.12 Assignment, effective as of June 28, 2000, from Robert M. Cezar to
AmeriCom USA, Inc.
10.13 Intellectual Property License Agreement, dated as of June 28, 2000, by
and between AmeriCom USA, Inc. and Robert M. Cezar.
10.14 Agreement to Terminate Stock Options and Warrants, dated July 25,
2000, by and among certain stockholders and AmeriCom USA, Inc.
10.15 Stockholders' Agreement, dated August 1, 2000, by and among
AmeriCom USA, Inc., Robert M. Cezar and the other stockholders and
beneficial owners of the Company party thereto, and Giacomo
Torrente.
10.16 General Loan and Security Agreement, dated August 3, 2000, by and
between Sterling National Bank and AmeriCom USA, Inc. Incorporated
by reference from Exhibit 10.1 of the Form 8-K filed on August 31,
2000.
10.17 Secured Note issued by AmeriCom USA, Inc. to the order of Sterling
National Bank, in the principal amount of $1,000,000, dated August
3, 2000. Incorporated by reference from Exhibit 10.2 of the Form
8-K filed on August 31, 2000.
10.18 Security Agreement, dated as of August 31, 2000, by and among AmeriCom
USA, Inc., Kiosk Software, Inc. and Avv. Giacomo Torrente. Incorporated
by reference from Exhibit 10.3 of the Form 8-K filed on August 31,
2000.
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<PAGE>
10.19 Lease Agreement, dated January 5, 2000, by and between AmeriCom USA,
Inc. and Richardson Properties.
10.20 Lease Agreement, dated October 29, 1999, by and between AmeriCom USA,
Inc. and Richard R. Ramirez.
10.21 Lease Agreement, dated August 12, 1999, by and between AmeriCom USA,
Inc. and J&C Associates I.
10.22 Lease Agreement, dated April 9, 1999, by and between AmeriCom USA, Inc.
and Pruneyard Associates, LLC.
22.1 Subsidiaries:
DAI.Net, Inc.
Kiosk Software, Inc.
23.1 Consent of Weinberg & Company, P.A.
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
Form 8-K filed on April 14, 2000 reporting that Thomas J.
Hopfensperger has been appointed as the Company's Chief Executive
Officer and that Trone L. Miller has been appointed President and
Chief Operating Officer of the Company.
Form 8-K filed on May 5, 2000 reporting the completion of the sale
of 100,000 shares of the Company's Class A common stock to an
investment fund managed by D-Brain Capital Ltd. of Tokyo.
Form 8-K filed on June 1, 2000 reporting the completion of the sale of
550,000 shares of the Company's Class A common stock to Megaweb Trading
Ltd., a private financial company.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Dated: October 13, 2000
AMERICOM USA, INC.
By: /s/ Thomas J. Hopfensperger
----------------------------------
Name: Thomas J. Hopfensperger
Title: Chief Executive Officer
By: /s/ Lawrence M. Gress
----------------------------------
Name: Lawrence M. Gress
Title: Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Name Office Date
---- ------ ----
Chairman of the Board October 13, 2000
---------------------------- of Directors
Robert M. Cezar
/s/ Thomas J. Hopfensperger Chief Executive Officer October 13, 2000
---------------------------- and Director
Thomas J. Hopfensperger
/s/ Giacomo Torrente Director October 13, 2000
----------------------------
Giacomo Torrente
-34-
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
CONTENTS
PAGE F-1 INDEPENDENT AUDITORS' REPORT
PAGES F-2 - F-3 CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2000
PAGE F-4 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
JUNE 30, 2000 AND 1999
PAGES F-5 - F-6 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
DEFICIENCY FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
PAGES F-7 - F-8 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
JUNE 30, 2000 AND 1999
PAGES F-9 - F-31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
AmeriCom USA, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of AmeriCom USA,
Inc. and Subsidiaries as of June 30, 2000 and the related consolidated
statements of operations, changes in stockholders' deficiency, and cash flows
for each of the two years in the period ended June 30, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of AmeriCom USA, Inc.
and Subsidiaries as of June 30, 2000 and the results of their operations and
their cash flows for each of the two years in the period ended June 30, 2000, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 17 to the
financial statements, the Company's significant operating losses and working
capital deficiency of $4,105,781 raise substantial doubt about its ability to
continue as a going concern. Management's plan in regards to these matters is
also described in Note 17. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
/s/ Weinberg & Company, P.A.
Boca Raton, Florida
August 28, 2000
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
See accompanying notes to consolidated financial statements.
F-2
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 247,971
Accounts receivable, net 249,400
Due from employees 5,410
Prepaid insurance 189,489
Prepaid royalties 125,000
----------
Total Current Assets 817,270
----------
PROPERTY AND EQUIPMENT, NET 627,595
----------
OTHER ASSETS
Accounts receivable - long term, net 321,912
Deposits 47,968
Kiosk computer software costs, net 883,276
MyLine software cost, net 939,892
J-Engine software cost, net 416,667
Goodwill, net 299,849
----------
Total Other Assets 2,909,564
----------
TOTAL ASSETS $4,354,429
------------ ==========
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES
Cash overdraft $ 121,445
Accounts payable and accrued expenses 1,203,179
Payroll taxes payable 469,583
Accrued salaries and wages 871,930
Deferred revenue 92,000
Factor payable 663,115
Obligation under capital lease 5,510
Notes and loans payable - current portion 1,496,289
------------
Total Current Liabilities 4,923,051
------------
STOCKHOLDERS' DEFICIENCY
Preferred stock, $0.0001 par value, 20,000,000 shares
authorized,
none issued and outstanding --
Common stock, Class A, $0.0001 par value, 99,000,000 shares
authorized, 42,696,746 issued and outstanding 4,270
Common stock, Class B, $0.0001 par value, 1,000,000 shares
authorized, none issued and outstanding --
Additional paid-in capital 28,771,159
Accumulated deficit (29,344,051)
------------
TOTAL STOCKHOLDERS' DEFICIENCY (568,622)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 4,354,429
============
F-3
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
------------------------------------------
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
REVENUES $ 1,023,297 $ 143,591
COST OF SALES 1,010,980 121,873
------------ ------------
GROSS PROFIT 12,317 21,718
------------ ------------
OPERATING EXPENSES
Salaries, wages and other compensation 5,551,018 1,612,659
Contract services 706,887 717,623
Amortization expense 2,037,537 353,206
Depreciation expense 162,517 54,624
Consulting expense 369,321 3,417,418
Legal fees 901,480 487,310
Goodwill Impairment 5,970,848 --
Other general and administrative expenses 3,513,421 977,979
------------ ------------
Total Operating Expenses 19,213,029 7,620,819
------------ ------------
Loss From Operations (19,200,712) (7,599,101)
------------ ------------
OTHER INCOME (EXPENSE)
Other income -- 1,752
Interest income 13,901 --
Loss on abandonment of assets (59,570) --
Interest expense (108,662) (97,448)
Vendor finance charges (16,158) (1,505)
Payroll tax penalties and interest (48,793) (8,097)
------------ ------------
Net Other Expenses (219,282) (107,050)
------------ ------------
Loss before income tax and extraordinary item (19,419,994) (7,706,151)
Income Tax Expense 1,600 1,600
------------ ------------
Loss before extraordinary item (19,421,594) (7,707,751)
Extraordinary gain (loss) on extinguishment of debt (347,408) 5,000
------------ ------------
NET LOSS $(19,769,002) $ (7,700,999)
============ ============
Weighted average number of shares outstanding during
period - basic and diluted 38,630,921 29,227,076
============ ============
Net loss per common share and equivalents - basic and
diluted $ (0.51) $ (0.26)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
Additional
Common Stock Issued Paid-In Accumulated
Shares Amount Capital Deficit Total
------------ ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1998 25,296,348 $ 2,529 $ 144,978 $(1,874,050) $(1,726,543)
Conversion of promissory notes to
common stock 208,699 22 78,433 -- 78,455
Stock sold prior to merger 2,044,981 204 541,561 -- 541,765
Reverse merger with Chatsworth
Acquisition Corporation 350,000 35 833 -- 868
Issuance of common stock as
compensation 2,100,000 210 3,149,790 -- 3,150,000
Acquisition of Kiosk Software, Inc.
by AmeriCom USA, Inc. 1,000,000 100 1,499,900 -- 1,500,000
Issuance of common stock as
compensation 180,000 18 359,982 -- 360,000
Issuance of common stock for services 2,000 1 3,999 -- 4,000
Stock options exercised 43,545 4 49,388 -- 49,392
Conversion of promissory notes into
common stock 593,711 59 1,187,362 -- 1,187,421
Acquisition of MyLine Software 500,000 50 999,950 -- 1,000,000
Common stock advanced for acquisition 200,000 20 399,980 -- 400,000
Net loss 1999 -- -- -- (7,700,999) (7,700,999)
----------- ----------- ----------- ----------- -----------
Balance, June 30, 1999 32,519,284 3,252 8,416,156 (9,575,049) (1,155,641)
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
Common Stock Issued Additional
-------------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
------------- ----------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Conversion of promissory notes to common stock 564,435 56 1,128,814 -- 1,128,870
Issuance of common stock for services 161,000 16 321,984 -- 322,000
Acquisition of digiCities, Inc. by Americom
USA, Inc. 3,500,000 350 6,999,650 -- 7,000,000
Issuance of common stock for cash, net 4,063,027 407 9,370,682 -- 9,371,089
Conversion of refundable common stock into
Class A common stock 1,889,000 189 2,533,873 -- 2,534,062
Net Loss, 2000 -- -- -- (19,769,002) (19,769,002)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 2000 42,696,746 $ 4,270 $ 28,771,159 $(29,344,051) $ (568,622)
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(19,769,002) $ (7,700,999)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 162,517 54,624
Amortization 2,037,537 352,751
Provision for doubtful accounts 1,676,644 21,679
Issuance of common stock for services 322,000 3,514,000
Loss on abandonment of assets 59,570 --
Impairment of goodwill 5,970,848 --
Loss on extinguishment of debt 347,408 --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (724,584) (25,453)
Employee receivable 2,106 (7,516)
Prepaid expenses and other assets (300,524) (9,138)
Deposits (26,977) (20,079)
Increase (decrease) in:
Cash overdraft 121,445 --
Accounts payable and accrued expenses (38,449) 813,725
Deferred revenue 89,537 2,463
Payroll taxes payable 277,932 97,303
Accrued salaries and wages 643,257 (337,069)
------------ ------------
Net Cash Used In Operating Activities (9,148,763) (3,243,709)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Due from officer (53,586) (39,647)
Purchase of property and equipment (182,155) (562,384)
Advances related to merger and acquisition (470,194) (173,000)
Cash acquired in acquisition of Kiosk -- 3,171
------------ ------------
Net Cash Used In Investing Activities (705,935) (771,860)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock subscription -- 2,534,062
Proceeds from stock issuance 9,371,089 1,820,401
Proceeds from factor - net 123,955 --
Payment of capital lease obligations (2,900) (6,163)
Payment of notes and loans payable (726,670) (666,001)
Proceeds from notes and loans payable 1,331,698 310,000
------------ ------------
Net Cash Provided By Financing Activities 10,097,172 3,992,299
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
2000 1999
-------- --------
Net Increase (Decrease) In Cash 242,474 (23,270)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,497 28,767
-------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $247,971 $ 5,497
---------------------------------------- ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 37,365 $ 39,388
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
----------------------------------------------------------------------
During 2000, the Company converted 1,889,000 shares of refundable common stock
into Class A common stock valued at $2,534,062.
During 2000, the Company issued 3,500,000 shares of common stock valued at $2.00
a share to acquire digiCities.
During 2000, the Company converted $781,462 of convertible notes payable and
accrued interest into 564,435 shares of common stock.
During 1999, the Company converted $78,455 of convertible notes payable and
accrued interest into 208,699 shares of shares of common stock.
During 1999, the Company issued 1,000,000 shares of common stock valued at $1.50
a share to acquire Kiosk.
During 1999, the Company issued 500,000 shares of common stock valued at $2.00 a
share to acquire MyLine.
During 1999, the Company converted 1,187,422 of convertible notes payable and
accrued interest into 593,711 shares of common stock.
During 1999, the Company advanced 200,000 shares of common stock to an entity in
anticipation of closing on a pending acquisition.
During 1999, the Company issued 13, 313,800 shares (retroactively adjusted for
recapitalization) of common stock to acquire Diversified.
During 1999, the Company issued 350,000 shares of common stock in a reverse
merger with Chatsworth.
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Description of Business
AmeriCom USA, Inc. ("AmeriCom") has developed proprietary technology
known as Adcast, e-CommPlus, TrueManagement, and My-Channel. The
Company develops and markets software technology products that
provide advertisers, web site owners, sponsors, and affiliates with
advanced Internet technology, revenue sharing, commercial
efficiency, commercial effectiveness, and operating savings.
AmeriCom positions itself in the marketplace as an Internet
Advertising Service Provider.
In July, 1998 AmeriCom acquired its commonly controlled affiliate,
RMC Diversified Associates International ("Diversified").
Diversified subsequently became inactive. (See Note 11(A))
On November 23, 1998, effective December 4, 1998, AmeriCom entered
into an Agreement and Plan of Merger with Chatsworth Acquisition
Corporation, a Delaware corporation and public shell ("Chatsworth")
whereby the stockholders of AmeriCom exchanged all of their common
stock in AmeriCom for shares of Chatsworth in a transaction
accounted for as a recapitalization of AmeriCom.
(See Note 11(B))
Kiosk Software, Inc. ("Kiosk"), a wholly owned subsidiary of
AmeriCom, was acquired by AmeriCom on February 8, 1999 (see Note
11(C)). Kiosk specializes in complete kiosk development services
including custom cabinet design and multimedia software development
for a wide variety of applications using its proprietary Kiosk
Operating Suite.
On April 30, 1999, the Company acquired tangible and intangible
assets relating to technology developed and marketed by the seller
under the names "MyLine" and "InstAccount."
Adcast Inc., Adcast Canada, LTD. and Diversified are inactive
wholly owned subsidiaries of AmeriCom USA, Inc. AmeriCom USA,
Inc. and its subsidiaries are hereinafter collectively referred
to as the "Company."
On July 31, 1999, the Company acquired intangible computer software
(J--Engine) assets relating to technology developed by the seller
(See Note 11(F)).
On August 2, 1999, effective January 1, 2000, the Company entered
into an
F-9
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
Agreement and plan of acquisition with digiCities, Inc., a
California corporation and internet service provider (digiCities)
whereby the stockholders of digiCities exchanged all of their common
stock in digiCities for shares of Americom in a transaction
accounted for as a purchase of digiCities. digiCities has ceased to
exist as an independent entity.
(B) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant
inter-company balances and transactions have been eliminated in
consolidation.
(C) Financial Statement Presentation
Certain amounts in the 1999 financial statements have been
reclassified to conform to the 2000 presentation
(D) Use of Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and
expenses during the reported period. Actual results could differ
from those estimates.
(E) Cash and Cash Equivalents
For purposes of the cash flow statements, the Company considers all
highly liquid investments with original maturities of three months
or less at time of purchase to be cash equivalents.
(F) Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation. Expenditures from maintenance and repairs are charged
to expense as incurred. Depreciation is provided using the
straight-line method over the estimated useful life of the assets
from three to five years.
(G) Computer Software Costs
F-10
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
(i) Software To Be Sold Leased Or Otherwise Marketed
The Company accounts for the research and development costs and
production costs of computer software to be sold, leased, or
otherwise marketed in accordance with Statement of Financial
Accounting Standards No. 86 "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed" ("Statement
No. 86"). Under Statement No. 86 all costs incurred to establish
the technological feasibility of a computer software product to
be sold, leased, or otherwise marketed are considered research
and development expenses that are expensed as incurred. Costs of
producing product masters which include coding and testing
performed subsequent to establishing technological feasibility
but before the product is available for general release to
customers are capitalized and amortized on a straight-line basis
over three years. Kiosk computer software costs at June 30, 1999
represents an allocation of the purchase price differential
related to the acquisition of Kiosk (see Notes 4 and 11(C)).
(ii) Software Obtained For Internal Use
The Company accounts for software obtained for internal use in
accordance with the Accounting Standards Executive Committee
Statement of Position No. 98-1 "Accounting For the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP
98-1"). SOP 98-1 generally requires the capitalization of all
internal or external direct costs incurred in developing or
obtaining internal use software. The Company generally amortizes
software developed or obtained for internal use over an estimated
life of three years. MyLine computer software costs at June 30,
1999 represent the external purchase price paid on April 30,
1999. (See Notes 4 and 11(D))
(H) Goodwill
Goodwill arising from the acquisition of Kiosk is being amortized on
a straight-line basis over five years. Goodwill arising from the
acquisition of digiCities was being amortized on a straight-line
basis over five years before the impairment during the year ended
June 30, 2000 (See Note 5).
(I) Income Taxes
The Company accounts for income taxes under the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 109.
"Accounting for Income Taxes" ("Statement No. 109"). Under Statement
No. 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and
F-11
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
(J) Stock Options
In accordance with Statement of Financial Accounting Standards
No. 123 ("SFAS 123") the Company has elected to account for Stock
Options under Accounting Principles Board Opinion No. 25 ("APB
Opinion No. 25") and related interpretations.
(K) Revenue Recognition and Deferred Revenue
The Company recognizes revenues from advertising sales as earned.
The Company's digiCities division charges an initial set up fee that
is recognized when the site is created and loaded onto the Internet.
The Company also charges a monthly hosting fee for each website.
Revenues are recognized as earned over the hosting period.
The Company sells its Kiosk Operating Suite as a stand-alone product
or under development contracts with customers whereby the Company
develops customized software applications or turnkey systems, which
include software, hardware, and custom cabinets. The contracts
generally contain multiple elements with specified milestones and
delivery dates and stipulated fees for each element. The time to
completion and delivery of the development portion of the contracts
generally does not exceed three to six months.
The Company recognizes revenue under its Kiosk development contracts
in accordance with the Accounting Standards Executive Committee
Statement of Position 97-2 "Software Revenue Recognition" ("SOP
97-2"). Under SOP 97-2 the Company recognizes revenue from the sale
of stand alone products upon delivery and recognizes revenue for
each element under development contracts at the time of delivery of
that functioning element.
The Company recognizes revenue from license agreements over the
term of the agreement.
(L) Advertising Expense
In accordance with Accounting Standards Executive Committee
Statement of Position 93-7, ("SOP 93-7") costs incurred for
producing and communicating
F-12
<PAGE>
advertising of the Company, are recorded as operating expenses as
incurred.
(M) Cost of Sales
The Company purchases hardware for specific customer requirements
under development contracts for turnkey kiosk systems. Hardware
purchases are recorded as cost of sales. The Company did not
maintain inventory at June 30, 2000.
The Company purchases advertising space for resale to customers on
various web sites and accounts and produces advertisements for
customers. These costs are included in the cost of sales.
The Company used in-house and outside telemarketers to acquire new
website customers. These amounts are charged to operating expenses
as incurred.
(N) Per Share Data
Net loss per common share for the year ended June 30, 2000 and 1999
is required to be computed based on the weighted average common
stock and dilutive common stock equivalents outstanding during the
year as defined by Statement of Financial Accounting Standards, No.
128; "Earnings Per Share". For 1999, under Generally Accepted
Accounting Principles, the shares outstanding for the period from
July 1, 1998 through the recapitalization date of November 23, 1998
(See Note 11(B)), are deemed to be that amount issued to the
stockholders of AmeriCom on the recapitalization date. For the
period from the recapitalization date through June 30, 1999, the
shares used in the weighted average computation are the actual
shares outstanding for that period
(O) Long-Lived Assets
During 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of" ("SFAS 121"), was issued. SFAS
121 requires the Company to review long-lived assets and certain
identifiable assets related to those assets for impairment whenever
circumstances and situations change such that there is an indication
that the carrying amounts may not be recoverable. If the
non-discounted future cash flows of the enterprise are less than
their carrying amounts, their carrying amounts are reduced to fair
value and an impairment loss is recognized. The Company recognized
an impairment loss on the goodwill acquired in the digiCities merger
(See Note 5).
(P) Concentrations Of Credit Risk From Cash Deposits In Excess of
Insured Limits
F-13
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
The Company maintains its cash balances at one financial institution
in California. The balances are insured by the Federal Deposit
Insurance Corporation up to $100,000. At June 30, 2000, the
Company's uninsured cash balances were approximately $143,900.
NOTE 2 ACCOUNTS RECEIVABLE AND FACTOR AGREEMENT
The Company's digiCities division previously billed its customers
primarily through aggregators. An aggregator represents several
hundred local telephone exchange carriers ("LECs"). The LECs bill
the hosting fees in the customer's monthly phone bill and remit the
proceeds to the aggregator. The aggregator holds back a percentage
of the amounts collected as a reserve against future charge backs.
The amounts reserved are recorded as long term receivables since the
aggregator holds these amounts up to eighteen months. The Company
has been advanced approximately $663,100 from a factor on these
accounts receivable and such amount is shown as a factor payable at
June 30, 2000.. The Company has approximately $321,912 in long term
accounts receivable outstanding from this aggregator at June 30,
2000.
Receivables as of June 30, 2000:
Accounts Long Term
Receivable Receivables
--------------- ----------------
Receivable $ 661,706 $ 321,912
Allowance for doubtful
accounts 412,306 --
--------------- ----------------
$ 249,400 $ 321,912
=============== ================
For the year ending June 30, 2000, the Company recorded a provision
for doubtful accounts of $1,576,644 in its statement of operations.
At June 30, 2000, the provision for doubtful accounts includes
$1,191,596 attributable to the digiCities accounts receivable at the
date of acquisition (See Note 11(E)).
At June 30, 2000 approximately 21% and 34% of gross accounts
receivable were due from two customers, respectively. The amounts
from these two customers are fully reserved at June 30, 2000.
NOTE 3 PROPERTY AND EQUIPMENT
F-14
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
Property and equipment at June 30, 2000 consisted of the following:
Office equipment $ 66,144
Office furniture 48,426
Computer equipment 568,950
Computer software 139,964
Trade Show Booth 5,303
Demonstration unites 985
Capital lease 6,307
Automobile 23,349
----------------
859,428
Less accumulated depreciation (231,833)
----------------
$ 627,595
================
Depreciation expense for the year ended June 30, 2000 and 1999 was
$162,517 and $54,624, respectively.
NOTE 4 COMPUTER SOFTWARE COSTS
The Company accounts for Kiosk computer software costs in accordance
with Statement No. 86. Computer software costs are reported at the
lower of non-amortized costs or net realizable value. Commencing
upon initial product release, these costs are amortized based on the
straight-line method over the estimated life, generally three years.
Although technology is subject to change, the Company believes that
based on its projections the computer software costs are stated at
net realizable value and fully recoverable.
Kiosk computer software costs at June 30, 2000 represent the
non-amortized portion of the allocation of the Kiosk acquisition
purchase price differential pursuant to Accounting Principles Board
Opinion No. 16. (See Note 1(G)) and 11(C)).
Kiosk computer software costs at June 30, 2000 was as follows:
Computer software costs $ 1,673,575
Less accumulated amortization 790,299
--------------
$ 883,276
==============
Amortization expense on Kiosk Software, based on an estimated useful
life of three years, for the year ended June 30, 2000 was $557,858.
F-15
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
MyLine computer software costs at June 30, 2000 represent the
non-amortized cost of the software acquired on April 30, 1999 (see
Notes 1(G) and 11(D)) as follows:
MyLine computer software costs $ 1,538,000
Less accumulated amortization 598,108
--------------
$ 939,892
==============
Amortization expense on My-Line software, based on an estimated
useful life of three years, for the year ended June 30, 2000 was
$512,664.
J-Engine computer software costs at June 30, 2000 represent the
non-amortized cost of the software acquired on July 31, 1999 (See
Note 1(G) and 11(F)) as follows:
J-Engine software costs $ 600,000
Less accumulated amortization 183,333
------------------
$ 416,667
==================
Amortization expense on J-Engine computer software, based on the
estimated useful life of three years, for the year ended June 30,
2000 was $183,333.
NOTE 5 GOODWILL
Goodwill arising from the acquisition of Kiosk (See Note 11(C)) is
being amortized on a straight-line basis over five years.
Goodwill at June 30, 2000 was as follows:
Goodwill $ 418,394
Less accumulated amortization 118,545
--------------
$ 299,849
==============
Amortization expense for the year ended June 30, 2000 was $83,679.
Goodwill arising from the acquisition of digiCities is being
amortized on a straight-line basis over five years.
Goodwill $ 6,670,851
Loss on impairment (5,970,848)
Less accumulated amortization (700,003)
--------------
$ -
==============
F-16
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
Amortization expense for the year ended June 30, 2000 was $700,003.
During 2000, the Company underwent a strategic repositioning plan.
As a result of the repositioning plan, the Company reevaluated the
carrying value of goodwill from the digiCities acquisition. For
purposes of determining the future discounted cash flows of the
goodwill, the Company, based upon historical results, current
projections, and internal earnings targets, determined the
discounted future cash flows of the business to which the goodwill
relates. Based on the measurement of goodwill, the Company
recognized a loss on goodwill impairment of $5,970,848 during the
year ended June 30, 2000.
NOTE 6 PAYROLL TAXES PAYABLE
At June 30, 2000 the Company owed $469,583 in payroll taxes,
interest and penalties for prior tax periods of fiscal year 2000.
Such amounts were accrued in payroll taxes payable at June 30, 2000.
NOTE 7 ACCRUED SALARIES AND WAGES
Accrued salaries and wages represent current and certain unpaid
prior year salaries from September 1994 through June 2000:
Accrued salaries and wages payable $ 871,930
--------------------------------------- =============
A total of $75,500 included in accrued salaries as of June 30, 2000
represents accrued wages from prior periods. A total of $643,335
included in accrued salaries as of June 30, 2000 represents deferred
compensation costs due to two former officers.
NOTE 8 NOTES AND LOANS PAYABLE
The following schedule reflects notes and loans payable at June
30:
Note payable, 7% per annum accrued interest and
principal, due December 31, 2000, convertible into
500,000 shares of common stock at the option of
the holder, unsecured $ 1,000,000
Note payable to a former officer, non-interest bearing through March
26, 1998, interest at 10% per annum from March 27, 1998, due on
demand 299,000
Loan payable to officer, non-interest bearing, due on
demand, 135,000
F-17
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
unsecured
Note payable, interest at 8% per annum, $200,000 due on April 30,
2000 and $30,000 plus all accrued interest due April 30, 2001,
unsecured 30,000
Note payable, interest at 10% per annum, due on
demand, unsecured 18,506
Note payable, to director and officer, 10 % per annum,
$3,722 monthly until August 15, 2000,
unsecured 7,353
Loan payable, non-interest bearing, unsecured 3,285
Note payable, interest at 18% per annum, due on
demand, unsecured 3,145
-----------
1,496,289
Less current portion 1,496,289
-----------
$ -
===========
Interest expense for the year ended June 30, 2000 and 1999 was
$108,662 and $97,448, respectively.
Accrued interest of $175,757 on the notes and loans payable has been
included in accrued expenses at June 30, 2000.
NOTE 9 RELATED PARTIES
Certain notes and salaries are owed to related parties at June 30,
2000 (See Notes 7 and 8). Certain related parties took part in the
acquisition of Diversified. (See Note 11(A))
As discussed in the supplemental disclosure to the consolidated cash
flow statements, and Note 12, certain non-cash issuance of common
stock to related parties occurred during 1999.
NOTE 10 COMMITMENTS AND CONTINGENCIES
(A) Operating Lease Agreement
The Company leases various corporate office spaces, office equipment
and furniture and automobiles under operating leases. The leases
have remaining terms
F-18
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
varying from the years 2000 through 2005.
Future minimum lease payments for the operating leases are as
follows at June 30, 2000:
Years Ending Amount
----------------------- ---------------
2001 $ 207,350
2002 209,400
2003 116,890
2004 102,000
2005 60,500
---------------
$ 696,140
===============
Rent expense for the year ended June 30, 2000 and 1999 aggregated
$285,707 and $73,303, respectively.
(B) Employment Agreements
The Company entered into an employment agreement with the former
principal shareholder of Kiosk Software, Inc. on January 24, 1999.
The agreement calls for the shareholder to become the President,
Chief Operating Officer, and Director of KAI at an annual salary of
$100,000.
The Company entered into an employment agreement with an individual.
The agreement calls for the individual to become CFO at an annual
salary of $130,000. The agreement also calls for a moving allowance,
monthly transportation allowance, 230,000 employee stock options at
an exercise price of $5.00 vesting over two years, and all other
employee benefits.
The Company entered into an employment agreement with an individual
to become president and COO of AmeriCom USA, Inc. at an annual
salary of $140,000, with an increase in annual salary to $196,000
upon a successful offering or the first quarter the Company becomes
profitable. The agreement grants 1,400,000 employee stock options at
an exercise price of $2.00 vesting over three years, and all other
employee benefits. The agreement also calls for six months severance
pay upon termination.
NOTE 11 BUSINESS COMBINATIONS AND RECAPITALIZATION
(A) Acquisition of Diversified
F-19
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
On July 15, 1998 the Board of Directors of Diversified and AmeriCom
elected to execute a stock swap, whereby six stockholders, three of
whom were related parties at that date representing 100% of the
outstanding stock of Diversified, exchanged their common stock for
common stock of AmeriCom at a ratio of 500 for 1. Diversified then
issued 10,000 shares of its common stock to AmeriCom resulting in
Diversified becoming a wholly owned subsidiary of AmeriCom. Since
both entities were under common control, the exchange was accounted
for at historical cost in a manner similar to that in a pooling of
interests.
(B) Merger and Recapitalization
On November 23, 1998 AmeriCom USA, Inc. entered into an Agreement
and Plan of Merger (the "Agreement") with Chatsworth Acquisition
Corporation, a public shell ("Chatsworth") whereby all of the
stockholders of AmeriCom USA, Inc. exchanged all of their common
stock in AmeriCom USA, Inc. for 27,550,000 shares or 91.83% of the
common stock of Chatsworth. The merger was effective on December 4,
1998 and Chatsworth changed its name to AmeriCom USA, Inc. Under
Generally Accepted Accounting Principles, a company whose
stockholders receive over fifty percent of the stock of the
surviving entity in a business combination is considered the
acquirer for accounting purposes. Accordingly, the transaction is
accounted for as an acquisition of Chatsworth by AmeriCom USA, Inc.
and a recapitalization of AmeriCom USA, Inc. The financial
statements subsequent to the acquisition include the following: (1)
the balance sheet consists of the net assets of Chatsworth at
historical costs and the net assets of the Company at historical
costs; (2) the statement of operations consists of the operations of
the Company for the period presented and the operations of
Chatsworth from the acquisition date. As a result of the merger,
2,100,000 shares of common stock of the surviving entity were issued
to certain consultants. The consultants' shares were recorded as
compensation expense in 1999, the period the services were provided,
at a fair market value of $3,150,000 or $1.50 per share. (See Note
10(C)). In addition, 350,000 shares were issued to the prior
shareholders of Chatsworth, resulting in a total of 30,000,000
common shares issued and outstanding just subsequent to consummation
of the merger.
(C) Acquisition of Software Company
On January 24, 1999, the effective date, the Company entered into an
Agreement and Plan of Reorganization (the "Agreement") by and among
the Company, Kiosk Acquisition, Inc. ("KAI"), Kiosk Software, Inc.
("Kiosk") and the principal shareholder of Kiosk (the "Kiosk
Shareholder"). KAI is a wholly owned subsidiary of the Company
formed specifically for the purpose of acquiring Kiosk.
F-20
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
Under the terms of the Agreement, which closed on February 8, 1999,
KAI acquired one hundred percent of the issued and outstanding
common stock of Kiosk through the issuance of 1,000,000 shares of
the Company's common stock to the stockholders of Kiosk. All
unexercised options of Kiosk at the effective date were also
converted to options of the Company at a similar ratio as the common
stock exchange discussed above. The Agreement contained a purchase
price contingency provision that expired on August 8, 1999 without
any additional shares being issued. At the completion of the merger,
all shares of Kiosk were retired and the corporate existence of
Kiosk was terminated. KAI then changed its name to Kiosk Software,
Inc. Pursuant to the Agreement, the principal shareholder of Kiosk
is employed by KAI subsequent to the merger as its President and
Chief Operating Officer at an annual salary of $100,000 and as a
director of KAI (See Note 10(B)).
The Kiosk acquisition was recorded under the purchase method of
accounting and accordingly, the results of operations of Kiosk from
the acquisition date of February 8, 1999 are included in the
accompanying consolidated financial statements. The purchase price
of $1,500,000, which was based upon a $1.50 fair market value of the
Company's common stock issued, was allocated to the assets acquired
and liabilities assumed based on fair market values at the date of
acquisition. The fair market value of assets acquired and
liabilities assumed is summarized as follows:
Current assets $ 33,215
Property and equipment 15,084
Computer software 1,673,575
Goodwill 418,394
Current liabilities (640,268 )
--------------
$ 1,500,000
==============
The following unaudited pro forma financial information for the
Company gives effect to the Kiosk acquisition as if it occurred on
July 1, 1997. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the
results of operations which actually would have resulted had the
acquisition occurred on the date indicated, or which may result in
the future.
Year Ended
June 30, 1999
--------------
Net revenue $ 345,990
Net loss (8,176,989)
Net loss per share - basic and
diluted (0.27)
Shares used in per calculation -
basic and diluted 29,816,117
F-21
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
(D) Acquisition of Technology
Under an agreement of Purchase and Sale and Exclusive Licensing of
Technology, (the "Agreement") dated March 11, 1999 and closed on
April 30, 1999, the Company acquired all tangible and intangible
assets relating to technology marketed by the seller under the names
"MyLine" and "InstAccount" ("Products"). The MyLine product was
originally developed by Diversified under contract to the seller.
The products provide enhanced communication services.
The Company paid a deposit on the Agreement date of $38,000, and on
the closing date paid $15,000 in cash, $485,000 in promissory notes,
issued 500,000 shares of the Company's common stock valued at $2.00
per share and re-conveyed all Enhanced Service Provider shares of
common stock held by the Company which was written down in a prior
year to its net realizable value of zero, for a total purchase price
of $1,538,000. The acquisition was recorded under the purchase
method of accounting at its fair value of $1,538,000. (See Note 4)
(E) Acquisition of Internet Services Company
On August 2, 1999, the Company entered into a acquisition agreement
and plan of reorganization to acquire digiCities. Under the terms of
the agreement, which closed January 1, 2000, AmeriCom acquired all
of the digiCities issued and outstanding common stock in exchange
for 3,500,000 shares of AmeriCom's Class A common stock.
Additionally, Americom allocated options to purchase 1,500,000
shares of its Class A common stock to digiCities employees, pursuant
to AmeriCom's Employee Stock Option Plan. Upon completion of the
acquisition, digiCities ceased to exist as an independent entity.
The digiCities acquisition was recorded under the purchase method of
accounting and accordingly, the results of operations of digiCities
from the acquisition date of January 1, 2000 are included in the
accompanying consolidated financial statements. The purchase price
of $7,000,000, which was based upon a $2.00 fair market value of the
Company's common stock issued, was allocated to the assets acquired
and liabilities assumed based on the fair market values at the date
of acquisition. The fair market value of assets acquired and
liabilities assumed is summarized as follows:
Current assets $ 1,393,637
Property and equipment 130,304
Goodwill 6,670,851
Current liabilities (1,194,792)
----------------
$ 7,000,000
----------------
F-22
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
During 2000, the Company underwent a strategic repositioning plan.
As a result of the repositioning plan, management reevaluated the
carrying value of goodwill acquired from the digiCities acquisition
(See Note 5).
The following unaudited pro forma financial information for the
Company gives effect to the digiCities acquisition as if it occurred
on July 1, 1998. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the
results of operations which actually would have resulted had the
acquisition occurred on the date indicated, or which may result in
the future.
Year Ended June 30,
-----------------------------
2000 1999
------------- -------------
Net revenue $ 2,210,897 $ 1,239,768
Net loss (19,212,180) (7,963,743)
Net loss per share - basic and
diluted (0.47) (0.24)
Shares used in per calculation -
basic and diluted 40,989,825 32,727,076
(F) Acquisition of J-Engine Computer Software
Under an agreement of Purchase and Sale and Exclusive Licensing of
Technology, (the "Agreement") dated February 26, 1999 closed on July
31, 1999, the Company acquired all intangible assets relating to
technology known as the "J-Engine."
The Company paid a deposit on the agreement date of $120,000 and
issued 200,000 shares of the Company's common stock valued at $2.00
per share. The Company issued a promissory note for $80,000 on the
closing dtae for a total purchase price of $600,000. The acquisition
was recorded under the purchase method of accounting at its fair
value of $600,000 (See Note 4).
NOTE 12 STOCKHOLDERS' EQUITY
(A) Application of Recapitalization
Pursuant to the merger and recapitalization agreement (See Note
11(B)) all capital stock shares and amounts and per share data in
the accompanying consolidated financial statements for the year
ended June 30, 1999 give effect to the recapitalization.
(B) Authorized Common and Preferred Stock
AmeriCom has authorized 120,000,000 shares of capital stock of which
F-23
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
99,000,000 shares are designed as Class A Common Stock, 1,000,000
shares are designated as Class B Common Stock and 20,000,000 shares
of preferred stock. The shares of all three classes have a par value
$0.0001. No preferred stock has ever been issued. The preferred
stock may be issued from time to time in one or more series; each
such series to have such distinctive designation or title as may be
fixed by the Board of Directors. Preferred stockholders have
preference over common stockholders as to cash dividends and
liquidations.
(C) Conversion of Promissory Notes to Common Stock
In October 1998, six of the convertible promissory notes issued by
the Company during 1998 and 1997 aggregating $75,000 were converted
to common stock of the Company at a price of $1.00 per share. The
shares aggregated 78,455 including 3,455 shares for accrued
interest.
On June 30, 1999, thirty-eight of the convertible promissory notes
issued by the Company during 1999 aggregating $1,173,500 were
converted to common stock of the Company at a price of $2.00 per
share. The shares issued aggregating 593,711 including 6,961 shares
issued for accrued interest.
In July 1999, three convertible promissory notes issued by the
Company during 1999 aggregating $265,500 were converted to common
stock of the Company at a price of $2.00 per share. The shares
issued aggregated 134,123 including 2,746 shares issued for accrued
interest. In 2000, the Company converted $513,216 of notes payable
and accrued interest into 430,312 shares of common valued at
$860,624. The Company recognized at loss on extinguishment of debt
of $347,408.
(D) Stock Option Plan
On March 26, 1999 the Board of Directors adopted a Stock Option Plan
(the "Plan"), as amended on the same date. The Plan was developed to
provide a means whereby key employees, directors, associates and
consultants of the Company and its subsidiary corporations may be
granted stock options to purchase common stock of the Company.
The Company applies APB Opinion No. 25 and related interpretations
in accounting for its Plan. Accordingly, no compensation cost has
been recognized for options issued under the plan as of June 30,
2000. Had compensation cost for the Company's stock-based
compensation plan been determined on the fair value at the grant
dates for awards under that plan, consistent with Statement of
Accounting Standards No 123, "Accounting for Stock Based
Compensation" (Statement No. 123) the Company's net loss for the
year ended June 30, 2000 would have been increased to the pro-forma
amounts indicated below.
F-24
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
Net loss As reported $ (19,677,002)
Pro forma $ (58,797,859)
Net loss per share As reported $ (0.51)
Pro forma $ (1.52)
The effect of applying Statement No. 123 is not likely to be
representative of the effects on reported net loss for future years
due to, among other things, the effects of vesting.
The Plan authorizes options up to an aggregate of 15,000,000 shares
of the Company's common stock. The Company grants incentive and
nonqualified stock options. Incentive stock options are only granted
to employees of the Company or any affiliate thereof while
nonqualified stock options are granted to individuals who are not
employees. Furthermore, stock options granted to employees might
qualify as nonqualified stock options in case the stock option terms
do not qualify as incentive stock options. The exercise price which
is established by the plan administrator may not be less than 100%
of the fair market value of the common stock at the time of the
grant and may not be less than 110% of the fair market value of the
common stock at the time of the grant if granted to employees owning
more than ten percent of the total voting power or value of all
classes of stock of the Company. The term of the Stock Option Plan
shall be ten years from the earlier of the date of adoption by the
Board of Directors of the Company or approval by the shareholders.
In the case of incentive stock options, which are granted to
employees owning more than ten percent of the total voting power or
value of all classes of stock of the Company, the term may not
exceed five years. Stock options are exercisable in one or more
installments during its term, and the right to exercise may be
cumulative as determined by the Plan Administrators. Stock options
issued vest over a period of up to four years.
Holders of options to purchase common stock of Kiosk, to the extent
outstanding and unexercised immediately prior to the Merger (see
Note 11(C)), pursuant to the Kiosk Stock Incentive Plan, receive
options to purchase shares of common stock of the Company in
substitution of their options to purchase Kiosk common stock.
For financial statement disclosure purposes the fair market value of
each stock option grant is estimated on the date of grant using the
minimum value method in accordance with Statement No. 123 using the
following weighted-average assumptions: expected dividend yield 0%,
risk-free interest rate of 5.636%, and expected term of four years.
Holders of options to purchase common stock of digiCities, to the
extent outstanding and unexercised immediately prior to the
acquisition (See Note 11(E)), pursuant to the digiCities Stock
Incentive Plan, receive options to purchase shares of common stock
of the Company in substitution of their options to purchase
F-25
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
digiCities common stock. For financial statement disclosure purposes
the fair market value of each stock option grant is estimated on the
date of grant using the minimum value method in accordance with
Statement No. 123 using the following weighted-average assumptions:
expected dividend yield 0%, risk-free interest rate of 5.00%, and
expected term of four years.
A summary of the Company's Plan as of June 30, 2000 and changes
during the year is presented below:
Number of Weighted-Average
Shares Exercise Price
------------ ---------------
STOCK OPTIONS
Balance at beginning of period 10,282,581 $ 1.96
Granted 5,505,000 2.17
Exercised -- --
Forfeited 884,334 2.00
------------ --------------
Balance at end of period 14,903,247 $ 2.02
============ ==============
Options exercisable at end of period 3,620,666 $ 1.98
============ ==============
Weighted average fair value of
options granted during the period -- $ .37
============ ==============
The following table summarizes information about options outstanding at
June 30, 2000:
Options Outstanding Options Exercisable
------------------------------------- ------------------------
Weighted
Average Weighted Number
Range of Number Remaining Average Average Weighted
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Price June 30, 2000 Life Price June 30, 2000 Price
------------ ------------- ----------- --------- ------------- ---------
2.00 1,296,000 8.04167 2.00 756,000 2.00
2.00 126,666 8.37500 2.00 46,666 2.00
2.00 776,000 8.54167 2.00 355,999 2.00
1.04 - 2.00 757,051 8.62500 1.89 525,051 1.83
.35 - 2.00 4,862,530 8.70833 1.92 2,036,858 1.77
2.00 935,000 3.71000 2.00 311,666 2.00
2.00 162,000 8.79167 2.00 53,999 2.00
2.00 483,000 8.95833 2.00 161,000 2.00
2.00 531,000 9.04167 2.00 475,666 2.00
2.00 2,212,000 9.08333 2.00 710,000 2.00
2.00 50,000 9.16667 2.00 50,000 2.00
2.00 2,000 9.33333 2.00 - 2.00
2.00 200,000 9.41667 2.00 200,000 2.00
2.00 - 2.20 2,020,000 9.54167 2.10 2,000,000 2.10
2.00 95,000 9.62500 2.00 - 2.00
2.00 - 5.00 395,000 9.91667 3.82 185,000 3.14
------------ ------------- ----------- --------- ------------- ---------
.35 - 5.00 14,903,247 8.56 $ 2.02 3,620,666 $ 1.98
============ ============= =========== ========= ============= =========
F-26
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
Through the date of this report outstanding stock options totaled
6,508,247 (See Note 18(B)).
NOTE 13 CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
During fiscal 2000, 38% of the Company's total revenues was derived
from sales to four customers.
At June 30, 2000, 21% of accounts receivable were due from two
customers (See Note 2). Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist of
cash and accounts receivable. The Company's allowance for doubtful
accounts is based upon management's estimates and historical
experience. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral.
NOTE 14 INCOME TAXES
Income tax expense (benefit) for the years ended June 30, 2000 and
1999 is summarized as follows:
2000 1999
------------ ------------
Current
Federal $ - $ -
State 1,600 1,600
Deferred - -
------------ ------------
$ 1,600 $ 1,600
============ ============
The Company's tax expense differs from the "expected" tax expense
for the years ended June 30, 2000 and 1999 (computed by applying the
Federal Corporate tax rate of 34 percent to income (loss) before
taxes), as follows:
2000 1999
------------- --------------
Computed "expected tax expense
(benefit) $ (3,967,340) $ (2,618,340)
State income tax 1,600 1,600
Effect of net operating loss 3,967,340 2,618,340
------------- --------------
$ 1,600 $ 1,600
============= ==============
F-27
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and liabilities at June
30 are as follows:
2000 1999
------------- --------------
Deferred tax assets:
Net operating loss carryforward $ 7,073,360 $ 3,549,073
------------- --------------
Total gross deferred tax assets 7,073,360 3,549,073
Less valuation allowance 7,073,360 3,549,073
------------- --------------
$ - $ -
============ ==============
At June 30, 2000, the Company had net operating loss carryforward of
approximately $20,804,000 for income tax purposes, available to
offset future taxable income expiring on various dates beginning in
2009 through 2025. The net operating loss carryforward include
approximately $863,400 of acquired net operating loss carryforward
subject to an annual usage limitation of $70,650.
The valuation allowance at July 1, 1999 was approximately
$3,549,073. The net change in the valuation allowance during the
year ended June 30, 2000 was an increase of approximately
$3,524,287.
NOTE 15 OPERATING AGREEMENTS
(A) Software Development Agreement
In August, 1998 the Company entered into an agreement with System
Spa (the "Developer"), an Italian company engaged in information
technology, consulting, software development, software support and
related matters. Under the terms of the agreement the Developer has
contracted to provide continued, ongoing development and support of
the Company's AdCast, e-CommPlus, TrueManagement, and My-Channel
technology ("Technology"). In consideration the Company has agreed
to pay an annual royalty equal to eight percent (8%) of the
world-wide net revenues of the Company for a period of ten (10)
years, renewable for successive ten (10) year terms provided the
Developer continues to develop, implement, support and upgrade the
Technology and Licensed Software during such periods. The Company
has agreed to guarantee a minimum royalty payment in the amount of
$250,000 in the first calendar year and advance another $250,000
against future royalties, subject to the completion of the
development of Phase I of the Licensed Software which was completed
and accepted by the company on January 3, 1999. The Company has paid
$460,000 in 2000 and $40,000 in 1999 and has $125,000 in prepaid
royalty fees at June 30, 2000 and $85,000 of minimum royalty
payments due included in accrued expenses at June 30, 1999.
F-28
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
(B) Software License Agreements
The Company enters into agreements with various customers whereby
the customer acquires the right and license to use and market
Kiosk's programs and materials. The agreements were established for
terms of twelve months and eighteen months, respectively, continuing
thereafter on a yearly basis and month to month basis, respectively.
Under the terms of the agreements, the Company agrees, (i) to
provide to the customer its "Value Added Reseller Starter Kit", (ii)
to advise the customer of its software enhancements and, at the
customer's request offer these enhancements to the customer for
additional compensation and, (iii) to provide technical support and
training. The customer agrees to purchase from the Company a "Value
Added Reseller Starter Kit" and to provide (i) marketing to
end-users, (ii) application software development, (iii) support to
end-users, (iv) software licensing to end-users and (v) accounting
records. The Company retains all ownership rights, title, and
interest in and to all current and future revisions or enhancements
of the licensed software.
(C) Customer Software Development Agreements
The Company sells its Kiosk Operating Suite under software
development agreements to various customers. Under the terms of the
agreements the Company develops customized software applications or
turnkey systems which include software, hardware, and custom
cabinets. The agreements generally contain multiple elements with
specified milestones and delivery dates and stipulated fees for each
element. The time to completion and delivery of the development
portion of the contracts generally does not exceed three to six
months.
NOTE 16 BUSINESS SEGMENTS
The operations of the Company are divided into two segments,
software sales and Internet Advertising. The software segment
includes operating systems, hardware, and consulting operations. The
Internet segment provides web site advertising, content development,
hosting services, and marketing support. No allocation of general
corporate expenses has been allocated between the segments.
Inter-company transactions have been eliminated between the
Company's revenues, operating, income, assets, capital expenditures
and depreciation and amortization pertaining to the industries in
which the Company operates are presented below:
F-29
<PAGE>
AMERICOM USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
Software Internet Consolidated
------------ ---------- -------------
Revenue $ 227,911 $ 887,386 $ 1,115,297
Operating loss 1,389,769 18,287,23 19,677,002
Assets employed at end
of year 1,213,737 3,140,692 4,354,429
Depreciation and
amortization 653,315 1,546,739 2,200,054
Capital expenditures - 182,156 182,156
NOTE 17 Going Concern
As reflected in the accompanying financial statements, the Company
has had continuing losses and a working capital deficiency of
$4,105,781. The ability of the Company to continue as a going
concern is dependent on the Company's ability to raise additional
capital and implement its business plan. The financial statements do
not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
The Company anticipates raising additional working capital through
the issuance of debt and equity securities and reducing operating
overhead (See Note 18(A). Management believes that actions presently
being taken to obtain additional funding and reduce operating costs
provide for the Company to operate as a going concern.
NOTE 18 SUBSEQUENT EVENTS
(A) Subsequent Borrowing
On August 3, 2000, the Company executed a Promissory Note with a
bank for $1,660,000. The Note bears interest at the bank's prime
rate plus 1% and is secured by a lien on substantially all the
Company's assets and a personal guarantee of a director of the
Company. The Note is due November 1, 2000.
(B) Change in Stock Options
In September 2000, the founders and certain members of management
agreed to cancel or materially reduce their stock option grants. A
total of 8,395,000 stock options outstanding as of June 30, 2000
were canceled.
F-30
