U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Kolorfusion International, Inc.
(Name of Small Business Issuer in its charter)
Colorado 84-1317836
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
14510 East Fremont Avenue
Englewood, Colorado 80112
(Address of principal executive office) (Zip Code)
Issuer's telephone number (303) 690-2910
Securities to be registered under Section 12(g) of the Act:
Common Shares
Charles Clayton
527 Marquette
Minneapolis, Minnesota 55402
(612) 338-3738
(Agent for Service)
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
Kolorfusion International, Inc. is a Colorado corporation, formed on
May 17, 1995, to develop and market a system for transferring color patterns to
metal, wood, glass and plastic products. Its principal office is located at
14510 East Fremont Avenue, Englewood, Colorado.
Kolorfusion is a process that allows the transfer of colors and
patterns into coated metal, wood, and glass and directly into a plastic surface
that is not flat; the colors do not peel, and they are resistant to ultra violet
rays.
The coloring and design of the products is designed to enhance consumer
appeal, create demand for mature products, achieve product differentiation and
customization and as a promotional vehicle.
The process uses a transfer material (Kolortex(TM)) with special inks
that may be any color or form that the user desires. The end user may use any
color, or combination of colors, and any design or logo desired that are printed
on the Kolortex. The only limitations are the imagination and desires of the
customer. The Kolortex is placed around the product. The product, wrapped in the
Kolortex, is then placed in a carrier (Kolorclam(TM)) that allows for a total
vacuum. The Kolorclam is then placed in a heating chamber which allows the inks
to leave the Kolortex and penetrate into the coated product. Plastic and
aluminum may be treated directly, steel, glass and other surfaces must first be
coated. Temperature heating ranges from 280 to 400 degrees Fahrenheit, and the
time of heating is dependent on the product and its characteristics.
The process patents were granted to a French inventor, Mr. Claveau, by
the United States Patent Office on May 3, 1994, and by the Canadian Patent
Office on March 26, 1996. The exclusive license for the US and Canada was first
assigned to the Company's founders, Steve Nagel and Michael Harrop in May, 1994,
and recorded by the US and Canadian Patent Offices. The exclusive license was
transferred to the Company, and then the Company purchased the patents from the
inventor under a Purchase Agreement on October 17, 1995. The purchase agreement
is for 25,000,000 French Francs, or, at the exchange rate, approximately
$5,000,000 United States dollars. There was a down payment of $500,000 and the
remainder is payable monthly over 9 years with no interest. There are no
royalties. The exclusive license for Brazil was assigned in February, 1997 for a
monthly fee of about $7,000, which may be purchased at a later time.
The Company has established a processing center at its place of
business in suburban Denver, Colorado, and it is actively using the process to
process products. The Company has dedicated 8,000 square feet of its space to
production, with two Koloclam processing units.
Management of the Company has had extensive discussions with customers
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and prospects, and have found that in some instances the process will reduce the
finishing cost of the product, and in some instances will increase the cost.
Pricing is based on several factors, including volume, type of product, amount
of Kolortex used and handling and processing time. The cost of typical items
are: roller blade wheels at $.30-.50 per wheel, bicycle wheels at $2.50-4.00 per
wheel, bicycle frames at $12.00-$30.00, baseball bats at $3.00-4.50, hockey
sticks at $3.00-4.00 and gift ware items from $1.00-$1.50.
Transportation of the products to be processed creates an expense
problem for customers, and the Company believes that it will be necessary to
open additional centers in key geographical centers to attract those customers
for which transportation cost is a factor.
LICENSING
The Company is also seeking to make license agreements with
manufacturers for their specific products when the process is to be used on a
large scale. The Company has license agreements with George Industries, Inc. of
Los Angeles for aluminum, Ace Industries, Inc. of Chicago for lighting fixtures,
and Sunrise Medical Corporation for wheelchairs at this time. The plan is to
charge a license fee of $100,000, half being paid on execution of the agreement,
and the other half one year later, for five years. The license would be
renewable for three successive five year periods at $20,000 per year. There will
be minimum monthly payments to be recaptured by deductions against invoices for
Kolortex media purchases or royalty payments. The licensee will need to purchase
equipment that will cost between $50,000 and $400,000 depending on size and
volume of the products to be processed.
The Company rents space in a suburban Denver, Colorado industrial park.
It rents 18,000 square feet of space used for office, processing and storage.
There are 11 employees in addition to the officers.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1998
Revenues increased in 1998 from $171,747 in 1997 to $592,394. The
reason is sales increased from $171,747 in 1997 to $472,394 in 1998. There was
also license and royalty income in 1998 of $120,000, and none in 1997. There was
a gain in foreign currency translation in 1997, and $75,457 in 1998.
Cost of sales increased in 1998 from $266,445 in 1997 to $529,6612 in
1998
Selling, general and administrative expenses decreased in 1998 to
$1,179,719 from $2,497,585 in 1997.
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As a result there was a net loss in 1998 of $2,326,743, compared to a
net loss in 1997 of $2,294,471. The net loss per share in 1998 was $.17, and
$.19 in 1997
YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1999.
Revenues decreased in 1999 to $361,044 from $592,394 in 1998. There
were decreased license and royalty fees and lower sales in 1999 to account for
the difference.
Costs of sales decreased in 1999 to $314,879 from $529,661 in 1998 as a
result of lower sales in 1999.
Selling, general and administrative expenses increased in 1999, to
$1,355,363 from $1,179,719 in 1998. Interest expense was less in 1999, $315,733,
from $1,294,729 in 1998.
The result was that there was a net loss of $1,395,528 in 1999,
compared to a net loss of $2,326,743 in 1998. The net loss per share in 1999 was
$.08 compared to a net loss per share of $.17 in 1998.
QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1998
Revenues decreased in the quarter in 1999 to $67,227 from $77,142 in
1998. There was royalty income in 1999, compared to none in 1998, but the sales
were lower.
Cost of sales increased in 1999 to $120,808 from $75,735 in 1998.
Selling, general and administrative expenses also increased in 1999 to $271,111
from $258,928 in 1998. The interest expense in 1999 was much lower than in 1998,
$46,500 compared to $78,000.
The result was a net loss in 1999 of $336,831 compared to a net loss of
$561,270 in the same quarter in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Kolorfusion International, Inc. has historically had more expenses than
income in each year of its operations. The accumulated deficit from inception to
June 30, 1999 was $6,834,836. It has been able to maintain a positive cash
position solely through financing activities. As a result of this, and the fact
that the Company's current liabilities exceed its current assets, the
independent auditor has issued a going concern opinion.
There are no known trends, events or uncertainties that are likely to
have a material impact on the short or long term liquidity. The primary source
of liquidity in the future will be increased sales. There are no material
commitments for capital
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expenditures. There are no known trends, events or uncertainties reasonably
expected to have a material impact on the net sales or revenues or income from
continuing operations. There are no significant elements of income or loss that
do not arise from continuing operations. There are no seasonal aspects to the
business of Kolorfusion International, Inc.
YEAR 2000 COMPLIANCE
The computers used by the Company are year 2000 compliant. The software
used by the Company is year 2000 compliant. Based on the assessments to this
date management believes that future costs relating to the year 2000 issue will
not have a material effect on its financial position, results of operations or
cash flows.
ITEM 3. DESCRIPTION OF PROPERTY
The Company leases office, warehouse and production space in suburban
Denver for a monthly rental of $12,000.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There are presently 19,032,561 shares of the Company's common shares
outstanding. The following table sets forth the information as to the ownership
of each person who, as of November 30, 1999, owns of record, or is known by the
Company to own beneficially, more than five per cent of the Company's common
stock, and the officers and directors of the Company.
Shares of Percent of
Name Common Stock Ownership
- --------------------------------------------------------------------------------
Thomas Gerschman 46,875 1%
Stephen Nagel 6,388,000 34%
Philippe Nordman 8,916,690 47%
Directors and Officers 6,434,875 34%
as a group
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The executive officers and directors of the company, with a brief
description are as follows:
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Name Age Position
- ---- --- --------
Thomas Gerschman 42 Chairman
Stephen Nagel 49 President, Director
Kenneth Bradley 51 Secretary
Thomas Gerschman, Mr. Gerschman is the Chairman, and a Director of the
Company. Mr. Gerschman has been the President of Mount Keene, Inc. since 1989
and of Summore Plastics, Inc. since 1990. He became a director of the Company,
and Chairman in 1999.
Stephen Nagel, Mr. Nagel is President and a Director. Mr. Nagel was the
CEO of Rescon Technology, a manufacturer of construction materials from 1976 to
1992, and the founding CEO of Selectronics, a consumer electronics and software
publisher from 1983 to 1991, both public companies. He has an MBA from Arizona
State University and a JD from the University of Wyoming.
Kenneth Bradley, Mr. Bradley is the Secretary. Mr. Bradley has worked
for the accounting firm of McGladrey Pullen since 1976. He is now a Senior
Manager in Casper, Wyoming.
ITEM 6. EXECUTIVE COMPENSATION
There are no officers or directors that received compensation in excess
of $60,000 or more during the last year. The Company paid $85,000 in 1998 and
$85,000 in 1999 to Nagel Enterprises as consulting fees, an entity wholly owned
by Stephen Nagel, in lieu of compensation to Mr. Nagel.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
ITEM 8. LEGAL PROCEEDINGS
The Company is the plaintiff in a case filed in November, 1999 in
Denver, Colorado against its former officer, Mark Poole and Lazart Productions,
Inc. The case involves breach of contract of confidential information, breach of
fiduciary duty and tortious interference with contract.
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ITEM 9. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock has been traded since April, 1998 on the OTC
Bulletin Board, before that time there was no activity. As of November 1, 1999
the following brokerage firms were making a market in the Company's common
stock: Wien Securities, Mayer & Schwitzer, Herzog Heine Geduld, Inc, Hill
Thompson Magid & Co., Sharpe Capital, Inc., Protective Group Securities, Knight
Securities, Inc. and USCC Trading/a division of Fleet Securities.
The following table sets forth for the periods indicated the range of
high and low closing bid quotations per share as reported by the
over-the-counter market. These quotations represent inter-dealer prices, without
retail markups, markdowns or commissions and may not necessarily represent
actual transactions.
Price per Share
---------------
High Low
---- ---
Fiscal year 1998 $1.25 $1.00
Second Quarter (April 1, 1999
through June 30, 1998)
Third Quarter (July 1, 1998 $1.625 $1.00
through September 30, 1998)
Fourth Quarter (October 1, 1998 $1.8125 $0.75
through December 31, 1998)
Fiscal year 1999
First Quarter (January 1, 1999 $1.75 $0.875
through March 31, 1999)
Second Quarter (April 1, 1999 $1.375 $0.6875
through June 30, 1999)
Third Quarter (July 1, 1999 $1.03125 $0.28125
through September 30, 1999)
There are 76 holders of the common stock of the Company. There have
never been any dividends, cash or otherwise, paid on the common shares of the
Company.
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ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Name Date Shares Cost
Carl Fischer, Jr. 12/97 5,000 $5,000
Elam Baer 12/97 4,000 $4,000
Timothy Brink 12/97 4,000 $4,000
John Oertel 12/97 4,000 $4,000
Michael S. Fattor 12/97 5,000 $5,000
Ann McCready 12/97 5,000 $5,000
Michael Hubbard 12/97 750 $750
Stacy Swanson 12/97 500 $500
Kenneth Bradley 12/97 5,000 $5,000
Michael Lay 12/97 5,000 $5,000
Paul Coniaris 12/97 4,000 $4,000
Owen Fowler 12/97 12,000 $12,000
Scott Gavin 12/97 5,000 $5,000
Arthur Fowler 12/97 5,000 $5,000
Krishna Williams 12/97 2,500 $2,500
David Coffey 12/97 500 $500
Paul Morgan 12/97 500 $500
Margaret McKain 12/97 5,000 $5,000
Vernon Morris 12/97 5,000 $5,000
Sherman Herschderfer 12/97 4,000 $4,000
Joel Nudelman 12/97 4,000 $4,000
Louise Rosenbaum 12/97 750 $750
Lisa Dempsey 12/97 500 $500
Charles Hubbard 12/97 500 $500
Morris Steller 1/98 5.000 $5,000
Jack Lehtinen 1/98 4,000 $4,000
William Huttner 1/98 2,000 $2,000
Thomas Palashewski 1/98 4,000 $4,000
Art Lucking 1/98 5,000 $5,000
Pat Mooney 1/98 4,000 $4,000
Leonard Anderson 1/98 3,000 $3,000
Virgil Anderson 1/98 1,000 $1,000
Bernard Kegan 1/98 4,000 $4,000
Lindley Branson 1/98 4,000 $4,000
Douglas Pietig 1/98 4,000 $4,000
Paul Sokol 1/98 10,000 $10,000
Gene Josephs 1/98 5,000 $5,000
John Bogard 1/98 5,000 $5,000
Arlan Akerlind, IRA 2/98 40,000 $40,000
Gene Fujan 2/98 2,000 $2,000
Randy Boyd 2/98 4,000 $4,000
Lyle Rich Johnson 2/98 30,000 $30,000
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Edward Alexander 2/98 4,000 $4,000
Val Burdick 2/98 4,000 $4,000
Creative Business Strategies 2/98 4,000 $4,000
Richard Neslund 2/98 20,000 $20,000
Joseph Nielsen 2/98 10,000 $10,000
Michael Reichert 2/98 4,000 $4,000
Wayne Densmore 2/98 3,000 $3,000
Craig Paulsen 2/98 5,000 $5,000
Ginger Paulsen 2/98 5,000 $5,000
Gerald Sadoff 2/98 4,000 $4,000
Robert Knutson 2/98 5,000 $5,000
Gus Boosalis 2/98 4,000 $4,000
Uniplan/Matrix, Inc. 2/98 4,000 $4,000
Howard Luetmers 2/98 8,000 $8,000
Dean Zachman 2/98 5,000 $5,000
Stephen King 2/98 10,000 $10,000
William Butler 2/98 1,000 $1,000
Levitz Family Trust 2/98 7,500 $7,500
Robert Emery 2/98 4,000 $4,000
Michael & Erica Bell 2/98 500 $500
Michael & Linda Gill 2/98 500 $500
John & Nicole Levitz 2/98 500 $500
Pat & Susan Mooney 2/98 500 $500
Robin & Dan Simpson 2/98 500 $500
Donald Blakstad 2/98 10,000 $10,000
Joseph Whitney 3/98 34,900 $34,900
Ron Hendrickson 3/98 18,000 $18,000
Philip Chesson 3/98 7,500 $7,500
Arlan Akerlind 3/98 20,000 $20,000
Robert Knutson 4/98 10,000 $10,000
Nicole Neff 4/98 8,000 $8,000
Stephani Neff 4/98 1,800 $1,800
Faye Neff 4/98 1,200 $1,200
Nathan Neff 4/98 500 $500
Mark Churchman 4/98 5,000 $5,000
Henry Holroyd 4/98 15,000 $15,000
Glenn Bailie 5/98 10,000 $10,000
Phyllis Gorectke 5/98 5,000 $5,000
Dora Hanson 5/98 4,450 $4,450-
Ken Bradley 6/98 6,150 $6,150
Nancy Levitz 6/98 2,500 $2,500
Paul Wasson 6/98 2,500 $2,500
All of these sales were pursuant to a Rule 504 Offering. The offering
was dated December 8, 1997, and was for 500,000 shares at $1.00 per share. There
was a
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commission of 10% paid on all sales to Protective Group Securities Corporation.
The offering was registered in Colorado.
Didier Maus 221,769
Jean-Bernard Rondeau 65,800
Maryse Nordmann 394,996
Philippe Nordmann 1,546,127
Wallace & Lelia Trust 193,488
Lelia Carroll 86,438
Cimofin, Ltd. 376,689
TDT, Ltd. 31,353
Craig & Ginger Paulsen 23,820
William & Debra Dover 11,733
Stephen Fatter 29,312
Charles Hubbard 11,722
John G. Boylan 11,442
Chappell Family 23,275
Joe Triolo 12,933
TFI, LLC 11,711
O'Conner & Associates 34,758
Joseph Brisson 83,564
Jerry Bayne 4,747
Rosie Langston 2,924
Jerry Engle 2,342
Mike Hubbard 1,171
The above list were issued pursuant to the conversion of convertible
debentures. The debentures were sold and issued in August, 1995. All of them
were converted to common stock in September, 1998.
Philippe Nordmann 2/98 312,500 $250,000
Michel Mulliez 2/98 125,000 $100,000
Dider Maus 2/98 62,500 $50,000
Philippe Nordmann 4/99 565,000 $588,329
Michel Mulliez 4/99 226,000 $235,332
Didier Maus 4/99 113,001 $117,666
Thomas Gerschman 4/99 37,500 $30,000
The above list are all isolated sales. All are residents of Europe
except Mr. Gerschman.
Charles Clayton 6/99 20,000
John Levitz 6/99 15,000
Kevin Gersghty 6/99 15,000
Owen Fowler 6/99 15,000
Thomas Gerschman 6/99 32,375
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The above list represents share issued in exchange for services
rendered to the Company. There was no other consideration for the shares.
The registrant believes that all transactions were transactions not
involving any public offering within the meaning of Section 4(2) of the
Securities Act of 1933, since (a) each of the transactions involved the offering
of such securities to a substantially limited number of persons; (b) each person
took the securities as an investment for his own account and not with a view to
distribution; (c) each person had access to information equivalent to that which
would be included in a registration statement on the applicable form under the
Act; (d) each person had knowledge and experience in business and financial
matters to understand the merits and risk of the investment; therefore no
registration statement need be in effect prior to such issuances.
ITEM 11. DESCRIPTION OF SECURITIES
The Company has authorized 100,000,000 shares of common stock, $.001
par value, and 10,000,000 shares of preferred stock, $.001 par value. Each
holder of common stock has one vote per share on all matters voted upon by the
shareholders. Such voting rights are noncumulative so that shareholders holding
more than 50% of the outstanding shares of common stock are able to elect all
members of the Board of Directors. There are no preemptive rights or other
rights of subscription.
Each share of common stock is entitled to participate equally in
dividends as and when declared by the Board of Directors of the Company out of
funds legally available, and is entitled to participate equally in the
distribution of assets in the event of liquidation. All shares, when issued and
fully paid, are nonassessable and are not subject to redemption or conversion
and have no conversion rights.
The Board of Directors is expressly authorized at any time to provide
for the issuance of shares of preferred stock in one or more series, with such
voting powers, full or limited, or without voting powers and with such
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restriction as shall be stated in the
resolution or resolutions providing for the issue of preferred stock adopted by
the Board of Directors.
Risk Factor - Penny Stock Regulation. Broker-dealer practices in
connection with transactions in "penny stocks" are regulated by certain penny
stock rules adopted by the Securities and Exchange Commission. Penny stock
generally are equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on the
Nasdaq system, provided that current price and volume information with respect
to transactions in such securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules,
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to deliver a standardized risk disclosure document that provides information
about penny stocks and the risks in the penny stock market. The broker-dealer
must also provide the customer with current bid and offer quotations for the
penny stock, the compensation of the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. In addition, the penny stock rules
generally require that prior to a transaction in a penny stock the broker-dealer
make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction. These disclosure requirements may have the effect of reducing
the level of trading activity in the secondary market for a stock that becomes
subject to the penny stock rules. If the Company's securities become subject to
the penny stock rules, investors in this offering may find it more difficult to
sell their securities.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Colorado Statutes contain an extensive indemnification provision
which requires mandatory indemnification by a corporation of any officer,
director and affiliated person who was or is a party, or who is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a member, director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a member,
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, including attorneys' fees,
and against judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted, or failed to act, in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. In some instances a court must approve such
indemnification.
As to indemnification for liabilities arising under the Securities Act
of 1933 for directors, officers or persons controlling the company, the company
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy and unenforceable.
ITEM 13. FINANCIAL STATEMENTS
Please see the attached Financial Statements.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Please see the attached Financial Statements
(b) Exhibits:
3. Articles of Incorporation and bylaws
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: Nov. 30, 1999 Kolorfusion International, Inc.
/s/ Stephen Nagel
--------------------------------------
Stephen Nagel, President, Director
/s/ Thomas Gershman
--------------------------------------
Thomas Gershman, Director
/s/ Kenneth Bradley
--------------------------------------
Kenneth Bradley, Secretary
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KOLORFUSION INTERNATIONAL, INC.
FINANCIAL REPORT
JUNE 30, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Kolorfusion International, Inc.
We have audited the accompanying balance sheets of Kolorfusion
International, Inc., as of June 30, 1999 and 1998, and the related statements of
income, stockholders' equity (deficit) and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all
material respects, the financial position of Kolorfusion International, Inc. as
of June 30, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended, 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 10 to the
financial statements, the Company has suffered recurring losses from operations
and its current liabilities exceeded its current assets as of June 30, 1999.
This raises substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ House, Nezerka & Froelich, P.A.
August 12, 1999
<PAGE>
KOLORFUSION INTERNATIONAL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30
September 30, -----------------------------
ASSETS 1999 1999 1998
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,905 $ 118,867 $ 57,334
Trade accounts receivable, no allowance for
doubtful accounts considered necessary 27,962 56,978 68,538
Inventories 75,537 74,067 36,502
Prepaid expenses -- -- 16,545
------------ ------------ ------------
Total current assets 117,404 249,912 178,919
OTHER ASSETS (Notes 2 and 3):
Patents, net 2,717,921 2,779,721 3,025,891
Debenture issuance costs, net -- -- 14,102
Other -- 1,270 1,270
------------ ------------ ------------
2,717,921 2,780,991 3,041,263
LEASEHOLD IMPROVEMENTS AND EQUIPMENT,
NET (Notes 4 and 5) 243,097 260,127 317,475
------------ ------------ ------------
$ 3,078,422 $ 3,291,030 $ 3,537,657
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 104,369 $ 111,327 $ 94,850
Current obligation on payable to individual (Note 2) 189,000 189,000 674,306
Current portion of long-term debt (Note 5) 9,979 11,000 --
Payable to stockholders 200,000 200,000 --
Notes payable (Note 5) -- -- 50,000
Accrued interest payable 179,405 132,905 79,069
Deferred revenue -- -- 10,000
Subordinated convertible debentures (Note 6) -- -- 2,524,500
Accrued interest and premium on convertible debentures (Note 6) -- -- 1,917,388
------------ ------------ ------------
Total current liabilities 682,753 644,232 5,350,113
PAYABLE TO INDIVIDUAL, less current obligation,
secured by patent (Note 2) 1,804,898 1,804,898 1,520,861
LONG-TERM DEBT, less current portion (Note 5) 7,679 7,679 --
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (DEFICIT) (Note 7):
Preferred stock, $.001 par value, 10,000,000 shares authorized,
none issued or outstanding
Common stock, $.001 par value, 100,000,000 shares authorized 19,033 18,933 14,662
Additional paid-in capital 7,730,024 7,650,124 2,091,329
Accumulated deficit (7,165,965) (6,834,836) (5,439,308)
------------ ------------ ------------
583,092 834,221 (3,333,317)
------------ ------------ ------------
$ 3,078,422 $ 3,291,030 $ 3,537,657
============ ============ ============
</TABLE>
See Notes to Financial Statements.
2
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KOLORFUSION INTERNATIONAL, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Year Ended
September 30 June 30
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Sales $ 50,912 $ 77,142 $ 358,044 $ 472,394
License and royalty revenue 16,315 -- 3,000 120,000
------------ ------------ ------------ ------------
67,227 77,142 361,044 592,394
Expenses:
Cost of sales 120,808 75,735 314,879 529,661
Selling, general and administrative expenses 271,111 258,928 1,355,363 1,179,719
------------ ------------ ------------ ------------
Operating loss (324,692) (257,521) (1,309,198) (1,116,986)
Other income (expense):
Gain on foreign currency translation -- -- 250,123 75,457
Interest and other income (expense) 40,063 (1,310) (20,720) 9,515
Interest expense (46,500) (78,000) (315,733) (1,294,729)
------------ ------------ ------------ ------------
(6,437) (79,310) (86,330) (1,209,757)
------------ ------------ ------------ ------------
Net loss $ (331,129) $ (336,831) $ (1,395,528) $ (2,326,743)
============ ============ ============ ============
Loss per share $ (.02) $ (.02) $ (.08) $ (.17)
============ ============ ============ ============
Shares used in computing loss
per common equivalent share 18,982,561 15,722,276 16,967,294 13,296,245
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
KOLORFUSION INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Additional
----------------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997 12,330,000 $ 12,330 $ 256,370 $ (3,092,655) $ (2,823,955)
Shares issued for cash 1,000,000 1,000 899,000 -- 900,000
Shares issued for compensation 788,000 788 378,242 -- 379,030
Conversion of debt 633,571 634 622,368 -- 623,002
Shares repurchased (90,000) (90) -- (19,910) (20,000)
Stock issuance costs -- -- (64,651) -- (64,651)
Net loss -- -- -- (2,326,743) (2,326,743)
------------ ------------ ------------ ------------ ------------
Balance at June 30, 1998 14,661,571 14,662 2,091,329 (5,439,308) (3,333,317)
Shares issued for cash 941,501 942 970,385 -- 971,327
Conversion of debentures
and premium 3,182,114 3,182 4,441,182 -- 4,444,364
Shares issued for debt 50,000 50 49,950 -- 50,000
Shares issued for services 97,375 97 97,278 -- 97,375
Net loss -- -- -- (1,395,528) (1,395,528)
------------ ------------ ------------ ------------ ------------
Balance at June 30, 1999 18,932,561 18,933 7,650,124 (6,834,836) 834,221
Shares issued for cash 100,000 100 79,900 -- 80,000
Net loss -- -- -- (331,129) (331,129)
------------ ------------ ------------ ------------ ------------
Balance at September 30, 1999
(unaudited) 19,032,561 $ 19,033 $ 7,730,024 $ (7,165,965) $ 583,092
============ ============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
KOLORFUSION INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Year Ended
September 30 June 30
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (331,129) $ (336,831) $ (1,395,528) $ (2,326,743)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 81,300 91,574 323,740 442,184
Gain on foreign currency translation -- -- (250,123) (75,457)
Stock issued for services -- -- 97,375 --
Loss on disposal of fixed assets -- -- 73,399 --
Amortization of prepaid interest -- -- -- 83,333
Interest converted to debt -- -- 51,330 21,312
Stock issued for compensation -- -- -- 75,030
(Increase) decrease in trade accounts receivable 29,016 38,132 11,560 (48,955)
(Increase) decrease in inventories (1,470) (7,780) (37,565) (5,589)
(Increase) decrease in prepaid expenses -- (17,038) 16,545 113
Increase (decrease) in accounts payable (6,958) 25,707 16,477 (49,074)
Increase (decrease) in accrued interest 46,500 77,500 53,836 1,018,799
Increase (decrease) in deferred revenue -- (10,000) (10,000) 10,000
------------ ------------ ------------ ------------
Net cash used in operating activities (182,741) (138,736) (1,048,954) (855,047)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of leasehold improvements and equipment (2,470) (13,001) (79,519) (19,230)
Proceeds from sale of equipment -- -- -- 8,615
(Increase) decrease in intangibles 1,270 -- -- 12,051
------------ ------------ ------------ ------------
Net cash provided by (used in) investing activities (1,200) (13,001) (79,519) 1,436
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on payable to individual -- -- -- (132,850)
Proceeds from payable to stockholders -- -- 200,000 --
Proceeds from notes payable -- -- 21,081 246,416
Payments on notes payable (1,021) (61,636) (2,402) (50,451)
Net proceeds from issuance of common stock 80,000 200,000 971,327 835,349
Repurchase of common stock -- -- -- (20,000)
------------ ------------ ------------ ------------
Net cash provided by financing activities 78,979 138,364 1,190,006 878,464
------------ ------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (104,962) (13,373) 61,533 24,853
Cash and cash equivalents:
Beginning 118,867 57,334 57,334 32,481
------------ ------------ ------------ ------------
Ending $ 13,905 $ 43,961 $ 118,867 $ 57,334
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
KOLORFUSION INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Three Months Ended Year Ended
September 30 June 30
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash payments for interest $ -- $ 500 $ 210,567 $ 171,285
============ ============ ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock in exchange for debt $ -- $ -- $ 50,000 $ 623,002
============ ============ ============ ============
Issuance of common stock for accrued payroll $ -- $ -- $ -- $ 304,000
============ ============ ============ ============
Issuance of common stock for subordinated
convertible debentures and related accrued
interest and premium $ -- $ 4,444,364 $ 4,444,364 $ --
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
KOLORFUSION INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1999 and 1998 and
Three Months Ended September 30, 1999 and 1998 (Unaudited)
Note 1. Nature of Business and Summary of Significant Accounting Policies:
NATURE OF BUSINESS:
The Company was incorporated on May 17, 1995 in the state of Colorado.
Since inception, the Company's efforts have been devoted to raising
capital and the purchase and development of a patented system for
transferring color patterns to metal, wood, glass and plastic products.
The Company currently owns the patents rights for this process for the
United States and Canada and has a licensing arrangement for Brazil.
The Company licenses the system to outside parties and maintains its
own production capabilities in targeting its sales efforts to the
United States, Canada, Brazil and Europe.
UNAUDITED FINANCIAL STATEMENTS:
The balance sheet at September 30, 1999, the statements of income and
cash flows for the three month periods ended September 30, 1999 and
1998 and the statement of changes in stockholders' equity (deficit) at
September 30, 1999 are unaudited but, in the opinion of management of
the Company, include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of financial condition
and results of operations. The results of operations for the three
months ended September 30, 1999 are not necessarily indicative of the
results of operations to be expected for the full year ending June 30,
2000.
A summary of the Company's significant accounting policies follows:
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.
INCOME TAXES:
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets
and liabilities and their tax basis. Deferred tax assets are reduced by
a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of the
enactment.
INVENTORIES:
Inventories consist of raw materials and are valued at the lower of
cost or market (first-in, first-out method).
OTHER ASSETS:
The Company purchased the patent rights for Canada and the United
States on October 17, 1995. The cost of those rights are amortized
using the straight-line method over 15 years.
The Company incurred costs of $180,071 in connection with the offering
of subordinated convertible debentures. These costs are amortized using
the straight-line method through September 30, 1998.
7
<PAGE>
KOLORFUSION INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years Ended June 30, 1999 and 1998 and
Three Months Ended September 30, 1999 and 1998 (Unaudited)
Note 1. Nature of Business and Significant Accounting Policies (Continued):
LEASEHOLD IMPROVEMENTS AND EQUIPMENT:
Leasehold improvements and equipment are stated at cost and are being
depreciated and amortized using the straight-line method over the
following useful lives:
Years
-----
Leasehold improvements 3
Production equipment 3-10
Office furniture and equipment 3-10
REVENUE RECOGNITION:
The Company records sales when products are shipped. License revenue is
recognized over the term of the agreement.
ADVERTISING:
The Company expenses advertising costs as they are incurred.
RESEARCH AND DEVELOPMENT COSTS:
The Company expenses research and development costs as incurred.
CALCULATION OF PER COMMON SHARE EARNINGS (LOSSES):
Loss per share is computed based on the weighted average common shares
outstanding. Potential issues that are anti-dilutive and reduce loss
per share are excluded from the computation.
CREDIT RISK AND ALLOWANCE FOR DOUBTFUL ACCOUNTS:
The Company reviews customers' credit history before extending credit
and establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends
and other information.
STOCK-BASED EMPLOYEE COMPENSATION:
The Company accounts for its employee stock option plans under the
intrinsic-value method of APB Opinion No. 25 and, accordingly,
compensation costs are recognized in the financial statements only when
options are granted to employees below the estimated fair market value
of the underlying stock. Pro forma information reflecting compensation
expense if SFAS 123 were in effect is not presented as the Company
estimates no compensation costs would result from implementation of
SFAS 123.
8
<PAGE>
KOLORFUSION INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years Ended June 30, 1999 and 1998 and
Three Months Ended September 30, 1999 and 1998 (Unaudited)
Note 1. Nature of Business and Significant Accounting Policies (Continued):
ESTIMATES AND ASSUMPTIONS:
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and revenues and expenses during
the reporting period. Significant estimates include the lives of patent
rights and equipment and the valuation of stock issued. Actual results
could differ from these estimates.
FINANCIAL INSTRUMENTS:
The Company has entered into obligations to an individual (see Notes 2
and 7) that are due in French francs while the Company's functional
currency is the U.S. dollar, therefore, the related transactions are
exposed to the effects of foreign exchange rate fluctuations on the
U.S. dollar. The payable to the individual is recorded at the current
foreign exchange rate. All gains and losses from currency transactions
are included in income currently.
Note 2. Payable to Individual:
The Company, on October 17, 1995, purchased certain U.S. and Canadian
patent rights as part of an assignment agreement granted at a total
price of twenty-five million French francs. The agreement is
collateralized by patent rights. In November 1998, the Company agreed
to a revised proposal on the payment terms. The following is a schedule
under the revised proposal, by year, of future payments (in U.S.
dollars using the October 17, 1995 conversion rate of FF5.00 to $1)
together with the present value of the payments:
Year Ending June 30:
2000 $ 240,000
2001 240,000
2002 1,776,500
2003 580,000
2004 365,000
------------
Total payments at FF5.00 3,201,500
Less: Amount representing interest (482,709)
------------
Present value of payments at 10% 2,718,791
Conversion at June 30, 1999: FF6.35 (724,893)
------------
$ 1,993,898
============
9
<PAGE>
KOLORFUSION INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years Ended June 30, 1999 and 1998 and
Three Months Ended September 30, 1999 and 1998 (Unaudited)
Note 3. Other Assets:
Patents consist of the following:
<TABLE>
<CAPTION>
June 30
September 30, ----------------------------
1999 1999 1998
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Patents, at cost $ 3,692,530 $ 3,692,530 $ 3,692,530
Less accumulated amortization 974,609 912,809 666,639
------------ ------------ ------------
$ 2,717,921 $ 2,779,721 $ 3,025,891
============ ============ ============
Amortization expense $ 61,800 $ 246,170 $ 246,169
============ ============ ============
</TABLE>
Debenture issuance costs consist of the following:
<TABLE>
<S> <C> <C> <C>
Debenture issuance costs $ -- $ 180,071 $ 180,071
Less accumulated amortization -- 180,071 165,969
------------ ------------ ------------
$ -- $ -- $ 14,102
============ ============ ============
Amortization expense $ -- $ 14,102 $ 68,277
============ ============ ============
</TABLE>
Note 4. Leasehold Improvements and Equipment:
Leasehold improvements and equipment consist of the following:
<TABLE>
<CAPTION>
June 30
September 30, ----------------------------
1999 1999 1998
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Leasehold improvements $ -- $ 21,732 $ 21,732
Equipment 315,298 314,028 394,368
Office furniture and equipment 79,237 78,037 74,388
------------ ------------ ------------
394,535 413,797 490,488
Less accumulated depreciation and amortization 151,438 153,670 173,013
------------ ------------ ------------
$ 243,097 $ 260,127 $ 317,475
============ ============ ============
Depreciation and amortization expense $ 19,500 $ 63,468 $ 127,738
============ ============ ============
</TABLE>
Note 5. Notes Payable and Long-Term Debt:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Note payable, bank, payable in monthly installments
of $536, including interest at 9.75%, through
March 2000, collateralized by equipment $ 5,123 $ --
Note payable, bank, payable in monthly installments
of $486, including interest at 10.25%, through
February 2002, collateralized by vehicle 13,556 --
</TABLE>
10
<PAGE>
KOLORFUSION INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years Ended June 30, 1999 and 1998 and
Three Months Ended September 30, 1999 and 1998 (Unaudited)
Note 5. Notes Payable and Long-Term Debt (Continued):
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Note payable, individual, payable in monthly installments of
$500, including interest at 12%, due on April 25, 1998,
unsecured and guaranteed by a stockholder,
converted to common stock in 1999 -- 50,000
------------ -----------
18,679 50,000
Less current maturities 11,000 50,000
------------ -----------
$ 7,679 $ --
============ ===========
</TABLE>
Note 6. Subordinated Convertible Debentures:
In August 1995, the Company authorized, under a Subscription and
Purchase Agreement, the issuance of $2,500,000 in subordinated
convertible debentures. The debentures were due on September 1, 1998
and accrued interest at 10.5% per annum. The balance outstanding under
these debentures at June 30, 1998 was $2,524,500. In September, 1998,
the debentures and related accrued interest and premium were converted
into 3,182,114 shares of common stock.
Note 7. Stockholders' Equity:
Stock split:
On November 12, 1997, the Board of Directors authorized a three-for-one
stock dividend. Unless otherwise stated, issued and outstanding common
stock has been restated to reflect this stock split.
Preferred stock:
The voting powers and rights of the preferred stock are subject to
approval and amendment by the Board of Directors and will be described
upon issuance. As of June 30, 1999, no shares of preferred stock are
issued and outstanding.
Warrants:
The Company has issued warrants to purchase 50,000 shares of common
stock at a purchase price of $1.30 per share. The warrants are
exercisable after August 1, 1999 and expire on August 1, 2003.
As part of the conversion of subordinated convertible debentures (see
Note 4), the Company issued 636,915 Class A warrants and 1,592,128
Class B warrants. These warrants (see Note 4) contain various
anti-dilution rights which provide for proportionate adjustment of the
warrant purchase price in the event of: a) Any subdivision or
combining of the outstanding shares of Common Stock, b) Declaration of
a dividend payable in Common stock, or c) Issuance of securities at a
price that is less than the purchase price of the warrant in effect
immediately prior to such issuance. In addition, the Company is
obligated to register the shares of common stock issued upon exercise
of the warrants.
The Class A warrants allow the holder to purchase unrestricted shares
of Company stock at a purchase price of $1.75 per share, are
exercisable after September 1, 1998 and expire on September 1, 2002.
11
<PAGE>
KOLORFUSION INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years Ended June 30, 1999 and 1998 and
Three Months Ended September 30, 1999 and 1998 (Unaudited)
Note 7. Stockholders' Equity (Continued):
The Class B warrants allow the holder to purchase unrestricted shares
of Company stock at a purchase price of $2.25 per share, are
exercisable after September 1, 1998 and expire on September 1, 2002.
The Company can call these warrants if the bid price is 60% above the
exercise price for twenty consecutive business days. The holder must
exercise the warrant within 30 days or the Company can repurchase the
warrant at $.05 per warrant.
Stock incentive plan:
The Company adopted a Stock Incentive Plan on April 7, 1997 which
authorizes 1,000,000 shares for issuance of stock options and stock
appreciation rights and expires 10 years from the effective date of the
plan.
Information relating to stock options is as follows:
Weighted
Number Average
of Shares Exercise Price
-------------- --------------
Under option, June 30, 1998 -- $ --
Granted 3,650,000 1.66
-------------- --------------
Under option, June 30, 1999 3,650,000 $ 1.66
============== ==============
Exercisable at June 30, 1999 150,000 $ 1.20
============== ==============
Note 8. Commitments and Contingencies:
The Company leases office, warehouse and production space under a lease
which calls for approximate monthly payments of $9,100 through December
31, 2000. Rental expense on this operating lease was approximately
$140,000 and $131,000 for the years ending June 30, 1999 and 1998,
respectively.
The Company leases various office equipment under operating leases.
Rental expense on these leases was $9,614 and $3,761 for the years
ending June 30, 1999 and 1998, respectively.
Minimum lease payments at June 30, 1999 are as follows:
Year Ending June 30: Facility Equipment Total
------------ ------------- ------------
2000 $ 109,200 $ 13,659 $ 122,859
2001 54,600 9,580 64,180
------------ ------------- ------------
$ 163,800 $ 23,239 $ 187,039
============ ============= ============
The Company was obligated under a license agreement of the Brazilian
rights to certain patents to make monthly payments of FF35,000 through
March 1998. In November 1998, the Company entered into an agreement
whereby the Company's license in Brazil will be reinstated against
payment by the Company to the patent holder of 30% of any future
license fees and 10% of any future royalties until such time that the
Company acquires the Brazil patents. Meanwhile, the patent holder
retains the right to sell the Brazil patent to a third party and the
Company has the right for 90 days to match that offer. The amount
expensed under this agreement was $0 and $5,882 for the years ended
June 30, 1999 and 1998, respectively.
12
<PAGE>
KOLORFUSION INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years Ended June 30, 1999 and 1998 and
Three Months Ended September 30, 1999 and 1998 (Unaudited)
Note 9. Income Taxes:
The Company has available net operating loss carryforwards of
approximately $4,300,000 at June 30, 1999 which will expire in twelve
through twenty years.
The following is a summary of deferred taxes:
<TABLE>
<CAPTION>
June 30
September 30, ----------------------------
1999 1999 1998
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Operating loss carryforwards $ 1,850,000 $ 1,710,000 $ 1,160,000
Accrued expenses -- -- 760,000
------------ ------------ ------------
1,850,000 1,710,000 1,920,000
Deferred tax liabilities:
Depreciation and amortization -- -- 40,000
------------ ------------ ------------
1,850,000 1,710,000 1,960,000
Valuation allowance (1,850,000) (1,710,000) (1,960,000)
------------ ------------ ------------
$ -- $ -- $ --
============ ============ ============
</TABLE>
A reconciliation of the Company's statutory tax rate to the effective
date is as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Federal statutory rate 35% 35%
State taxes 5% 5%
Valuation allowance (40)% (40)%
---------- ----------
0% 0%
========== ==========
</TABLE>
Federal tax rules impose limitations on the utilization of loss
carryforwards following certain changes in ownership. When such changes
occur, the limitation reduces the amount of benefits that are available
to offset future taxable income each year, starting with the year of
ownership changes.
Note 10. Company's Continued Existence:
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, the Company
has sustained substantial losses in its initial years. The Company
intends to restructure its debt and to arrange for the sale of
additional shares of stock to obtain additional operating capital
throughout the year.
13
EXHIBIT 3
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
KOLORFUSION INTERNATIONAL, INC.
Pursuant to the provisions of the Colorado Business Corporation Act,
Kolorfusion International, Inc. hereby amends and restates it Articles of
Incorporation, which were originally filed with the Colorado Secretary of State
on May 17, 1995. The amendment does not provide for an exchange,
reclassification, or cancellation of issued shares. The amendment was adopted by
the shareholders on May 8, 1997, and the number of votes cast for the amendment
by each voting group entitled to vote separately on the amendment was sufficient
for approval by that voting group. These Amended and Restated Articles of
Incorporation set forth the provisions of the Articles of Incorporation, as
amended, and supersede all previous versions of the Articles of Incorporation.
ARTICLE I
NAME
The name of the Corporation shall be Kolorfusion International, Inc.
ARTICLE II
PERIOD OF DURATION
The Corporation shall exist in perpetuity, from and after the date of
filing the Articles of Incorporation with the Secretary of State of Colorado
unless dissolved according to law.
ARTICLE III
PURPOSES AND POWERS
1. Purpose. The Corporation is organized for the purpose of transacting
all lawful business for which corporations may be incorporated pursuant to the
Colorado Business Corporation Act.
2. General Powers. The Corporation shall have and may exercise all
powers and rights which a Corporation may exercise legally pursuant to the
Colorado Business Corporation Act.
3. Issuance of Shares. The Board of Directors of the Corporation may
divide and issue any class of stock of the Corporation in series pursuant to a
resolution properly filed with the Secretary of State of the State of Colorado.
<PAGE>
ARTICLE IV
CAPITAL STOCK
1. Authorized Shares. The total number of shares of capital stock which
the corporation shall have authority to issue is 100,000,000 shares of common
stock each with a par value of $.001, and 10,000,000 shares of preferred stock
each with a par value of $.001.
2. Common Stock.
(a) The holders of common stock shall have and possess all rights as
stockholders of the corporation, including such rights as may be granted
elsewhere by these Articles of Incorporation, except as such rights may be
limited by the preferences, privileges, and voting powers, and the restrictions
and limitations of the preferred stock.
(b) Subject to preferential dividend rights, if any, of the holders of
preferred stock, dividends in cash, property or shares of the Corporation may be
declared by the Board of Directors and paid upon the common stock out of funds
of the Corporation to the extent and in the manner permitted by law, at such
times and in such amounts as the Board of Directors shall determine.
(c) Subject to preferential liquidation rights, if any, of the holders
of preferred stock, the holders of common stock are entitled to receive the net
assets, if any, of the Corporation upon dissolution.
(d) All common stock, when issued, shall be fully paid and
nonassessable, and the private property of shareholders shall not be liable for
corporate debts.
3. Preferred Stock. The Board of Directors is expressly authorized at
any time, to provide for the issuance of shares of preferred stock in one or
more series, with such voting powers, full or limited, or without such voting
powers and with such designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the resolution or
resolutions providing for the issue thereof adopted by the Board of Directors.
The Articles of Incorporation shall be amended to describe the preferences,
limitations, and relative rights of any preferred stock prior to its issuance.
4. Transfer Restrictions. The corporation shall have the right to
impose restrictions upon the transfer of any of its authorized shares or any
interest therein, from time to time issued, provided that such restrictions as
may from time to time be so imposed, or notice of the substance thereof shall be
set forth upon the face or back of the certificates representing such shares.
The
2
<PAGE>
Board of Directors is hereby authorized on behalf of the corporation to exercise
the corporation's right to so impose such restrictions.
5. Consideration for Shares. The capital stock shall be issued for such
consideration as shall be fixed from time to time by the Board of Directors as
permitted by law. In the absence of fraud, the judgment of the Directors as to
the value of any property or services received in full or partial payment for
shares shall be conclusive. When shares are issued upon payment of the
consideration fixed by the Board of Directors, such shares shall be taken to be
fully paid stock and shall be non-assessable.
6. Distribution in Liquidation. Upon any liquidation, dissolution or
winding up of the Corporation, and after paying or adequately providing for the
payment of all its obligations, including any obligations to the holders of
preferred shares, the remainder of the assets of the Corporation shall be
distributed, either in cash or in kind, pro rata to the holders of the common
stock.
7. Denial of Preemptive Rights. No holder of any shares of the
Corporation, whether now or hereafter authorized, shall have any preemptive or
preferential right to acquire any shares or securities of the Corporation,
including shares or securities held in the treasury of the Corporation.
ARTICLE V
VOTING BY SHAREHOLDERS
1. Voting rights. Each outstanding share of common stock shall be
entitled to one vote and each fractional share of common stock shall be entitled
to a corresponding fractional vote on each matter submitted to a vote of
shareholders. Cumulative voting shall not be allowed in the election of
directors of the Corporation.
2. Quorum. A majority of the shares entitled to vote, represented in
person or by proxy, shall constitute a quorum at a meeting of shareholders.
3. Shareholder Vote. Except as otherwise provided by these Articles of
Incorporation, if a quorum is present, the affirmative vote of a sixty six and
two-thirds percent (66 2/3%) of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the shareholders.
4. Other Voting Requirements. When, with respect to any action to be
taken by shareholders of this Corporation, the laws of Colorado specify the vote
or concurrence of the
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holders of more than a majority of the outstanding shares, of the shares
entitled to vote thereon, or of any class or series, notwithstanding such
requirement these Articles of Incorporation shall control and such action may be
taken by the vote or concurrence of sixty six and two-thirds percent (66 2/3%)
of such shares or class or series of shares.
ARTICLE VI
LIMITATION ON DIRECTOR LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or to its shareholders for monetary damages for breach of fiduciary
duty as a director; except that this provision shall not eliminate or limit the
liability of a director to the Corporation or to its shareholders for monetary
damages otherwise existing for (i) any breach of the director's duty of loyalty
to the Corporation or to its shareholders; (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) acts specified in Section 7-108-403 of the Colorado Business Corporation
Act; or (iv) any transaction from which the director directly or indirectly
derived any improper personal benefit. If the Colorado Business Corporation Act
is hereafter amended to eliminate or limit further liability of a director, then
in addition to the elimination and limitation of liability provided by the
preceding sentence, the liability of each director shall be eliminated or
limited to the fullest extent permitted by the Colorado Business Corporation Act
as so amended. Any repeal or modification of this Article VI shall not adversely
affect any right or protection of a director of the Corporation under this
Article VI, as in effect immediately prior to such repeal or modification, with
respect to any liability that would have accrued, but for this Article VI, prior
to such repeal or modification.
ARTICLE VII
INDEMNIFICATION
The Corporation shall indemnify, to the fullest extent permitted by
applicable law in effect from time to time, any person, and the estate and
personal representative of any such person, against all liability and expense
(including attorneys' fees) incurred by reason of the fact that he is or was a
director or officer of the Corporation or, while serving as a director or
officer of the Corporation, he is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, fiduciary, or
agent of, or in any similar managerial or fiduciary position of, another
domestic or foreign corporation or other individual or entity or of an employee
benefit plan. The Corporation shall also indemnify any person who is serving or
has served the Corporation as a director, officer, employee, fiduciary, or
agent, and that person's estate and personal
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representative, to the extent and in the manner provided in any bylaw,
resolution of the shareholders or directors, contract, or otherwise, so long as
such provision is legally permissible.
ARTICLE VIII
AMENDMENTS
The Corporation reserves the right to amend its Articles of
Incorporation from time to time in accordance with the Colorado Business
Corporation Act.
ARTICLE IX
ADOPTION AND AMENDMENT OF BYLAWS
The Bylaws of the Corporation shall be adopted by its Board of
Directors. The power to alter or amend or repeal the Bylaws or adopt new Bylaws
shall be vested in the Board of Directors, but the holders of common stock may
also alter, amend or repeal the Bylaws or adopt new Bylaws. The Bylaws may
contain any provisions for the regulation and management of the affairs of the
Corporation not inconsistent with law or these Articles of Incorporation.
ARTICLE X
BOARD OF DIRECTORS
The corporate powers shall be exercised by or under the authority of,
and the business and affairs of the Corporation shall be managed under the
direction of, a board of directors. The number of directors of the Corporation
shall be fixed by the Bylaws of the Corporation. Cumulative voting shall not be
permitted in the election of directors.
IN WITNESS WHEREOF, the duly authorized officers have signed these Amended and
Restated Articles of Incorporation on May 8, 1997.
- ---------------------------------------
Stephen R. Nagel, President
- ---------------------------------------
Mark A. Poole, Secretary
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================================================================================
BYLAWS
OF
KOLORFUSION INTERNATIONAL, INC.
================================================================================
TABLE OF CONTENTS
ARTICLE I SHAREHOLDERS........................................................2
ARTICLE II DIRECTORS..........................................................4
ARTICLE III COMMITTEES OF THE BOARD OF DIRECTORS..............................6
ARTICLE IV OFFICERS...........................................................7
ARTICLE V INDEMNIFICATION.....................................................9
ARTICLE VI SHARES............................................................12
ARTICLE VII MISCELLANEOUS....................................................13
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BYLAWS
OF
KOLORFUSION INTERNATIONAL, INC.
ARTICLE I SHAREHOLDERS
1. ANNUAL SHAREHOLDERS' MEETING. The annual shareholders' meeting shall
be held on the date and at the time and place fixed from time to time by the
board of directors; provided, however, that the first annual meeting shall be
held on a date that is within six months after the close of the first fiscal
year of the Corporation, and each successive annual meeting shall be held on a
date that is within the earlier of six months after the close of the last fiscal
year or fifteen months after the last annual meeting.
2. SPECIAL SHAREHOLDERS' MEETING. A special shareholders' meeting for
any purpose or purposes, may be called by the board of directors or the
president. The Corporation shall also hold a special shareholders' meeting in
the event it receives, in the manner specified in Section VII.3., one or more
written demands for the meeting, stating the purpose or purposes for which it is
to be held, signed and dated by the holders of shares representing not less than
one-fourth of all of the votes entitled to be cast on any issue at the meeting.
Special meetings shall be held at the principal office of the Corporation or at
such other place as the board of directors or the president may determine.
3. RECORD DATE FOR DETERMINATION OF SHAREHOLDERS.
(a) In order to make a determination of shareholders (1) entitled to
notice of or to vote at any shareholders' meeting or at any adjournment of a
shareholders' meeting, (2) entitled to demand a special shareholders' meeting,
(3) entitled to take any other action, (4) entitled to receive payment of a
share dividend or a distribution, or (5) for any other purpose, the board of
directors may fix a future date as the record date for such determination of
shareholders. The record date may be fixed not more than seventy days before the
date of the proposed action.
(b) Unless otherwise specified when the record date is fixed, the
time of day for determination of shareholders shall be as of the Corporation's
close of business on the record date.
(c) A determination of shareholders entitled to be given notice of
or to vote at a shareholders' meeting is effective for any adjournment of the
meeting unless the board of directors fixes a new record date, which the board
shall do if the meeting is adjourned to a date more than one hundred twenty days
after the date fixed for the original meeting.
(d) If no record date is otherwise fixed, the record date for
determining shareholders entitled to be given notice of and to vote at an annual
or special shareholders' meeting is the day before the first notice is given to
shareholders.
(e) The record date for determining shareholders entitled to take
action without a meeting pursuant to Section I.10., I.11. is the date a writing
upon which the action is taken is first received by the Corporation.
4. VOTING LIST.
(a) After a record date is fixed for a shareholders' meeting, the
secretary shall prepare a list of the names of all its shareholders who are
entitled to be given notice of the meeting. The list shall be arranged by voting
groups and within each voting group by class or series of shares, shall be
alphabetical within each class or series, and shall show the address of, and the
number of shares of each such class and series that are held by, each
shareholder.
(b) The shareholders' list shall be available for inspection by any
shareholder, beginning the earlier of ten days before the meeting for which the
list was prepared or two business days after notice of the meeting is given and
continuing through the meeting, and any adjournment thereof, at the
Corporation's principal office or at a place identified in the notice of the
meeting the city where the meeting will be held.
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(c) The secretary shall make the shareholders' list available at the
meeting, and any shareholder or agent or attorney of a shareholder is entitled
to inspect the list at any time during the meeting or any adjournment.
5. NOTICE TO SHAREHOLDERS.
(a) The secretary shall give notice to shareholders of the date,
time, and place of each annual and special shareholders' meeting no fewer than
ten nor more than sixty days before the date of the meeting; except that, if the
articles of incorporation are to be amended to increase the number of authorized
shares, at least thirty days' notice shall be given. Except as other wise
required by the Colorado Business Corporation Act, the secretary shall be
required to give such notice only to shareholders entitled to vote at the
meeting.
(b) Notice of an annual shareholders' meeting need not include a
description of the purpose or purposes for which the meeting is called unless a
purpose of the meeting is to consider an amendment to the articles of
incorporation, a restatement of the articles of incorporation, a plan of merger
or share exchange, disposition of substantially all of the property of the
Corporation, consent by the Corporation to the disposition of property by
another entity, or dissolution of the Corporation.
(c) Notice of a special shareholders' meeting shall include a
description of the purpose or purposes for which the meeting is held.
(d) Notice of shareholders' meeting shall be in writing and shall be
given
(1) by deposit in the United States mail, properly addressed to
the shareholder's address shown in the Corporation's current record of
shareholders, first class postage prepaid, and, if so given, shall be effective
when mailed; or
(2) by telegraph, teletype, electronically transmitted
facsimile, electronic mail, mail, or private carrier or by personal delivery to
the shareholder, and, if so given, shall be effective when actually received by
the shareholder.
(e) If an annual or special shareholders' meeting is adjourned to a
different date, time, or place, notice need not be given of the new date, time,
or place if the new date, time, or place is announced at the meeting before
adjournment; provided, however, that, if a new record date for the adjourned
meeting is fixed pursuant to Section I.3.(c), notice of the adjourned meeting
shall be given to persons who are shareholders as of the new record date.
(f) If three successive notices are given by the Corporation,
whether with respect to a shareholders' meeting or otherwise, to a shareholder
and are returned as undeliverable, not further notices to such shareholder shall
be necessary until another address for the shareholder is made known to the
Corporation.
6. QUORUM. Shares entitled to vote as a separate voting group may take
action on a matter at a meeting only if a quorum of those shares exists with
respect to that matter. A majority of the votes entitled to be cast on the
matter by the voting group shall constitute a quorum of that voting group for
action on the matter. If a quorum does not exist with respect to any voting
group, the president or any shareholder or proxy that is present at the meeting,
whether or not a member of that voting group, may adjourn the meeting to a
different date, time, or place if the new date, time, or place is announced at
the meeting before adjournment. If a new record date for the adjourned meeting
is or must be fixed pursuant to Section I.3.(c), notice of the adjourned meeting
shall be given pursuant to Section I.5. to persons who are shareholders as of
the new record date. At any adjourned meeting at which a quorum exists, any
matter may be acted upon that could have been acted upon at the meeting
originally called; provided, however, that, if new notice is given of the
adjourned meeting, then such notice shall state the purpose or purposes of the
adjourned meeting sufficiently to permit action on such matters. Once a share is
represented for any purpose at a meeting, including the purpose of determining
that a quorum exists, it is deemed present for quorum purposes for the remainder
of the meeting and for any adjournment of that meeting unless a new record date
is or shall be set for that adjourned meeting.
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7. VOTING ENTITLEMENT OF SHARES. Except as stated in the articles of
incorporation, each outstanding share, regardless of class, is entitled to one
vote, and each fractional share is entitled to a corresponding fractional vote,
on each matter voted on at a shareholders' meeting.
8. PROXIES; ACCEPTANCE OF VOTES AND CONSENTS.
(a) A shareholder may vote either in person or by proxy.
(b) An appointment of a proxy is not effective against the
Corporation until the appointment is received by the Corporation. An appointment
is valid for eleven months unless a different period is expressly provided in
the appointment form.
(c) The Corporation may accept or reject any appointment of a proxy,
revocation of appointment of a proxy, vote, consent, waiver, or other writing
purportedly signed by or for a shareholder, if such acceptance or rejection is
in accordance with the provisions of Sections 7-107-203 and 7-107-205 of the
Colorado Business Corporation Act.
9. WAIVER OF NOTICE.
(a) A shareholder may waive any notice required by the Colorado
Business Corporation Act, by the articles of incorporation or these bylaws,
whether before or after the date or time stated in the notice as the date or
time when any action will occur or has occurred. The waiver shall be in writing,
be signed by the shareholder entitled to the notice, and be delivered to the
Corporation for inclusion in the minutes or filing with the corporate records,
but such delivery and filing shall not be conditions of the effectiveness of the
waiver.
(b) A shareholder's attendance at a meeting waives objection to lack
of notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting because of lack of notice or defective notice, and waives
objection to consideration of a particular matter at the meeting that is not
within the purpose or purposes described in the meeting notice, unless the
shareholder objects to considering the matter when it is presented.
10. ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action required or
permitted to be taken at a shareholders' meeting may be taken without a meeting
if all of the shareholders entitled to vote thereon consent to such action in
writing. Action taken pursuant to this section shall be effective when the
Corporation has received writings that describe and consent to the action,
signed by all of the shareholders entitled to vote thereon. Action taken
pursuant to this section shall be effective as of the date the last writing
necessary to effect the action is received by the Corporation, unless all of the
writings necessary to effect the action specify another date, which may be
before or after the date the writings are received by the Corporation. Such
action shall have the same effect as action taken at a meeting of shareholders
and may be described as such in any document. Any shareholder who has signed a
writing describing and consenting to action taken pursuant to this section may
revoke such consent by a writing signed by the shareholder describing the action
and stating that the shareholder's prior consent thereto is revoked, if such
writing is received by the Corporation before the effectiveness of the action.
11. MEETINGS BY TELECOMMUNICATIONS. Any or all of the shareholders may
participate in an annual or special shareholders' meeting by, or the meeting may
be conducted through the use of, any means of communication by which all persons
participating in the meeting may hear each other during the meeting. A
shareholder participating in a meeting by this means is deemed to be present in
person at the meeting.
ARTICLE II DIRECTORS
1. AUTHORITY OF THE BOARD OF DIRECTORS. The corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed under the direction of, a board of directors.
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2. NUMBER. The number of directors shall be fixed by resolution of the
board of directors from time to time and may be increased or decreased by
resolution adopted by the board of directors from time to time, but no decrease
in the number of directors shall have the effect of shortening the term of any
incumbent director.
3. QUALIFICATION. Directors shall be natural persons at least eighteen
years old but need not be residents of the State of Colorado or shareholders of
the Corporation.
4. ELECTION. The board of directors shall be elected at the annual
meeting of the shareholders or at a special meeting called for that purpose.
5. TERM. Each director shall be elected to hold office until the next
annual meeting of shareholders and until the director's successor is elected and
qualified.
6. RESIGNATION. A director may resign at any time by giving written
notice of his or her resignation to any other director or (if the director is
not also the secretary) to the secretary. The resignation shall be effective
when it is received by the other director or secretary, as the case may be,
unless the notice of resignation specifies a later effective date. Acceptance of
such resignation shall not be necessary to make it effective unless the notice
so provides.
7. REMOVAL. Any director may be removed by the shareholders of the
voting group that elected the director, with or without cause, at a meeting
called for that purpose. The notice of the meeting shall state that the purpose
or one of the purposes, of the meeting is removal of the director. A director
may be removed only if the number of votes cast in favor of removal exceeds the
number of votes cast against removal.
8. VACANCIES.
(a) If a vacancy occurs on the board of directors, including a
vacancy resulting from an increase in the number of directors:
(1) The shareholders may fill the vacancy at the next annual
meeting or at a special meeting called for that purpose; or
(2) The board of directors may fill the vacancy; or
(3) If the directors remaining in office constitute fewer than a
quorum of the board, they may fill the vacancy by the affirmative vote of a
majority of all the directors remaining in office.
(b) Notwithstanding Section II.8.(a), if the vacant office was held
by a director elected by a voting group of shareholders, then, if one or more of
the remaining directors were elected by the same voting group, only such
directors are entitled to vote to fill the vacancy if it is filled by directors,
and they may do so by the affirmative vote of a majority of such directors
remaining in office; and only the holders of shares of that voting group are
entitled to vote to fill the vacancy if it is filled by the shareholders.
(c) A vacancy that will occur at a specific later date, by reason of
a resignation that will become effective at a later date under Section II.6. or
otherwise, may be filled before the vacancy occurs, but the new director may not
take office until the vacancy occurs.
9. MEETINGS. The board of directors may hold regular or special
meetings in or out of Colorado. A regular meeting shall be held in the principal
office of the Corporation on the first Monday, which is not a Federal holiday,
after the first day of each calendar quarter, commencing at 10:00 Mountain Time,
without notice of the date, time, place, or purpose of the meeting. The board of
directors may, by resolution, establish other dates, times and places for
additional regular meetings, which may thereafter be held without further
notice. Special meetings may be called by the president or by any two directors
and shall be held at the principal office of the Corporation unless another
place is consented to by every director. At any time when the board consists of
a single director, that director may act at any time, date, or place without
notice.
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10. NOTICE OF SPECIAL MEETING. Notice of a special meeting shall be
given to every director at least twenty four hours before the time of the
meeting, stating the date, time, and place of the meeting. The notice need not
describe the purpose of the meeting. Notice may be given orally to the director,
personally or by telephone or other wire or wireless communication. Notice may
also be given in writing by telegraph, teletype, electronically transmitted
facsimile, electronic mail, mail, or private carrier. Notice shall be effective
at the earliest of the time it is received; five days after it is deposited in
the United States mail, properly addressed to the last address for the director
shown on the records of the Corporation, first class postage prepaid; or the
date shown on the return receipt if mailed by registered or certified mail,
return receipt requested, postage prepaid, in the United States mail and if the
return receipt is signed by the director to which the notice is addressed.
11. QUORUM. Except as provided in Section II.8., a majority of the
number of directors fixed in accordance with these Bylaws shall constitute a
quorum for the transaction of business at all meetings of the board of
directors. The act of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the board of directors, except as
otherwise specifically required by law.
12. WAIVER OF NOTICE.
(a) A director may waive any notice of a meeting before or after the
time and date of the meeting stated in the notice. Except as provided by Section
II.12.(b), the waiver shall be in writing and shall be signed by the director.
Such waiver shall be delivered to the secretary for filing with the corporate
records, but such delivery and filing shall not be conditions of the
effectiveness of the waiver.
(b) A director's attendance at or participation in a meeting waives
any required notice to him or her of the meeting unless, at the beginning of the
meeting or promptly upon his or her later arrival, the director objects to
holding the meeting or transacting business at the meeting because of lack of
notice or defective notice and does not thereafter vote for or assent to action.
13. ATTENDANCE BY TELEPHONE. One or more directors may participate in a
regular or special meeting by, or conduct the meeting through the use of, any
means of communication by which all directors participating may hear each other
during the meeting. A director participating in a meeting by this means is
deemed to be present in person at the meeting.
14. DEEMED ASSENT TO ACTION. A director who is present at a meeting of
the board of directors when corporate action is taken shall be deemed to have
assented to all action taken at the meeting unless:
(a) The director objects at the beginning of the meeting, or
promptly upon his or her arrival, to holding the meeting or transacting business
at the meeting and does not thereafter vote for or assent to any action taken at
the meeting;
(b) The director contemporaneously requests that his or her dissent
or abstention as to any specific action be entered in the minutes of the
meeting; or
(c) The director causes written notice of his or her dissent or
abstention as to any specific action to be received by the presiding officer of
the meeting before adjournment of the meeting or by the secretary (or, if the
director is the secretary, by another director) promptly after adjournment of
the meeting.
The right of dissent or abstention pursuant to this Section II.14 as to a
specific action is not available to a director who votes in favor of the action
taken.
ARTICLE III COMMITTEES OF THE BOARD OF DIRECTORS
1. COMMITTEES OF THE BOARD OF DIRECTORS.
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(a) The board of directors may create one or more committees and
appoint one or more members of the board of directors to serve on them. The
creation of a committee and appointment of members to it shall require the
approval of a majority of all the directors in office when the action is taken,
whether or not those directors constitute a quorum of the board.
(b) The provisions of these bylaws governing meetings, action
without meeting, notice, waiver of notice, and quorum and voting requirements of
the board of directors apply to committees and their members as well.
(c) To the extent specified by resolution adopted from time to time
by a majority of all the directors in office when the resolution is adopted,
whether or not those directors constitute a quorum of the board, each committee
shall exercise the authority of the board of directors with respect to the
corporate powers and the management of the business and affairs of the
Corporation; except that a committee shall not:
(1) Authorize distributions;
(2) Approve or propose to shareholders action that the Colorado
Business Corporation Act requires to be approved by shareholders;
(3) Fill vacancies on the board of directors or on any of its
committees;
(4) Amend the articles of incorporation pursuant to section
7-110-102 of the Colorado Business Corporation Act;
(5) Adopt, amend, or repeal bylaws;
(6) Approve a plan of merger not requiring shareholder approval;
(7) Authorize or approve reaquisition of shares, except
according to a formula or method prescribed by the board of directors; or
(8) Authorize or approve the issuance or sale of shares, or a
contract for the sale of shares, or determine the designation and relative
rights, preferences, and limitations of a class or series of shares; except that
the board of directors may authorize a committee or an officer to do so within
limits specifically prescribed by the board of directors.
(d) The creation of, delegation of authority to, or action by, a
committee does not alone constitute compliance by a director with applicable
standards of conduct.
ARTICLE IV OFFICERS
1. GENERAL. The Corporation shall have as officers a president, a
secretary, and a treasurer, who shall be appointed by the board of directors.
The board of directors may appoint as additional officers a chairman and other
officers of the board. The board of directors, the president, and such other
subordinate officers as the board of directors may authorize from time to time,
acting singly, may appoint as additional officers one or more vice presidents,
assistant secretaries, assistant treasurers, and such other subordinate officers
as the board of directors, the president, or such other appointing officers deem
necessary or appropriate. The officers of the Corporation shall hold their
offices for such terms and shall exercise such authority and perform such duties
as shall be determined from time to time by these Bylaws, the board of
directors, or (with respect to officers whom are appointed by the president or
other appointing officers) the persons appointing them; provided, however, that
the board of directors may change the term of offices and the authority of any
officer appointed by the president or other appointing officers. Any two or more
offices may be held by the same person. The officers of the Corporation shall be
natural persons at least eighteen years old.
2. TERM. Each officer shall hold office from the time of appointment
until the time of removal or resignation pursuant to Section IV.3. or until the
officer's death.
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3. REMOVAL AND RESIGNATION. Any officer appointed by the board of
directors may be removed at any time by the board of directors. Any officer
appointed by the president or other appointing officer may be removed at any
time by the board of directors or by the person appointing the officer. Any
officer may resign at any time by giving written notice of resignation to any
director (or to any director other than the resigning officer if the officer is
also a director), to the president, to the secretary, or to the officer who
appointed the officer. Acceptance of such resignation shall not be necessary to
make it effective, unless the notice so provides.
4. PRESIDENT. The president shall preside at all meetings of
shareholders, and the president shall also preside at all meetings of the board
of directors unless the board of directors has appointed a chairman, vice
chairman, or other officer of the board and has authorized such person to
preside at meetings of the board of directors instead of the president. Subject
to the direction and control of the board of directors, the president shall be
the chief executive officer of the Corporation and as such shall have general
and active management of the business of the Corporation and shall see that all
orders and resolutions of the board of directors are carried into effect. The
president may negotiate, enter into, and execute contracts, deeds, and other
instruments on behalf of the Corporation as are necessary and appropriate to the
conduct of the business and affairs of the Corporation or as are approved by the
board of directors. The president shall have such additional authority and
duties as are appropriate and customary for the office of the president and
chief executive officer, except as the same may be expanded or limited by the
board of directors from time to time.
5. VICE PRESIDENT. The vice president, if any, or, if there are more
than one, the vice presidents in the order determined by the board of directors
or the president (or, if no such determination is made, in the order of their
appointment), shall be the officer or officers next in seniority after the
president. Each vice president shall have such authority and duties as are
prescribed by the board of directors or president. Upon the death, absence, or
disability of the president, the vice president, if any, or if there are more
than one, the vice presidents in the order determined by the board of directors
or the president, shall have the authority and duties of the president.
6. SECRETARY. The secretary shall be responsible for the preparation
and maintenance of minutes of the meetings of the board of directors and of the
shareholders and of the other records and information required to be kept by the
Corporation under section 7-116-101 of the Colorado Business Corporation Act and
for authenticating records of the corporation. The secretary shall also give, or
cause to be given, notice of all meetings of the shareholders and special
meetings of the board of directors, keep the minutes of such meetings, have
charge of the corporate seal and have authority to affix the corporate seal to
any instrument requiring it (and, when so affixed, it may be attested by the
secretary's signature), be responsible for the maintenance of all other
corporate records and files and for the preparation and filing of reports to
governmental agencies (other than tax returns), and have such other authority
and duties as are appropriate and customary for the office of secretary, except
as the same may be expanded or limited by the board of directors from time to
time.
7. ASSISTANT SECRETARY. The assistant secretary, if any, or, if there
are more than one, the assistant secretaries in the order determined by the
board of directors or the secretary (or, if no such determination is made, in
the order of their appointment) shall, under supervision of the secretary,
perform such duties and have such authority as may be prescribed from time to
time by the board of directors or the secretary. Upon the death, absence, or
disability of the secretary, the assistant secretary, if any, or, if there are
more than one, the assistant secretaries in the order designated by the board of
directors or the secretary (or, if no such determination is made, in the order
of their appointment), shall have the authority and duties of the secretary.
8. TREASURER. The treasurer shall have control of the funds and the
care and custody of all stocks, bonds, and other securities owned by the
Corporation, and shall be responsible for the preparation and filing of tax
returns. The treasurer shall receive all moneys paid to the Corporation and,
subject to any limits imposed by the board of directors, shall have authority to
give receipts and vouchers, to sign and endorse checks and warrants in the
Corporation's name and on the Corporation's behalf, and give full discharge for
the same. The treasurer shall also have charge of disbursement of funds of the
Corporation, shall keep full and accurate records of the receipts and
disbursements, and shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as shall be
designated by the board of directors. The treasurer shall have such additional
authority and duties as are appropriate and customary for the office of
treasurer, except as the same may be expanded or limited by the board of
directors from time to time.
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9. ASSISTANT TREASURER. The assistant treasurer, if any, or, if there
are more than one, the assistant treasurers in the order determined by the board
of directors or the treasurer (or, if no such determination is made, in the
order of their appointment) shall, under the supervision of the treasurer, have
such authority and duties as may be prescribed from time to time by the board of
directors or the treasurer. Upon the death, absence, or disability of the
treasurer, the assistant treasurer, if any, or if there are more than one, the
assistant treasurers in the order determined by the board of directors or the
treasurer (or, if no such determination is made, in the order of their
appointment), shall have the authority and duties of the treasurer.
10. COMPENSATION. Officers shall receive such compensation for their
services as may be authorized or ratified by the board of directors. Election or
appointment of an officer shall not of itself create a contractual right to
compensation for services performed as such officer.
ARTICLE V INDEMNIFICATION
1. DEFINITIONS. As used in this article:
(a) "Corporation" includes any domestic or foreign entity that is a
predecessor of the Corporation by reason of a merger or other transaction in
which the predecessor's existence ceased upon consummation of the transaction.
(b) "Director" means and individual who is or was a director of the
Corporation or an individual who, while a director of the Corporation, is or was
serving at the Corporation's request as a director, officer, partner, trustee,
employee, fiduciary, or agent of another domestic or foreign corporation or
other person or of an employee benefit plan. A director is considered to be
serving an employee benefit plan at the Corporation's request if his or her
duties to the Corporation also impose duties on, or otherwise involve services
by, the director to the plan or to participants in or beneficiaries of the plan.
"Director" includes, unless the context requires otherwise, the estate or
personal representative of a director.
(c) "Expenses" includes counsel fees.
(d) "Liability" means the obligation incurred with respect to a
proceeding to pay a judgment, settlement, penalty, fine, including an excise tax
assessed with respect to an employee benefit plan, or reasonable expenses.
(e) "Official capacity" means, when used with respect to a director,
the office of a director in the Corporation and, when used with respect to a
person other than a director as contemplated in Section V.1.(a), the office in
the Corporation held by the officer or the employment, fiduciary, or agency
relationship undertaken by the employee, fiduciary, or agent on behalf of the
Corporation. "Official capacity" does not include service for any other domestic
or foreign corporation or other person or employee benefit plan.
(f) "Party" includes a person who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(g) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
and whether formal or informal.
2. AUTHORITY TO INDEMNIFY.
(a) Except as provided in Section V.2.(d), the Corporation shall
indemnify a person made a party to a proceeding because the person is or was a
director against liability incurred in the proceeding if:
(1) The person conducted himself or herself in good faith; and
(2) The person reasonably believed:
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(A) In the case of conduct in an official capacity with the
Corporation, that his or her conduct was in the Corporation's best interests;
and
(B) In all other cases, that his or her conduct was at least
not opposed to the Corporation's best interests; and
(3) In the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful.
(b) A director's conduct with respect to an employee benefit plan
for a purpose of the director reasonably believed to be in the interests of the
participants in or beneficiaries of the plan is conduct that satisfies the
requirement of Section V.2.(a)(2)(B). A director's conduct with respect to an
employee benefit plan for a purpose that the director did not reasonably believe
to be in the interests of the participants in or beneficiaries of the plan shall
be deemed not to satisfy the requirements of Section V.2.(a)(1).
(c) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of conduct
described in this Section V.2.
(d) The Corporation may not indemnify a director under this Section
V.2.
(1) In connection with a proceeding by or in the right of the
Corporation in which the director was adjudged liable to the Corporation; or
(2) In connection with any other proceeding charging that the
director derived an improper personal benefit, whether or not involving action
in an official capacity, in which proceeding the director was adjudged liable on
the basis that he or she derived an improper personal benefit.
(e) Indemnification permitted under this Section V.2 in connection
with a proceeding by or in the right of the Corporation is limited to reasonable
expenses incurred in connection with the proceeding.
3. MANDATORY INDEMNIFICATION OF DIRECTORS. The Corporation shall
indemnify a person who was wholly successful, on the merits or otherwise, in the
defense of any proceeding to which either person was a party because the person
is or was a director, against reasonable expenses incurred by him or her in
connection with the proceeding.
4. ADVANCE OF EXPENSES TO DIRECTORS.
(a) The Corporation shall pay for or reimburse the reasonable
expenses incurred by a director who is a party to a proceeding in advance of
final disposition of the proceeding if:
(1) The director furnishes to the Corporation a written
affirmation of the director's good faith belief that he or she has met the
standard of conduct described in Section V.2.
(2) The director furnishes to the Corporation a written
undertaking, executed personally or on the director's behalf, to repay the
advance if it is ultimately determined that he or she did not meet the standard
of conduct; and
(3) A determination is made that the facts then known to those
making the determination would not preclude indemnification under this article.
(b) The undertaking required by Section V.4.(a)(2) shall be an
unlimited general obligation of the director but need not be secured and may be
accepted without reference to financial ability to make repayment.
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(c) Determinations and authorizations of payments under this Section
V.4 shall be made in the manner specified in Section V.6.
5. COURT-ORDERED INDEMNIFICATION OF DIRECTORS. A director who is or was
a party to a proceeding may apply for indemnification to the court conducting
the proceeding or to another court of competent jurisdiction. On receipt of an
application, the court, after giving any notice the court considers necessary,
may order indemnification in the following manner:
(a) If it determines that the director is entitled to mandatory
indemnification under Section V.3., the court shall order indemnification, in
which case the court shall also order the Corporation to pay the director's
reasonable expenses incurred to obtain court-ordered indemnification.
(b) If it determines that the director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances, whether
or not the director met the standard of conduct set forth in Section V.2.(a) or
was adjudged liable in the circumstances described in Section V.2.(d), the court
may order such indemnification as the court deems proper; except that the
indemnification with respect to any proceeding in which liability shall have
been adjudged in the circumstances described in Section V.2.(d) is limited to
reasonable expenses incurred in connection with the proceeding and reasonable
expenses incurred to obtain court-ordered indemnification.
6. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION OF DIRECTORS.
(a) The Corporation may not indemnify a director under Section V.2
unless authorized in the specific case after a determination has been made that
indemnification of the director is permissible in the circumstances because the
director has met the standard of conduct set forth in Section V.2. The
Corporation shall not advance expenses to a director under Section V.4 unless
authorized in the specific case after the written affirmation and undertaking
required by Section V.4.(a)(1) and V.4.(a)(2) are received and the determination
required by Section V.4.(a)(3) has been made.
(b) The determinations required by Section V.6.(a) shall be made:
(1) By the board of directors by a majority vote of those
present at a meeting at which a quorum is present, and only those directors not
parties to the proceedings shall be counted in satisfying the quorum; or
(2) If a quorum cannot be obtained, by a majority vote of a
committee of the board of directors designated by the board of directors, which
committee shall consist of two or more directors not parties to the proceeding;
except that directors who are parties to the proceeding may participate in the
designation of directors for the committee.
(c) If a quorum cannot be obtained as contemplated in Section
V.6.(b)(1), and a committee cannot be established under Section V.6.(b)(2) if a
quorum is obtained or a committee is designated, if a majority of the directors
constituting such quorum or such committee so directs, the determination
required to be made by Section V.6.(a) shall be made:
(1) By independent legal counsel selected by a vote of the board
of directors or the committee in the manner specified in Section V.6.(b)(1) or
V.6.(b)(2), or, if a quorum of the full board cannot be obtained and a committee
cannot be established, by independent legal counsel selected by a majority vote
of the full board of directors; or
(2) By the shareholders.
(d) Authorization of indemnification and advance of expenses shall
be made in the same manner as the determination that indemnification or advance
of expenses is permissible; except that, if the determination that
indemnification or advance of expenses is permissible is made by independent
legal counsel, authorization of indemnification and advance of expenses shall be
made by the body that selected such counsel.
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7. INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES, AND AGENTS.
(a) An officer is entitled to mandatory indemnification under
Section V.3. and is entitled to apply for court-ordered indemnification under
Section V.5., in each case to the same extent as a director;
(b) The Corporation may indemnify and advance expenses to an
officer, employee, fiduciary, or agent of the Corporation to the same extent as
to a director; and
(c) The Corporation may also indemnify and advance expenses to an
officer, employee, or agent who is not a director to a greater extent than is
provided in these bylaws, if not inconsistent with public policy, and if
provided for by general or specific action of its board of directors or
shareholders or by contract.
8. INSURANCE. The Corporation may purchase and maintain insurance on
behalf of a person who is or was a director, officer, employee, fiduciary, or
agent of the Corporation, or who, while a director, officer, employee,
fiduciary, or agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, fiduciary, or
agent of another domestic or foreign corporation or other person or of an
employee benefit plan, against liability asserted against or incurred by the
person in that capacity or arising from his or her status as a director,
officer, employee, fiduciary, or agent, whether or not the Corporation would
have power to indemnify either person against the same liability under Section
V.2., V.3., or V.7. Any such insurance may be procured from any insurance
company designated by the board of directors, whether such insurance company is
formed under the laws of this state or any other jurisdiction of the United
States or elsewhere, including any insurance company in which the Corporation
has an equity or any other interest through stock ownership or otherwise.
9. NOTICE TO SHAREHOLDERS OF INDEMNIFICATION OF DIRECTOR. If the
Corporation indemnifies or advances expenses to a director under this article in
connection with a proceeding by or in the right of the Corporation, the
Corporation shall give written notice of the indemnification or advance to the
shareholders with or before the notice of the next shareholders' meeting. If the
next shareholder action is taken without a meeting at the instigation of the
board of directors, such notice shall be given to the shareholder at or before
the time the first shareholder signs a writing consenting to such action.
ARTICLE VI SHARES
1. CERTIFICATES. Certificates representing shares of the capital stock
of the Corporation shall be in such form as is approved by the board of
directors and shall be signed by the chairman or vice chairman of the board of
directors (if any), or the president or any vice president, and by the secretary
or an assistant secretary or the treasurer or an assistant treasurer. All
certificates shall be consecutively numbered, and the names of the owners, the
number of shares, and the date of issue shall be entered on the books of the
Corporation. Each certificate representing shares shall state upon its face:
(a) That the Corporation is organized under the laws of the State of
Colorado;
(b) The name of the person to whom issued;
(c) The number and class of the shares and the designation of the
series, if any, that the certificate represents;
(d) The par value, if any of each share represented by the
certificate;
(e) A summary, on the front or the back, of the designations,
preferences, limitations, and relative rights applicable to each class, the
variations in preferences, limitations, and rights determined for each series,
and the authority of the board of directors to determine variations for future
classes or series; or a conspicuous statement, on the front or the back, that
the Corporation will furnish to the shareholder, on request in writing and
without charge, information concerning the designations, preferences,
limitations, and relative rights applicable to each class, the
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variations in preferences, limitations, and relative rights applicable to each
series, and the authority of the board of directors to determine variations for
future classes or series; and
(f) Any restrictions imposed by the Corporation upon the transfer of
the shares represented by the certificate.
2. FACSIMILE SIGNATURES. Where a certificate is signed
(a) By a transfer agent other than the Corporation or its employee,
or
(b) By a registrar other than the Corporation or its employee, any
or all of the officers' signatures on the certificate required by Section VI.1.
may be facsimile. If any officer, transfer agent or registrar who has signed, or
whose facsimile signature or signatures have been placed upon, any certificate,
shall cease to be such officer, transfer agent, or registrar, whether because of
death, resignation, or otherwise, before the certificate is issued by the
Corporation, it may nevertheless be issued by the Corporation with the same
effect as if he or she were such officer, transfer agent or registrar at the
date of issue.
3. TRANSFERS OF SHARES. Transfers of shares shall be made on the books
of the Corporation only upon presentation of the certificate or certificates
representing such shares properly endorsed by the person or persons appearing
upon the face of such certificate to be the owner, or accompanied by a proper
transfer or assignment separate from the certificate, except as may otherwise be
expressly provided by the statutes of the State of Colorado or by order of a
court of competent jurisdiction. The officers or transfer agents of the
Corporation may, in their discretion, require a signature guaranty before making
any transfer. The Corporation shall be entitled to treat the person in whose
name any shares are registered on its books as the owner of those shares for all
purposes and shall not be bound to recognize any equitable or other claim or
interest in the shares on the part of any other person, whether or not the
Corporation shall have notice of such claim or interest.
4. SHARES HELD FOR ACCOUNT OF ANOTHER. The board of directors may adopt
by resolution a procedure whereby a shareholder of the Corporation may certify
in writing to the Corporation that all or a portion of the shares registered in
the name of such shareholder are held for the account of a specified person or
persons. The resolution shall set forth
(a) The classification of shareholders who may certify;
(b) The purpose or purposes for which the certification may be made;
(c) The form of certification and information to be contained
herein;
(d) If the certification is with respect to a record date or closing
of the stock transfer books, the time after the record date or the closing of
the stock transfer books within which the certification must be received by the
Corporation; and
(e) Such other provisions with respect to the procedure as are
deemed necessary or desirable. Upon receipt by the Corporation of a
certification complying with the procedure, the persons specified in the
certification shall be deemed, for the purpose or purposes set forth in the
certification, to be the holders of record of the number of shares specified in
place of the shareholder making the certification.
ARTICLE VII MISCELLANEOUS
1. CORPORATE SEAL. The board of directors may adopt a seal, circular
in form and bearing the name of the Corporation and the words "SEAL" and
"COLORADO," which, when adopted, shall constitute the seal of the Corporation.
The seal may be used by causing it or a facsimile of it to be impressed,
affixed, manually reproduced, or rubber stamped with indelible ink.
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2. FISCAL YEAR. The board of directors may, by resolution, adopt a
fiscal year for the Corporation.
3. RECEIPT OF NOTICES BY THE CORPORATION. Notices, shareholder writings
consenting to action, and other documents or writings shall be deemed to have
been received by the Corporation when they are received
(a) At the registered office of the Corporation in the State of
Colorado;
(b) At the principal office of the Corporation (as that office is
designated in the most recent document filed by the Corporation with the
Secretary of State for the State of Colorado designating a principal office)
addressed to the attention of the secretary of the Corporation;
(c) By the secretary of the corporation wherever the secretary may
be found; or
(d) By any other person authorized from time to time by the board of
directors, the president, or the secretary to receive such writings, wherever
such person is found.
4. AMENDMENT OF BYLAWS. These Bylaws may at any time and from time
to time be amended, supplemented, or repealed by the board of directors.
-------------------------------------
The undersigned Secretary certifies the foregoing bylaws as the bylaws
of Kolorfusion International, Inc.
Dated _______________________
----------------------------------------
Stephen R. Nagel, Secretary
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