SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ____ to ____
Commission File Number: 000-26425
NextPath Technologies, Inc.
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(Exact name of registrant as specified in its charter)
NEVADA 84-1402416
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1615 N. 24th West Avenue
Tulsa, Oklahoma 74127
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(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: 918-295-8289
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
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As of May 15, 2000, there were 40,235,775 shares of our common stock
outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NextPath Technologies, Inc.
Consolidated Financial Statements
March 31, 2000
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
NextPath Technologies, Inc.
Tulsa, Oklahoma
We have reviewed the accompanying condensed consolidated balance sheet of
NextPath Technologies, Inc. as of March 31, 2000 and the related condensed
consolidated statements of income and cash flows for the period then ended.
These financial statements are the responsibility of the company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet as of December 31, 1999, and the related statements
of income, retained earnings, and cash flows for the year then ended (not
presented herein); and in our report dated May 12, 2000, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed balance sheet as of December
31, 1999, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
The accompanying statements of operations and cash flows for the period ended
March 31, 1999 were not audited or reviewed by us and, accordingly, we do not
express an opinion on them.
Crouch, Bierwolf & Chisholm
May 17, 2000
<PAGE>
NextPath Technologies, Inc.
Consolidated Balance Sheets
Assets
<TABLE>
<CAPTION>
March 31, December 31,
Current assets 2000 1999
------------ -------------
<S> <C> <C>
Cash $ 555,356 $ 658,837
Accounts receivable (net of allowance
Of $41,480) 389,498 282,051
Inventory 513,158 138,057
Prepaid expenses 29,455 42,674
Advances to shareholders 43,192 6,487
Advances & notes receivable (net of
allowance of $1,360,075 and $1,235,075) 5,891,512 3,260,161
------------ -----------
Total Current Assets 7,422,171 4,388,267
------------ -----------
Property & Equipment, Net 1,356,012 535,179
------------ -----------
Other Assets
Investments 2,600,000 2,600,000
Goodwill 24,264,239 17,883,754
Deposits 5,530 4,250
----------- -----------
Total Other Assets 26,869,769 20,488,004
----------- -----------
Total Assets $35,647,952 $25,411,450
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 753,179 384,148
Accrued expenses 961,666 192,654
Deferred taxes 14,882 14,882
Notes payable - related party 5,652,179 3,455,869
----------- -----------
Total Current Liabilities 7,381,906 4,047,553
----------- -----------
Stockholders' Equity
Common Stock, authorized
100,000,000 shares of $.001 par value,
issued and outstanding 39,935,775 and
37,136,430 shares, respectively 39,936 37,136
Additional Paid in Capital 73,829,101 58,623,056
Deficit Accumulated During the
Development Stage (45,602,991) (37,296,295)
----------- -----------
Total Stockholders' Equity 28,266,046 21,363,897
----------- -----------
Total Liabilities and Stockholders' Equity $35,647,952 $25,411,450
=========== ===========
</TABLE>
<PAGE>
NextPath Technologies, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
March 31 March 31
2000 1999
----------- -----------
<S> <C> <C>
SALES $ 931,900 $ -
COST OF GOODS SOLD 889,940 -
----------- ----------
GROSS PROFIT 41,960 -
----------- ----------
OPERATING EXPENSES
General And Administrative Expenses 3,193,945 70,943
Consulting Expense 3,675,000 35,278
Sales 171,018 -
Research and Development - -
TOTAL OPERATING EXPENSES 7,039,963 106,221
---------- ----------
OPERATING INCOME (LOSS) (6,998,003) -
---------- ----------
OTHER INCOME AND (EXPENSES)
Interest Expense (10,693) -
Dividend income 30,000 -
Other Income/(loss) 6,869 -
Depreciation and Amortization (1,338,306) -
Interest Income 3,437 -
---------- ----------
Total Other Income and (Expenses) (1,308,693) -
---------- ----------
NET INCOME (LOSS) $(8,306,696) (106,221)
========== ==========
NET INCOME (LOSS) PER SHARE $ (.215) $ (.012)
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 38,548,381 8,523,510
========== ==========
</TABLE>
<PAGE>
NextPath Technologies, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
March 31, March 31,
2000 1999
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Cash Flows From Operating Activities
<S> <C> <C>
Net income (loss) $(8,306,696) $(106,221)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Used in Operating Activities:
Depreciation & Amortization 1,338,306 -
Bad Debt 125,000 -
Stock issued for services 3,675,000 -
Change in Assets and Liabilities (Net of
effects of acquisition of Essentia)
(Increase) Decrease in:
Accounts Receivable (11,782) -
Inventory (296,354) -
Prepaid Expenses 34,410 -
Increase/(decrease) in:
Accounts Payable and Accrued Expenses 1,011,186 (27,180)
Deferred Expenses - -
---------- --------
Net Cash Provided (Used) by Operating Activities (2,430,930) (133,401)
---------- --------
Cash Flows from Investing Activities
Cash paid for Notes Receivable (2,937,350) (106,518)
Purchase of Property and Equipment (583,127) -
Cash paid for deposits (1,280) -
Cash acquired in acquisition 55,142 -
---------- --------
Net Cash Provided (Used) by Investing Activities (3,466,615) (106,518)
---------- --------
Cash Flows from Financing Activities
Proceeds from debt financing 2,522,515 82,000
Principal payments on debt financing (608,000) -
Stock issued for cash 3,879,549 157,919
---------- --------
Net Cash Provided (Used) by Financing Activities 5,794,064 239,919
---------- --------
Net Increase (Decrease) in Cash and Cash Equivalents (103,481) -
---------- --------
Cash and Cash Equivalents
Beginning 658,837 -
---------- --------
Ending $ 555,356 $ -
========== ========
Supplemental Disclosures of Cash Flow Information:
Cash payments for interest $ 10,693 $ 6
========== ========
Cash payments for income taxes $ - $ -
========== ========
Supplemental Schedule of Noncash Investing and
Financing Activities
Common shares issued for services $ 3,675,000 $ -
========== ========
</TABLE>
<PAGE>
NextPath Technologies, Inc.
March 31, 2000
NOTES TO FINANCIAL STATEMENTS
NextPath Technologies, Inc. (the "Company") has elected to omit
substantially all footnotes to the financial statements for the three
months ended March 31, 2000, since there have been no material changes
(other than indicated in other footnotes) to the information
previously reported by the Company in their Annual Report filed on
Form 10- K/A for the Fiscal year ended December 31, 1999.
UNAUDITED INFORMATION
The information furnished herein was taken from the books and records
of the Company without audit. However, such information reflects all
adjustments which are, in the opinion of management, necessary to
properly reflect the results of the period presented. The information
presented is not necessarily indicative of the results from operations
expected for the full fiscal year.
ACQUISITION OF ESSENTIAL WATER, INC.
On January 21, 2000, the Company acquired Essentia Water, Inc., a
Woodinville Washington based bottled water marketing company. The
Company issued 585,760 shares for all the outstanding stock of
Essentia. The purchase was recorded at a value of $7,654,294. Essentia
had assets of $543,974 and liabilities of $526,857 at December 31,
1999. Goodwill of $7,676,487 was recorded in the acquisition. The
operating history of Essentia is included in the consolidated numbers
of the Company effective January 1, 2000. The acquisition was recorded
using the purchase method of a business combination.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995.
This 10-Q contains statements that plan for or anticipate the future.
Forward-looking statements include statements about future business plans and
strategies and most other statements that are not historical in nature. In this
10-Q, forward-looking statements are generally identified by the words
"anticipate," "plan," "believe," "estimate," and the like. Because
forward-looking statements involve future risks and uncertainties, there are
factors that could cause actual results to differ materially from those
expressed or implied, including, but not limited to, our ability to obtain
infusion of equity capital or financing on terms reasonably satisfactory to us,
competition, changes in consumer trends, and competitors' marketing strategies.
These forward-looking statements are based on our current expectations or those
of the preparer of the statement. Readers of this 10-Q are cautioned not to
place undue reliance on the forward-looking statements. The forward-looking
statements included in this 10-Q are made as of the date of this 10-Q and we
don't undertake any obligation to update them to reflect subsequent events or
circumstances.
The terms "NextPath," the "Company," "we," "our" and "us" refer to
NextPath Technologies, Inc. and its subsidiaries and affiliates unless the
context suggests otherwise.
Overview
We are a development stage holding company that identifies, acquires and
manages what we believe to be state-of-the-art technology companies that
together form a community of shared resources. We are organized into four
operating groups as follows: Precision Technologies Group, Electronic Commerce
Group, Environmental Technologies Group and Health Products Group.
We don't have any significant operating history other than that of our
wholly owned subsidiaries. We currently derive all of our revenue from the
operations of our wholly owned subsidiaries and from our other investments. We
intend to continue to identify and pursue acquisitions which provide attractive
investment opportunities, particularly when we can add value through our
technical expertise. Our operating expenses are comprised of our general and
administrative overhead and the expenses of our subsidiaries.
We intend to provide our subsidiaries with sufficient funds so that they
can grow their businesses nationally and internationally by effectively
developing, marketing and expanding their products, services and market base.
However, absent an infusion of equity capital or financing on terms acceptable
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to us, we do not believe that we have the liquidity and capital resources
necessary to operate our business and those of our subsidiaries for the
foreseeable future. We are actively engaged in negotiations with debt and equity
sources and we will continue to purse all such options on an aggressive basis.
First Quarter Transactions
The following is a summary of our transactions during the first quarter
of 2000:
o On January 21, 2000, we acquired Essentia Water, Inc.
o On January 28, 2000, our wholly owned subsidiary, NextPath
Environmental Services, Inc. ("NES"), formed a limited liability
company with Thermogenics, Inc. named NextPath Thermogenics, LLC,
but NES has not made all of its intitial required $1,750,000
capital contribution.
o On January 24, 2000, NES formed a limited liability company with
Tetra Separation Systems, LLC named NextPath Separation
Solutions, LLC, but NES has not yet made its initial required
$5,000,000 capital contribution.
o Our wholly owned subsidiary, NextPath AES, Inc. ("NAES") has
negotiated an Asset Purchase Agreement to acquire all of the
assets of Agri-Covers, Inc., but a definitive agreement has not
been signed pending funding by NAES.
o On April 4, 2000, we executed a definitive agreement to acquire
20% of US Certified Letters, LLC ("USCL"), which has licensed the
right to proprietary technology for transmitting any instruments
by certified mail via the Internet or other medium (the "C-mail
Technology") within the continential United States, Alaska and
Hawaii (the "USCL Transaction"). Closing is set to occur on or
before June 4, 2000.
o On April 4, 2000, our wholly owned subsidiary, Global Certified
Mail, Inc. ("GCM"), signed a License Agreement by which it
licensed the C-mail Technology for use outside of the
continential United States, Alaska and Hawaii in exchange for
which GCM transferred 20% of its stock to the Licensor (the "GCM
Transaction"). Closing is set to occur on or before June 4, 2000.
Our Business
Through our wholly owned subsidiaries, we're currently involved in the
following businesses:
o We design, develop, manufacture and market positioning devices
known as gimbals.
o We design and market motion control systems.
o We design and market wireless communication technology.
o We design and market fiber optic switching and other fiber optic
technology.
o We bottle and market alkaline and electrolyte enhanced premium
water products.
o We develop energy and micro economic systems technology.
o Upon making the required capital contribution to the NextPath
Thermogenics, LLC, we will design, engineer, fabricate, own,
sell, lease and operate systems which convert waste products to
energy.
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<PAGE>
o Upon making the required capital contribution to the Separation
Solutions, LLC, we will design, engineer, fabricate, own,
operate, market and sell systems which remove waste products from
soil and water.
o Upon closing the USCL Transaction, we will be involved in the
commercialization and marketing of the C-mail Technology within
the continental United States, Alaska and Hawaii.
o Upon closing the GCM Transaction, we will be engaged in the
commercialization and marketing of the C-mail Technology outside
the continental United States, Alaska and Hawaii.
Our Growth Strategy and Plan of Operation
Our goal is to enhance shareholder value by increasing cash flow,
earnings and the value of our common stock. To successfully reach our goal, we
believe we must implement the following growth strategy and plan of operations
for the foreseeable future: o We must continue to identify, pursue and
capitalize acquisitions that provide attractive investment opportunities,
particularly where we can add value through our technical expertise.
o We must effectively integrate our businesses and technologies.
o We must grow our business nationally and internationally by
effectively developing, marketing and expanding our products and
services and our market base.
o We must continue to identify, attract, retain and motivate
qualified personnel.
o We must continue to identify and close sources of working
capital.
In view of our current working capital, we will need to raise or borrow
additional funds during the foreseeable future to meet the expenditures required
for operating our business. We are actively engaged in negotiations with debt
and equity sources and we will continue to pursue all such options on an
aggressive basis.
Results of Operations
During the first quarter of 2000, we incurred a net loss of $8,306,696
For the same period of 1999, we incurred a net loss of $106,221.
Our first quarter corporate overhead costs include expenses for
corporate infrastructure development, staffing and the establishment of a new
corporate office headquarters in Tulsa, Oklahoma.
Liquidity and Capital Resources
We do not believe that our existing working capital, the anticipated
revenues of our subsidiaries, and the anticipated revenues from our other
investments will be sufficient to fund our cash requirements and capital needs
for the foreseeable future. The extent of additional financing needed will
depend on the success of our business and our ability to identify and pursue
additional acquisitions that provide attractive investment opportunities. While
to the extent possible we intend to fund future acquisitions primarily with our
common stock, most acquisitions require that a portion of the consideration be
in the form of cash. If we significantly increase the operations of our
subsidiaries or our acquisitions beyond planned levels or if our revenues are
lower than anticipated, our cash needs will be increased. In addition, our
future capital requirements will depend on a number of other factors, including
the level of our product research and development, the level of market
acceptance of our goods and services, and the feasibility and extent of
international expansion.
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<PAGE>
Competition from larger and more established companies may hamper
marketability. NextPath and its subsidiaries may face intense competition from
similar, more well-established competitors, including national, regional and
local companies possessing substantially greater financial, marketing, personnel
and other resources than NextPath. NextPath may not be able to market or sell
its products if faced with direct product competition from these larger or more
established companies.
Patents, trademark protection and proprietary marks. Notwithstanding any
potential registration of patents and certain trade names with the United States
Patent Office and the United States Trademark Office, there is no assurance that
NextPath or its subsidiaries would be able to enforce against use of any of the
proprietary products or marks of its subsidiaries. There is also no assurance
that NextPath will be able to prevent competitors from using the same or similar
products, names, marks, concepts or appearances of it or its subsidiaries or
that it will have the financial resources necessary to protect its marks against
infringing use.
Issuance of future shares may dilute investors' share value. The
Articles of Incorporation as amended of NextPath authorizes the issuance of
100,000,000 shares of common stock. The future issuance of all or part of the
remaining authorized common stock may result in substantial dilution in the
percentage of our common stock held by our then existing shareholders. Moreover,
any common stock issued in the future may be valued on an arbitrary basis by us.
The issuance of our shares for future services or acquisitions or other
corporate actions may have the effect of diluting the value of the shares held
by investors, and might have an adverse effect on any trading market.
Current trading market for the Company's securities. Our common stock is
traded on the OTC Bulletin Board operated by Nasdaq under the symbol NPTK. The
NASD has implemented a change in its rules requiring all companies trading
securities on the OTC Bulletin Board to be registered as a reporting company.
The Company was required to become a reporting company by the close of business
on December 15, 1999. NextPath effected the merger with Epilogue on November 11,
1999 and became a successor issuer thereto in order to comply with the reporting
company requirements implemented by the NASD.
Penny Stock Regulation. Our common stock may be deemed a penny stock.
Penny stocks generally are equity securities with a price of less than $5.00 per
share other than securities registered on certain national securities exchanges
or quoted on the Nasdaq Stock Market, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system. Our securities may be subject to "penny stock rules" that
impose additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 together with their spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of such securities and have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the "penny stock rules"
require the delivery, prior to the transaction, of a disclosure schedule
prescribed by the SEC relating to the penny stock market. The broker-dealer also
must disclose the commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information on the
limited market in penny stocks. Consequently, the "penny stock rules" may
restrict the ability of broker-dealers to sell our securities. The foregoing
required penny stock restrictions will not apply to our securities if such
securities maintain a market price of $5.00 or greater. As of the date of this
10-K/A, the trading price of our common stock is less than $5.00 per share, and
there can be no assurance that the price of our securities will exceed such a
level.
We are currently operating at a loss. Until the recent acquisition of
Sagebrush, Willow, LaserWireless and Essentia, we had no operations or revenues
and we borrowed funds or sold our securities to begin our operations and fund
our acquisitions. Our ability to develop operations is dependent upon our
ability to acquire companies for which we will need to raise capital through the
placement of our securities or from other debt or equity financing. If we are
not able to raise such financing or to obtain alternative sources of funding,
management will be required to curtail operations. There is no assurance that we
will be able to continue to operate if additional sales cannot be generated.
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We have a limited operating history. We have only a limited history of
operations which to date have not been profitable. Our operations are subject to
the risks and competition inherent in the establishment of a relatively new
business enterprise. There can be no assurance that future operations will be
profitable. Revenues and profits, if any, will depend upon various factors,
including market acceptance of its concepts, market awareness, reliability and
acceptance of the Internet, dependability of its distribution network, and
general economic conditions. There is no assurance that we will achieve our
expansion goals and the failure to achieve such goals would have an adverse
impact on us.
Possible inability to finance acquisitions. In transactions in which we
agree to acquire a company for cash, we will have to locate financing from
third-party sources such as banks or other lending sources or we will have to
raise cash through the sale of our securities. There is no assurance that such
funding will be available to us when required to close a transaction or if
available on terms acceptable to us.
Operation of LaserWireless business involves the use of lasers.
LaserWireless utilizes lasers. Although the lasers are of relatively low power
and to be located in unpopulated areas such as rooftops and although the laser
devices are marked with "hazard" signs, there can be no assurance that passersby
will not cross the path of a laser, causing damage to the eyes or causing other
health hazards.
Unforeseen risks of acquired companies. Companies that may be acquired
by us or with which we enter into business relationships may face competition
from more-established or better financed companies. In addition, any one or more
of these companies may produce or manufacture equipment, technology or other
goods that pose inherent risks in production or operation. It is impossible to
foresee these risks herein, but we will consider such risks before entering into
any business combination.
Our acquisition program may lead to uncertain liabilities. We are
currently engaged in an active acquisition program. Although we evaluate all
potential acquisitions, the acquisition of going concerns could potentially lead
to the acquisition of the target company's liabilities, including patent and
trademark infringement claims, product liability claims, breach of contract
claims, or shareholder derivative claims. There can be no assurance that any
companies that we acquire are free of potential liabilities.
THE PRECISION TECHNOLOGY GROUP
------------------------------
In General
The Precision Technologies Group (the "PTG") consists of three wholly
owned subsidiaries: LaserWireless, Inc. ("LaserWireless"), located in Lancaster,
Pennsylvania; Willow Systems, Inc. ("Willow"), located in Albuquerque, New
Mexico; and Sagebrush Technology, Inc. ("Sagebrush"), located in Albuquerque,
New Mexico. In turn, Willow owns NextWave Photonics, LLC and Reflex LLC and
holds a stock position in Skycam Systems, Inc. Together, these entities design,
engineer, manufacture, and market precision motion control systems, laser
communications systems, and purpose-designed, precision-controlled imaging
systems. Additionally, Willow, through NextPath Photonics, is engaged in
feasibility and design work on a solid state optical switching system.
First quarter operating costs for the Precision Technology Group
reflect the addition of full time professional/managerial staff to take a new
look at costs and pricing, institute program management and project management
systems, improve operational efficiency, and achieve ISO certification.
Sagebrush Technologies, Inc.
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Overview
Sagebrush is an engineering and manufacturing company specializing in
providing innovative solutions based primarily on its patented Roto-Lok(R)
rotary drive technology. Its principal executive offices are located at 10300-A
Constitution, NE, Albuquerque, New Mexico 87112. Its telephone number is (505)
299-6623. Its website is www.sagebrushtech.com.
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Growth Strategy and Plan of Operations
Sagebrush designs, develops, manufactures and markets positioning
devices. Its objective is to bring the latest technologies and best engineering
talents together to address its clients' needs. Its business philosophy is to
provide products that meet specifications, are safe to use, are kind to the
environment, are fairly priced, and are delivered on time. Sagebrush's growth
strategy will be to increase its production of positioning devices and other
quality products and to expand its customer base through an aggressive
advertising and marketing campaign to publicize its products. Key elements of
its growth strategy include:
Products. Sagebrush provides products, systems and Original Equipment
Manufacture (OEM) activators for applications that require state of the art
precision, smoothness, reliability and cost effective performance in all types
of environment. Its specialties include:
o laser communications gimbal systems
o low earth orbit satellite tracking systems
o stabilized platforms and gimbals
o medical and industrial activators and turntables
Gimbals are positioning devices. The mechanism that supports a telescope
so it can look at all different parts of the sky is a typical gimbal. It is most
often called a telescope mount but it can gimbal or swing in two axes, up and
down and side to side. Most people have seen gyroscopes that are mounted in a
gimbal arrangement so the gyroscope wheel stays oriented in the same direction
even when the base of the gimbal is rotated. Gyroscopic gimbal systems are used
in ships, airplanes, missiles and many other applications to indicate a stable
reference plane, even when the vehicle is pitching, rolling or changing
direction.
Antenna positioners are the devices that point antennas at a target.
Satellite antennas that are portable such as those used by the military, by the
networks or by local television stations require positioners that can lay the
antenna down flat during transit, then quickly raise it up and point it
accurately at a satellite. The large surface area of an antenna acts as a sail
in high winds. To keep the antenna pointed at the satellite, the antenna
positioner must be extremely stiff. The Sagebrush Roto-Lok(R) rotary drive
provides the stiffest drive currently available.
Sagebrush manufactures and sells several innovative products including a
20 lb. capacity Model-20 Pan & Tilt Gimbal.
Product Research and Development. Sagebrush believes that strong product
research and development capabilities are essential to maintain a competitive
edge with its products. Since inception, it has focused its research and
development efforts on developing the finest gimbals and other positioning
devices available. Its research and development efforts will continue.
Target Market. A major part of Sagebrush's business is supplying rotary
drive systems on an OEM basis for military, industrial, space, commercial,
aerospace, medical and research applications. Its products can be provided to
fit a customer's particular application.
The basic idea of the Roto-Lok(R) drive is the essence of simplicity.
But what this simplicity delivers to Sagebrush's customers is unparalleled
performance and cost benefits that go right to their bottom line. For some
customers the Roto-Lok(R) drive solution allows them to proceed with a project
that otherwise might not be possible to complete - at any cost. For other
customers, Roto-Lok(R) drive technology is providing a major advantage in their
quest for superior quality and cost effectiveness.
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Sagebrush Technology. Sagebrush owns all rights to United States Patent
No. 5,105,672 issued on April 21, 1992 and entitled "Rotary Drive Apparatus
Having One Member with Smooth Outer Peripheral Surface." It also owns all title
to the registered trademark "Roto-Lok," Serial No. 73-451065 (Registration No.
1347219) dated July 9, 1985.
The Roto-Lok(R) rotary drive is an elegantly simple, yet powerful,
technology that utilizes the averaging effect of many cables - each sharing the
load - wrapped around a drive capstan and a driven drum. It was originally
invented as an inexpensive way to rotate large observatory telescopes accurately
and smoothly. Traditionally, precision gears have been used to position those
loads. However, even the best gears suffer from high friction, drive
irregularities and backlash, and they are expensive. They also require costly
precision sealed housings to support the gears and their lubricants and to keep
them clean. All Roto-Lok(R) rotary drive machined components are smooth and
round, making the parts easy to produce. The many cables serve to average the
rotation rate so that imperfections, dirt or other slight irregularities on a
single cable or drum do not have a significant effect. This results in superb
drive smoothness with no cogging or drive rate irregularity.
The following are some of the many advantages and benefits of the Roto-
Lok(R) rotary drive:
o The load bearing elements (cables) are statically tensioned to
increase the no-load stiffness of the drive. In a gear drive,
that tensioning will create friction and shorten the useful zero-
backlash life of the gears.
o Many load bearing elements can be paralleled to meet the peak
load requirements without significantly impacting the cost while
simultaneously improving the precision of the drive.
o The use of multiple cables virtually eliminates "cogging" found
in traditional gear drives. Near-perfect smoothness can be
attained with a properly designed drive because of the averaging
effect of the many cables.
o Where weight and power are at a premium, the Roto-Lok(R) drives
excel because they produce superior performance along with a 60%
to 70% savings in both weight and power. Because the drive is
stiff and efficient, smaller motors, wiring and power supplies
can be used.
The three primary performance attributes of the Roto-Lok(R) rotary drive
are its extremely high torsional stiffness, its high torque capacity, and its
total freedom from backlash.
Manufacturing Strategy. Sagebrush's ongoing manufacturing strategy will
be designed to increase capacity, improve quality, and reduce costs. It plans to
gradually increase its production in order to sustain its projected growth. In
any given year, its ability to reach its targeted production level will depend
upon, among other factors, its ability to (i) continue to realize production
efficiencies at its existing production facilities through implementation of
innovative manufacturing techniques and other means, (ii) successfully implement
production capacity increases in its facility, and (iii) sell all of the
products it can produce.
Sagebrush will not manufacture any of the parts it needs to produce its
products and it'll have to rely on outside suppliers to provide them.
Sagebrush's income projections are as follows:
<TABLE>
<CAPTION>
Sagebrush Income Projections
----------------------------
2000 2001 2002 2003
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $4,739,450 $5,269,750 $8,049,750 $8,199,750
Operating Costs and Expenses 5,894,168 4,681,178 7,043,531 7,051,785
--------- --------- --------- ---------
Income (Loss) From Operations (1,154,718) 578,573 1,006,219 1,147,965
Other income (Expenses) -- -- -- --
Net Income (Loss) (1,154,718) 578,573 1,006,219 1,147,965
</TABLE>
-8-
<PAGE>
Marketing Strategy. Sagebrush will conduct an aggressive advertising and
marketing campaign to publicize its products. Sagebrush believes that its
potential customers can best be reached through advertising in trade shows,
technical publications and direct marketing and on the Internet.
Sagebrush Facility
Sagebrush's executive offices and manufacturing facility are located in
a light industrial area in Albuquerque. They consist of approximately 10,650
square feet of leased space under a lease which expires in July 2000.
Competition
Sagebrush believes that it is at the forefront in the design,
development and manufacturing of positioning devices and related products. It
emphasizes quality, reliability, cost-effectiveness and timely delivery.
Nonetheless, other companies are engaged in the design, development and
manufacturing of positioning devices and related products which may be
competitive with Sagebrush's products. Many of those entities have substantially
greater financial, technical, manufacturing, marketing, distribution or other
resources than Sagebrush. Sagebrush's profitability will depend upon its ability
to compete in its market area.
Product Liability
The sale of its products may expose Sagebrush to product liability
claims. It believes that its products are, and will be, safe and that it will be
able to obtain product liability insurance at a reasonable cost. However, in the
event of an uninsured or inadequately insured product liability claim, or in the
event of an indemnification claim by a third party, Sagebrush's business and
financial condition could be materially adversely affected.
Regulation
Sagebrush's products and business may be subject to federal, state and
local regulations, including environmental regulations. Sagebrush can't
calculate exactly how much it will cost to comply with government regulation,
but it will try to ensure that its facilities and products comply with all
applicable regulations and standards. In any event, it doesn't think that the
cost of compliance will materially affect its financial condition.
Management
Sagebrush is currently managed by August Sanchez, its Vice President.
Don Carson, the founder of Sagebrush and the inventor of the Roto-Lok(R) drive
system with nearly 40 years experience developing precision mechanical and
opto-mechanical systems for worldwide research, industrial, military, aerospace,
medical and commercial customers, serves as a consultant to Sagebrush under a
Consulting Agreement which expires in December, 2003.
Employees
As of May 8, 2000, Sagebrush employed twenty-seven full-time employees
and two part-time employees. None of Sagebrush's employees is represented by a
union and management believes its employee relations are good.
Operating Results
The results in the following table do not necessarily indicate results
Sagebrush will achieve in the future.
-9-
<PAGE>
<TABLE>
<CAPTION>
Sagebrush Operating Results
---------------------------
Three Months Ended March 31,
2000 1999(1)
------ -----
Income Statement Data:
<S> <C> <C>
Revenues $ 665,796 $ 461,329
Cost of Goods Sold 492,790 119,389
Selling, General and Administrative Expenses 335,967 219,319
Income (Loss) from Operations (162,961) 122,621
Depreciation 9,608 0
Other Income 8,053 2,151
Net Income (Loss) $ (164,516) $ 124,595
========= =========
Balance Sheet Data:
Current Assets $ 780,615 $ 363,975
Property and Equipment 289,200 36,839
Other Assets 3,250 0
Total Assets (2) 1,073,065 400,815
Current Liabilities 246,979 326,472
Long-Term Debt 1,518,641 0
Total Liabilities 1,765,620 0
Retained Earnings (Accumulated Deficit) (638,869) 1,765,620
Common Stock 140 20,219
Paid in Capital 110,690 0
Current Earnings (164,516) 124,595
Stockholder Equity (692,555) 74,342
Total Liabilities & Shareholder Equity $1,073,065 $ 400,815
========= =========
- --------------------------------
</TABLE>
(1) Sagebrush was acquired in December 1999.
(2) Net of Accumulated depreciation and amortization
Sagebrush's first quarter income includes direct customer billings for
engineering services performed by Willow on Sagebrush customer contracts.
Additional marketing costs are a result of increased trade show participation
and other product promotions performed in the first quarter of 2000. Additional
general and administrative costs are a result of the Sagebrush management and
business merger transition activities.
Willow Systems, Inc.
- --------------------
Overview
Willow is an engineering and manufacturing company specializing in
providing custom real-time motion control and electronics solutions. Its
principal executive offices are located at 15100 Central Avenue SE, Albuquerque,
New Mexico 87193. Its telephone number is (505) 299-2486. Its website is
www.willowsystems.com.
Growth Strategy and Plan of Operations
Willow specializes in translating its customers' motion control
requirements into reliable, custom hardware solutions. Its objective is to bring
the latest technologies and best engineering talents together to address its
clients' needs. Its business philosophy is to provide products that meet
specifications, are safe to use, are kind to the environment, are fairly priced,
and are delivered on time. Willow's growth strategy will be to increase its
production of motion control devices and other quality products and to expand
its customer base through an aggressive advertising and marketing campaign to
publicize its products. Key elements of its growth strategy include:
Willow designs and markets custom motion control, robotics and
electronics solutions with leading edge technologies in the areas of gimbals and
photographic/electro-optical systems. Willow has the capability to translate
real-time motion control requirements into reliable, hardware solutions, and its
technologies have potential application in a wide range of businesses.
-10-
<PAGE>
Willow is also engaged in the business of designing and developing new
and innovative MicroElectro Mechanical Systems ("MEMS") technology and
associated controls and electronics, primarily for optical applications. MEMS
are machines so small that they are imperceptible to the human eye.
Willow is also developing a high-speed fiber optic switch that will
control communications routing over fiber optic networks. This switch will be
compatible with the high capacity wavelength division multiplexed ("WDM") fiber
optic systems that are expected to dominate the fiber optic communications
market over the next decade.
Products. Willow provides gimbals, camera and electro-optical systems.
Its specialties include:
o Gimbals and pedestals
o real-time control systems
o specialized board designs
o analog designs
o camera systems
o real-time micro controller, DSP, and state machine designs
Product Research and Development. Willow believes that strong product
research and development capabilities are essential to maintain a competitive
edge with its products. Since inception, it has focused its research and
development efforts on developing the finest motion control systems available.
Its research and development efforts will continue.
Target Market. A major part of Willow's business is supplying motion
control systems on an OEM basis for military, industrial, space, commercial,
aerospace, and motion picture applications. Its products can be provided to fit
a customer's particular application.
Willow uses focused system engineering approach to all of its projects.
It is able to do this because it possesses a very broad range of expertise in
all aspects of precision motion control and electro-optical systems, and in
supporting engineering disciplines. Willow specializes in precision-engineered
solutions - cutting-edge design, engineering, manufacturing, testing, and
customer support - to provide maximum value for its customer's program dollar.
Willow applies this systems approach using integrated product
development teams. Each development team typically includes not only the
internal engineering and management capabilities required for a project, but its
customers and key suppliers as well. Regular technical interchange ensures that
Willow remains focused on its customers' needs and provides timely visibility
throughout the design process. Involvement of essential suppliers helps ensure
that components and subsystems meet design parameters. This integrated product
development approach helps to provide its customers with a product that is
reliable, manufacturable, high-quality and that will test to the customer's
specifications.
Manufacturing Strategy. Willow's ongoing manufacturing strategy will be
designed to increase capacity, improve quality, and reduce costs. It plans to
gradually increase its production in order to sustain its projected growth. In
any given year, its ability to reach its targeted production level will depend
upon, among other factors, its ability to (i) continue to realize production
efficiencies at its existing production facilities through implementation of
innovative manufacturing techniques and other means, (ii) successfully implement
production capacity increases in its facility, and (iii) sell all of the
products it can produce.
-11-
<PAGE>
Willow will assemble its products; however Willow will not manufacture
all of the parts it needs to produce its products and it'll have to rely on
outside suppliers to provide most of them.
Willow's income projections are as follows:
<TABLE>
<CAPTION>
Willow Income Projections
-------------------------
2000 2001 2002 2003
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $1,234,664 $20,164,000 $45,823,250 $91,726,000
Operating Costs and Expenses 1,109,562 18,066,944 40,920,162 61,636,140
--------- ---------- ---------- ----------
Income (Loss) From Operations 125,100 2,097,056 4,903,088 10,089,860
Other income (Expenses) -- -- -- --
Net Income (Loss) 125,100 2,097,056 4,903.088 10,089,860
</TABLE>
Marketing Strategy. Willow will conduct an aggressive advertising and
marketing campaign to publicize its products. Willow believes that its potential
customers can best be reached through advertising in technical publications,
trade shows and direct marketing and on the Internet.
Willow Facility
Willow's executive offices and manufacturing facility are located in a
light industrial area in Albuquerque. They consist of approximately 5,960 square
feet of leased space under a lease which expires in October 2001.
Competition
Willow believes that it is at the forefront in the design, development
and manufacturing of motion control devices and related products. It emphasizes
quality, reliability, cost-effectiveness and timely delivery. Nonetheless, other
companies are engaged in the design, development and manufacturing of motion
control devices and related products which may be competitive with Willow's
products. Many of those entities have substantially greater financial,
technical, manufacturing, marketing, distribution or other resources than
Willow. Willow's profitability will depend upon its ability to compete in its
market area.
Product Liability
The sale of its products may expose Willow to product liability claims.
It believes that its products are, and will be, safe and that it will be able to
obtain product liability insurance at a reasonable cost. However, in the event
of an uninsured or inadequately insured product liability claim, or in the event
of an indemnification claim by a third party, Willow's business and financial
condition could be materially adversely affected.
Regulation
Willow's products and business may be subject to federal, state and
local regulations, including environmental regulations. Willow can't calculate
exactly how much it will cost to comply with government regulation, but it will
try to ensure that its facilities and products comply with all applicable
regulations and standards. In any event, it doesn't think that the cost of
compliance will materially affect its financial condition.
Management
Willow is currently managed by Doug Elerath, its President, and Sam
Rogers, Jr., its Vice President.
-12-
<PAGE>
Employees
As of May 8, 2000, Willow employed twenty-two full-time employees and
two part-time employees. None of Willow's employees is represented by a union
and management believes its employee relations are good.
Operating Results
The results in the following table do not necessarily indicate results
Willow will achieve in the future.
<TABLE>
<CAPTION>
Willow Operating Results
------------------------
Three Months Ended March 31,
2000 1999(1)
------ -----
Income Statement Data:
<S> <C> <C>
Revenues (Net Sales)(2) $ 0 $ 316,373
Cost of Goods Sold (2) 219,629 180,318
General and Administrative Expenses 493,605 75,971
Income (Loss) from Operations (713,234) 60,084
Depreciation 18,791 0
Other Income 300 35
Net Income (713,725) 60,119
========= =========
Balance Sheets Data:
Current Assets 286,440 268,781
Property and Equipment 567,005 30,109
Other Assets 1,280 0
Total Assets (3) 854,725 298,890
Current Liabilities 485,459 55,874
Long Term Debt 1,682,241 0
Total Liabilities 2,167,700 55,874
Common Stock 200 200
Retained Earnings (Accumulated Deficit) (581,450) 182,698
Current Earnings (731,725) 60,119
Shareholder Equity (1,312,975) 243,017
Total Liabilities & Shareholder Equity 854,725 298,890
- -------------------------------- ========= =========
</TABLE>
(1) Willow Systems was acquired in November 1999.
(2) See narative disclosure below: Sales and transfer pricing.
(3) Net of accumulated depreciation and amortization.
Willow had no revenue for the first quarter of 2000. The accounting of transfer
pricing between Willow and Sagebrush was not completed until May 2000. Willow
performed engineering services under Sagebrush customer contracts. Sagebrush
billed and held all contract service amounts with no revenue transfer to Willow
during the first quarter.
First quarter revenue was delayed by uncertainties over the NextPath and Willow
merger closing. This impacted work scheduling and performance for a number of
engineering contracts.
Willow experienced increases in several labor cost accounts from 1999 to 2000.
After the merger was completed in November 1999, staff was added to accelerate
and improve efforts on existing projects and prepare for new projects. The staff
additions also provide Willow with broader program and project management
capabilities.
LaserWireless, Inc.
- -------------------
LaserWireless, which began its operations in 1999, specializes in the
development, sale and support of state-of-the-art wireless optical communication
systems capable of transmitting video, voice, telephone and data through the
atmosphere using eye-safe laser technology. This capability offers a solution
for private communications where a leased line cannot be used, for example, when
land is not owned between two sites or where physical barriers, such as rivers,
highways, parking lots, etc., prevent use of conventional cables. The systems
include full time electronic tracking for maximum availability. Its principal
executive offices are located at 2145 Lincoln Plaza, Lancaster, Pennsylvania.
Its telephone number is (877) 527-3757. Its website is www.laserwireless.com.
-13-
<PAGE>
Growth Strategy and Plan of Operations
LaserWireless designs, develops, manufactures and markets
state-of-the-art atmospheric laser communications equipment for voice, video,
phones and data. Its objective is to bring the latest technologies and best
engineering talents together to address its clients' needs. Its business
philosophy is to provide products that meet specifications, are safe to use, are
fairly priced, and are delivered on time. LaserWireless' growth strategy will be
to increase its production of laser communications systems and other quality
products and to expand its customer base through an aggressive advertising and
marketing campaign to publicize its products. Key elements of its growth
strategy include:
Products. There is a growing need in today's information society to
augment existing communication systems with reliable, high bandwidth
communication capability. Laser communication systems provide users with an
alternative to traditional copper or fiber communications pathways.
LaserWireless systems facilitate immediate communication enhancements with full
network interface support.
The LaserWireless LightBridge 155 communication system features
electronic tracking to ensure continuous alignment of both transmitting and
receiving optical links. A typical system consists of two Laser Transceivers and
two Digital Remote Status Monitors. The Laser Transceivers provide a high speed
full-duplex data link between sites, while the Remote Status Monitors allow the
user to verify correct system operation. Two advance features - Full Time
Electronic Tracking and Remote Factory Diagnostics - ensure the highest levels
of reliability and availability. Currently the system will support data rates to
155 million bits per second (Mbps) with a range to 2.5 kilometers (1.5 miles).
Development plans include systems supporting tomorrow's ultra-high data rates.
Other features include remote status monitoring and diagnostics, both supported
by 24-hour technical support.
Product Research and Development. LaserWireless believes that strong
product research and development capabilities are essential to maintain a
competitive edge with its products. Since inception, it has focused its research
and development efforts on developing the finest laser communication devices
available. Its research and development efforts will continue.
Target Market. Current applications for LaserWireless products include
university and office campuses, building-to-building communications, military
mobile communications, emergency communication networks and temporary
communications. Important military applications include mobile, high bandwidth
communications using a battery-powered system that is easily transportable,
non-detectable, and secure. Emergency communication needs arise in disaster
areas where damage has occurred to above ground or underground communication
systems. Other temporary communication needs include conventions, expositions,
trade shows, and mobile command and control.
LaserWireless is preparing for the future of high-speed communications
with system development efforts focused on providing 622 Mbps and 2+ Gbps
communication capabilities.
LaserWireless Technology. LaserWireless' system is the latest technology
in optical communications for distances up to 2.5 kilometers with greater than
95% availability. The system incorporates full real-time electronic tracking to
ensure continuous alignment. The transmitters are easy to install and operate,
requiring only a clear line-of-sight and solid supporting locating for mounting.
Any problems in the field can be diagnosed by the factory using standard phone
lines. The transceivers are field repairable and include full factory support.
There are no license or right-of-way requirements.
The following are some of the features of the LaserWireless system:
o data rates from 1 to 155 Mbps
o 2.5 kilometer range (1.5 miles)
-14-
<PAGE>
o electronic tracking system
o no licensing required
o D.C. operational
o remote status monitor
o complete diagnostics from factory
o 7 plus years MTBF
o waterproof, modular design
o protocol transparent
o highly cost effective
o secure transmission
o very high bandwidth capabilities
o compatible with all network interfaces
o eye-safe design
o certified CSA, UL, CDRH and CE
Manufacturing Strategy. LaserWireless' ongoing manufacturing strategy
will be designed to increase capacity, improve quality, and reduce costs. It
plans to gradually increase its production in order to sustain its projected
growth. In any given year, its ability to reach its targeted production level
will depend upon, among other factors, its ability to (i) continue to realize
production efficiencies at its existing production facilities through
implementation of innovative manufacturing techniques and other means, (ii)
successfully implement production capacity increases in its facility, and (iii)
sell all of the products it can produce.
LaserWireless will not manufacture any of the parts it needs to produce
its products and it'll have to rely on outside suppliers to provide the rest.
LaserWireless' income projections are as follows:
<TABLE>
<CAPTION>
LaserWireless Income Projections
--------------------------------
2000 2001 2002 2003
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $2,311,932 $5,064,740 $10,775,318 $20,599,640
Operating Costs and Expenses 2,018,832 4,001,145 7,679,160 10,923,880
--------- --------- --------- ----------
Income (Loss) From Operations 293,100 1,063,595 3,096,158 9,675,760
Other income (Expenses) -- -- -- --
Net Income (Loss) 293,100 1,063,595 3,096,158 9,675,760
</TABLE>
Marketing Strategy. LaserWireless will conduct an aggressive advertising
and marketing campaign to publicize its products. LaserWireless believes that
its potential customers can best be reached through advertising in trade shows
and direct marketing and on the Internet.
-15-
<PAGE>
LaserWireless Facility
LaserWireless' executive offices and manufacturing facility are located
in a light industrial area in Lancaster, Pennsylvania. They consist of
approximately 10,500 square feet of leased space under a lease which expires in
January 2003.
Competition
LaserWireless believes that it is at the forefront in the design,
development and manufacturing of laser communication systems. It emphasizes
quality, reliability, cost-effectiveness and timely delivery. Nonetheless, other
companies are engaged in the design, development and manufacturing laser
communication systems which may be competitive with LaserWireless' products.
Many of those entities have substantially greater financial, technical,
manufacturing, marketing, distribution or other resources than LaserWireless.
LaserWireless' profitability will depend upon its ability to compete in its
market area.
Product Liability
Although LaserWireless believes its laser systems to be safe at any
distance, the sale of its products may expose LaserWireless to product liability
claims. It believes that its products are, and will be, safe and that it will be
able to obtain product liability insurance at a reasonable cost. However, in the
event of an uninsured or inadequately insured product liability claim, or in the
event of an indemnification claim by a third party, LaserWireless' business and
financial condition could be materially adversely affected.
Regulation
LaserWireless' products and business may be subject to federal, state
and local regulations, including environmental regulations. LaserWireless can't
calculate exactly how much it will cost to comply with government regulation,
but it will try to ensure that its facilities and products comply with all
applicable regulations and standards. In any event, it doesn't think that the
cost of compliance will materially affect its financial condition.
Management
LaserWireless is currently managed by Richard Walter, its President.
Employees
As of May 8, 2000, LaserWireless employed nine full-time employees and
one part-time employee. None of LaserWireless' employees is represented by a
union and management believes its employee relations are good.
Operating Results
The results in the following table do not necessarily indicate results
LaserWireless will achieve in the future.
-16-
<PAGE>
LaserWireless Operating Results
-------------------------------
Three Months Ended March 31,
2000 1999(1)
------ -----
Income Statement Data:
Revenues (Net Sales) $ 0
Operating Expenses 259,797
Operating Income (Loss) (259,797)
Other Income 504
Net Income (Loss) (259,293)
Other Income
Balance Sheet Data:
Current Assets 125,003
Property and Equipment 182,819
Other Assets 1,000
Total Assets (2) 308,821
Current Liabilities 43,589
Long Term Debt 983,656
Total Liabilities 1,027,245
Common Stock 100
Retained Earnings (459,231)
Current Earnings (259,293)
Shareholder Equity (718,424)
Total Liabilities & Shareholder Equity 308,821
- -------------------------------- =========
(1) Not available. Laser Wireless did not conduct operations during the \
first quarter of 1999.
(2) Net of accumulated depreciation and amortization.
LaserWireless did not conduct operations during the first quarter of
1999. In March 1999, we obtained the leased space which we now occupy, but none
of the employees started until October 1999. Richard Walter, LaserWireless'
President, made several trips to Albuquerque to begin the design for the front
end assembly of our proposed system. Since Willow was already chartered with the
early design work using its engineers, Mr. Walter communicated with them on
design issues and they carried on with the work. Mr. Walter spent his time
preparing the leased space for the eventual official opening.
The first quarter of 2000 was extremely different. All ten employees
were officially on staff and the section of the "new" laser system was well
under way. By the end of the first quarter, we had completed the design and were
wating for Willow to deliver the assemblies per our plan. Not only had we
finished their design, on budget, but with several benefits not originally
considered in the original plan concept. In the process of the work, at least
one patent evolved and is presently in the pending process, with probably two
more to come very soon. The new LightBridge 155 will incorporate a brand new
feature not presently being used by anyone in the world to our knowledge, and
that is the incorporation of a Remote Diagnostics with each system. This feature
will allow any customer in the world who experiences a problem to contact us by
telephone. We can access that system anywhere in the world by way of a regular
phone and we can diagnose the problem from the factory. We do not believe that
any of our competitors have this remote diagnostic capability.
LaserWireless is now working on a "new" design to reduce costs and allow
for easier assembly. We believe that this design will position LaserWireless to
enter the higher bandwidth markets with a system that will be at least half the
cost of the competition as we know it today.
LaserWireless had no income for the first quarter.
LaserWireless is in an advanced research and development state. First quarter
operating costs are primarily associated with the planning and preparation of
the LightBridge 155-laser communication system product release.
First quarter expenditures included equipment and hardware asset purchases for
final development and testing of the LightBridge 155.
HEALTH PRODUCTS GROUP
---------------------
Essentia Water, Inc.
-17-
<PAGE>
Overview
Essentia Water, Inc. ("Essentia") is a Woodinville, Washington based
bottled water marketing company acquired by NextPath on January 21, 2000. Its
principal executive offices are located at 24100 State Route 9 SE, Bldg. A,
Woodinville, Washington. Its phone number is (425) 488-9400. Its website is
www.essentiawater.com.
Growth Strategy and Plan of Operations
Essentia is engaged in the business of developing, manufacturing,
packaging, and marketing bottled alkaline and electrolyte enhanced premium water
products with health and hydration benefits. Essentia water is initially
pre-filtered and purified using reverse osmosis and ozonation to achieve 99.9%
purity. A bio-available electrolyte formulation of bicarbonate, magnesium,
potassium, sodium and calcium is added and the water is then processed using
Essentia's ionic separation technology to increase its alkalinity to assist in
balancing the acidic nature of American diets and to aid in producing a smooth
taste. Key elements of its growth strategy include:
Products. Bottled in 20 oz., 1.0 liter and 1.5 liter recyclable P.E.T.
(Polyethylene Terephtalate) bottles, Essentia water is distributed through
natural/health food and retail grocery channels (natural sets only) throughout
the United States. In addition to manufacturing bottled water products under its
own name, Essentia bottles under private labels such as Wild Water(TM) for Wild
Oats Community Markets, the second largest national chain of health food stores;
BonH2O(TM) for The Bon Marche, a flagship brand of Federated Department Stores;
and PETsMART.
In contrast to so many bottled waters, Essentia avoids the use of
"source" water from springs, glaciers, mountains, etc. because of their
inconsistencies. Instead, Essentia's unique process involves first purifying
water to its essence through reverse osmosis, then adding nutrient minerals that
are more bio-available (absorbable) by the body.
As a result, no other bottled water has the unique biological active
properties of Essentia Water. Certified lab analysis verifies that Essentia
(compared to other bottled waters) provides an abundant source of active
hydrogen that "quenches free radicals;" has less cohesion (better saturating
water) thus promoting faster hydration; is higher in alkalinity (+/- 9.5) thus
assisting the body in maintaining proper pH balance by neutralizing acidic
conditions; and delivers a proprietary formula of pure minerals for vital
cellular electrolyte replenishment.
All these active properties enhance the body's innate ability to heal
itself. These unique processes mean Essentia can bottle Essentia Water anywhere
in the world, consistently and within stringent quality assurance standards set
forth by Essentia while incorporating federal and state guidelines as the
foundation. Thus, Essentia Water is lab certified, user endorsed and 100%
satisfaction guaranteed to ensure consumer trust - an important part of
continued purchases and long term brand loyalty.
Product Research and Development. Essentia believes that strong product
research and development capabilities are essential to maintain a competitive
edge with its products. Essentia is committed to making Essentia an
international brand. Essentia realizes that a successful brand is not built by
accident, but requires the brand to become the focal point of the company's
vision. Essentia has gathered a seasoned team of business executives and
industry professionals all committed to research, development and product
engineering to further the Essentia vision.
Target Markets. Essentia currently co-packs, markets, and sells high
alkaline (pH) and electrolyte enhanced bottled water under the brand name
Essentia Water. Bottled in PET - 20 oz., 1.0 liter and 1.5 liter sizes, Essentia
Water is distributed through natural/health food stores and retail grocery
channels (natural sets only) throughout most of the United States. Essentia has
developed a national distribution infrastructure for catalog and Internet sales,
which provides direct delivery to Essentia's customers, adding to its national
distribution capabilities.
Essentia Technology. We believe Essentia Water is the only water of its
kind in the market today. Unlike source waters (spring, glacier, mountain,
etc.), Essentia, using its unique process, removes all foreign minerals and
contaminates commonly known as TDS (total dissolved solids) that survive
standard filtration.
-18-
<PAGE>
Essentia specifications require our water to be purified to < three (3)
parts per million (PPM) TDS. Some source waters have been tested and contain
over 100 times more TDS than Essentia Water. The amount and class of TDS found
in source water as compared to Essentia Water will change from bottle to bottle
giving little consistency to the water taste and profile.
Once Essentia Water is purified, our proprietary, pure electrolyte,
formulation is added. This formulation contains vital pure minerals including
calcium, magnesium, potassium, sodium and bicarbonates the human body requires.
Compared to source water, these minerals can be easily assimilated by the body.
Additionally, our proprietary formulation is tasteless, colorless, odorless and
water soluble.
After the electrolytes have been added, the purified water runs through
our proprietary Ionic Separation Technology. This technology separates the
water's alkaline ions (negative charged) from the acidic ions (positive
charged). Essentia bottles only the alkaline water we call "negative charged."
Essentia water has a pH level to +/- 9.5 compared to source water having an
average pH level of 7.0. A diagram of our process can be found at
www.essentiawater.com.
Marketing Strategy. Essentia's marketing strategy is designed to
increase sales by (i) expanding its product lines, (ii) continuing to increase
its distribution network, and (iii) adding a new east coast production facility
(co-packer). In any given year, its ability to reach its targeted sales level
will depend upon, among other factors, (i) its ability to obtain financial
resources, (ii) market acceptability of its new products, and (iii) its ability
to successfully increase its East coast production capacity.
Financial Summary. Since its inception in July 1998, Essentia has seen
product sales grow from 18,000 cases in the second half of 1998 to 75,000 cases
in 1999. Essentia expects sales of 200,000 cases in year 2000.
<TABLE>
<CAPTION>
Results of Operations: 2000 (forecast) 2001 (forecast)
- ---------------------- --------------- ---------------
<S> <C> <C>
Net Revenues $ 3,111,300 $ 5,093,900
Cost of Goods Sold 1,929,400 2,995,900
--------------- ---------------
Gross Profit 1,181,900 2,098,000
Operating Expenses 1,715,700 1,872,000
Depreciation & Amortization 86,700 111,200
-------------- ---------------
Loss from Operations (620,500) 114,800
Other Income (Expense), Net 57,400 44,600
=============== ===============
Net Income $ (563,100) $ 159,400
(Loss) =============== ===============
</TABLE>
These financial forecasts do not reflect an increase in net revenues
from sources other than those derived by Essentia's normal course of business in
the natural and health foods channels, in both branded and private label product
sales.
Essentia Facility
Essentia's executive offices are located in Woodinville, Washington,
which is located outside Seattle. They consist of approximately 800 square feet
of leased space under a lease which is month to month. Essentia is planning a
corporate office move to Phoenix, Arizona within the next 90 days. Essentia's
current business strategy is to continue to "partner" with contract packing
companies to produce its products under Essentia'a product specifications and
quality control standards. Essentia believes that contract packing
("co-packing") provides the most flexibility and the least capital investment.
Essentia anticipates having multiple plants strategically located around the
United States by the end of 2000. Currently Essentia's co-packers are California
Bottling Company located in Roseville, California and Renegade of America
located in Glendale, Arizona.
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Competition
Essentia believes that Essentia Water is the only water of its kind in
the market today. However, many other water bottlers have substantially greater
financial, technical, bottling, marketing or other resources than Essentia.
Essentia's profitability will depend upon its ability to compete in its market
area.
Product Liability
The sale of its products may expose Essentia to product liability
claims. It believes that its products are, and will be, safe and that it will be
able to continue to obtain product liability insurance at a reasonable cost.
However, in the event of an uninsured or inadequately insured product liability
claim, or in the event of an indemnification claim by a third party, Essentia'a
business and financial condition could be materially adversely affected.
Regulation
Essentia's products and business may be subject to federal, state and
local regulations, including environmental regulations. Essentia can't calculate
exactly how much it will cost to comply with government regulation, but it will
try to ensure that its facilities and products comply with all applicable
regulations and standards. In any event, it doesn't think that the cost of
compliance will materially affect its financial condition.
Management
Essentia is currently managed by Kenneth Uptain, its Chief Executive
Officer, and by James Tonkin, its President and Chief Operating Officer.
Employees
As of May 8, 2000, Essentia employed five full-time employees and one
part-time employee plus four contract consultants, two of whom are full-time and
two of whom are part-time. None of Essentia'a employees is represented by a
union and management believes its employee relations are good.
Operating Results
The results in the following table do not necessarily indicate results
Essentia will achieve in the future.
Essentia Operating Results
--------------------------
Three Months Ended March 31,
2000 1999
------ -----
Income Statement Data:
Net Revenues $ 266,104 $ 102,569
Cost of Goods Sold 177,521 68,373
Gross Profit (Loss) 88,583 34,196
General, Administrative & Operating Expenses 135,374 77,136
Selling Expenses 171,018 110,049
Operaing Income (Loss) (217,809) (152,989)
Depreciation 13,905 11,550
Other Income (Expense) (10,693) (8,180)
Net Profit (Loss) (242,407) (172,719)
========= =========
Balance Sheet Data:
Current Assets 504,978 65,672
Property and Equipment 309,777 308,032
Total Assets (2) 814,755 450,122
Current Liabilities 661,545 567,578
Long Term Debt 528,500 0
Total Liabilities 1,190,045 567,578
Common Stock 1,058,847 558,847
Retained Earnings (Accumulated Deficit) (1,191,730) (503,584)
Current Earnings (242,407) (172,719)
Shareholder Equity (375,290) (117,456)
Total Liabilities & Stockholder Equity 814,755 450,122
========= =========
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<PAGE>
Operations
- ----------
First Quarter 2000 sales of $266,104 were up 159.4% from last year's
first quarter sales of $102,569, principally as a result of increased private
label sales and of having nationwide distribution of branded products in the
current quarter as compared with distribution limited to the West, Southwest and
Midwest regions during last year's comparable quarter. Current year first
quarter sales for the comparable regions were up 88.7% over those of the
previous year. Gross profits, expressed as a percentage of sales, remained at
33.3% for the current and previous year's first quarters.
Last year's first quarter loss of $172,719 increase by 40.4% to a loss
of $242,407 during the first quarter of 2000, principally due to increased sales
and marketing costs associated with expanding and supporting nationwide
distribution of products and the test marketing of new products. Additionally,
general and administrative costs increased significantly as a result of audit
and consulting fees.
ENVIRONMENTAL TECHNOLOGIES GROUP
--------------------------------
Overview
The Environmental Technologies Group ("ETG") was created in October,
1999, is headquartered in Tulsa, Oklahoma, and is concerned with the
acquisition, development, and application of specific, environmentally-benign
technologies.
NextPath AES, Inc.
In General. NextPath AES, Inc. ("NAES"), a wholly owned subsidiary of
NextPath, was formed in November 1999. AES (Agro-Economic Systems) is the
acronym used to denote our self-sustaining, integrated agribusiness initiatives.
There were no investments in, or transactions involving, NextPath AES during the
first quarter of 2000. It is anticipated that NextPath AES will commence
operations at the Tulsa location during the second quarter 2000. NextPath AES is
developing integrated food production facilities with self-contained energy and
waste management systems, and include capabilities to: (1) integrate
fish-culture (aquaculture) and hydroponics ("aquaponics"); (2) research and
develop "bio-fuels" (fuels produced from plants, and plant and animal waste);
(3) extract beneficial compounds for nutrition and health from plants; and (4)
produce plant nutrients from animal wastes, and animal nutrients from plant
wastes.
Status and Mission. Home-based in Tulsa, Oklahoma, NAES was established
to design, build, own, and operate AES facilities worldwide. Our AES facilities
are being designed to grow, process, and package fresh produce and fish on a
continuous, year-round basis. To the maximum extent possible, produce and fish
are to be certifiable as "organically" or "naturally" grown in accordance with
national organic growing standards. Commercial facilities are to include
self-contained energy systems. Light, temperature, humidity, nutrient streams,
water quality, effluent, and emissions at our AES facilities are to be fully
controlled. Fish-tank water is to be used in plant nutrition ("aquaponics"), and
effluent water from plant-beds and processing lines is to be filtered and
recycled. Waste products are to be recycled as fuel for the energy system.
Design Productivity. The target design-productivity of our typical AES
facility is to be considerably greater than that of known hydroponic or
aquaponic systems. Production and processing is to occur on a continuous basis,
and AES facilities are to be able to schedule just-in-time (JIT) delivery of
fresh food to retailers, with consequent savings in cold storage costs and
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reduction in spoilage. Additionally, production costs are to be reduced by not
having to accommodate harvesting and processing "surges." Thus, processing lines
can be smaller, with fewer employees needed for harvesting and processing. At
the same time, technical tasks will be more sophisticated and varied, requiring
a larger proportion of trained, salaried workers.
Two Models. Two models are being developed: a large-scale, commercial
version and a "community food security" (CFS) model devised for developing
economies. Needful Provision, Inc. (NPI), a non-profit organization located in
Tahlequah, Oklahoma, which licenses proprietary processes and sub-systems
to NextPath, has been engaged to develop the CFS model, test basic bio-systems,
and provide training for operations and technical personnel.
Support Entities. A Tulsa architectural and construction management
firm, Ragsdale and Associates, has been engaged to oversee facilities design and
engineering. A gasifier-based energy system, designed and built by Thermogenics,
Inc., Albuquerque, New Mexico, has been selected for use at our AES facilities.
Our AES will employ proprietary aquaponics systems and technologies developed by
Agri-Covers, Ltd., of Gridley, Illinois. We have negotiated a definitive
agreement to acquire the assets and intellectual property of Agri-Covers, but
await funding to close the acquisition.
Prototype Commercial Facility. A number of potential Oklahoma sites are
being considered for the prototype facility. Upon completion of current design
and engineering work, contracts will be let to construct and equip that
facility.
Production and Installation Standards. AES facilities are to be built in
modules. Each module is to represent a specific set of growing and processing
conditions and production objectives. Energy requirements, and, therefore,
self-contained heating and electrical systems, are to be sized accordingly.
Modular structures, fixtures, and operating equipment are to incorporate
appropriate ISO 9001, ASME, and DIN specifications. Products, outputs,
environmental control features, and sizes of our AES facilities will vary by
market region. Modular structures and equipment sets are to be supplied in kit
configuration, suitable for containerized shipment to foreign sites. The AES
program envisions installation of facilities at land reclamation sites, in urban
locations, in areas where severe climate prevents outdoor cultivation, and in
lesser-developed regions in order to enhance general nutrition. In some locales,
we may supplement production through contract growers using company-prescribed
techniques and systems under our supervision.
Marketing Plan and Revenue Sources. Revenues are to come from the sale
of bulk and packaged vegetables, fish, herbs, plant oil extracts (including
health-related products), and ornamental plants. Facilities are to be sized for
economies of scale, with some installations requiring more than fifty acres of
installation space. Target profit margins of 25% or greater per year have been
projected for AES facilities in developed-nation configurations. These are to be
achieved through precise selection of the types of produce grown and value-added
processing. Wholesale lots are to be marketed over the Internet and through
direct, forward supply contracts to large retailers. Some health-food related
products are to be direct-marketed through NextPath's Health Products Group. We
are studying the possibility of marketing fresh produce and fish via overnight
air delivery service.
Estimated Near-Term Capital Requirements. We estimate that approximately
$14,000,000 will be required to implement our business plan for NAES in the near
term.
NextPath Environmental Services, Inc.
In General. NextPath Environmental Services, Inc. ("NES"), also located
in Tulsa, Oklahoma, was formed in November 1999 to develop, sell, own, and
operate systems that convert waste to energy, clean-up water and soil
contaminated by fuel, oil, and chemical spills, provide potable water at
locations that have no water treatment systems, and provide on-site effluent
control, filtration and treatment systems, and, more recently, to acquire,
develop, and market devices to drastically reduce exhaust emissions from, while
increasing the energy efficiency of, internal combustion engines. NES
participates in two co-ventures (Limited Liability Companies--LLCs), NextPath
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Thermogenics, LLC, located in Albuquerque, New Mexico, and NextPath Separation
Solutions, LLC, in Pocatello, Idaho. There were no investments in, or financial
transactions directly involving, NES or NextPath Separation Solutions, LLC
during the first quarter of 2000; however, pursuant to terms of the January 28,
2000 agreement to form NextPath Thermogenics, LLC, NextPath corporate provided
direct operational support to NextPath Thermogenics, LLC for personnel, office
facilities, office expense, marketing, and gasifier test and demonstration
efforts during the first quarter of 2000. It is anticipated that NES will
commence operation at the Tulsa location during the second quarter 2000 and
begin to assume responsibility for financial and operational support to NextPath
Thermogenics, LLC and NextPath Separation Solutions, LLC.
NextPath Thermogenics, LLC.
---------------------------
In General. NextPath Thermogenics, LLC (the "Thermogenics, LLC") is a
limited liability company owned 51% by Thermogenics, Inc., Albuquerque, New
Mexico, and owned 49% by NES. The Thermogenics, LLC designs, fabricates and
sells proprietary gasification systems that use virtually any hydrocarbon-based
waste product as fuel to create a low-temperature, high-quality gas.
Technology Base. This gas is known as "producer gas" or "syngas".
Depending on the design of the system, the gas can be either low- or
medium-heating value. The process involves a first stage high temperature
decomposition without combustion in a low-oxygen environment. The system uses
neither a combustion process nor incineration. Further, when coupled to an
engine, gas turbine or boiler, there are no gaseous emissions from the
gasification system and therefore the system can meet rigorous air quality
standards. This gas can be cleanly burned, liquefied, or used in a bio-process
to produce ethanol. The Thermogenics, LLC is actively pursuing opportunities in
this regard with existing process equipment and catalyst suppliers as well as
with waste generators and academic research facilities. Typically, this gas
would be combusted to produce heat for heat exchangers or steam boilers, or
directly fed to an internal combustion or gas turbine engine linked to an
electricity generation device. Thus, these units can be used for small-scale
electrical power generation (co-generation). For these reasons, the Thermogenics
unit was selected as the on site energy system for NextPath's AES facilities
(see above). The unit itself has no regulated emissions. Inert solid residues
from the reaction process can be safely land-filled or mixed with a binder and
used as a paving or building material.
Mission. The purpose of the Thermogenics, LLC is to build, own, and
operate waste-to-energy systems installed for specific waste disposal and energy
generation tasks. This normally would involve multiple units configured to
handle various waste streams, including municipal solid waste (MSW), discarded
tires, oil sludge, trap grease, animal wastes, plant residues, dewatered sewage
sludge, coal tailings, textile waste, automobile shredder waste, industrial
wastes such as paint sludge and used oils, food processing wastes, and wood
products waste. After removal of larger metallic solids, these wastes can be
batched or blended, depending upon energy output requirements.
Peripheral Equipment Requirements While Thermogenics, Inc. is the
provider and manufacturer of patented gasification systems that form the core of
the Thermogenics, LLC's waste-to-energy business, complete projects will utilize
equipment from a variety of international manufacturers for the processing of
waste and the conversion of the gas produced by the gasification systems into
different forms of energy. This could include shredders, grinders, a briquetting
system, various conveyor systems, internal combustion engines configured for use
with liquid petroleum or natural gas, gas turbines, electrical generators and
turbo-alternators steam boilers, heat-exchangers, distillation and
bio-conversion units (ethanol production) and other peripherals.
System Control, Safety, and Standards. Waste-to energy and peripheral
systems are to be electronically controlled through desktop computers, using
proprietary control logic, circuit boards, and software. All systems are to be
equipped with automated safety and shut-down systems. Facilities and equipment
designed and supplied by the Thermogenics, LLC are to be compliant with local
environmental regulations. The Thermogenics, LLC has committed to bring its
equipment and facilities into conformance with ISO 9000 and 9001 standards at
the earliest possible date.
Project Types and Bases
Build, Own, Operate (BOO). This type of project is to be a long-term (10
years or more) commitment by the Thermogenics, LLC to design, build and operate
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<PAGE>
a waste-to-energy facility. Typically a local partner will be involved and
contribute a portion of the equity, while Thermogenics, LLC provides the
majority of the funding. Long-term contracts for the supply of the waste and for
the sale of energy would be involved. In most cases the land for the facility is
supplied under a lease agreement with the customer with only a nominal rental
fee. In some cases improvements to the site are cost-shared with the customer
and landowner.
Build-Own-Operate-Transfer (BOOT). A BOOT project is similar to the BOO
project, except that there would be a predetermined time in the future, usually
3 to 5 years when ownership would be transferred to a governmental or private
entity. The Thermogenics, LLC would usually continue to operate and maintain the
facility under a long-term contract with the new owner.
Turn-Key With a Management Contract. This project type would allow an
owner to place a single contract for the entire facility, sometimes even
including the site preparation and civil work, and the Thermogenics, LLC would
serve as General Contractor, working with local contractors, to design,
construct, install and start-up the entire plant. The Thermogenics, LLC could,
at the owner's option, facilitate construction financing, with full payment made
when the installation and start-up phase is completed and the plant is in full
operation. The Thermogenics, LLC could then, under a long-term contract with the
owner, be responsible for operation and maintenance of the facility on a fee or
cost-plus basis.
Straight Turn-Key. While less attractive to the Thermogenics, LLC, this
form of project could be expedient when special financing conditions, or a need
for the technical skills dictate. In this instance the Thermogenics, LLC would
be paid progress payments during the design and construction phases, and fully
paid off when the plant is accepted and ready to begin full operation. Completed
facilities would remain under the Thermogenics, LLC service and maintenance
agreements for an indefinite period. Operators would be trained and certified by
the Thermogenics, LLC.
Development Plan. The initial development plan envisions 10 to 12
projects in the Western United States and Europe. Project costs to the
Thermogenics, LLC include manufacture and procurement of systems and related
equipment, and the hiring and training of operators. Some foreign projects could
involve co-ventures with waste management and power companies. In some
instances, bank financing and economic development incentives have been
proffered. The Thermogenics, LLC is exploring a number of public and private
project finance options.
Revenue Sources. Revenues are to be derived from on-site waste disposal
contracts; tipping fees (fees for the handling of waste--some running to more
than $400 per ton of waste received); contract management of the Thermogenics,
LLC provided waste-to-energy facilities; consulting services for purpose-design
of facilities to dispose of particular wastes or produce energy for particular
industrial purposes (for example, an ethanol plant, a foundry, AES facilities, a
sugar plant, and a wood products plant); generation of electrical power (in the
range of approximately three to 20 megawatts); generation of heat for central
steam heating systems; production of derivative fuels including liquid petroleum
gas and ethanol/methanol; other byproducts (including ash, carbon dioxide, and
carbon monoxide); and the sale or leasing of complete systems. Rates of return
for these operations are being assessed; however, the Thermogenics, LLC criteria
for acceptance of contract proposals includes a requirement of projected
internal rates of return on equity greater than 20%.
Estimated Near-Term Capital Requirements. We estimate that approximately
$16,000,000 will be required to implement the business plan for the
Thermogenics, LLC in the near term.
NextPath Separation Solutions, LLC.
-----------------------------------
In General. NextPath Separation Solutions, LLC (the "Separation
Solutions, LLC") is a limited liability company owned 51% by the Lewis
Corporation (Tetra, Separation Systems, LLC), Pocatello, Idaho, and owned 49% by
NES.
Technology Base. Tetra, Separation Systems, LLC /Lewis designs,
fabricates, and sells proprietary oil-water separation and soil remediation
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systems that feature patented and proprietary components. These systems are
transportable (skid-mounted) or mobile, and are capable of on-site clean-up of
petroleum and chemical spills, with accompanying on-site restoration of
contaminated soils as required. Systems are automated for two-person operation.
Independent laboratory test results disclose that these systems can reduce
petroleum contamination in soil to less than 100 parts per million and volatile
organic compounds (VOC's) to trace levels in a single-pass operation. Oil
contamination in water can be virtually eliminated in a single pass.
Demonstrations have been successfully conducted for environmental protection and
quality authorities.
Mission. The Separation Solutions, LLC has been formed to build, own,
and operate these systems for contract clean-up and remediation. Operations can
involve three systems, the sump system, the soil system, and the oil-water
system. Operating systems would be installed at clean-up sites such as gas
stations and fuel depots, environmental cleanup zones, industrial waste dumps,
waste transfer stations, and landfills.
Development Plan. Two production model systems are already in operation.
The initial development plan envisions equipping 18 operating locations with
sump systems. This includes manufacturing and procurement of the systems and
related equipment, localized marketing efforts, and the hiring and training of
operators. Initial target markets include the western and southwestern regions
of the United States. This plan would be accelerated to accommodate additional
domestic and European markets that have been identified. Depending upon market
conditions, and demand, the Separation Solutions, LLC is prepared to establish
up to 200 operating sites within the first seven years.
Revenue Sources. Revenues are to be derived from on-site water and soil
cleanup contracts. For example, a sump system operating at an average rate of 50
gallons per minute can process 24,000 gallons per 8-hour day. Processing
contracts, typically bring an average of $1 per gallon on a range of $.50 to
$1.50 per gallon. Therefore, the Separation Solutions, LLC projects average
operating-day revenue per sump system to be approximately $24,000, or $5.4
million per year if operated for 225 days per year. Current projections indicate
potential average margins exceeding 40% beginning in the third year.
Estimated Near-Term Capital Requirements. We estimate that approximately
$17,000,000 will be required to implement the business plan of the Separation
Solutions, LLC in the near term.
NextPath Bio-Products Research; Needful Provision, Inc.
In General. Applications research is to be sponsored by all NextPath
entities; however, the main bio-product development arm for the company is to be
Needful Provision, Inc, ("NPI"), an Oklahoma based non-profit organization that
licenses proprietary systems and processes to NextPath. David Nuttle, NextPath's
Chairman and interim President and CEO, is also President, CEO and Chairman of
NPI and the inventor of the proprietary technology owned by NPI and licensed to
NextPath. The scope of NPI operations for NextPath remains proprietary and
budgets for grants and research contracts to NPI are included in those of the
operating companies. NPI has been previously, or is now, engaged in cooperative
research activities with Oklahoma State University, North Carolina State
University/Research Triangle Institute, and the National Renewable Energy
Laboratory. NextPath has a first right-of-refusal for commercialization of NPI's
products and processes. Some of NPI's development work on our behalf includes:
o development of genetic stocks of fish, plants, and micro-
organisms for AES operations;
o applied research into photo-flash methods for stimulating plant
growth;
o applied research into the production and refinement of biofuels
from fresh water micro-algae;
o applied engineering of effluent control systems using bio-
filtration and vegetative filter beds;
o applied research and engineering of aquaculture and hydroponic
systems;
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o applied research into the nutritional properties of high-
protein, naturally occurring grains and "ethno-botanicals"
(plants cultivated and used for nutrition and medicinal purposes
by indigenous peoples);
o applied research into lipid/oil extraction from vegetation and
micro-organisms;
o applied research into the natural enhancement and control of
nutrients for hydroponic plants and aquaculture fish;
o training curricula and contract training for AES operators and
technicians; and
o information compendia for bio-systems development.
ELECTRONIC COMMERCE GROUP
-------------------------
PriMedium, LLC
On June 12, 1999, NextPath signed an Option Agreement with PriMedium,
LLC, a Dallas, Texas, based software development firm that specializes in
creating websites for Internet sales and purchase ordering. One of the primary
reasons NextPath signed the Option Agreement was to develop the means for direct
sale of NextPath and its subsidiaries' products and sales over the Internet with
all of NextPath websites linked. Among other terms, the Option Agreement
provides that NextPath would pay $1,500,000, issue 600,000 shares of NextPath
common stock, and grant an annual royalty payment of ten percent (10%) based on
the pre-tax profits of PriMedium to the equity owners of PriMedium. Although the
shares were issued by NextPath at the direction of our former President and CEO,
neither the Option Agreement nor the issuance of the stock was known to, or
approved by, the Board. We are reevaluating whether or not to enter into a
definitive agreement and there can be no assurances that one will ultimately be
consummated.
US CertifiedLetters LLC
US CertifiedLetters LLC ("USCL") was formed for the purpose of
licensing, developing and commercializing proprietary technology for
transmitting instruments by certified mail via the Internet or other medium (the
"C-mail Technology") in the continental United States, Alaska and Hawaii. C-mail
Technology will enable postal customers to send certified mail over the
Internet. On April 3, 2000, NextPath signed a definitive agreement to acquire
20% of USCL. The purchase price will consist of a combination of cash and stock,
of which NextPath has advanced $2,750,000. The parties expect to complete the
acquisition by June 4, 2000. There are no assurances that this transaction will
be closed within the anticipated timeframe or that it will close consistent with
terms of the initial agreement.
USCL provides electronic business-to-business and business-to-consumer
mail services, and has developed Internet technologies to provide new and more
efficient mail processing capabilities to consumers, particularly in the area of
certified mail. USCL believes it is the first and only company to be granted
approval by the USPS to provide certified mail processing services online. In
1998, the U.S. Postal Service processed 510,878,000 pieces of certified mail
(according to the USPS website, www.usps.gov, and 1998 annual report). USCL
expects to capture a portion of this market.
Through its proprietary web site, www.USCertifiedLetters.com, USCL
believes that it will be one of the most reliable ways to send certified mail
within the continental United States, Alaska and Hawaii. William T. Carter, the
Manager and founder of USCL, has also developed www.globalcertifiedpost.com
(GCP) for overseas certified mail delivery.
USCL's licensed new generation of proprietary, patent pending,
information software, Automated Certified Mail, has been test marketed, is
approved by the USPS and is ready to mass market. This software allows the user
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to create a letter (or insert one from a word processing program) at the
www.USCertifiedLetters.com. site, pay on-line, and then send the letter. The
automated certified mail system verifies the address, adds the barcode, prints
and folds the letter, and automatically completes the certification forms with
just a few clicks of a mouse. The customer can expect a return receipt within 4
to 6 days, compared to the average of 10 to 12 days for manual processing.
Global Certified Mail
Global Certified Mail, Inc. ("GCM") was formed by NextPath in October
1999 to commercialize the same proprietary electronic certified mail system for
areas outside the continental United States, Alaska and Hawaii. Many businesses
and organizations in other countries require verification of mail delivery to
the United States, but traditional delivery methods are expensive and time
consuming.
On April 3, 2000, NextPath signed an agreement to exchange a 20%
interest in GCM for a license from William T. Carter to use his C-mail
Technology to enable global postal customers to send certified mail over the
Internet outside of the continental United States, Alaska and Hawaii. The
Company will maintain an 80% ownership interest in GCM. The parties expect to
complete this transaction by June 4, 2000. There are no assurances that this
transaction will be closed within the anticipated timeframe or that it will
close consistent with terms of the initial agreement.
USCL is currently developing the web site to be used by GCM, where the
process will be similar to that of www.USCertifiedLetters.com. However, all
letters will be processed at one facility in Birmingham into a standard
certified letter, making the "point of origin" for the letter a point within the
United States, rather than a foreign city. This will reduce the delivery time,
speed return receipts, and reduce costs compared to the current alternatives.
GCM intends initially to target multinational businesses, financial institutions
and law firms in Europe.
USCL recently chose IBM Global Services (NYSE: IBM) and ITC^DeltaCom
(Nasdaq: ITCD) to design, manage and host both the new USCL site.
INVESTMENTS
-----------
United Paper, Inc.
We own 1,000 shares of non-voting Series A Preferred Stock of United
Paper, Inc., a Texas corporation ("United Paper"), for which we paid $1,000,000.
Each share of Series A Preferred Stock has the right to priority mandatory
cumulative dividends of $120 per year.
United Paper is an independent paper distributor to newspapers,
publishing companies, printers and catalog houses. It is the resulting company
of the August 10, 1999 merger of All-Pro Paper of Texas, Crown Converting of
Texas, G.B. Goldman Paper of Philadelphia, and The Paper Group of Chicago on
August 10, 1999.
All Pro and The Paper Group are merchant wholesalers that currently sell
paper in the South Central and Mid Western United States. These company's have
the ability to repackage, cut and customize paper for shipment. They sell
groundwood newsprint, groundwood coated free sheet, and coated free sheet to
printers and end users.
G.B. Goldman is a paper wholesaler that specializes in uncoated free
sheet, coated free sheet, and coated paperboard. The company has a successful
history of selling in job lot quantities and providing competitive value added
services to the paper merchant and converter trade.
Crown Converting, with locations in Philadelphia PA, Lufkin TX, and
Nashville TN, can handle a full range of converting needs including rewinding,
slitting, and sheeting.
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<PAGE>
North American Paper was acquired by United Paper in December 1999 and
is a paper merchant wholesaler selling to publishing, catalogs, and other
periodicals. The company specializes in full graphic, print, and paper
solutions. Advantage Paper was acquired by United Paper in February 2000 and is
a printer direct seller, handling commodity offset and paper board.
GroupNow, Inc.
On November 24, 1999 we signed a Subscription Agreement to purchase
1,000,000 shares of Series A Convertible Preferred Stock in VentureNow, Inc.,
(now known as GroupNow, Inc.) at a price of $10 per share. The Series A
Convertible Preferred Stock has voting powers per share equal to GroupNow's
Common Stock. However, the holders of the Series A Convertible Preferred Stock
are entitled, as a class, to receive seventy percent (70%) of any dividend paid
by GroupNow, Inc. prior to conversion. Holders of the Series A Preferred Stock
will share dividends paid by GroupNow, Inc., if any, ratably in accordance with
their percentage ownership within the class of Series A Convertible
Stockholders. Each share of Series A Convertible Preferred Stock will
automatically convert to one share of Common Stock under certain circumstances.
As of December 31, 1999, we had paid $1,500,000 to GroupNow, Inc. in accordance
with the terms of the Subscription Agreement. Therefore, as of this date,
NextPath owns 15% of the Series A Convertible Preferred Stock. We have not
decided whether or not we will acquire the remaining 85% of the Series A
Convertible Preferred Stock for $8,500,000 and there can be no assurance that we
will acquire the remaining stock.
GroupNow, Inc. is a non-operating holding company, the operating
subsidiaries of which are VentureNow, LLC, VentureNow Holdings, LLC and Now
Securities, LLC.
VentureNow, LLC is a venture capital investment firm focusing on late
stage investments in Information Technology and Internet focused companies. In
addition to its proprietary funds, VentureNow plans to develop additional
private equity funds targeted toward different stages of investment (e.g. early
stage, second stage, etc.) in its target sectors. The company plans to derive
revenue from turnover of its proprietary investments and from fees for
management of the planned private equity funds.
VentureNow Holdings, LLC has been established to act as the general
partner of the proposed private equity funds for which VentureNow, LLC will
serve as manager. VentureNow Holdings, LLC plans to derive revenue through
capital gains on its investments and the general partner's share of any carried
interest of the private equity funds for which it plans to act as general
partner.
Now Securities, LLC is a financial advisory and investment banking firm
in development. It currently focuses on advising emerging growth companies
regarding corporate structuring and development, as well mergers and
acquisitions.
LATelco International, Inc.
On August 10, 1999, we purchased 666,666 Units in the capital of LATelco
International, Inc. ("LATelco") for $100,000, each Unit consisting of one common
share and one non-transferable share purchase warrant authorizing the holder to
purchase one common share at a price of $0.15 per share on or before August 10,
2000. There can be no assurance that we will exercise our warrants.
LATelco, a corporation continued under the laws of the Turks and Caicos
Islands, is headquartered in San Antonio, Texas. Its stock is traded on the
Canadian Venture Stock Exchange under the symbol "LTO." It maintains a website
at http://home.flash.net/~latelco. LATelco was organized in 1993 for the purpose
of developing wireless communications systems and providing specialized wireless
services. Its principal business lines include the design, manufacture and
operation of wireless data systems and networks incorporating proprietary
software and equipment developed by LATelco.
-28-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NextPath and its former President, James R. Ladd, are two of the named
defendants in the case of Tim McMurray vs. James R. Ladd, Robert Wehle et al.,
District Court of Dallas County, Texas (No. 00-00170) filed January 10, 2000.
The action alleges "tortious interference with existing and/or potential
business relations," "civil conspiracy," and negligence and also seeks
injunctive relief. NextPath believes that this action is wholly without merit
and intends to vigorously defend it.
ITEM 2. CHANGES IN SECURITIES
As of May 19, 2000, we are aware of the following sales of unregistered
securities and transactions involving securities which were issued in exchange
for property, services, or other securities during the first quarter of 2000.
The transaction set forth below is not intended to be all inclusive and there
may be other transactions, the exact facts and details of which we are
investigating. However, should other transactions be discovered, they will be
disclosed, if required, in an amended 10-Q or other appropriate report.
o Essentia Water, Inc. In connection with our acquisition of all
3,657,966 shares of outstanding common stock of Essentia Water,
Inc. ("Essentia") on January 21, 2000, we issued $7,654,294 worth
of our restricted common stock (585,760 shares) to the
shareholder of Essentia in exchange for its common stock. The
transaction was exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) on the basis that the
transaction did not involve a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended March 31, 2000.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
On February 3, 2000, we filed a Form 8-K which reported our acquisition
of Essentia Water, Inc.
On February 14, 2000, we filed a Form 8-K which reported that:
o Crouch, Bierwolf & Chisholm, Certified Public Accountants, whose
address is 50 West Broadway, Suite 1130, Salt Lake City, Utah
-29-
<PAGE>
84101, the independent accountant which was previously engaged as
the principal accountant to audit NextPath's financial
statements, was dismissed on February 8, 2000 so that we could
engage the services of Gray & Northcutt Inc.
o Weinberg & Company, P.A., Certified Public Accountants, whose
address is 6100 Glades Road, Suite 314, Boca Raton, Florida
33434, the independent accountant which was previously engaged as
the principal accountant to the audit financial statements of
Epilogue Corporation, with whom we merged on November 12, 1999,
was dismissed on February 8, 2000 so that NextPath, as the
surviving corporation in the merger, could engage the services of
Gray & Northcutt Inc.
o On February 8, 2000, Gray & Northcutt, located in Oklahoma City,
Oklahoma, was engaged by us to audit the consolidated balance
sheets of NextPath and its wholly-owned subsidiaries.
On March 23, 2000, Gray & Northcutt, Inc. resigned from the audit
engagement of NextPath effective that date. Gray & Northcutt, Inc. agreed to
complete its audits of our subsidiaries, Laser Wireless, Inc., Willow Systems,
Inc. and Sagebrush Technology, Inc.
On April 7, 2000, we engaged Crouch, Bierwolf & Chisholm, our former
auditors, to complete the audit of the Company begun by Gray & Northcutt, Inc.
so that the Form 10-K for the fiscal year ended December 31, 1999 and the 10-Q
for the period ended March 31, 2000 could be filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEXTPATH TECHNOLOGIES, INC.
/s/ David A. Nuttle May 22, 2000
-----------------------------
David A. Nuttle
Chairman, Chief Executive Officer and President
(principal executive officer)
NEXTPATH TECHNOLOGIES, INC.
/s/ Robert Woodward May 22, 2000
-----------------------------
Robert Woodward
Vice Chairman and Chief Financial Officer
(principal financial and accounting officer)
-30-
NextPath Technologies, Inc.
March 31, 2000
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use of our report, dated May 17, 2000, in this
quarterly report on Form 10-Q for NextPath Technologies, Inc.
Crouch, Bierwolf & Chisholm
Salt Lake City, Utah
May 17, 2000
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