UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 18, 2000
----------------
Lakota Technologies, Inc.
(Exact name of registrant as specified in its charter)
Colorado
(State or other jurisdiction of incorporation)
O-27821 58-2230297
------- ------------
(Commission File Number) (IRS Employer Identification No.)
2849 Paces Ferry Road, Suite 710, Atlanta, GA 30339
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(770) 433-8250
--------------
Registrant's telephone number, including area code:
AGM, Inc.
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
(949) 719-1977
--------------
(Former name, address and telephone number)
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
(a) Pursuant to a Stock Exchange Agreement (the "Exchange Agreement") dated
as of January 18, 2000 between the controlling shareholders (the "Shareholders")
of AGM, Inc. ("AGM"), a Nevada corporation, and Lakota Technologies, Inc., a
Colorado corporation ("Lakota or the "Company"), 190,000 of the 220,000
outstanding shares of common stock of AGM were exchanged for 1,900,000 shares of
common stock of Lakota in a transaction in which Lakota became the parent
corporation of AGM. Lakota has agreed to issue up to 300,000 additional shares
of Lakota to AGM shareholders who request an exchange of their AGM shares for
Lakota shares at a rate of ten (10) Lakota shares for every one (1) AGM share.
The Exchange Agreement was adopted by the unanimous consent of the Board of
Directors of Lakota on January 18, 2000. No approval of the shareholders of AGM
or Lakota is required under applicable state corporate law.
Prior to the merger, AGM had 220,000 shares of common stock outstanding
which, assuming all AGM shareholders exercise their rights of exchange, will be
exchanged for 2,200,000 shares of common stock of Lakota. By virtue of the
exchange, Lakota acquired 86% of the issued and outstanding common stock of AGM,
and assuming that all AGM shareholders exercise their exchange rights, will have
acquired 100% of the issued and outstanding common stock of AGM.
Prior to the effectiveness of the Exchange Agreement, Lakota had an
aggregate of 41,868,182 shares of common stock, par value $.001, issued and
outstanding.
Upon effectiveness of the merger, and assuming the issuance of 2,200,000
shares of Lakota common stock, Lakota had an aggregate of 44,068,182 shares of
common stock outstanding.
The officers of Lakota continue as officers of Lakota subsequent to the
Exchange Agreement. See "Management" below. The officers, directors, and
by-laws of Lakota will continue without change.
A copy of the Exchange Agreement is attached hereto as an exhibit. The
foregoing description is modified by such reference.
(b) The following table sets forth certain information regarding
beneficial ownership of the common stock of Lakota as of January 15, 2000 (prior
to the issuance of 2,200,000 shares pursuant to the Exchange Agreement) by:
-each person or entity known to own beneficially more than 5% of the common
stock or 5% of the preferred stock;
-each of Lakota's directors;
-each of Lakota's named executive officers; and
-all executive officers and directors of Lakota as a group.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name and Address of Amount and Nature of Percent of
Title of Class Beneficial Owner Beneficial Ownership Class
- --------------- --------------------- --------------------- -----------
Common stock R.K. (Ken) Honeyman(1) 1,676,429 4.0 %
c/o Lakota Technologies, Inc.
2849 Paces Ferry Road
Suite 710
Atlanta, Georgia 30339
Common stock Howard N. Wilson(1) 1,329,643 3.1 %
c/o Lakota Technologies, Inc.
2849 Paces Ferry Road
Suite 710
Atlanta, Georgia 30339
Common stock Nicholas R. Athens 50,000 less than 1%
c/o Lakota Technologies, Inc.
2849 Paces Ferry Road
Suite 710
Atlanta, Georgia 30339
Common stock John B. Hayes(1) 1,300,000 3.1 %
c/o Lakota Technologies, Inc.
2849 Paces Ferry Road
Suite 710
Atlanta, Georgia 30339
Common stock Majed Jalali 3,000,000 7.1 %
c/o Lakota Technologies, Inc.
2849 Paces Ferry Road
Suite 710
Atlanta, Georgia 30339
Common stock Patrick (Cody) Morgan(2) 2,000,000 4.8 %
c/o Lakota Technologies, Inc.
2849 Paces Ferry Road
Suite 710
Atlanta, Georgia 30339
Common stock Dipak Bhatt(2)(3) 6,000,000 14.3 %
4107 Vaughn Creek Court
Sugarland, Texas 77479
All Officers and
Directors as a
Group
(6 Persons)(2) 9,356,072 22.3 %
============= ========
</TABLE>
(1) Does not include shares issued under Lakota's Omnibus Stock Option Plan
because they cannot be exercised within sixty days.
(2) Includes shares held as joint tenants with spouse, or directly in
spouse's name.
(3) Includes warrants to purchase an aggregate of 4,000,000 shares of common
stock.
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) The consideration exchanged pursuant to the Exchange Agreement was
negotiated between the Shareholders and Lakota.
In evaluating Lakota as a candidate for the proposed acquisition, the
Shareholders used criteria such as the value of the assets of Lakota, its
present stock price as set forth on the over-the-counter bulletin board, its
current business operations and anticipated operations, and Lakota's business
name and reputation. The Shareholders determined that the consideration for the
exchange was reasonable.
(b) Lakota intends to continue its historical businesses and proposed
businesses as set forth more fully immediately below.
BUSINESS
COMPANY OVERVIEW
We are a holding company which, through the operations of our three
wholly-owned subsidiaries, is engaged in two very distinct business sectors.
The first, which we have been involved in since early 1997, is oil and gas
exploration and operations. Our subsidiary, Lakota Oil and Gas, Inc.'s,
strategy is to invest with joint partners in oil and gas exploration projects
that already underway. The target joint partners are larger, well-financed
entities that have access to greater pools of resources which we believe will
result in enhanced success rates. This strategy emphasizes a balanced,
risk-spreading approach to create what we believe to be the maximum return on
investment.
We are also involved in the rapidly growing high technology Internet
sector. We recently completed two acquisitions which provided our means of
entry into this exciting arena. Our subsidiary, 2-Infinity.com, Inc., provides
low-cost, high-speed, dedicated Internet access, focusing on the hotel and
multiple residential markets. Our subsidiary, AirNexus, Inc., is a retail
provider of commercial voice and data services with an emphasis on wireless, or
ethernet, networks. 2-Infinity and AirNexus gave us the opportunity to diversify
from our traditional oil and gas business into the exciting world of high
technology and the Internet.
We maintain an Internet website at http://www.lakotatech.com.
<PAGE>
ORGANIZATIONAL HISTORY
On November 14, 1995, our founders formed Lakota Energy, Inc. in the State
of Colorado for the purpose of engaging in oil and gas exploration and
operations. On November 6, 1996, Lakota Energy, Inc. was merged with and into
another Colorado corporation named Chancellor Trading Group, Inc. Chancellor
was a publicly traded corporation which was incorporated on July 14, 1995 and
had no significant operations prior to their merger with us. Immediately
following the merger, the shareholders of Chancellor voted to change its name to
Lakota Energy, Inc.
Immediately prior to the acquisition, Chancellor had 1,801,000 shares of
common stock outstanding. As part of the merger, and in exchange for all of the
outstanding common stock of Lakota Energy, Inc., Chancellor issued 9,187,500
shares to the shareholders of Lakota Energy, Inc. and an additional 118,000
shares were issued to third parties who assisted in closing the transaction.
Therefore, on November 6, 1996, immediately following the acquisition
transaction, we had 11,106,500 shares of common stock outstanding, and no shares
of preferred stock outstanding. Our common stock is currently traded on the OTC
bulletin board under the symbol LAKO.
LAKOTA OIL AND GAS, INC.
On June 9, 1999, we incorporated a Texas corporation named Lakota Oil and
Gas, Inc., which is our wholly-owned subsidiary. Subsequently, on June 14,
1999, we transferred our interest in two oil exploration projects, which
constituted all of our oil-and-gas-related assets at the time, to Lakota Oil.
The purpose of the transactions was to organize our oil and gas related business
into one operating subsidiary, separate and distinct from our other operating
subsidiaries, in order to more accurately reflect our diversified operations.
The strategic plan of Lakota Oil is to participate in projects that have
been developed by other successful, well financed companies. The specific areas
of interest to Lakota Oil are Texas and Louisiana. We are adopting the
philosophy of several highly successful companies, both private and public, that
do not have large or expensive exploration and operating staffs. These
companies utilize the capital they would normally pay in salaries and benefits
to participate in a greater number of sound drilling prospects. We have found,
through experience, that it is more advantageous to use outside consultants who
have worked in a confined geologic area that are familiar with the nuances of
the prospect's geological province. These consultants are located through
existing contacts and relationships of our management, and more specifically
John Hayes, and are typically paid an hourly fee at the going market rate for
their services. Each drilling project has a central operating company or entity
that is responsible for contracting with, hiring, and compensating consultants,
as well as sub-contractors, on the project.
This plan will allow us to operate and finance the growth of Lakota Oil
through cash flow and optional debt financing.
Currently, we are parties to agreements with, among others, Cummins and
Walker Oil Company, York Resources, and other large private investors. Our
partners have the necessary technical, engineering, data acquisition and land
procurement resources already in place, making an affiliation with them
attractive.
<PAGE>
Our investment in the South Halter Island Prospect, located in St. Mary and
Tennebonne Parishes, Louisiana, in which we are under contract with Panaco,
Inc., York Resources, Inc., Janivo Realty, Inc., and Carson Energy, Inc.,
entitled us to a 7.5% working interest with a 75% net revenue interest in the
specific oil well. Our initial investment into the project was $24,000, plus an
additional $163,748, which represented our share of the operating expenses. On
July 27, 1999, the decision was made to plug and abandon the well.
Our investment in the Union Central Life Insurance Co. Well No. 1, located
in Colorado County, Texas, in which we are under contract with Everest Minerals
Corporation and Cummins & Walker Oil Company, Inc., entitled us to a 20% working
interest with a 75% net revenue interest in the specific oil well. Our initial
investment into the project was $57,225, plus an additional $36,649, which
represented our share of the operating expenses. Development of this well is
currently ongoing.
Our investment in the well known as the VUA: Bernard #1, located in
Lafayette Parish, Louisiana, entitles us to a 100% working interest with a
73.74% net revenue interest in the specific oil well. Our initial investment in
this project was $35,000, plus an additional $55,112, which represented our
shares of the operating and work-over expenses. Currently, the well is awaiting
further downhole work.
Our investment in the Glass Mountain Prospect, located in Pecos County,
Texas, in which we own the land leases solely, entitles us to a 100% working
interest with a 81.25% net revenue interest in the 1,159 acres in this lease.
Our initial investment in the project was 414,375 shares of Lakota Energy, Inc.
preferred stock, which has since been retired.
In general, we are seeking projects with the following criteria:
0 2D and 3D seismic interpretation
0 Analog production data
0 Reasonable lease terms
0 Infrastructure must be in place and accessible
0 Risked economic model must fit the following profile: pay out less than
one year, minimum of 3:1 PV10 return on investment
0 Prospect must have multi-pay potential with minimum of 10 BCF, or billion
cubic feet, potential
Once we have screened projects using the above criteria, we generally
acquire an interest in the project ranging from 5% to 20%, depending on its cost
and our available capital. Although we have no specific goal for the number of
investments during the next 12 months, we do intend to continue to seek
investments which we believe are consistent with our business plan.
Lakota Oil currently has one employee, its president John Hayes.
<PAGE>
We own an 99.9% interest in another Texas corporation, West Bolt Energy,
Inc., which previously owned and operated a small number of oil and gas
properties. West Bolt Energy, Inc. is not engaged in any significant operations
and has not been for several years, and does not represent a measurable
percentage of the assets or revenues of Lakota.
2-INFINITY.COM, INC.
On May 28, 1999, we acquired all of the outstanding stock of
2-Infinity.com, Inc., a Texas corporation. As consideration for the
acquisition, we issued 3,000,000 shares of our common stock to Majed Jalali, the
sole shareholder of 2-Infinity. In addition, Mr. Jalali is entitled to receive
up to an additional 6,000,000 shares of our common stock if 2-Infinity reaches
gross revenue goals ranging from $1,000,000 to $4,650,000. As part of the
acquisition, 2-Infinity entered into a three year employment agreement with
Majed Jalali, president of 2-Infinity. Our management located and negotiated
the transaction, and as a result there were no finders or brokers' fees.
The acquisition of 2-Infinity triggered the beginning of our changed
business focus into the high technology and Internet markets. 2-Infinity offers
high-speed, dedicated Internet access, focusing initially on the Houston, Texas
residential area during the next 12 months, and with plans to expand world-wide
in the near future. Currently, 2-Infinity has approximately 5 customers.
Tut Systems, Inc.
2-Infinity has entered into a Value Added ReSeller Agreement with Tut
Systems, Inc., which gives them the non-exclusive right to sell Tut's products.
Under the terms of the VAR Agreement, 2-Infinity has the right to purchase Tut's
products at prices according to regularly published price lists from Tuts and
re-sell them to their customers. 2-Infinity is obligation to purchase a minimum
of $1,000,000 in products per year. There are no limits on the re-sale prices
2-Infinity can charge on the products. The agreement is automatically renewed
for successive one year terms, but can be terminated by either party on 90 days
notice.
Tut's is in the business of delivering plug-and-play network solutions for
local loop, enterprise, and residential environments. Tut's products deliver
high-speed data over normal telephone wires using their FastCopper (tm)
technology. Tut's products are easy to install and use, providing customers
with a dedicated connection 24 hours a day, while still allowing full use of the
telephone line for voice use. More importantly, Tut's products require no
additional wiring or modifications to the telephone lines. Through the VAR
Agreement, 2-Infinity can offer its clients Tut's-enhanced Internet access at a
very reasonable price.
2-Infinity management will market the Tut's products through existing
contacts and personal introductions, and is seeking to enter into agreements
with the owners and managers of multi dwelling units, such as apartment
complexes, hotels, high rise apartment buildings, and residential developers to
become the Internet service provider for the entire developments.
<PAGE>
At the present time, given 2-Infinity's exclusive focus on the Houston
area, there are no direct competitors. However, there are many competitors
offering traditional dial-up Internet service, both in the Houston area and
worldwide. In addition to traditional dial-up Internet access, many other
companies are offering alternative forms of Internet access, such as through
cable and wireless via satellite. There can be no assurance that 2-Infinity's
current method of technology will be accepted on a widespread basis, nor can
there be any assurance that it will be able to compete with larger,
well-financed competitors within their marketplace.
2-Infinity offers its products in two different packages. The first option
allows the subscriber to rent equipment monthly on a low cost-per-unit basis.
The second option allows the subscriber to purchase the equipment. In either
case, in addition to the rental or purchase of the equipment, subscribers will
pay a monthly subscription fee expected to be approximately $50.00 per
subscriber. In addition to the basic Internet access, subscribers will receive
a value-added package including:
0 A guarantee of over 1Mbps dedicated access for each resident
0 Creation and maintenance of a web site for each specific complex,
property, or community
0 Community pages and chat rooms
0 Technical support
0 On-site hardware support
0 Software updates
0 Complete billing services
0 Multimedia and videoconferencing capabilities and assistance
0 Advertising and merchandising support
0 Static IP addresses
0 Multiple email accounts
0 Internet training programs
2-Infinity currently has 10 employees, all of which are located at their
offices at 4828 Loop Central Drive, Suite 150, Houston, Texas 77081.
AIRNEXUS, INC.
On June 8, 1999, we acquired all of the outstanding stock of Voice Design,
Inc., a Texas corporation which later changed its name to AirNexus, Inc. As
consideration for the acquisition, we issued an aggregate of 3,000,000 shares of
our common stock to Patrick Cody Morgan, Candice Morgan, and Charles H. Downey,
Jr. We also paid the cash sum of $60,000. In addition, Mr. Morgan is entitled
to receive up to an additional 3,000,000 shares of our common stock if net
revenue goals ranging from $32,400 to $762,400 per year are met. As part of the
acquisition, AirNexus entered into three year employment agreements with each of
Patrick Cody Morgan and Charles H. Downey, their chief executive officer and
president, respectively. Our management located and negotiated the transaction,
and as a result there were no finders or brokers' fees.
The acquisition of AirNexus furthered our changed business plan to enter
the high technology and Internet markets. AirNexus is a Houston based provider
of business telephone and voice mail systems. As part of these services,
AirNexus is a reseller of equipment manufactured by third parties such as 3Com,
Panasonic, ESI, Vodavi, Maisoft, and Cortelco.
<PAGE>
Strategic Alliances
AirNexus has developed a relationship with 3COM Corporation to deliver
their new NBX 100 product to the Houston market. This "Product of the Year/Best
of Show in 1998", as awarded by Computer Telephony Magazine at the Computer
Telephony Expo 1998, along with wireless Ethernet technology enables the NBX 100
to give businesses the ability to consolidate voice, video and data on one
single cable. This creates an unprecedented integration between computers,
telephone networks and the Internet.
Under the terms of the 3Com agreement, AirNexus has the non-exclusive
rights to license and distribute specific 3Com products in the Houston, Texas
and surrounding areas. 3Com may terminate the agreement in certain situations,
including breach of the agreement by AirNexus and the failure of AirNexus to
purchase a minimum of $200,0000 worth of product per year.
AirNexus also can, and in the near future intends to, deliver the Tuts
system to commercial properties as well as school and small to medium sized
businesses as a target market. Recently, AirNexus has signed an agreement to
become a re-seller of Cortelco Systems' Millennium PBX, a communication platform
that offers state of the art switching and call routing. AirNexus currently has
approximately 25 material customers.
Target Markets
The target market for AirNexus is businesses with between 20-100 employees.
This sector of the market typically does not have a systems manager or network
administrator on staff, and due to this, AirNexus believes they are an excellent
target candidate for their integrated services. A high percentage of these
companies have a network in place and are receptive to new advancements and
technology. AirNexus intends to provide this sector with a convenient and
easily acceptable avenue to outsource voice, data and Internet services by
utilizing the referenced product line and by continually seeking further
business solutions that fit the customer profile.
AirNexus obtains leads for potential customers in a variety of ways:
0 Manufacturers provide leads from their customers
0 Outside telemarketers are utilized
0 Referrals from existing customers
0 Marketing lists are purchased
0 Yellow Pages advertising, and
0 Print advertising.
All leads are given to individual account managers to follow-up with each
customer. Once a customer has agreed to purchase the equipment and services,
AirNexus does the installation and provides all the follow-up customer support.
<PAGE>
Sales Strategy
AirNexus has designed a strategy intended to make them a leader in the
telephony marketplace.
0 Develop product lines which give clients the latest features ata discount
over competing systems.
0 Waive activation fees and hardware costs in return for long term
contracts.
0 Lease-to-own all wireless equipment required to build the network, with
terms up to 60 months.
0 Develop contracts with commercial management companies to deliver the
services to their tenants. This value-added approach allows these
management companies the ability to maintain long term occupancy and
generate new tenants.
0 Commence an advertising campaign that targets technology buyers.
0 Build an interactive demonstration room that provides potential clients a
hands-on approach to the products and services.
AirNexus currently employs 6 employees, all located at their offices at 333 N.
Sam Houston Parkway East, Suite 870, Houston, Texas 77060.
INTELLECTUAL PROPERTY
We regard our copyrights, service marks, trademarks, trade secrets and
similar intellectual property as critical to our success, and rely on trademark
and copyright law, trade secret protection and confidentiality and/or license
agreements with our employees, customers, partners and others to protect our
proprietary rights. We have no registered trademarks or service marks to date.
It may be possible for unauthorized third parties to copy some or all of our
products or reverse engineer or obtain and use information that we regard as
proprietary. In addition, the laws of some foreign countries do not protect
proprietary rights to the same extent as do the laws of the United States.
There can be no assurance that our means of protecting our proprietary rights in
the United States or abroad will be adequate.
Other parties may assert, from time to time, infringement claims against
us. We may also be subject to legal proceedings and claims from time to time in
the ordinary course of our business, including claims of alleged infringement of
the trademarks and other intellectual property rights of third parties by us and
our licensees, if any. Such claims, even if not meritorious, could result in
the expenditure of significant financial and managerial resources.
<PAGE>
GOVERNMENTAL REGULATION
Because our strategy is to be minority investors in a number of different
oil and gas exploration projects, we are not directly subject to industry
regulations. Each of the agreements to which we are currently a party provides
that the central operator of the project will identify and address any
compliance requirements and expenses associated with that particular project.
As a result, we do not believe we have any obligations to identify and comply
with environmental regulations in our oil and gas business. Because we often
are responsible for a pro-rata share of ongoing operating expenses, however, the
return on our investment in any particular project may be negatively effected if
unforseen environmental or regulatory expenses are incurred.
Although there are currently few laws and regulations directly applicable
to the Internet and e-commerce, it is possible that a number of laws and
regulations may be adopted with respect to the Internet or e-commerce covering
issues such as user privacy, pricing, content, copyrights, distribution,
antitrust and characteristics and quality of products and services. Further,
the growth and development of the market for Internet services may prompt calls
for more stringent consumer protection laws that may impose additional burdens
on those companies conducting business online. The adoption of any additional
laws or regulations may impair the growth of the Internet or commercial online
services, which could, in turn, decrease the demand for our products and
services and increase our cost of doing business, or otherwise have a material
adverse effect on our business, operating results and financial condition.
Moreover, the applicability to the Internet of existing laws in various
jurisdictions governing issues such as property ownership, sales and other
taxes, libel and personal privacy is uncertain and may take years to resolve.
Any such new legislation or regulation, the application of laws and regulations
from jurisdictions whose laws do not currently apply to our business or the
application of existing laws and regulations to the Internet could have a
material adverse effect on our business, operating results and financial
condition.
RESEARCH AND DEVELOPMENT
We have not spent any measurable amount of time on research and development
activities.
EMPLOYEES
As of October 1, 1999, Lakota Technologies, Inc. had 3 full-time employees,
2-Infinity had 10 full-time employees, AirNexus had 6 full-time employees, and
Lakota Oil had 1 full-time employee. None of our employees is covered by any
collective bargaining agreement. We believe that our relations with our
employees are good.
FACILITIES
Our principal executive offices are located at 2849 Paces Ferry Road, Suite
710, Atlanta, Georgia 30339, which we occupy under a lease which ended January
14, 2000 for $2,261.86 per month. We currently rent the premises on a month to
month arrangement at the same terms.
2-Infinity.com maintains executive offices located at 4828 Loop Central
Drive, Suite 150, Houston, Texas 77081, which they occupy under a lease ending
June 30, 2002 for $1,668.94 per month. At the end of such term, we believe that
we can lease the same or comparable offices at approximately the same monthly
rate, however, we can make no guarantees or assurances of that fact.
<PAGE>
AirNexus maintains executive offices located at 333 N. Sam Houston Parkway
East, Suite 870, Houston, Texas 77060, which they occupy under a lease ending
October 1, 2004 for $5,621.00 per month. At the end of such term, we believe
that we can lease the same or comparable offices at approximately the same
monthly rate, however, we can make no guarantees or assurances of that fact.
Lakota Oil maintains executive offices located at 3303 FM 1960 West Suite
F, Houston, Texas 77068, which they occupy under a lease ending July 31, 2000
for $495.00 per month. At the end of such term, we believe that we can lease
the same or comparable offices at approximately the same monthly rate, however,
we can make no guarantees or assurances of that fact.
MARKET FOR LAKOTA'S SECURITIES
Lakota has been a non-reporting publicly traded company with certain of
its securities exempt from registration under the Securities Act of 1933
pursuant to Rules 504 of Regulation D and Rule 144 of the General Rules and
Regulations of the Securities and Exchange Commission. Lakota's common stock is
traded on the OTC Bulletin Board operated by Nasdaq under the symbol LAKO.
Although Lakota filed an SB-2 Registration Statement seeking to register certain
securities for resale by selling shareholders and obtain reporting status, that
SB-2 Registration Statement was withdrawn. Consequently, Lakota has not become
or otherwise been a reporting company under the Securities Exchange Act of 1934.
The Nasdaq Stock Market has implemented a change in its rules requiring all
companies trading securities on the OTC Bulletin Board to become reporting
companies under the Securities Exchange Act of 1934. Lakota is required to
become a reporting company by the close of business on January 19, 2000 or no
longer be listed on the OTC Bulletin Board. Lakota effected the stock exchange
transaction with AGM on January 18, 2000 and became a successor issuer thereto
in order to comply with the reporting company requirements implemented by the
over-the-counter bulletin board.
The following table sets forth the high and low prices for shares of our
common stock for the periods noted, as reported by the National Daily Quotation
Service and the OTC bulletin board maintained by Nasdaq. Quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. Our stock began trading on September 25, 1997
under the symbol LAKO.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BID PRICES
YEAR PERIOD HIGH LOW
----- ------ ----- -----
1999 First Quarter 0.27 0.07
Second Quarter 0.62 0.06
Third Quarter 0.37 0.14
Fourth Quarter 0.23 0.10
(through December 8, 1999)
1998 First Quarter 1.22 0.31
Second Quarter 0.44 0.06
Third Quarter 0.38 0.04
Fourth Quarter 0.38 0.02
</TABLE>
<PAGE>
The number of beneficial holders of record of the common stock of Lakota as
of the close of business on December 8, 1999 was approximately 110. Many of the
shares are held in street name and consequently reflect numerous additional
beneficial owners.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock and do not
anticipate paying any cash dividends on our common stock in the future.
Instead, we intend to retain future earnings, if any, to fund the development
and growth of our business.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the current directors
and executive officers of Lakota who will remain so with the combined entity,
their principal offices and positions and the date each such person became a
director or executive officer. Our executive officers are elected annually by
the Board of Directors. Our directors serve one year terms until their
successors are elected. The executive officers serve terms of one year or until
their death, resignation or removal by the Board of Directors. There are no
family relationships between any of the directors and executive officers. In
addition, there was no arrangement or understanding between any executive
officer and any other person pursuant to which any person was selected as an
executive officer.
The directors and executive officers of Lakota are as follows:
Name Age Positions
- ---- --- ---------
R.K. ("Ken") Honeyman 45 President, Director
Howard N. Wilson 52 Vice President and Secretary,
Director
Nicholas R. Athens 40 Director
John B. Hayes 57 Director, President of Lakota
Oil and Gas,Inc.
Majed M. Jalali 25 Director, President of
2-Infinity.com, Inc.
Patrick ("Cody") Morgan 32 Director, President of
AirNexus, Inc.
<PAGE>
R.K. ("KEN") HONEYMAN brings to us significant oil and gas experience as
well as experience in the fields of retail brokerage and investment banking.
Prior to founding Lakota over three years ago, Mr. Honeyman started Can Am
Resources, Inc., an independent oil and gas exploration company headquartered in
Atlanta, Georgia, which he operated for 8 years. Can Am Resources drilled over
33 wells in various oil and gas provinces in the United States. In addition,
Can Am re-worked existing oil-producing properties, mineral interest purchases,
and the contributed to the building of two pipelines to transport natural gas
from its wells in the Appalachian Basin. Prior to founding Can Am, Mr. Honeyman
was an executive/principal and stockbroker at three brokerage firms over a
period of 12 years, dealing primarily in mergers and acquisitions and oil and
gas evaluations. Mr. Honeyman graduated from Mount Royal College with a degree
in Business Administration.
HOWARD N. WILSON has been with us since our inception, and was previously
with Can Am Resources, Inc. for a period of 3 years serving as its head of
marketing and finance. His experience in oil and gas economics has allowed us
to uncover projects that we anticipate will be financially beneficial by
providing for past pay-outs while managing the accompanying risk. Prior to
joining Can Am, Mr. Wilson was employed in the field of advertising, marketing
design, and corporate communications. Mr. Wilson graduated from Cal State
University, Long Beach, with a Bachelor of Arts degree.
NICHOLAS R. ATHENS brings to us over 12 years of petroleum geology
experience. Prior to joining us upon inception in 1996, he was involved in land
acquisition and geologic investigations on behalf of Can Am Resources, Inc. for
over 2 years. He has supervised numerous oil well re-completions and
work-overs, and has served as exploration manager for a number of oil companies
in Texas. Mr. Athens graduated from Valparaiso State University.
JOHN B. HAYES is the president of our subsidiary, Lakota Oil and Gas, Inc.,
as well as a member of our board of directors. Mr. Hayes has over 35 years of
experience in the areas of petroleum engineering and exploration. Prior to
joining us in 1998, he was the owner of a private engineering and consulting
firm, Cactus Petroleum, Inc., for over 24 years, working for such industry
leaders as Conoco, Superior Oil Co., Humble Oil and Gulf Oil, all in the
Texas/Gulf Coast areas. He began his career with EXXON after graduating from
Texas A&M University with a degree in Petroleum Engineering.
<PAGE>
MAJED M. JALALI is the president of our subsidiary, 2-Infinity.com, Inc.,
as well as a member of our board of directors. Mr. Jalali has an extensive
entrepreneurial background as the founder of numerous companies, including
Infinity Communications, which offers a fully interactive, virtual high school
learning environment called Infinity International School. Mr. Jalali's past
credits include involvement in bringing Internet access to the Middle East
through Bahrain Online and Arablink.
PATRICK "CODY" MORGAN is the president of our subsidiary, AirNexus, Inc.,
as well as a member of our board of directors. Mr. Morgan has an extensive
background in the telecommunications field dating back to 1988. From 1988 to
1990, he was the top sales representative for Celltech, a cellular service
provider in the Houston area. From 1990 to 1994, Mr. Morgan was the founder and
operator of Mobiltel, a Houston based provider of cellular telephones and car
alarms. In 1994, Mr. Morgan became the General Manager of Digitec Business
Systems in Houston, a provider of business telephones and voicemail systems. In
October of 1996, when the owner of Digitec filed bankruptcy, Mr. Morgan and a
partner formed Digiphone, which reached $170,000 in annual sales before the
partners dissolved the business. Since May of 1998, Mr. Morgan was owned and
operated Data and Voice Design, Inc., now known as AirNexus, Inc.
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The Summary Compensation Table shows selected compensation information for
services rendered in all capacities for the fiscal year ended December 31, 1998
and the six months ended June 30, 1999. Other than as set forth, no executive
officer's salary and bonus exceeded $100,000 in any of the applicable years.
The following information includes the dollar value of base salaries, bonus
awards, the number of stock options granted and selected other compensation, if
any, whether paid or deferred.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------- -------------------------------
Awards Payouts
------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) ($) SARS(#) ($) ($)
R.K. (Ken) 1999 245,861 -0- -0- 134,114 -0- -0- -0-
Honeyman (6/30)
(President)
1998 96,240 -0- -0- -0- -0- -0- -0-
(12/31)
Howard N. Wilson 1999 171,114 -0- -0- 98,371 -0- -0- -0-
(VP, Secretary) (6/30)
1998 46,250 -0- -0- -0- -0- -0- -0-
(12/31)
</TABLE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<S> <C> <C> <C> <C>
NUMBER OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SAR'S GRANTED
OPTIONS/SAR'S GRANTED TO EMPLOYEES IN FISCAL EXERCISE OF BASE PRICE
(#) YEAR ($/SH) EXPIRATION DATE
NAME
R.K. (Ken) Honeyman - 0 - N/A N/A N/A
- ------------------- ---------------------- ---------------------- ----------------------- ---------------
Howard N. Wilson - 0 - N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<S> <C> <C> <C> <C>
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE
OPTIONS/SARS AT FY-END (#) MONEY OPTION/SARS
SHARES ACQUIRED ON EXERCISABLE/UNEXERCISABLE AT FY-END ($)
EXERCISE (#) VALUE REALIZED ($) EXERCISABLE/UNEXERCISABLE
NAME
- ------------------- ------------------ ------------------- -------------------------- --------------------------
R.K. (Ken) Honeyman -0- -0- - 0 - --
Howard N. Wilson -0- -0- - 0 - -
</TABLE>
Employment Agreements
In June 1999, Voice Design, Inc., now known as AirNexus, Inc., entered into
an employment agreement with its president, Charles Downey, Jr. The contract is
for a term of three years at an annual salary of $75,000 and may be terminated
at any time for cause or good reason, as defined in the agreement.
<PAGE>
In June 1999, Voice Design, Inc., now known as AirNexus, Inc., entered into
an employment agreement with its chief executive officer, Patrick "Cody" Morgan.
The contract is for a term of three years at an annual salary of $75,000 and may
be terminated at any time for cause or good reason, as defined in the agreement.
In June 1999, 2-Infinity entered into an employment agreement with its
president and chief executive officer, Majed Jalali. The contract is for a term
of three years at an annual salary of $96,000 and may be terminated at any time
for cause or good reason, as defined in the agreement.
Restricted Stock Issuances
In February 1999, we issued 1,000,000 shares of restricted common stock to
Cactus Petroleum, Inc., an entity controlled by John B. Hayes, as consideration
for services related to the negotiation and consummation of a transaction with
Optima Investments. Mr. Hayes assisted in the identification, negotiation, and
closing of the transaction with Optima.
In April 1999, we issued 1,676,429 and 1,229,643 shares of restricted
common stock to Ken Honeyman and Howard Wilson, respectively, as consideration
for accrued compensation for past services rendered. Mr. Honeyman and Mr.
Wilson had each verbally agreed to forego any cash compensation up to the date
of issuance for their services as chief executive officer and secretary,
respectively, in exchange for the shares.
In July 1999, we issued 300,000 shares of restricted common stock to John
B. Hayes as consideration for accrued compensation for past services rendered.
Mr. Hayes had verbally agreed to forego any cash compensation up to the date of
issuance for services rendered as president of the oil and gas division of
Lakota Energy, Inc., and subsequently as president of Lakota Oil and Gas, Inc.
Stock Option Plan
Effective August 1, 1999, our directors and shareholders approved the
Lakota Energy, Inc. Omnibus Stock Option Plan. Under the terms of the Option
Plan, the board of directors has the sole authority to determine which of the
eligible persons shall receive options, the number of shares which may be issued
upon exercise of an option, and other terms and conditions of the options
granted under the Plan to the extent they don't conflict with the terms of the
Plan. An aggregate of 3,000,000 shares of common stock are reserved for
issuance under the Plan during the year August 1, 1999 to July 31, 2000. For
each subsequent year beginning August 1, 2000, there shall be reserved for
issuance under the Plan that number of shares equal to 10% of the outstanding
shares of common stock on August 1 of that year. The exercise price for all
options granted under the Plan shall be 100% of the fair market value of our
common stock on the date of grant, unless the recipient is the holder of more
than 10% of the already outstanding securities of Lakota, in which case the
exercise price shall be 110% of the fair market value of our common stock on the
date of grant. All options shall vest equally over a period of five years from
the date of issuance. On August 11, 1999, the board of directors approved the
grant of an aggregate of 2,000,000 options under the Plan as follows: Ken
Honeyman, 775,000 options; Howard Wilson, 775,000 options; John Hayes, 400,000
options; Simone Robinson, 50,000 options.
Compensation of Directors
The directors have not received any compensation for serving in such
capacity, and we do not currently contemplate compensating our directors in the
future for serving in such capacity.
<PAGE>
CERTAIN TRANSACTIONS
Effective November 6, 1996, Lakota Energy, Inc., a Colorado corporation,
merged with and into Chancellor Trading Group, Inc., a Colorado corporation, in
a business combination described as a reverse acquisition, with Chancellor being
the surviving corporation. For accounting purposes, the transaction has been
treated as the acquisition of Chancellor (the Registrant) by Lakota Energy. As
part of the transaction, Chancellor changed its name to Lakota Energy.
Immediately prior to the transaction, Chancellor had 1,801,000 shares of common
stock outstanding. As part of Chancellor's reorganization with Lakota Energy,
Chancellor issued 9,187,500 shares of its common stock to the shareholders of
Lakota Energy in exchange for 4,593,750 shares of Lakota Energy common stock,
and an additional 118,000 shares to third parties, so that subsequent to the
transaction, there were 11,106,500 shares of common stock issued and
outstanding.
All future material affiliated transactions and loans will be made or
entered into on terms that are no less favorable to the Company than those that
can be obtained from unaffiliated third parties, and all future material
affiliated transactions and loans, and any forgiveness of loans, must be
approved by a majority of our independent directors who do not have an interest
in the transactions and who had access, at our expense, to our legal counsel or
to independent legal counsel.
<PAGE>
RISK FACTORS
RISKS RELATED TO OUR OIL AND GAS BUSINESS AS WELL AS OUR INTERNET AND TECHNOLOGY
BUSINESS
YOU MAY BE UNABLE TO EFFECTIVELY EVALUATE OUR COMPANY FOR INVESTMENT PURPOSES
BECAUSE OUR OIL AND GAS EXPLORATION AND INTERNET TECHNOLOGY BUSINESSES HAVE
EXISTED FOR ONLY A SHORT PERIOD OF TIME. We began in the oil and gas
exploration business in 1997, and our Internet and technology subsidiaries have
been in operation since early 1999. As a result, we have only a limited
operating history upon which you may evaluate our business and prospects. In
addition, you must consider our prospects in light of the risks and
uncertainties encountered by companies in an early stage of development in new
and rapidly evolving markets.
YOUR INVESTMENT MAY NOT INCREASE IN VALUE UNLESS WE ARE ABLE TO BECOME
PROFITABLE. We have incurred losses in our business operation since inception.
We expect to continue to lose money for the foreseeable future, and we cannot be
certain when we will become profitable, if at all. Failure to achieve and
maintain profitability may adversely affect the market price of our common
stock.
WE ARE PRESENTLY IN UNSOUND FINANCIAL CONDITION WHICH MAKES INVESTMENT IN
OUR SECURITIES HIGHLY RISKY. Our financial statements include an auditor's
report containing a modification regarding an uncertainty about our ability to
continue as a going concern. Our financial statements also include an
accumulated deficit of $6,367,274 as of September 30, 1999 and other indications
of weakness in our present financial position. We have been operating primarily
through the issuance of common stock for services by entities, including
affiliates, that we could not afford to pay in cash. We are consequently deemed
by state securities regulators to presently be in unsound financial condition.
No person should invest in this offering unless they can afford to lose their
entire investment.
OUR BUSINESS DEPENDS ON A FEW KEY INDIVIDUALS AND MAY BE NEGATIVELY
AFFECTED IF WE ARE UNABLE TO KEEP OUR KEY PERSONNEL. Our future success depends
in large part on the skills, experience and efforts of our key marketing and
management personnel. The loss of the continued services of any of these
individuals could have a very significant negative effect on our business. In
particular, we rely upon the experience of Ken Honeyman and Howard Wilson, our
president and secretary, respectively. We do not currently maintain a policy of
key man life insurance on any of our employees or management team.
OUR BUSINESS PLAN REQUIRES ADDITIONAL PERSONNEL AND MAY BE NEGATIVELY
AFFECTED IF WE ARE UNABLE TO HIRE AND RETAIN NEW SKILLED PERSONNEL. Qualified
personnel are in great demand throughout the software and Internet start-up
industries. Our success depends in large part upon our ability to attract,
train, motivate and retain highly skilled sales and marketing personnel, web
designers, software engineers and other senior personnel. Our failure to attract
and retain the highly trained technical personnel that are integral to our
direct sales, product development, service and support teams may limit the rate
at which we can generate sales and develop new products and services or product
and service enhancements. This could hurt our business, operating results and
financial condition.
<PAGE>
OUR TECHNOLOGY BUSINESSES OWN PROPRIETARY TECHNOLOGY AND OUR SUCCESS
DEPENDS ON OUR ABILITY TO PROTECT THAT TECHNOLOGY. The unauthorized
reproduction or other misappropriation of our proprietary technology could
enable third parties to benefit from our technology without paying us for it.
This could have a material adverse effect on our business, operating results and
financial condition. We have relied primarily on the use of trade secrets to
protect our proprietary technology, which may be inadequate. We do not know
whether we will be able to defend our proprietary rights because the validity,
enforceability and scope of protection of proprietary rights in Internet-related
industries are uncertain and still evolving. Moreover, the laws of some foreign
countries are uncertain and may not protect intellectual property rights to the
same extent as the laws of the United States. If we resort to legal proceedings
to enforce our intellectual property rights, the proceedings could be burdensome
and expensive and could involve a high degree of risk.
WE WILL INCUR SIGNIFICANT EXPENSES IF OTHER COMPANIES CLAIM WE HAVE
INFRINGED ON THEIR PROPRIETARY RIGHTS. Although we attempt to avoid infringing
known proprietary rights of third parties, we are subject to the risk of claims
alleging infringement of third party proprietary rights. If we were to discover
that any of our products violated third party proprietary rights, there can be
no assurance that we would be able to obtain licenses on commercially reasonable
terms to continue offering the product without substantial reengineering or that
any effort to undertake such reengineering would be successful. We do not
conduct comprehensive searches to determine whether the technology used in our
products infringes patents, trademarks, tradenames or other protections held by
third parties. In addition, product development is inherently uncertain in a
rapidly evolving technological environment in which there may be numerous patent
applications pending, many of which are confidential when filed, with regard to
similar technologies. Any claim of infringement could cause us to incur
substantial costs defending against the claim, even if the claim is invalid, and
could distract our management from our business. Furthermore, a party making
such a claim could secure a judgment that requires us to pay substantial
damages. A judgment could also include an injunction or other court order that
could prevent us from selling our products. Any of these events could have a
material adverse effect on our business, operating results and financial
condition.
IF WE ARE UNABLE TO RAISE SUFFICIENT CAPITAL IN THE FUTURE, WE MAY NOT BE
ABLE TO STAY IN BUSINESS. Currently, our capital is insufficient to conduct our
business and if we are unable to obtain needed financing, we will be unable to
promote our products and services, engage in and exploit potential business
opportunities and otherwise maintain our competitive position. Since we intend
to grow our business rapidly, it is certain that we will require additional
capital. We have not thoroughly investigated whether this capital would be
available, who would provide it, and on what terms. If we are unable to raise
the capital required to fund our growth, on acceptable terms, our business may
be seriously harmed or even terminated.
<PAGE>
WE COULD LOSE REVENUE AND INCUR SIGNIFICANT COSTS IF OUR COMPUTER SYSTEMS
OR THE COMPUTER SYSTEMS OF THIRD-PARTIES ARE NOT YEAR 2000 COMPLIANT. Many
currently installed computer systems and software products accept only two
digits to identify the year in any date. Thus, the year 2000 will appear as
"00," which a system or software might consider to be the year 1900 rather than
the year 2000. This error could result in system failures, delays or
miscalculations that disrupt our operations. The failure of our internal
systems, or any material third-party systems, to be year 2000 compliant could
result in significant liabilities and could seriously harm our business. We have
conducted a review of our business systems, including our computer systems. We
have taken steps to remedy potential problems, but have not yet developed a
comprehensive year 2000 contingency plan. There can be no assurance that we will
identify all year 2000 problems in our computer systems before they occur or
that we will be able to remedy any problems that are discovered. We have also
queried many of our customers, vendors and resellers as to their progress in
identifying and addressing problems that their computer systems may face in
correctly interrelating and processing date information as the year 2000
approaches and is reached. We have received responses from several of these
parties, but there can be no assurance that we will identify all such year 2000
problems in the computer systems of our customers, vendors or resellers before
they occur or that we will be able to remedy any problems that are discovered.
Our efforts to identify and address year 2000 problems, and the expenses we may
incur as a result of such problems, could have a material adverse effect on our
business, financial condition and results of operations. In addition, the
revenue stream and financial stability of existing customers may be adversely
impacted by year 2000 problems, which could cause fluctuations in our revenue.
If we fail to identify and remedy year 2000 problems, we could also be at a
competitive disadvantage relative to companies that have corrected such
problems. Any of these outcomes could have significant adverse effects on our
business, financial condition and results of operations.
WE MAY NOT HAVE SUFFICIENT INTEREST IN OUR INTERNET BUSINESSES TO MAKE
MONEY. If the market for the services offered by 2-Infinity.com, Inc. and
AirNexus, Inc. do not grow at a significant rate, our business, operating
results and financial condition will be negatively affected. Our
Internet-related services are a relatively new concept. Future demand for
recently introduced technologies is highly uncertain, and therefore we cannot
guaranty that our business will grow as we expect.
OUR INTERNET BUSINESSES ARE IN HIGHLY COMPETITIVE INDUSTRIES, AND THUS
THERE MAY NOT BE ENOUGH DEMAND FOR OUR PRODUCTS OR SERVICES FOR US TO MAKE
MONEY. There are numerous competitors offering the services of 2-Infinity.com,
Inc. and AirNexus, Inc. Many of our current and potential competitors have
longer operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing and other resources than we do and
may enter into strategic or commercial relationships with larger, more
established and well-financed companies. Some of our competitors may be able to
enter into such strategic or commercial relationships on more favorable terms.
In addition, new technologies and the expansion of existing technologies may
increase competitive pressures on us. Increased competition may result in
reduced operating margins and loss of market share.
<PAGE>
REVENUES FROM OUR INTERNET BUSINESSES WILL BE LESS LIKELY TO DEVELOP IF THE
INTERNET DOES NOT REMAIN A VIABLE COMMERCIAL MARKETPLACE. Our ability to
generate revenues is substantially dependent upon continued growth in the use of
the Internet and the infrastructure for providing Internet access and carrying
Internet traffic. We don't know if the necessary infrastructure or complementary
products will be developed or that the Internet will prove to be a viable
commercial marketplace. To the extent that the Internet continues to experience
significant growth in the level of use and the number of users, we cannot
guaranty that the infrastructure will continue to be able to support the demands
placed upon it by such potential growth. In addition, delays in the development
or adoption of new standards or protocols required to handle levels of Internet
activity, or increased governmental regulation may restrict the growth of the
Internet. If the necessary infrastructure or complementary products and services
are not developed or if the Internet does not become a viable commercial
marketplace, our business, operating results and financial condition would be
negatively affected.
WE MAY INCUR A LOSS OF REVENUES AND SIGNIFICANT COSTS IF WE CANNOT MAINTAIN
THE SECURITY OF OUR INTERNET PRODUCTS AND SERVICES. Internet companies rely on
encryption and authentication technology to provide the security and
authentication necessary to effect secure transmission of confidential
information. There can be no assurance that advances in computer capabilities,
new discoveries in the field of cryptography or other developments will not
result in a compromise or breach of the algorithms used by companies to protect
consumer's transaction data. If any such compromise of this security were to
occur, it could have a material adverse effect on our potential clients,
business, prospects, financial condition and results of operations. A party who
is able to circumvent security measures could misappropriate proprietary
information or cause interruptions in operations. We may be required to expend
significant capital and other resources to protect against such security
breaches or to alleviate problems caused by such breaches. Concerns over the
security of transactions conducted on the Internet and the privacy of users may
also hinder the growth of online services generally. To the extent that our
activities or third-party contractors involve the storage and transmission of
proprietary information, such as credit card numbers, or personal data
information, security breaches could damage our reputation and expose us to a
risk of loss or litigation and possible liability. We cannot be sure that our
security measures will not prevent security breaches or that failure to prevent
such security breaches will not have a material adverse effect on our business.
RISKS RELATED TO OUR OIL AND GAS EXPLORATION BUSINESS
OUR REVENUES MAY VARY WIDELY BECAUSE OIL AND GAS PRICES ARE HIGHLY
VOLATILE. A portion of our future potential revenue is dependent on the
prevailing market price for oil and gas. The prices for oil and gas
historically have been volatile and are subject to wide fluctuations in response
to changes in the supply of and demand for oil and gas, market uncertainties and
a variety of additional factors beyond our control. These factors include the
level of consumer product demand, weather conditions, domestic and foreign
governmental regulation, political conditions in the Middle East, the foreign
supply of oil and gas, the price and availability of alternative fuels and
overall oil and gas market conditions. It is impossible to predict future oil
and gas price movements with any certainty. Any substantial or extended decline
in the price of oil and gas would have a negative effect on our financial
condition and results of operations, as well as reduce the amount of our oil and
gas that we can produce economically.
<PAGE>
IF LOCAL OPERATORS DO NOT EFFECTIVELY MANAGE OUR PROPERTIES, WE MAY SUFFER
A LOSS OF REVENUES OR SIGNIFICANT ADDITIONAL EXPENSES. None of our oil and gas
properties are operated by us. As a result, we have limited control over the
manner in which operations are conducted on such properties, including the
safety and environmental standards. Under the terms of the operating agreements
governing operations on the properties in which we have an interest, we do not
have any measurable influence or control over the nature and timing of
exploration and development activities. As a result, the operators of such
properties could undertake exploration or development projects at a time when we
and our joint partners do not have the funds required to finance our share of
the costs of such projects. In such event, in accordance with the operating
agreements relating to properties in which we have an interest, the other
parties to such agreements who fund their share of the cost of such a project
are generally entitled to receive all cash flow from such project, subject to
rights of third party royalty or other interest owners, until they have
recovered a multiple of the costs of such project prior to our receipt of any
production or revenues from such project or, in the event drilling is necessary
to maintain leasehold interests, we may be required to forfeit our interests in
such projects. Conversely, the operators of such properties could refuse to
initiate exploration or development projects, in which case we would be required
to propose such activities and may be required to proceed with such activities
at much higher levels of participation than expected and without receiving any
funding from the other interest owners or the operators may initiate exploration
or development projects on a slower schedule than we prefer. Any of these events
could have a significant effect on our anticipated exploration and development
activities and financing thereof.
OUR REVENUES AND PROFITABILITY WILL BE NEGATIVELY AFFECTED IF THERE ARE
OPERATIONAL ACCIDENTS OR OTHER UNFORSEEN LIABILITIES. Our operations are
subject to risks inherent in the oil and gas industry, such as blowouts,
cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires,
pollution and other environmental risks. These risks could result in substantial
losses to us due to injury and loss of life, severe damage to and destruction of
property and equipment, pollution and other environmental damage and suspension
of operations. In accordance with customary industry practice, we are not fully
insured against all risks incident to its business. Because of the nature of
industry hazards, it is possible that liabilities for pollution and other
damages arising from a major occurrence could exceed insurance coverage or
policy limits. Any such liabilities could have a materially adverse effect on
our operations and profitability.
OUR SELECTION PROCESS FOR OIL AND GAS INVESTMENTS MAY RESULT IN PROPERTIES
THAT ARE UNPRODUCTIVE. We intend to continue acquiring oil and gas properties.
Although we perform a review of the properties to be acquired that we believe is
consistent with industry practices, our reviews are inherently incomplete.
Generally, it is not feasible to review in-depth every individual property
involved in each acquisition. Ordinarily, we will focus its review efforts on
the higher-valued properties and will sample the remainder. However, even an
in-depth review of all properties and records may not necessarily reveal
existing or potential problems nor will it permit a buyer to become sufficiently
familiar with the properties to assess fully their deficiencies and
capabilities. Inspections may not always be performed on every well, and
environmental problems, such as ground water contamination, are not necessarily
observable even when an inspection is undertaken. Furthermore, we must rely on
information, including financial, operating and geological information, provided
by the seller of the properties without being able to verify fully all such
information and without the benefit of knowing the history of operations of all
such properties.
<PAGE>
DUE TO RISKS BEYOND OUR CONTROL, A SIGNIFICANT AMOUNT OF CAPITAL MAY BE
LOST ON INVESTMENTS THAT UNPRODUCTIVE. A high degree of risk of loss of
invested capital exists in almost all exploration and development activities
which we undertake. No assurance can be given that oil or gas will be discovered
to replace reserves currently being developed, produced and sold, or that if oil
or gas reserves are found, they will be of a sufficient quantity to enable us to
recover the substantial sums of money incurred in their acquisition, discovery
and development. Drilling activities are subject to numerous risks, including
the risk that no commercially productive oil or gas reservoirs will be
encountered. The cost of drilling, completing and operating wells is often
uncertain. Our operations may be curtailed, delayed or cancelled as a result of
numerous factors including title problems, weather conditions, compliance with
governmental requirements and shortages or delays in the delivery of equipment.
The availability of a ready market for the our gas production depends on a
number of factors, including, without limitation, the demand for and supply of
natural gas, the proximity of gas reserves to pipelines, the capacity of such
pipelines and government regulations.
IF GOVERNMENTAL REGULATIONS CHANGE, WE MAY INCUR SUBSTANTIAL INCREASED
EXPENSES. Our oil and gas business is subject to a number of federal, state and
local laws and regulations relating to the exploration for and development and
production of oil and gas, as well as environmental and safety matters. Such
laws and regulations have generally become more stringent in recent years, often
imposing greater liability on a larger number of potentially responsible
parties. Because the requirements imposed by such laws and regulations are
frequently changed, we are unable to predict the ultimate cost of compliance
with such requirements and their effect on us.
RISKS RELATED TO OWNERSHIP OF OUR STOCK.
OUR BOARD OF DIRECTORS CAN ISSUE PREFERRED STOCK WITHOUT SHAREHOLDER
CONSENT AND DILUTE OR OTHERWISE SIGNIFICANTLY AFFECT THE RIGHTS OF EXISTING
SHAREHOLDERS. Our articles of incorporation provide that preferred stock may be
issued from time to time in one or more series. Our board of directors is
authorized to determine the rights, preferences, privileges and restrictions
granted to and imposed upon any wholly unissued series of preferred stock and
the designation of any such shares, without any vote or action by our
shareholders. The board of directors may authorize and issue preferred stock
with voting power or other rights that could adversely affect the voting power
or other rights of the holders of common stock. In addition, the issuance of
preferred stock could have the effect of delaying, deferring or preventing a
change in control, because the terms of preferred stock that might be issued
could potentially prohibit the consummation of any merger, reorganization, sale
of substantially all of its assets, liquidation or other extraordinary corporate
transaction without the approval of the holders of the outstanding shares of the
preferred stock. We will not offer preferred stock to promoters except on the
same terms as it is offered to all other existing shareholders or to new
shareholder or unless the issuance is approved by a majority of our independent
directors who do not have an interest in the transactions and who have access,
at our expense, to our legal counsel or independent legal counsel.
THE MARKET FOR OUR COMMON STOCK IS VERY VOLATILE. Our stock is presently
trading on the OTC bulletin board maintained by Nasdaq under the symbol LAKO.
Nevertheless, there has been limited volume in trading in the public market for
the common stock, and there can be no assurance that a more active trading
market will develop or be sustained. The market price of the shares of common
stock is likely to be highly volatile and may be significantly affected by
factors such as fluctuations in our operating results, announcements of
technological innovations or new products and/or services by us or our
competitors, governmental regulatory action, developments with respect to
patents or proprietary rights and general market conditions.
<PAGE>
WE MAY BE DE-LISTED FROM THE OTC BULLETIN BOARD. NASD Eligibility Rule
6530 issued on January 4, 1999, states that issuers who do not make current
filings pursuant to Sections 13 and 15(d) of the Securities Act of 1934 are
ineligible for listing on the OTC bulletin board. Issuers who are not current
with such filings are subject to delisting according to a phase-in schedule
depending on each issuer's trading symbol as reported on January 4, 1999. Our
trading symbol on January 4, 1999 was LAKO. Therefore, under the phase-in
schedule, our common stock is subject to de-listing on January 19, 2000. One
month prior to our potential delisting date, our common stock had its trading
symbol changed to LAKOE.
WE ARE SUBJECT TO THE PENNY-STOCK RULES. The Securities Enforcement and
Penny Stock Reform Act of 1990 requires additional disclosure relating to the
market for penny stocks in connection with trades in any stock defined as a
penny stock. The Commission has adopted regulations that generally define a
penny stock to be any equity security that has a market price of less than $5.00
per share, subject to a few exceptions. Such exceptions include any equity
security listed on Nasdaq and any equity security issued by an issuer that has
0 net tangible assets of at least $2,000,000, if such issuer has been in
continuous operation for three years,
0 net tangible assets of at least $5,000,000, if such issuer has been in
continuous operation for less than three years, or
0 average annual revenue of at least $6,000,000, if such issuer has been in
continuous operation for less than three years.
Unless an exception is available, the regulations require the delivery, prior to
any transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 5. OTHER EVENTS
Successor Issuer Election.
Upon execution of the Exchange Agreement and delivery of the Lakota shares
to the shareholders of AGM, pursuant to Rule 12g-3(a) of the General Rules and
Regulations of the Securities and Exchange Commission, Lakota became the
successor issuer to AGM for reporting purposes under the Securities
Exchange Act of 1934 and elected to report under the Act effective
January 18, 2000.
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
Not applicable.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The financial statements of Lakota for the fiscal year ending December
31, 1998 and for the six months ended June 30, 1999 are included herein. The
financial statements of AGM for the fiscal year ending December 31, 1998 and for
the nine months ended September 30, 1999.
<PAGE>
LAKOTA TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
F-1
<PAGE>
C O N T E N T S
Independent Auditors' Report . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations . . . . . . . . . . . 6
Consolidated Statements of Stockholders' Equity (Deficit) . . 7
Consolidated Statements of Cash Flows . . . . . . . . . . . . 10
Notes to the Consolidated Financial Statements . . . . . . . 12
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Director
Lakota Technologies, Inc. and Subsidiaries
(A Development Stage Company)
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Lakota
Technologies, Inc. and Subsidiaries (a development stage company) as of December
31, 1998 and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the years ended December 31, 1998 and 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lakota Technologies,
inc. and Subsidiaries (a development stage company) as of December 31, 1998 and
the results of their operations and their cash flows for the years ended
December 31, 1998 and 1997 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to
the financial statements, the Company is a development stage company with no
significant operating results to date, which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 3. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
September 15, 1999
F-3
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
------
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1999 1998
---------------- ------------
(Unaudited)
CURRENT ASSETS
Cash $ 97,357 $ 92,090
Security deposit 5,485 2,077
------------ -------------
Total Current Assets 102,842 94,167
-------------- ------------
PROPERTY AND EQUIPMENT (Note 2)
Leasehold improvements 673 673
Furniture and fixtures 11,188 4,382
Equipment 35,878 2,745
Less: accumulated depreciation (6,087) (2,400)
--------------- ------------
Total Property and Equipment 41,652 5,400
---------------- -------------
OIL AND GAS PROPERTIES (Notes 1, 2 and 5) 32,064 32,064
---------------- -------------
TOTAL ASSETS $ 176,558 $ 131,631
============== =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1999 1998
--------------- --------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 33,649 $ 2,104
Notes payable (Note 9) 30,000 -
Notes payable - related party (Note 4 and 9) 90,315 54,914
Accrued interest - related party (Note 4) 16,966 13,193
Accrued expenses 24,375 6,622
--------------- --------------
Total Current Liabilities 195,305 76,833
--------------- --------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock 25,000,000 shares authorized,
no par value; no shares outstanding - -
Common stock 100,000,000 shares authorized, no par
value; 40,278,182 and 20,678,733 shares issued
and outstanding, respectively 6,348,527 1,650,389
Loan receivable - related party - (36,507)
Interest receivable - related party - (1,763)
Deficit accumulated during the development stage (6,367,274) (1,557,321)
--------------- --------------
Total Stockholders' Equity (Deficit) (18,747) 54,798
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 176,558 $ 131,631
=============== ==============
</TABLE>
F-5
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
<BTB>
For the From
Nine Months For the Inception on
Ended Years Ended November 14,
September 30, Deeember 31, 1995 Through
1999 1998 1998 1997 September 30, 1999
------------ ------------ ---------- ------------ ------------------
(Unaudited) (Unaudited) (Unaudited)
REVENUES
<S> <C> <C> <C> <C> <C>
Data revenues $ 150,649 $ - $ - $ - $ 150,649
Oil and gas sales 5,255 - 5,255
------------ ------------ ------------ ------------- -----------
Net Revenues 155,904 - - - 155,904
------------ ------------ ------------ -------------- -------------
COST OF SALES 114,405 - - - 114,405
------------ ------------ ------------ -------------- ---------------
GROSS MARGIN 41,499 - - - 41,499
------------ ------------ ------------ -------------- ---------------
EXPENSES
Depreciation expense 3,687 900 1,200 1,200 6,087
Amortization expense 2,159,000 - - - 2,159,000
Oil and gas properties expenditures 133,071 - - - 133,071
General and administrative 1,780,883 160,985 351,139 303,897 2,543,938
------------ ------------ ------------ -------------- -------------
Total Expenses 4,076,641 161,885 352,339 305,097 4,842,096
------------ ------------ ------------ -------------- -------------
Loss from Operations (4,035,142) (161,885) (352,339) (305,097) (4,800,597)
------------ ------------ ------------ -------------- ---------------
OTHER INCOME (EXPENSE)
Interest expense (784,979) - (5,491) (436,061) (1,578,607)
Interest income 10,168 - 1,362 400 11,930
------------ ------------ ------------ --------------- ------------
Total Other Income (Expense) (774,811) - (4,129) (435,661) (1,566,677)
------------ ------------ ------------ -------------- ------------
MINORITY INTEREST - - - - -
------------ ------------ ------------ -------------- -----------
NET LOSS $(4,809,953) $ (161,885) $ (356,468) $ (740,758) $(6,367,274)
============ ============ ============ ============== ==============
BASIC LOSS PER SHARE $ (0.21) $ (0.01) $ (0.03) $ (0.06)
============ ============ ============ ==============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 23,012,307 12,677,753 13,371,602 11,983,904
============ ============ ============ ===============
</TABLE>
F-6
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Deficit
Accumulated
During the
Common Stock Development
Shares Amount Stage
------------ ------------ ------------
Balance at inception on
November 14, 1995 - $ - $ -
Net loss for the period ended
December 31, 1995 - - (1,683)
------------ ------------ ------------
Balance, December 31, 1995 - - (1,683)
Issuance of common stock to founders
at approximately $0.00 per share 9,187,500 1,250 -
Issuance of common stock in merger with
Chancellor Trading Group, Inc. at
approximately $0.002 1,801,000 3,908 -
Issuance of common stock for cash 108,000 108,000 -
at $1.00 per share
Issuance of common stock for services 20,000 20,000 -
at $1.00 per share
Net loss for the year ended
December 31, 1996 - - (458,412)
------------ ------------ ------------
Balance, December 31, 1996 11,116,500 133,158 (460,095)
Common stock issued for cash at $1.00
per share 212,500 212,500 -
Conversion of preferred stock to common
stock at $1.00 per share 812,500 812,500 -
Net loss for the year ended
December 31, 1997 - - (740,758)
------------ ------------ ------------
Balance, December 31, 1997 12,141,500 $ 1,158,158 $(1,200,853)
------------ ------------ ------------
</TABLE>
F-7
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Deficit
Accumulated
During the
Common Stock Development
Shares Amount Stage
------------- ------------ ------------
Balance, December 31, 1997 12,141,500 $ 1,158,158 $(1,200,853)
Common stock issued for cash at
approximately $0.10 per share 3,608,800 344,378 -
Common stock issued for services
at approximately $0.03 per share 4,928,433 147,853 -
Net loss for the year ended
December 31, 1998 - - (356,468)
------------- ------------ ------------
Balance, December 31, 1998 20,678,733 1,650,389 (1,557,321)
Common stock issued for cash
at approximately $0.19 per share 360,000 67,600 -
Common stock issued for debt
at approximately $0.07 per share 7,685,581 550,000 -
Common stock issued in business
combinations at $0.35 per share (Note 12) 6,000,000 2,100,000 -
Common stock issued for services
at approximately $0.08 per share 6,054,977 688,538 -
Options issued for cash at approximately
$0.02 per share - 70,000 -
Common stock canceled (Note 11) (3,846,325) - -
Common stock issued for conversion of
debt at $0.09 per share (unaudited) 1,185,216 97,500 -
Common stock issued for cash at $0.30
per share (unaudited) 5,000 1,500 -
------------- ------------ ------------
Balance Forward 38,123,182 $ 5,225,527 $(1,557,321)
------------- ------------ ------------
</TABLE>
F-8
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Deficit
Accumulated
During the
Common Stock Development
Shares Amount Stage
------------ ------------ ------------
Balance Forward 38,123,182 $ 5,225,527 $(1,557,321)
Common stock issued for cash at $0.12
per share (unaudited) 40,000 4,800 -
Common stock issued for services at
$0.15 per share (unaudited) 2,115,000 337,825 -
Issuance of convertible debt and
warrants at less than market price
(unaudited) - 780,375 -
Net loss for the nine months ended
September 30, 1999 (unaudited) - - (4,809,953)
------------ ------------
Balance, September 30, 1999
(unaudited) 40,278,182 $ 6,348,527 $(6,367,274)
============ ============ ============
</TABLE>
F-9
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
From
For the For the Inception on
Nine Months Years Ended November 14,
Ended December 31, 1995 Through
September 30, September 30,
1999 1998 1998 1991 1999
-------------- --------------- -------------- --------------- ----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net (loss) $ (4,809,953) $ (161,885) $ (356,468) $ (740,758) $(6,367,274)
Adjustments to reconcile net (loss to net
cash flows from operating activities:
Depreciation expense 3,687 900 1,200 1,200 6,087
Amortization expense 2,159,000 - - - 2,159,000
Common stock issued for services 1,026,363 - 147,853 - 1,224,216
Convertible debt and warrants issued
at less than market price 780,375 - - - 780,375
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable 31,545 - 2,104 (14,511) 33,649
Increase (decrease) in accrued expenses 21,526 - 6,476 (370,801) 25,633
Increase (decrease) in other assets 3,408 - - 6,693 (5,485)
Increase in related party receivable 88,270 53,990 (33,870) (400) -
-------------- --------------- -------------- ----------------- ------------
Net Cash (Used) by Operating Activities (695,779) (106,995) (232,705) (1,118,577) (2,143,799)
-------------- --------------- -------------- ----------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (39,939) - - (7,800) (44,621)
-------------- --------------- -------------- ----------------- ------------
Net Cash (Used) by Investing Activities (39,939) - - (7,800) (44,621)
-------------- --------------- -------------- ----------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment on notes payable (26,399) (22,098) (22,098) - (48,497)
Proceeds from notes payable/debenture 623,484 - - 77,012 707,838
Conversion of preferred stock to common
stock - - - 812,500 812,500
Issuance of common stock 143,900 126,578 344,378 212,500 813,936
-------------- --------------- -------------- ----------------- ------------
Net Cash Provided by Financing Activities 740,985 104,480 322,280 1,102,012 2,285,777
-------------- --------------- -------------- ----------------- ------------
NET INCREASE (DECREASE) IN CASH 5,267 (2,515) 89,575 (24,365) 97,357
CASH AT BEGINNING OF PERIOD 92,090 2,515 2,515 26,880 -
-------------- --------------- -------------- ----------------- ------------
CASH AT END OF PERIOD $ 97,357 $ - $ 92,090 $2,515 $ 97,357
============== =============== ============== ================= ============
</TABLE>
F-10
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
From
For the Inception on
Nine Months For the November 14,
Ended Years Ended 1995 Through
September 30, December 31, September 30,
1999 1998 1998 1997 1999
-------------- --------------- ------------- ----- ----------------
(Unaudited) (Unaudited) (Unaudited)
CASH PAID DURING THE PERIOD FOR:
Interest $ 731 $ - $ - $ - $ 731
Income taxes $ - $ - $ - $ - $ -
NON-CASH TRANSACTIONS
Common stock issued for services $ 1,026,363 $ - $ 147,853 $ - $1,224,216
Issuance of convertible debt and
warrants at less than market price $ 780,375 $ - $ - $ - $ 780,375
Organization costs paid by related party $ - $ - $ - $ - $ 5,472
Issuance of preferred stock for oil and
gas properties $ - $ - $ - $ - $ 812,500
Common stock issued for business
acquisitions $ 2,100,000 $ - $ - $ - $2,100,000
Common stock issued for debt $ 647,500 $ - $ - $ - $ 647,500
</TABLE>
F-11
<PAGE>
The accompanying notes are an integral part of these financial statements.
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 1 - HISTORY AND ORGANIZATION
The consolidated financial statements presented are those of Lakota
Technologies, Inc. (formerly Chancellor Trading Group, Inc.) (the Company) (a
development stage company) and its wholly owned subsidiaries Lakota Energy, Inc.
(Lakota), Air Nexus, Inc., Lakota Oil and Gas, Inc. and 2-Infinity.com, Inc.
The Company was incorporated in the State of Colorado on July 14, 1995.
Effective November 6, 1996, the Company and (Lakota) completed an Agreement and
Plan of Reorganization whereby the Company issued 9,187,500 shares of its common
stock in exchange for 100% of the issued and outstanding common stock of
(Lakota). The Company also changed its name on this date from Chancellor
Trading Group, Inc. to Lakota Energy, Inc. (the same name as its subsidiary).
In 1999, the Company changed its name to Lakota Technologies, Inc.
Lakota was incorporated in the State of Colorado on November 14, 1995. Lakota
was incorporated to engage in the acquisition and exploration of oil and gas
properties.
On November 11, 1996, Lakota exercised its option agreements and acquired
399,999 shares of common stock or 99.9% of the issued and outstanding shares of
West Bolt Energy, Inc. (West Bolt) for 812,500 of its series A redeemable
convertible preferred stock. The original issuance of the Series A redeemable,
convertible preferred stock was valued at $36,716,560 which was the redemption
price of the preferred stock which equaled the reserve report valuation of the
oil and gas properties acquired. Due to the redemption provisions of the
preferred stock, it was accounted for as a liability and not equity. On
February 26, 1997, the Company converted the 812,500 shares of preferred stock
into 812,500 shares of common stock. At the time of conversion, the common
stock was determined to have a value of $1.00 per share. In addition, the
preferred shareholders forgave the accrued interest of $780,436 associated with
the preferred shares which also reduced the cost of the oil and gas properties
received. The revaluation caused the oil and gas properties to be valued at
$32,064 based upon similar issuance for cash. The acquisition was accounted for
as a combination under the purchase method of accounting with acquired oil and
gas properties were recorded at their cost to the Company (see Note 5).
F-12
<PAGE>
At the time of reorganization, the Company had very little activity with minimal
operations and assets. Additionally, the exchange of the Company's common stock
for the common stock of Lakota resulted in the former stockholders of Lakota
obtaining control of the Company. Accordingly, Lakota became the continuing
entity for accounting purpose, and the transaction was accounted for as a
recapitalization of Lakota with no adjustment to the basis or assets acquired or
liabilities assumed by the Company. The two companies merged into a single
entity "Lakota Energy, Inc." on December 27, 1996.
On June 9, 1999, the Company formed Lakota Oil & Gas, Inc., a 100% owned
subsidiary. The Company transferred their interest in two oil exploration
projects into Lakota Oil and Gas, Inc. As of June 30, 1999, Lakota Oil & Gas,
Inc. had no significant operations.
F-13
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has elected a December 31 year end.
The Company uses the successful efforts method of accounting for oil and gas
producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that find proved reserves, and
to drill and equip development wells are capitalized. Costs to drill
exploratory wells that do not find proved reserves, geological and geophysical
costs, and costs of carrying and retaining unproved properties are expensed.
b. Provision for Taxes
At September 30, 1999 and December 31, 1998, the Company had net operating loss
carryforwards of approximately $6,360,000 and $1,560,000, respectively, that may
be offset against future taxable income through 2014. No tax benefit has been
reported in the financial statements because the Company believes that there is
a 50% chance the net operating loss carryforwards will expire unused, therefore
the potential tax benefits of the loss carryforwards are offset by a valuation
allowance of the same amount.
c. Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
d. Basic Loss Per Share
The computation of income basic loss per share of common stock is based on the
weighted average number of shares outstanding at the date of the financial
statements. Fully diluted net loss per common share is not materially different
from basic loss per share.
e. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
Significant estimates include the valuation of proved, undeveloped reserves
related to the oil and gas properties. The ultimate recovery of proved,
undeveloped reserves is dependent on the success of future development of the
properties and in the Company's ability to complete the development.
F-14
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Amortization
Fixed assets are stated at cost. Oil and gas wells will be amortized using the
units-of-production method on the basis of total estimated units of proven
reserves. Amortization will not be recorded until reserves are extracted.
g. Consolidation
The consolidated financial statements are those of the Lakota Energy,
Inc.(formerly Chancellor Trading Group, Inc.), its wholly owned subsidiaries,
Air Nexus, Inc, 2-Infinity.com, Inc. and Lakota Energy, Inc. and its 99.9% owned
subsidiary West Bolt Energy, Inc. (West Bolt). All intercompany accounts have
been eliminated in the consolidation. No losses have been attributed to the
0.01% minority interest owed because there was not any basis to allocate.
h. Unaudited Financial Statements
The accompanying unaudited financial statements include all of the adjustment
which, in the opinion of management, are necessary for a fair presentation.
Such adjustments are of a normal recurring nature.
i. Property and Equipment
Property and equipment are stated at cost. Expenditures for small tools,
ordinary maintenance and repairs are charged to operations as incurred. Major
additions and improvements are capitalized. Depreciation is computed using the
straight-line method over estimated useful lives as follows
Leasehold improvements 7 years
Furniture and fixtures 7 years
Equipment 5 years
Depreciation expense for the periods ended September 30, 1999, September 30,
1998, December 31, 1998 and December 31, 1997 was $3,687, $900, $1,200 and $-0-,
respectively.
j. Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred.
F-15
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
k. New Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" and Statement of
Financial Accounting Standards No. 129 "Disclosures of Information About an
Entity's Capital Structure." SFAS No. 128 provides a different method of
calculating earnings per share than was previously used in accordance with APB
Opinion No. 15, "Earnings Per Share." SFAS No. 128 provides for the calculation
of "Basic" and "Dilutive" earnings per share. Basic earnings per share includes
no dilution and is computed by dividing income available to common shareholders
by the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of securities that
could share in the earnings of an entity, similar to fully diluted earnings per
share. SFAS No. 129 establishes standards for disclosing information about an
entity's capital structure. SFAS No. 128 and SFAS No. 129 are effective for
financial statements issued for periods ended after December 15, 1997. In
fiscal 1998, the Company adopted SFAS No. 128, which did not have a material
impact on the Company's financial statements. The implementation of SFAS No.
129 did not have a material effect on the Company's financial statements.
The Financial Accounting Standards Board has also issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 130 establishes standards
for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS No. 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that displays with the
same prominence as other financial statements. SFAS No. 131 supersedes SFAS No.
14 "Financial Reporting for Segments of a Business Enterprise." SFAS No. 131
establishes standards on the way that public companies report financial
information about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosure
regarding products and services, geographic areas and major customers. SFAS No.
131 defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.
SFAS No. 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and requires comparative information for
earlier years to be restated. The implementation of SFAS No. 130 and 131 did
not have a material affect on the financial statements.
F-16
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
k. New Accounting Pronouncements (Continued)
In February 1998, the Financial Accounting Standards Board ("FASB") has issued
Statement of Financial Accounting Standard ("SFAS") No 132. "Employers'
Disclosures about Pensions and other Postretirement Benefits" which standardizes
the disclosure requirements for pensions and other Postretirement benefits and
requires additional information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial analysis. SFAS No. 132 is
effective for years beginning after December 15, 1997 and requires comparative
information for earlier years to be restated, unless such information is not
readily available. The adoption of this statement had no material impact on the
Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires companies to record
derivatives as assets or liabilities, measured at fair market value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving offsetting changes in
fair value or cash flows. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The adoption of this statement had
no material impact on the Company's financial statements.
l. Goodwill
The Company assesses long-lived assets for impairment under FASB Statement No.
121, Accounting for the Impairment of long-Lived Assets. Under those rules,
goodwill associated with assets acquired in a purchase business combination
where determined to be impaired because circumstances exist that indicate the
carrying amount of those assets may not be recoverable. The purchase of the two
subsidiaries described in Note 12 resulted in the creation of goodwill of
$2,159,000. The goodwill is the excess of the purchase price of the two
subsidiaries over the net value of the tangible assets acquired from the two
subsidiaries. The purchase price was determined to be the trading prices of the
shares issued to purchase the subsidiaries on the date of issuance. The
Company's policy is evaluate the recoverability of its intangible assets on a
quarterly basis. At September 30, 1999, the two subsidiaries had minimal
revenues and substantial losses, which together raised doubt about the
recoverability of the goodwill. Accordingly, a valuation allowance was made for
the goodwill in full at September 30, 1999.
m. Revenue Recognition Policies
The Company recognizes oil and gas revenue upon the sale of the product. The
data revenues are recognized as billed.
F-17
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. The Company has not established revenues sufficient to cover its
operating costs and allow it to continue as a going concern. Management
believes that in the next 12 months, the Company will be able to generate
revenues sufficient to cover its operating costs. Currently shareholders are
committed to pay all operating and other costs until sufficient revenues are
generated. These costs will be recorded as a liability to the shareholders and
as expenses on the Company's books when incurred.
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company had notes payable to related companies totaling $90,315 at September
30, 1999. The notes bear interest at 10% per annum. Accrued interest at
September 30, 1999 and December 31, 1998 was $16,966 and $13,193, respectively.
The notes are unsecured and are due on demand.
NOTE 5 - CONVERSION OF PREFERRED STOCK
On February 26, 1997, the Board of Directors authorized the conversion of
812,500 shares of convertible preferred restricted stock into 812,500 shares of
the Company's restricted common shares.
In 1997, the preferred shareholders converted their shares to common stock on a
conversion rate of one share of preferred stock for one share of common stock.
At the time the stock was redeemed the Company was issuing stock for cash at
$1.00 per share. The more readily available market price of the common stock
caused the valuation of the oil and gas properties to be revalued using the
common share price. In addition, the preferred shareholders forgave the accrued
interest of $780,436 associated with the preferred shares which also reduced the
cost of the oil and gas properties received. The revaluation caused the oil and
gas properties to be valued at $32,064.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its offices under a lease agreements accounted for as
operating leases. Real estate taxes, insurance and maintenance expenses are
obligations of the Company.
F-18
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)
Minimum rental payments under the non-cancelable operating lease is as follows:
<TABLE>
<CAPTION>
<S> <C>
Periods Ended
December 31,
- --------------
1999 $ 66,160
2000 35,707
2001 20,318
2002 26,608
2003 -
All other years -
--------------
148,793
====================
</TABLE>
Rent expense was approximately $49,620, $19,510, $26,013 and $26,364 for the
periods ended September 30, 1999, September 30, 1998, December 31, 1998 and
December 31, 1997, respectively. It is expected that expiring leases will be
renewed in the ordinary course of business.
NOTE 7 - WARRANTS
A summary of the status of the Company's warrants as of September 30, 1999 and
December 31, 1999 and changes during the period ending September 30, 1999:
<TABLE>
<CAPTION>
<S> <C> <C>
Average
Exercise
Shares Price
--------------- ------
Outstanding, December 31 1998 - $ -
Granted 14,005,600 0.30
Expired (278,800) 0.30
Exercised (310,000) 0.15
--------------- ------
Outstanding, September 30, 1999 13,416,800 $ 0.30
=============== ===============
Exercisable, September 30, 1999 8,920,000 $ 0.30
=============== ===============
</TABLE>
All warrants were issued at or above the market price at the date of issue with
the exception of the 5,000,000 warrants issued on September 1, 1999 (see Note
8).
F-19
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 8 - CONVERTIBLE DEBT
On March 16, 1999, the Company issued convertible debentures with a face value
of $550,000. The debentures were convertible into common stock at a 25%
discount. The Company has recorded $137,500 of additional interest expense to
compensate for the discount. All of the debentures were converted into
7,685,581 shares of common stock prior to May 31, 1999.
On July 13, 1999, the Company issued convertible debentures with a face value of
$74,000. The debentures were convertible into common stock at a 50% discount.
The Company has recorded $37,000 of additional interest expense to compensate
for the discount. All of the debentures were converted into 793,966 shares of
common stock prior to August 31, 1999.
On August 22, 1999, the Company issued a convertible debenture with a face value
of $23,500. The debenture was convertible into common stock at a 25% discount.
The Company has recorded $5,875 of additional interest expense to compensate for
the discount. The debenture was converted into 391,250 shares of common stock
on September 2, 1999.
On August 24, 1999, the Company issued convertible debentures with a face value
of $750,000. The debentures are convertible into common stock at a 25%
discount. The Company has recorded $187,500 of additional interest expense to
compensate for the discount.
On August 24, 1999, the Company issued options to purchase 5,000,000 warrants at
a 50% discount from the market price. The options vested immediately. The
Company has recorded $412,500 of additional interest expense to compensate for
the discount.
NOTE 9 - LONG-TERM DEBT
Notes payable as of September 30, 1999 and December 31, 1998 are detailed in the
following summary:
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1999 1998
--------------- --------------
(Unaudited)
Notes payable to individuals; convertible to stock within three
years; interest at 9.75%, paid quarterly until converted,
unsecured. $ 30,000 $ -
Note payable to an individual; interest imputed at 10%
due in 90 days, unsecured. 40,000 -
Notes payable to related party at 10% interest, due on demand,
unsecured. 50,315 54,914
--------------- --------------
Total long-term debt 120,315 54,914
Less: current portion (120,315) (54,914)
--------------- --------------
Long-term portion $ - $ -
=============== ==============
</TABLE>
F-20
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 9 - LONG-TERM DEBT (Continued)
Maturities of long term debt are summarized below:
<TABLE>
<CAPTION>
<S> <C> <C>
Period ending December 31, 1999 $120,315
2000 -
2001 -
2002 -
2003 -
--------
Total $120,315
========
</TABLE>
NOTE 10 - INCOME TAXES
The income tax benefit differs from the amount computed at federal statutory
rates as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
For the For the
Period Ended Year Ended
September 30, December 31,
1998 1998
--------------- --------------
(Unaudited)
Income tax benefit at statutory rate $ 1,053,600 $ 329,423
Change in valuation allowance (1,053,600) (329,423)
--------------- --------------
$ - -
=============== ==============
</TABLE>
Deferred tax assets (liabilities) at September 30, 1999 are comprised of the
following:
<TABLE>
<CAPTION>
<S> <C> <C>
For the For the
Period Ended Year Ended
September 30, December 31,
1998 1998
--------------- --------------
(Unaudited)
Net operating loss carryforward $ 1,583,170 $ 495,000
Valuation allowance (1,583,170) (495,000)
--------------- --------------
$ - -
=============== ==============
</TABLE>
NOTE 11 - COMMON STOCK TRANSACTIONS
In 1998, the Company issued approximately 4,500,000 shares for services valued
at $0.03 per share, which approximated a value of a transaction for services
recorded by the Company on November 20, 1998 with a third party. In 1999, the
Company renegotiated the number of shares due to the fact that the services had
not been performed as anticipated. The Company received back and canceled
3,846,325 shares.
F-21
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 12 - BUSINESS COMBINATIONS
On June 9, 1999, the Company acquired all of the outstanding shares of Air
Nexus, Inc., a retail provider of commercial voice and data services.
The Company issued 3,000,000 shares of common stock for all of the outstanding
shares of Air Nexus, Inc.
The acquisition has been accounted for as a purchase and the results of
operations of Air Nexus, Inc. since the date of acquisition are included in the
Company's consolidated financial statements.
Unaudited proforma consolidated results of operations for the nine months ended
September 30, 1999 and for the year ended December 31, 1998 as though Air Nexus,
Inc. had been acquired as of January 1, 1998 follows:
<TABLE>
<CAPTION>
<S> <C> <C>
For the
Nine Months For the
Ended Year Ended
September 30, December 31,
1999 1998
--------------- --------------
(Unaudited)
Sales $ 155,904 $ -
Net income (loss) (4,809,953) (356,468)
Earnings per common and common
equivalent share $ (0.21) $ (0.03)
</TABLE>
In addition, the Company acquired all of the outstanding shares of
2-Infinity.com, Inc. through issuance of 3,000,000 shares of common stock.
2-Infinity.com, Inc. had only been in existence for a short period of time and
had no prior operations and, accordingly, no proforma financial statements are
presented.
<TABLE>
<CAPTION>
<S> <C> <C>
Air Nexus, 2-Infinity.com,
Allocation of Purchase Price Inc. Inc.
-------------- -----------
Goodwill $1,020,000 $1,139,000
Cash 515 104,479
Property and equipment - 5,731
Other assets 9,238 1,669
Liabilities assumed (129,753) (50,879)
----------- -----------
Total Purchase Price $ 900,000 $1,200,000
=========== ===========
</TABLE>
ffective September 30, 1999, the Company adopted SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." The Company conducts its
operations principally in the oil and gas industry through Lakota Energy, Inc.,
in the high speed internet access industry with 2-Infinity.com, Inc. and in the
commercial voice and data services industry with Air Nexus, Inc.
F-22
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 13 - OPERATING SEGMENTS (Continued)
Certain financial information concerning the Company's operations in different
industries is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the Nine Months
Ended September 30, 1999
-------------------------
Lakota Air 2-Infinity .
Energy, Inc. Nexus, Inc. Com, Inc. Consolidated
--------------- --------------- ------------- -------------
Net sales $ 5,255 $ 150,649 $ - $ 155,904
Operating loss applicable to
industry segment 1,790,500 999,462 1,245,180 4,035,142
Writedown of goodwill - 1,020,000 1,139,000 2,159,000
Interest expense 784,911 68 - 784,979
Other income (expenses) -
interest income 10,168 - - 10,168
Assets 74,963 54,591 47,004 176,558
Depreciation expense 900 987 1,800 3,687
Property and equipment
acquisition - 28,801 11,138 39,939
</TABLE>
24
Prior to 1999, the Company only operated in the oil and gas industry.
NOTE 14 - STOCK OPTION PLAN
Effective August 1, 1999, the Directors and Shareholders approved the Lakota
Energy, Inc. Omnibus Stock Option Plan. Under the terms of the Option Plan, the
Board of Directors has the sole authority to determine which of the eligible
persons shall receive options, the number of shares which may be issued upon
exercise of an option, and other terms and conditions of the options granted
under the Plan to the extent they don't conflict with the terms of the Plan. An
aggregate of 3,000,000 shares of common stock are reserved for issuance under
the Plan during the year August 1, 1999 to July 31, 2000. For each subsequent
year beginning August 1, 2000, there shall be reserved for issuance under the
Plan that number of shares equal to 10% of the outstanding shares of common
stock on August 1 of that year. The exercise price for all options granted
under the Plan shall be 100% of the fair market value of the Company's common
stock on the date of grant, unless the recipient is the holder of more than 10%
of the already outstanding securities of the company, in which case the exercise
price shall be 110% of the fair market value of the Company's common stock on
the date of grant. All options shall vest equally over a period of five years
from the date of issuance. On August 11, 1999, the Board of Driectors approved
the grant of an aggregate of 2,000,000 options under the Plan.
F-23
<PAGE>
2-INFINITY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
JUNE 30, 1999
F-24
<PAGE>
C O N T E N T S
Independent Auditors' Report . . . . . . . . . . . 3
Balance Sheet . . . . . . . . . . . . . . . . . . . 4
Statement of Operations . . . . . . . . . . . . . 5
Statement of Stockholders' Equity (Deficit) . . 6
Statement of Cash Flows . . . . . . . . . . . . . 7
Notes to the Financial Statements . . . . . . . 8
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
------------------------------
The Board of Directors
2Infinity.com, Inc.
(A Development Stage Company)
Denver, CO
We have audited the accompanying balance sheets of 2Infinity.com, Inc. (a
development stage company) as of June 30, 1999 and the related statements of
operations, stockholders' equity, and cash flows from inception on May 7, 1999
through June 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 2Infinity.com, Inc. (a
development stage company) as of June 30, 1999 and the results of its operations
and its cash flows from inception on May 7, 1999 through June 30, 1999 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company is a development stage company with no
significant operating results to date, which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 3. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
September 15, 1999
F-26
<PAGE>
2-INFINITY.COM, INC.
(A Development Stage Company)
Balance Sheet
ASSETS
------
<TABLE>
<CAPTION>
<S> <C>
June 30,
1999
----------
CURRENT ASSETS
Cash $ 104,479
Security deposit 1,669
----------
Total Current Assets 106,148
----------
PROPERTY AND EQUIPMENT (Note 2)
Equipment 11,138
Less: accumulated depreciation (186)
----------
Total Property and Equipment 10,952
----------
TOTAL ASSETS $ 117,100
==========
</TABLE>
F-27
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
CURRENT LIABILITIES
Accounts payable $ -
Notes payable - related party (Note 4) 150,000
---------
Total Current Liabilities 150,000
---------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 2,000 shares authorized, $0.01 value
2,000 shares issued and outstanding 20
Additional paid-in capital 980
Deficit accumulated during the development stage (33,900)
---------
Total Stockholders' Equity (Deficit) (32,900)
---------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) $117,100
=========
</TABLE>
F-28
<PAGE>
2-INFINITY.COM, INC.
(A Development Stage Company)
Statement of Operations
<TABLE>
<CAPTION>
<S> <C>
From
Inception on
May 7, 1999
Through
June 30,
1999
--------------
REVENUES $ -
--------------
EXPENSES
Depreciation expense 186
General and administrative 33,714
--------------
Total Expenses 33,900
--------------
NET LOSS $ (33,900)
==============
BASIC LOSS PER SHARE $ (16.95)
==============
</TABLE>
F-29
<PAGE>
2-INFINITY.COM, INC.
(A Development Stage Company)
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
------------ ----------- ------------ ---------
Balance at inception on May 7, 1999 - $ - $ - $ -
Issuance of common stock to founders
at approximately $0.50 per share 2,000 20 980 -
Net loss from inception on May 7, 1999
through June 30, 1999 - - - (33,900)
------------ ----------- ------------ ---------
Balance, June 30, 1999 2,000 $ 20 $ 980 $(33,900)
============ =========== ============ =========
</TABLE>
F-30
<PAGE>
2-INFINITY.COM, INC.
(A Development Stage Company)
Statement of Cash Flows
<TABLE>
<CAPTION>
<S> <C>
From
Inception on
May 7, 1999
Through
June 30,
1999
--------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (33,900)
Adjustments to reconcile net (loss) to net cash
flows from operating activities:
Depreciation expense 186
Changes in operating assets and liabilities:
Increase (decrease) in other assets (1,669)
--------------
Net Cash (Used) by Operating Activities (35,383)
--------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (11,138)
--------------
Net Cash (Used) by Investing Activities (11,138)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - related party 150,000
Issuance of common stock 1,000
--------------
Net Cash Provided by Financing Activities 151,000
--------------
NET INCREASE (DECREASE) IN CASH 104,479
CASH AT BEGINNING OF PERIOD -
--------------
CASH AT END OF PERIOD $ 104,479
==============
CASH PAID DURING THE PERIOD FOR:
Interest $ -
Income taxes $ -
</TABLE>
F-31
<PAGE>
2-INFINITY.COM, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 1999
NOTE 1 - HISTORY AND ORGANIZATION
2-Infinity.com, Inc. (the Company) was incorporated in the State of Texas on May
7, 1999. The Company was incorporated for any lawful purpose under Texas law,
but primarily to operate in the internet industry.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has elected a December 31 year end.
b. Provision for Taxes
At June 30, 1999, the Company had net operating loss carryforwards of
approximately $33,000 that may be offset against future taxable income through
2014. No tax benefit has been reported in the financial statements because the
Company believes that there is a 50% chance the net operating loss carryforwards
will expire unused, therefore the potential tax benefits of the loss
carryforwards are offset by a valuation allowance of the same amount.
c. Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
d. Basic Loss Per Share
The computation of income basic loss per share of common stock is based on the
weighted average number of shares outstanding at the date of the financial
statements. Fully diluted net loss per common share is not materially different
from basic loss per share.
e. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
F-32
<PAGE>
2-INFINITY.COM, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Property and Equipment
Property and equipment are stated at cost. Expenditures for small tools,
ordinary maintenance and repairs are charged to operations as incurred. Major
additions and improvements are capitalized. Depreciation is computed using the
straight-line method over estimated useful lives as follows
Leasehold improvements 7 years
Furniture and fixtures 7 years
Equipment 5 years
Depreciation expense for the period ended June 30, 1999 was $186.
g. Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred.
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. The Company has not established revenues sufficient to cover its
operating costs and allow it to continue as a going concern. Management
believes that the Company will soon be able to generate revenues sufficient to
cover its operating costs. Currently shareholders are committed to pay all
operating and other costs until sufficient revenues are generated.
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company had signed notes payable to a related company totaling $150,000 at
June 30, 1999. The notes bear interest at 10% per annum. Accrued interest at
June 30, 1999 was $-0-. The notes are unsecured and are due on demand.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its offices under a lease agreements accounted for as
operating leases. Real estate taxes, insurance and maintenance expenses are
obligations of the Company.
F-33
<PAGE>
2-INFINITY.COM, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 1999
NOTE 6 - ACQUISITION
During June 1999, the Company entered into an agreement whereby it was acquired
by Lakota Technology, Inc. for 3,000,000 shares of restricted common stock.
F-34
<PAGE>
AIR NEXUS, INC.
(FORMERLY VOICE DESIGN, INCORPORATED)
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
JUNE 30, 1999
F-35
<PAGE>
C O N T E N T S
Independent Auditors' Report . . . . . . . . . . . . 3
Balance Sheet . . . . . . . . . . . . . . . . . . . 4
Statement of Operations . . . . . . . . . . . . . . 5
Statement of Stockholders' Equity (Deficit) . . . 6
Statement of Cash Flows . . . . . . . . . . . . . 7
Notes to the Financial Statements . . . . . . . 8
F-36
<PAGE>
INDEPENDENT AUDITORS' REPORT
------------------------------
The Board of Directors
Air Nexus, Inc.
(Formerly Voice Design, Incorporated)
(A Development Stage Company)
Denver, CO
We have audited the accompanying balance sheets of Air Nexus, Inc. (formerly
Voice Design, Incorporated) (a development stage company) as of June 30, 1999
and the related statements of operations, stockholders' equity, and cash flows
from inception on June 2, 1999 through June 30, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Air Nexus, Inc. (formerly Voice
Design, Incorporated) (a development stage company) as of June 30, 1999 and the
results of its operations and its cash flows from inception on June 2, 1999
through June 30, 1999 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company is a development stage company with no
significant operating results to date, which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 3. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
September 15, 1999
F-37
<PAGE>
AIR NEXUS, INC.
(Formerly Voice Design, Incorporated)
(A Development Stage Company)
Balance Sheet
ASSETS
------
<TABLE>
<CAPTION>
<S> <C>
June 30,
1999
----------
CURRENT ASSETS
Cash $ 515
Accounts receivable 8,437
Security deposit 801
----------
Total Current Assets 9,753
----------
TOTAL ASSETS $ 9,753
==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
-------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 11,234
Line of credit 1,800
Accrued expenses 14,097
----------
Total Current Liabilities 27,131
----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 50,000,000 shares authorized, $1.00 value
3,000 shares issued and outstanding 3,000
Deficit accumulated during the development stage (20,378)
----------
Total Stockholders' Equity (Deficit) (17,378)
----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) $ 9,753
==========
</TABLE>
F-38
<PAGE>
AIR NEXUS, INC.
(Formerly Voice Design, Incorporated)
(A Development Stage Company)
Statement of Operations
<TABLE>
<CAPTION>
<S> <C>
From
Inception on
June 2, 1999
Through
June 30,
1999
--------------
REVENUES $ 8,022
--------------
EXPENSES
General and administrative 28,383
--------------
Total Expenses 28,383
--------------
Loss from Operations (20,361)
--------------
OTHER (EXPENSE)
Interest expense (17)
--------------
Total Other (Expense) (17)
--------------
NET LOSS $ (20,378)
==============
BASIC LOSS PER SHARE $ (6.79)
==============
</TABLE>
F-39
<PAGE>
AIR NEXUS, INC.
(Formerly Voice Design, Incorporated)
(A Development Stage Company)
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Deficit
Accumulated
During the
Common Stock Development
Shares Amount Stage
------------ ------------ ---------
Balance at inception on June - $ - $ -
2, 1999
Issuance of common stock to founders
at approximately $1.00 per share 3,000 3,000 -
Net loss from inception on June 2,
1999 through June 30, 1999 - - (20,378)
------------ ------------ ---------
Balance, June 30, 1999 3,000 $ 3,000 $(20,378)
============ ============ =========
</TABLE>
F-40
<PAGE>
AIR NEXUS, INC.
(Formerly Voice Design, Incorporated)
(A Development Stage Company)
Statement of Cash Flows
<TABLE>
<CAPTION>
<S> <C>
From
Inception on
June 2, 1999
Through
June 30,
1999
--------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (20,378)
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable 11,234
Increase (decrease) in accrued expenses 14,097
(Increase) decrease in other assets (801)
(Increase) decrease in accounts receivable (8,437)
--------------
Net Cash (Used) by Operating Activities (4,285)
--------------
CASH FLOWS FROM INVESTING ACTIVITIES -
--------------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued for cash 3,000
Proceeds from line of credit 1,800
--------------
Net Cash Provided by Financing Activities 4,800
--------------
NET INCREASE (DECREASE) IN CASH 515
CASH AT BEGINNING OF PERIOD -
--------------
CASH AT END OF PERIOD $ 515
==============
CASH PAID DURING THE PERIOD FOR:
Interest $ -
Income taxes $ -
</TABLE>
F-41
<PAGE>
AIR NEXUS, INC.
(Formerly Voice Design, Incorporated)
(A Development Stage Company)
Notes to the Financial Statements
June 30, 1999
NOTE 1 - HISTORY AND ORGANIZATION
Air Nexus, Inc. (the Company) was incorporated in the State of Texas on June 2,
1999 as Voice Design, Incorporated. On June 17, 1999, Voice Design,
Incorporated changed its name to Air Nexus, Inc.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has elected a December 31 year end.
b. Provision for Taxes
At June 30, 1999, the Company had net operating loss carryforwards of
approximately $20,000 that may be offset against future taxable income through
2014. No tax benefit has been reported in the financial statements because the
Company believes that there is a 50% chance the net operating loss carryforwards
will expire unused, therefore the potential tax benefits of the loss
carryforwards are offset by a valuation allowance of the same amount.
c. Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
d. Basic Loss Per Share
The computation of income basic loss per share of common stock is based on the
weighted average number of shares outstanding at the date of the financial
statements. Fully diluted net loss per common share is not materially different
from basic loss per share.
e. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
F-42
<PAGE>
AIR NEXUS, INC.
(Formerly Voice Design, Incorporated)
(A Development Stage Company)
Notes to the Financial Statements
June 30, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred.
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. The Company has not established revenues sufficient to cover its
operating costs and allow it to continue as a going concern. Management
believes that the Company will soon be able to generate revenues sufficient to
cover its operating costs. Currently shareholders are committed to pay all
operating and other costs until sufficient revenues are generated.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its offices under a lease agreements accounted for as
operating leases. Real estate taxes, insurance and maintenance expenses are
obligations of the Company.
NOTE 5 - ACQUISITION
During June 1999, the Company entered into an agreement whereby it was acquired
by Lakota Technology, Inc. for 3,000,000 shares of restricted common stock.
F-43
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED PROFORMA FINANCIAL STATEMENTS
DECEMBER 31, 1998
F-44
<PAGE>
C O N T E N T S
Consolidated Proforma Balance Sheet . . . . . . . . . . 3
Consolidated Proforma Statement of Operations . . . . . 5
Statement of Assumptions and Disclosures . . . . . . . 6
F-45
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Proforma Balance Sheet
December 31, 1998
(Unaudited)
ASSETS
------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Lakota Proforma
Technologies Adjustments
Inc. and 2-Infinity.com, Increase Proforma
Subsidiaries Air Nexus, Inc. Inc. (Decrease) Consolidated
----------------- --------------- -------------- -------------- ------------
CURRENT ASSETS
Cash $ 92,090 $ - $ - $ - $ 92,090
Security deposit 2,077 - - - 2,077
----------------- -------------- ----------- -------------- ------------
Total Current Assets 94,167 - - - 94,167
----------------- -------------- ----------- -------------- ------------
FIXED ASSETS
Furniture and equipment 7,800 - - - 7,800
Accumulated depreciation (2,400) - - - (2,400)
----------------- -------------- ----------- -------------- ------------
Total Fixed Assets 5,400 - - - 5,400
----------------- -------------- ----------- -------------- ------------
OTHER ASSETS
Goodwill - - - 2,100,000 2,100,000
Accumulated amortization - - - (2,100,000) (2,100,000)
Oil and gas properties 32,064 - - - 32,064
----------------- -------------- ------------- -------------- ------------
Total Other Assets 32,064 - - - 32,064
----------------- -------------- ------------- -------------- ------------
TOTAL ASSETS $ 131,631 $ - $ - $ - 131,631
================= ============== ============= ============== ============
</TABLE>
F-46
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Proforma Balance Sheet (Continued)
December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Lakota Proforma
Technologies Adjustments
Inc. and Air Nexus, 2-Infinity. Increase Proforma
Subsidiaries Inc. com, Inc. (Decrease) Consolidated
----------------- ------------ ----------- -------------- ------------
CURRENT LIABILITIES
Accounts payable $ 2,104 $ - $ - $ - $ 2,104
Accrued expenses 19,815 - - - 19,815
Note payable - related
party 54,914 - - - 54,914
----------------- ------------ ----------- -------------- ------------
Total Current Liabilities 76,833 - - - 76,833
----------------- ------------ ----------- -------------- ------------
COMMITMENTS AND
CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock: 25,000,000
shares authorized, no par
value; no shares
outstanding - - - - -
Common stock: 100,000,000
shares authorized of no par
value, 26,678,733 shares
issued and outstanding 1,650,389 - - 2,100,000 3,750,389
Loan receivable - related
party (38,270) - - - (38,270)
Retained earnings (deficit) (1,557,321) - - (2,100,000) (3,657,321)
----------------- ------------ ----------- -------------- ------------
Total Stockholders'
Equity (Deficit) 54,798 - - - 54,798
----------------- ------------ ----------- -------------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS'
EQUITY (DEFICIT) $ 131,631 $ - $ - $ - 131,631
================= ============ =========== ============== ============
</TABLE>
F-47
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Proforma Statement of Operations
For the Year Ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Lakota Proforma
Technologies Adjustments
Inc. and Air Nexus, 2-Infinity. Increase Proforma
Subsidiaries Inc. com, Inc. (Decrease) Consolidated
----------------- ------------ ----------- -----------------------
REVENUES $ - $ - $ - $ - $ -
COST OF SALES - - - - -
----------------- ------------ ----------- ----------------------- ------------
GROSS PROFIT - - - - -
----------------- ------------ ----------- ----------------------- ------------
OPERATING EXPENSES
Depreciation and
amortization 1,200 - - 2,100,000 2,101,200
General and administrative 351,139 - - - 351,139
----------------- ------------ ----------- ----------------------- ------------
Total Operating
Expenses 352,339 - - 2,100,000 2,452,339
----------------- ------------ ----------- ----------------------- ------------
OPERATING INCOME
(LOSS) (352,339) - - (2,100,000) (2,452,339)
----------------- ------------ ----------- ----------------------- ------------
OTHER INCOME
Interest income 1,362 - - - 1,362
Other income (expense) (5,491) - - - (5,491)
----------------- ------------ ----------- ----------------------- ------------
Total Other Income (4,129) - - - (4,129)
----------------- ------------ ----------- ----------------------- ------------
INCOME (LOSS) BEFORE
INCOME TAXES (356,468) - - (2,100,000) (2,456,468)
----------------- ------------ ----------- ----------------------- ------------
NET INCOME (LOSS) $ (356,468) $ - $ - $ (2,100,000) (2,456,468)
================= ============ =========== ======================= ============
</TABLE>
F-48
<PAGE>
LAKOTA TECHNOLOGIES, INC. AND SUBSIDIARIES
Summary of Assumptions and Disclosures
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements presented are those of Lakota
Technologies, Inc. (formerly Chancellor Trading Group, Inc.) (the Company) (a
development stage company) and its wholly owned subsidiaries Lakota Energy, Inc.
(Lakota), Air Nexus, Inc., Lakota Oil and Gas, Inc. and 2-Infinity.com, Inc.
The Company was incorporated in the State of Colorado on July 14, 1995.
2-Infinity.com, Inc. (the Company) was incorporated in the State of Texas on May
7, 1999. The Company was incorporated for any lawful purpose under Texas law,
but primarily to operate in the internet industry.
Air Nexus, Inc. (the Company) was incorporated in the State of Texas on June 2,
1999 as Voice Design, Incorporated on June 17, 1999, Voice Design, Incorporated
changed its name to Air Nexus, Inc.
NOTE 2 - BUSINESS COMBINATIONS
On June 9, 1999, the Company acquired all of the outstanding shares of Air
Nexus, Inc., a retail provider of commercial voice and data services.
The Company issued 3,000,000 shares of common stock for all of the outstanding
shares of Air Nexus, Inc.
The acquisition has been accounted for as a purchase and the results of
operations of Air Nexus, Inc. since the date of acquisition are included in the
Company's consolidated financial statements.
In addition, the Company acquired all of the outstanding shares of
2-Infinity.com, Inc. through issuance of 3,000,000 shares of common stock.
Both Air Nexus, Inc. and 2-Infinity.com, Inc. were incorporated in 1999.
Accordingly, these proforma financial statements for the year ended December 31,
1998 do not reflect their activity from inception to June 9, 1999.
1) Goodwill (Lakota) $ 1,050,000
Common stock (Lakota) (1,050,000)
----------------
$ -
===============
To record purchase of Air Nexus, Inc. through the issuance of 3,000,000 shares
of common stock valued at $0.35 per share.
2) Goodwill (Lakota) $ 1,050,000
Common stock (Lakota) (1,050,000)
----------------
$ -
===============
To record purchase of 2-Infinity.com, Inc. through the issuance of 3,000,000
shares of common stock valued at $0.35 per share.
3) Amortization expense $ 2,100,000
Accumulated amortization-goodwill (2,100,000)
----------------
$ -
================
F-49
<PAGE>
ITEM 8. CHANGE IN FISCAL YEAR
Lakota as the successor issuer has a fiscal year end of December 31
which is the same as AGM's fiscal year.
EXHIBITS
1.1. Exchange Agreement between Lakota Technologies, Inc. and certain AGM
shareholders dated as of January 18, 2000.
23.1 Consent of Jones, Jensen & Company, certified public accountants.
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 hereunto duly authorized.
LAKOTA TECHNOLOGIES, INC.
/s/ Ken Honeyman
----------------------------------
President, Director
Date: January 18, 2000
STOCK EXCHANGE AGREEMENT
Agreement dated as of January 18, 2000 between Lakota Technologies, Inc., a
Colorado corporation ("Lakota"), on the one hand, and M. Richard Cutler
("Cutler"), Brian A. Lebrecht ("Lebrecht") and Vi Bui ("Bui") on the other hand.
Each of Cutler, Lebrecht, and Bui shall be referred to as a "Shareholder" and
collectively as the "Shareholders."
1. THE ACQUISITION.
1.1_ Purchase and Sale Subject to the Terms and Conditions of this
Agreement. At the Closing to be held as provided in Section 2, Lakota shall
sell the Lakota Shares (defined below) to the Shareholders and the Shareholders
shall purchase the Lakota Shares from Lakota, free and clear of all Encumbrances
other than restrictions imposed by Federal and State securities laws.
1.2 Purchase Price. Lakota will exchange 1,900,000 shares of its
restricted common stock (the "Lakota Shares") for 190,000 shares of AGM,
representing 86.3% of the outstanding common shares and preferred shares of AGM
(the "AGM Shares"). The Lakota Shares shall be issued and delivered to the
Shareholders as set forth in Exhibit "A" hereto.
2. THE CLOSING.
2.1 Place and Time. The closing of the sale and exchange of the Lakota
Shares for the AGM Shares (the "Closing") shall take place at Cutler Law Group,
610 Newport Center Drive, Suite 800, Newport Beach, CA 92660 no later than the
close of business (Orange County California time) on January 18, 2000 or at such
other place, date and time as the parties may agree in writing.
2.2 Deliveries by the Shareholders. At the Closing, the Shareholders
shall deliver the following to Lakota:
1. Certificates representing the AGM Shares, duly endorsed for transfer to
Lakota and accompanied by appropriate medallion guaranteed stock powers; the
Shareholders shall immediately change those certificates for, and to deliver to
Lakota at the Closing, a certificate representing the AGM Shares registered in
the name of Lakota (without any legend or other reference to any Encumbrance
other than appropriate federal securities law limitations).
2. The documents contemplated by Section 3.
3. All other documents, instruments and writings required by this Agreement
to be delivered by the Shareholders at the Closing and any other documents or
records relating to AGM's business reasonably requested by Lakota in connection
with this Agreement.
<PAGE>
2.3 Deliveries by Lakota. At the Closing, Lakota shall deliver the
following to the Shareholders:
a. The Lakota Shares for further delivery to the Shareholders as
contemplated by section 1.
2. The documents contemplated by Section 4.
3. All other documents, instruments and writings required by this Agreement
to be delivered by Lakota at the Closing.
3. CONDITIONS TO LAKOTA'S OBLIGATIONS.
The obligations of Lakota to effect the Closing shall be subject to the
satisfaction at or prior to the Closing of the following conditions, any one or
more of which may be waived by Lakota:
3.1 No Injunction. There shall not be in effect any injunction, order
or decree of a court of competent jurisdiction that prevents the consummation of
the transactions contemplated by this Agreement, that prohibits Lakota's
acquisition of the AGM Shares or the Lakota Shares or that will require any
divestiture as a result of Lakota's acquisition of the AGM Shares or that will
require all or any part of the business of Lakota to be held separate and no
litigation or proceedings seeking the issuance of such an injunction, order or
decree or seeking to impose substantial penalties on Lakota or AGM if this
Agreement is consummated shall be pending.
3.2 Representations, Warranties and Agreements. (a) The
representations and warranties of the Shareholders set forth in this Agreement
shall be true and complete in all material respects as of the Closing Date as
though made at such time, and (b) the Shareholders shall have performed and
complied in all material respects with the agreements contained in this
Agreement required to be performed and complied with by it at or prior to the
Closing.
3.3 Regulatory Approvals. All licenses, authorizations, consents,
orders and regulatory approvals of Governmental Bodies necessary for the
consummation of Lakota's acquisition of the AGM Shares shall have been obtained
and shall be in full force and effect.
3.4 Resignations of Director. Effective on the Closing Date, the
Shareholders, and each of them, shall have resigned as an officer, director and
employee of AGM.
<PAGE>
4. CONDITIONS TO THE SHAREHOLDER'S OBLIGATIONS.
The obligations of the Shareholders to effect the Closing shall be subject
to the satisfaction at or prior to the Closing of the following conditions, any
one or more of which may be waived by the Shareholders:
4.1 No Injunction. There shall not be in effect any injunction, order
or decree of a court of competent jurisdiction that prevents the consummation of
the transactions contemplated by this Agreement, that prohibits Lakota's
acquisition of the AGM Shares or the Shareholder's acquisition of the Lakota
Shares or that will require any divestiture as a result of Lakota's acquisition
of the Shares or the Shareholder's acquisition of the Lakota Shares or that will
require all or any part of the business of Lakota or AGM to be held separate and
no litigation or proceedings seeking the issuance of such an injunction, order
or decree or seeking to impose substantial penalties on Lakota or AGM if this
Agreement is consummated shall be pending.
4.2 Representations, Warranties and Agreements. (a) The
representations and warranties of Lakota set forth in this Agreement shall be
true and complete in all material respects as of the Closing Date as though made
at such time, and (b) Lakota shall have performed and complied in all material
respects with the agreements contained in this Agreement required to be
performed and complied with by it at or prior to the Closing.
4.3 Regulatory Approvals. All licenses, authorizations, consents,
orders and regulatory approvals of Governmental Bodies necessary for the
consummation of Lakota's acquisition of the AGM Shares and the Shareholder's
acquisition of the Lakota Shares shall have been obtained and shall be in full
force and effect.
4.4 Exchange of shares held by AGM shareholders. Lakota hereby agrees,
represents, and warrants that, upon the receipt of a request from any
shareholder of AGM, Lakota will exchange that shareholder's shares of AGM for
shares of Lakota at the rate of ten (10) Lakota shares for every one (1) AGM
share. A list of shareholders is attached at Exhibit A.
5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.
The Shareholders represent and warrant to Lakota that, to the Knowledge of
the Shareholders (which limitation shall not apply to Section 5.3), and except
as set forth in an AGM Disclosure Letter:
5.1 Organization of AGM; Authorization. AGM is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Nevada. This Agreement constitutes a valid and binding obligation of the
Shareholders, enforceable against them in accordance with its terms.
<PAGE>
5.2 Capitalization. The authorized capital stock of AGM consists of
22,000,000 authorized shares, consisting of 20,000,000 common stock, par value
$.001, and 2,000,000 preferred shares, no par $.001, of which 220,000 common
shares and no preferred shares are presently issued and outstanding. No shares
have been registered under state or federal securities laws. As of the Closing
Date, all of the issued and outstanding shares of common stock of AGM are
validly issued, fully paid and non-assessable. As of the Closing Date there
will not be outstanding any warrants, options or other agreements on the part of
AGM obligating AGM to issue any additional shares of common or preferred stock
or any of its securities of any kind. Except as otherwise set forth herein, AGM
will not issue any shares of capital stock from the date of this Agreement
through the Closing Date.
5.3 No Conflict as to AGM. Neither the execution and delivery of this
Agreement nor the consummation of the sale of the AGM Shares to Lakota will (a)
violate any provision of the certificate of incorporation or by-laws of AGM or
(b) violate, be in conflict with, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under any
agreement to which AGM is a party or (c) violate any statute or law or any
judgment, decree, order, regulation or rule of any court or other Governmental
Body applicable to AGM.
5.4 Ownership of AGM Shares. The delivery of certificates to Lakota
provided in Section 2.2 will result in Lakota's immediate acquisition of record
and beneficial ownership of the AGM Shares, free and clear of all Encumbrances
subject to applicable State and Federal securities laws. There are no
outstanding options, rights, conversion rights, agreements or commitments of any
kind relating to the issuance, sale or transfer of any Equity Securities or
other securities of AGM.
5.5 No Conflict as to AGM and Subsidiaries. Neither the execution and
delivery of this Agreement nor the consummation of the sale of the AGM Shares to
Lakota will (a) violate any provision of the certificate of incorporation or
by-laws (or other governing instrument) of AGM or any of its Subsidiaries or
(b) violate, or be in conflict with, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
excuse performance by any Person of any of its obligations under, or cause the
acceleration of the maturity of any debt or obligation pursuant to, or result in
the creation or imposition of any Encumbrance upon any property or assets of
AGM or any of its Subsidiaries under, any material agreement or commitment to
which AGM or any of its Subsidiaries is a party or by which any of their
respective property or assets is bound, or to which any of the property or
assets of AGM or any of its Subsidiaries is subject, or (c) violate any statute
or law or any judgment, decree, order, regulation or rule of any court or other
Governmental Body applicable to AGM or any of its Subsidiaries except, in the
case of violations, conflicts, defaults, terminations, accelerations or
Encumbrances described in clause (b) of this Section 5.5, for such matters which
are not likely to have a material adverse effect on the business or financial
condition of AGM and its Subsidiaries, taken as a whole.
<PAGE>
5.6 Consents and Approvals of Governmental Authorities. Except with
respect to applicable State and Federal securities laws, no consent, approval or
authorization of, or declaration, filing or registration with, any Governmental
Body is required to be made or obtained by AGM or Lakota or any of its
Subsidiaries in connection with the execution, delivery and performance of this
Agreement by AGM or the consummation of the sale of the AGM Shares to Lakota.
5.7 Other Consents. No consent of any Person is required to be obtained
by AGM or Lakota to the execution, delivery and performance of this Agreement or
the consummation of the sale of the AGM Shares to Lakota, including, but not
limited to, consents from parties to leases or other agreements or commitments,
except for any consent which the failure to obtain would not be likely to have a
material adverse effect on the business and financial condition of AGM or
Lakota.
5.8 Financial Statements. AGM has delivered to Lakota consolidated
balance sheets of AGM and its Subsidiaries as at December 31, 1998 and
September 30, 1999, and statements of income and changes in financial position
for the period from inception to the period then ended, together with the report
thereon of AGM's independent accountant (the "AGM Financial Statements").
5.9 Title to Properties. Either AGM or one of its Subsidiaries owns
all the material properties and assets that they purport to own (real, personal
and mixed, tangible and intangible), including, without limitation, all the
material properties and assets reflected in the AGM Financial Statements, and
all the material properties and assets purchased or otherwise acquired by AGM
or any of its Subsidiaries since the date of the AGM Financial Statements. All
properties and assets reflected in the AGM Financial Statements are free and
clear of all material Encumbrances and are not, in the case of real property,
subject to any material rights of way, building use restrictions, exceptions,
variances, reservations or limitations of any nature whatsoever except, with
respect to all such properties and assets, (a) mortgages or security interests
shown on the AGM Financial Statements as securing specified liabilities or
obligations, with respect to which no default (or event which, with notice or
lapse of time or both, would constitute a default) exists, and all of which are
listed in the AGM Disclosure Letter, (b) mortgages or security interests
incurred in connection with the purchase of property or assets after the date of
the AGM Financial Statements (such mortgages and security interests being
limited to the property or assets so acquired), with respect to which no default
(or event which, with notice or lapse of time or both, would constitute a
default) exists, (c) as to real property, (i) imperfections of title, if any,
none of which materially detracts from the value or impairs the use of the
property subject thereto, or impairs the operations of AGM or any of its
Subsidiaries and (ii) zoning laws that do not impair the present or anticipated
use of the property subject thereto, and (d) liens for current taxes not yet
due. The properties and assets of AGM and its Subsidiaries include all rights,
properties and other assets necessary to permit AGM and its Subsidiaries to
conduct AGM's business in all material respects in the same manner as it is
conducted on the date of this Agreement.
<PAGE>
5.10 Buildings, Plants and Equipment. The buildings, plants, structures and
material items of equipment and other personal property owned or leased by AGM
or its Subsidiaries are, in all respects material to the business or financial
condition of AGM and its Subsidiaries, taken as a whole, in good operating
condition and repair (ordinary wear and tear excepted) and are adequate in all
such respects for the purposes for which they are being used. AGM has not
received notification that it or any of its Subsidiaries is in violation of any
applicable building, zoning, anti-pollution, health, safety or other law,
ordinance or regulation in respect of its buildings, plants or structures or
their operations, which violation is likely to have a material adverse effect on
the business or financial condition of AGM and its Subsidiaries, taken as a
whole or which would require a payment by AGM or Lakota or any of their
subsidiaries in excess of $2,000 in the aggregate, and which has not been
cured.
5.11 No Condemnation or Expropriation. Neither the whole nor any portion of
the property or leaseholds owned or held by AGM or any of its Subsidiaries is
subject to any governmental decree or order to be sold or is being condemned,
expropriated or otherwise taken by any Governmental Body or other Person with or
without payment of compensation therefor, which action is likely to have a
material adverse effect on the business or financial condition of Lakota and
its Subsidiaries, taken as a whole.
5.12 Litigation. There is no action, suit, inquiry, proceeding or
investigation by or before any court or Governmental Body pending or threatened
in writing against or involving AGM or any of its Subsidiaries which is likely
to have a material adverse effect on the business or financial condition of
AGM, Lakota and any of their Subsidiaries, taken as whole, or which would
require a payment by AGM or its subsidiaries in excess of $2,000 in the
aggregate or which questions or challenges the validity of this Agreement.
Neither AGM nor any or its Subsidiaries is subject to any judgment, order or
decree that is likely to have a material adverse effect on the business or
financial condition of AGM, Lakota or any of their Subsidiaries, taken as a
whole, or which would require a payment by AGM or its subsidiaries in excess of
$2,000 in the aggregate.
5.13 Absence of Certain Changes. Since the date of the AGM Financial
Statements, neither AGM nor any of its Subsidiaries has:
1. suffered the damage or destruction of any of its properties or assets
(whether or not covered by insurance) which is materially adverse to the
business or financial condition of AGM and its Subsidiaries, taken as a whole,
or made any disposition of any of its material properties or assets other than
in the ordinary course of business;
2. made any change or amendment in its certificate of incorporation or
by-laws, or other governing instruments;
<PAGE>
3. issued or sold any Equity Securities or other securities, acquired,
directly or indirectly, by redemption or otherwise, any such Equity Securities,
reclassified, split-up or otherwise changed any such Equity Security, or granted
or entered into any options, warrants, calls or commitments of any kind with
respect thereto;
4. organized any new Subsidiary or acquired any Equity Securities of any
Person or any equity or ownership interest in any business;
5. borrowed any funds or incurred, or assumed or become subject to, whether
directly or by way of guarantee or otherwise, any obligation or liability with
respect to any such indebtedness for borrowed money;
6. paid, discharged or satisfied any material claim, liability or obligation
(absolute, accrued, contingent or otherwise), other than in the ordinary course
of business;
7. prepaid any material obligation having a maturity of more than 90 days
from the date such obligation was issued or incurred;
8. canceled any material debts or waived any material claims or rights,
except in the ordinary course of business;
9. disposed of or permitted to lapse any rights to the use of any material
patent or registered trademark or copyright or other intellectual property owned
or used by it;
10. granted any general increase in the compensation of officers or
employees (including any such increase pursuant to any employee benefit plan);
11. purchased or entered into any contract or commitment to purchase any
material quantity of raw materials or supplies, or sold or entered into any
contract or commitment to sell any material quantity of property or assets,
except (i) normal contracts or commitments for the purchase of, and normal
purchases of, raw materials or supplies, made in the ordinary course business,
(ii) normal contracts or commitments for the sale of, and normal sales of,
inventory in the ordinary course of business, and (iii) other contracts,
commitments, purchases or sales in the ordinary course of business;
12. made any capital expenditures or additions to property, plant or
equipment or acquired any other property or assets (other than raw materials and
supplies) at a cost in excess of $100,000 in the aggregate;
13. written off or been required to write off any notes or accounts
receivable in an aggregate amount in excess of $2,000;
14. written down or been required to write down any inventory in an
aggregate amount in excess of $ 2,000;
15. entered into any collective bargaining or union contract or agreement;
or
<PAGE>
16. other than the ordinary course of business, incurred any liability
required by generally accepted accounting principles to be reflected on a
balance sheet and material to the business or financial condition of AGM and
its subsidiaries taken as a whole.
5.14 No Material Adverse Change. Since the date of the AGM Financial
Statements, there has not been any material adverse change in the business or
financial condition of AGM and its Subsidiaries taken as a whole, other than
changes resulting from economic conditions prevailing in the United States
precious coins, collectibles and metals industry.
5.15 Contracts and Commitments. Neither AGM nor any of its Subsidiaries is a
party to any:
1. Contract or agreement (other than purchase or sales orders entered into
in the ordinary course of business) involving any liability on the part of AGM
or one of its Subsidiaries of more than $25,000 and not cancelable by AGM or
the relevant Subsidiary (without liability to AGM or such Subsidiary) within 60
days;
2. Except with respect to the lease on its business location, lease of
personal property involving annual rental payments in excess of $25,000 and not
cancelable by AGM or the relevant Subsidiary (without liability to AGM or such
Subsidiary) within 90 days;
3. Except with respect to the options referenced above, Employee bonus,
stock option or stock purchase, performance unit, profit-sharing, pension,
savings, retirement, health, deferred or incentive compensation, insurance or
other material employee benefit plan (as defined in Section 2(3) of ERISA) or
program for any of the employees, former employees or retired employees of AGM
or any of its Subsidiaries;
4. Commitment, contract or agreement that is currently expected by the
management of AGM to result in any material loss upon completion or performance
thereof;
5. Contract, agreement or commitment that is material to the business of
AGM and its Subsidiaries, taken as a whole, with any officer, employee, agent,
consultant, advisor, salesman, sales representative, value added reseller,
distributor or dealer; or
6. Employment agreement or other similar agreement that contains any
severance or termination pay, liabilities or obligations.
<PAGE>
All such contracts and agreements are in full force and effect. Neither AGM
nor any or its Subsidiaries is in breach of, in violation of or in default
under, any agreement, instrument, indenture, deed of trust, commitment, contract
or other obligation of any type to which AGM or any of its Subsidiaries is a
party or is or may be bound that relates to the business of AGM or any of its
Subsidiaries or to which any of the assets or properties of AGM or any of its
Subsidiaries is subject, the effect of which breach, violation or default is
likely to materially and adversely affect the business or financial condition of
AGM and its Subsidiaries, taken as a whole. Lakota has not guaranteed or assumed
and specifically does not guarantee or assume any obligations of AGM or any of
its Subsidiaries.
5.16 Labor Relations. Neither AGM nor any of its Subsidiaries is a party to
any collective bargaining agreement. Except for any matter which is not likely
to have a material adverse effect on the business or financial condition of AGM
and its Subsidiaries, taken as a whole, (a) AGM and each of its Subsidiaries is
in compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and is not
engaged in any unfair labor practice, (b) there is no unfair labor practice
complaint against AGM or any of its Subsidiaries pending before the National
Labor Relations Board, (c) there is no labor strike, dispute, slowdown or
stoppage actually pending or threatened against AGM or any of its Subsidiaries,
(d) no representation question exists respecting the employees of AGM or any of
its Subsidiaries, (e) neither AGM nor any of its Subsidiaries has experienced
any strike, work stoppage or other labor difficulty, and (f) no collective
bargaining agreement relating to employees of AGM or any of its Subsidiaries is
currently being negotiated.
5.17 Employee Benefit Plans. No material employee pension and welfare
benefit plans covering employees of AGM is (1) a multi-employer plan as defined
in Section 3(37) of ERISA, or (2) a defined benefit plan as defined in Section
3(35) of ERISA, any listed individual account pension plan is duly qualified as
tax exempt under the applicable sections of the Code, each listed benefit plan
and related funding arrangement, if any, has been maintained in all material
respects in compliance with its terms and the provisions of ERISA and the Code.
5.18 Compliance with Law. The operations of AGM and its Subsidiaries have
been conducted in accordance with all applicable laws and regulations of all
Governmental Bodies having jurisdiction over them, except for violations thereof
which are not likely to have a material adverse effect on the business or
financial condition of AGM and its Subsidiaries, taken as a whole, or which
would not require a payment by AGM or its Subsidiaries in excess of $2,000 in
the aggregate, or which have been cured. Neither AGM nor any of its Subsidiaries
has received any notification of any asserted present or past failure by it to
comply with any such applicable laws or regulations. AGM and its Subsidiaries
have all material licenses, permits, orders or approvals from the Governmental
Bodies required for the conduct of their businesses, and are not in material
violation of any such licenses, permits, orders and approvals. All such
licenses, permits, orders and approvals are in full force and effect, and no
suspension or cancellation of any thereof has been threatened.
5.19 Tax Matters.
<PAGE>
1. AGM and each of its Subsidiaries (1) has filed all nonconsolidated and
noncombined Tax Returns and all consolidated or combined Tax Returns that
include only AGM and/or its Subsidiaries and not Seller or its other Affiliates
(for the purposes of this Section 5.19, such tax Returns shall be considered
nonconsolidated and noncombined Tax Returns) required to be filed through the
date hereof and has paid any Tax due through the date hereof with respect to the
time periods covered by such nonconsolidated and noncombined Tax Returns and
shall timely pay any such Taxes required to be paid by it after the date hereof
with respect to such Tax Returns and (2) shall prepare and timely file all such
nonconsolidated and noncombined Tax Returns required to be filed after the date
hereof and through the Closing Date and pay all Taxes required to be paid by it
with respect to the periods covered by such Tax Returns; (B) all such Tax
Returns filed pursuant to clause (A) after the date hereof shall, in each case,
be prepared and filed in a manner consistent in all material respects (including
elections and accounting methods and conventions) with such Tax Return most
recently filed in the relevant jurisdiction prior to the date hereof, except as
otherwise required by law or regulation. Any such Tax Return filed or required
to be filed after the date hereof shall not reflect any new elections or the
adoption of any new accounting methods or conventions or other similar items,
except to the extent such particular reflection or adoption is required to
comply with any law or regulation.
2. All consolidated or combined Tax Returns (except those described in
subparagraph (a) above) required to be filed by any person through the date
hereof that are required or permitted to include the income, or reflect the
activities, operations and transactions, of AGM or any of its Subsidiaries for
any taxable period have been timely filed, and the income, activities,
operations and transactions of AGM and Subsidiaries have been properly included
and reflected thereon. AGM shall prepare and file, or cause to be prepared and
filed, all such consolidated or combined Tax Returns that are required or
permitted to include the income, or reflect the activities, operations and
transactions, of AGM or any Subsidiary, with respect to any taxable year or the
portion thereof ending on or prior to the Closing Date, including, without
limitation, AGM's consolidated federal income tax return for such taxable years.
AGM will timely file a consolidated federal income tax return for the taxable
year ended December 31, 1998 and such return shall include and reflect the
income, activities, operations and transactions of AGM and Subsidiaries for the
taxable period then ended, and hereby expressly covenants and agrees to file a
consolidated federal income tax return, and to include and reflect thereon the
income, activities, operations and transactions of AGM and Subsidiaries for the
taxable period through the Closing Date. All Tax Returns filed pursuant to this
subparagraph (b) after the date hereof shall, in each case, to the extent that
such Tax Returns specifically relate to AGM or any of its Subsidiaries and do
not generally relate to matters affecting other members of AGM's consolidated
group, be prepared and filed in a manner consistent in all material respects
(including elections and accounting methods and conventions) with the Tax Return
most recently filed in the relevant jurisdictions prior to the date hereof,
except as otherwise required by law or regulation. AGM has paid or will pay all
Taxes that may now or hereafter be due with respect to the taxable periods
covered by such consolidated or combined Tax Returns.
<PAGE>
3. Neither AGM nor any of its Subsidiaries has agreed, or is required, to
make any adjustment (x) under Section 481(a) of the Code by reason of a change
in accounting method or otherwise or (y) pursuant to any provision of the Tax
Reform Act of 1986, the Revenue Act of 1987 or the Technical and Miscellaneous
Revenue Act of 1988.
4. Neither AGM nor any of its Subsidiaries or any predecessor or Affiliate
of the foregoing has, at any time, filed a consent under Section 341(f)(1) of
the Code, or agreed under Section 341(f)(3) of the Code, to have the provisions
of Section 341(f)(2) of the Code apply to any sale of its stock.
5. There is no (nor has there been any request for an) agreement, waiver or
consent providing for an extension of time with respect to the assessment of any
Taxes attributable to AGM or its Subsidiaries, or their assets or operations and
no power of attorney granted by AGM or any of its Subsidiaries with respect to
any Tax matter is currently in force.
6. There is no action, suit, proceeding, investigation, audit, claim,
demand, deficiency or additional assessment in progress, pending or threatened
against or with respect to any Tax attributable to AGM, its Subsidiaries or
their assets or operations.
7. All amounts required to be withheld as of the Closing Date for Taxes or
otherwise have been withheld and paid when due to the appropriate agency or
authority.
8. No property of AGM is "tax-exempt use property " within the meaning of
Section 168(h) of the Code nor property that AGM and/or its Subsidiaries will be
required to treat as being owned by another person pursuant to Section 168(f)(8)
of the Internal Revenue Code of 1954, as amended and in effect immediately
prior to the enactment of the Tax Reform Act of 1986.
9. There have been delivered or made available to Lakota true and complete
copies of all income Tax Returns (or with respect to consolidated or combined
returns, the portion thereof) and any other Tax Returns requested by Lakota as
may be relevant to AGM, its Subsidiaries, or their assets or operations for any
and all periods ending after December 31, 1998, or for any Tax years which are
subject to audit or investigation by any taxing authority or entity.
10. There is no contract, agreement, plan or arrangement, including but not
limited to the provisions of this Agreement, covering any employee or former
employee of AGM or its Subsidiaries that, individually or collectively, could
give rise to the payment of any amount that would not be deductible pursuant to
Section 280G or 162 of the Code.
<PAGE>
5.20 Environmental Matters.
1. At all times prior to the date hereof, AGM and its Subsidiaries have
complied in all material respects with applicable environmental laws, orders,
regulations, rules and ordinances relating to the Properties (as hereinafter
defined), the violation of which would have a material adverse effect on the
business or financial condition of AGM and its Subsidiaries, taken as a whole,
or which would require a payment by AGM or its Subsidiaries in excess of
$2,000 in the aggregate, and which have been duly adopted, imposed or
promulgated by any legislative, executive, administrative or judicial body or
officer of any Governmental Body.
2. The environmental licenses, permits and authorizations that are material
to the operations of AGM and its Subsidiaries, taken as a whole, are in full
force and effect.
3. Neither AGM nor any of its Subsidiaries has released or caused to be
released on or about the properties currently owned or leased by AGM or any of
its Subsidiaries (the "Properties") any (i) pollutants, (ii) contaminants, (iii)
"Hazardous Substances," as that term is defined in Section 101(14) of the
Comprehensive Environmental Response Act, as amended or (iv) "Regulated
Substances," as that term in defined in Section 9001 of the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as amended,
which would be required to be remediated by any governmental agency with
jurisdiction over the Properties under the authority of laws, regulations and
ordinances as in effect and currently interpreted on the date hereof, which
remediation would have a material adverse effect on the business or financial
condition of AGM and its Subsidiaries, taken as a whole.
5.21 Brokers or Finders. Other than MRC Legal Services Corporation, AGM and
the Shareholders have not employed any broker or finder or incurred any
liability for any brokerage or finder's fees or commissions or similar payments
in connection with the sale of the AGM Shares to Lakota.
5.22 Absence of Certain Commercial Practices. Neither AGM nor any of its
Subsidiaries has, directly or indirectly, paid or delivered any fee, commission
or other sum of money or item of property, however characterized, to any finder,
agent, government official or other party, in the United States or any other
country, which is in any manner related to the business or operations of AGM or
its Subsidiaries, which AGM or one of its Subsidiaries knows or has reason to
believe to have been illegal under any federal, state or local laws of the
United States or any other country having jurisdiction; and neither AGM nor any
of its Subsidiaries has participated, directly or indirectly, in any boycotts or
other similar practices affecting any of its actual or potential customers in
violation of any applicable law or regulation.
<PAGE>
5.23 Transactions with Directors and Officers. AGM and its Subsidiaries do
not engage in business with any Person in which any of AGM's directors or
officers has a material equity interest. No director or officer of AGM owns any
property, asset or right which is material to the business of AGM and its
Subsidiaries, taken as a whole.
5.24 Borrowing and Guarantees. AGM and its Subsidiaries (a) do not have any
indebtedness for borrowed money, (b) are not lending or committed to lend any
money (except for advances to employees in the ordinary course of business), and
(c) are not guarantors or sureties with respect to the obligations of any
Person.
6. REPRESENTATIONS AND WARRANTIES OF LAKOTA.
Lakota represents and warrants to the Shareholders that, to the Knowledge
of Lakota (which limitation shall not apply to Section 6.3), and except as set
forth in a Lakota Disclosure Letter:
6.1 Organization of Lakota; Authorization. Lakota is a corporation
duly organized, validly existing and in good standing under the laws of Nevada
with full corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary
corporate action of Lakota and this Agreement constitutes a valid and binding
obligation of Lakota; enforceable against it in accordance with its terms.
6.2 Capitalization. The authorized capital stock of Lakota consists of
100,000,000 shares of common stock, par value $.001 per share, and 25,000,000
shares of preferred stock, par value $.001 per share. As of October 5, 1999,
Lakota had 41,778,182 shares of common stock issued and outstanding and no
shares of of Preferred Stock issued and outstanding. As of the Closing Date,
all of the issued and outstanding shares of common stock of Lakota are validly
issued, fully paid and non-assessable. The Common Stock of Lakota is presently
listed and trading on the Nasdaq Over-the-Counter Bulletin Board under the
symbol "LAKO."
6.3 Ownership of Lakota Shares. The delivery of certificates to AGM
provided in Section 2.3 will result in the Shareholders immediate acquisition of
record and beneficial ownership of the Lakota Shares, free and clear of all
Encumbrances other than as required by Federal and State securities laws.
<PAGE>
6.4 No Conflict as to Lakota and Subsidiaries. Neither the execution
and delivery of this Agreement nor the consummation of the sale of the Lakota
Shares to the Shareholders will (a) violate any provision of the certificate of
incorporation or by-laws (or other governing instrument) of Lakota or any of
its Subsidiaries or (b) violate, or be in conflict with, or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, or excuse performance by any Person of any of its obligations
under, or cause the acceleration of the maturity of any debt or obligation
pursuant to, or result in the creation or imposition of any Encumbrance upon any
property or assets of Lakota or any of its Subsidiaries under, any material
agreement or commitment to which Lakota or any of its Subsidiaries is a party or
by which any of their respective property or assets is bound, or to which any of
the property or assets of Lakota or any of its Subsidiaries is subject, or (c)
violate any statute or law or any judgment, decree, order, regulation or rule of
any court or other Governmental Body applicable to Lakota or any of its
Subsidiaries except, in the case of violations, conflicts, defaults,
terminations, accelerations or Encumbrances described in clause (b) of this
Section 6.4, for such matters which are not likely to have a material adverse
effect on the business or financial condition of Lakota and its Subsidiaries,
taken as a whole.
6.5 Consents and Approvals of Governmental Authorities. No consent,
approval or authorization of, or declaration, filing or registration with, any
Governmental Body is required to be made or obtained by Lakota or AGM or any of
either of their Subsidiaries in connection with the execution, delivery and
performance of this Agreement by Lakota or the consummation of the sale of the
Lakota Shares to the Shareholders.
6.6 Other Consents. No consent of any Person is required to be obtained
by AGM or Lakota to the execution, delivery and performance of this Agreement or
the consummation of the sale of the Lakota Shares to the Shareholders,
including, but not limited to, consents from parties to leases or other
agreements or commitments, except for any consent which the failure to obtain
would not be likely to have a material adverse effect on the business and
financial condition of AGM or Lakota.
6.7 Financial Statements. Lakota has delivered to the Shareholders
consolidated balance sheets of Lakota and its Subsidiaries as at December 31,
1998 and June 30, 1999, and statements of income and changes in financial
position for each of the years in the two-year period then ended, together with
the report thereon of Lakota's independent accountant (the "Lakota Financial
Statements"). Such Lakota Financial Statements and notes fairly present the
consolidated financial condition and results of operations of Lakota and its
Subsidiaries as at the respective dates thereof and for the periods therein
referred to, all in accordance with generally accepted United States accounting
principles consistently applied throughout the periods involved, except as set
forth in the notes thereto, and shall be utilizable in any SEC filing in
compliance with Rule 310 of Regulation S-B promulgated under the Securities Act.
6.8 Brokers or Finders. Other than MRC Legal Services Corporation,
Lakota has not employed any broker or finder or incurred any liability for any
brokerage or finder's fees or commissions or similar payments in connection with
the sale of the Lakota Shares to the Shareholders.
6.9 Purchase for Investment. Lakota is purchasing the AGM Shares solely
for its own account for the purpose of investment and not with a view to, or for
sale in connection with, any distribution of any portion thereof in violation of
any applicable securities law.
<PAGE>
7. Access and Reporting; Filings With Governmental Authorities; Other
Covenants.
7.1 Access Between the date of this Agreement and the Closing Date.
Each of the Shareholders and Lakota shall (a) give to the other and its
authorized representatives reasonable access to all plants, offices, warehouse
and other facilities and properties of AGM or Lakota, as the case may be, and to
its books and records, (b) permit the other to make inspections thereof, and (c)
cause its officers and its advisors to furnish the other with such financial and
operating data and other information with respect to the business and properties
of such party and its Subsidiaries and to discuss with such and its authorized
representatives its affairs and those of its Subsidiaries, all as the other may
from time to time reasonably request.
7.3 Exclusivity. From the date hereof until the earlier of the Closing
or the termination of this Agreement, the Shareholders shall not solicit or
negotiate or enter into any agreement with any other Person with respect to or
in furtherance of any proposal for a merger or business combination involving,
or acquisition of any interest in, or (except in the ordinary course of
business) sale of assets by, AGM, except for the exchange of the Lakota Shares
for the AGM Shares from the Shareholders.
7.4 Regulatory Matters. The Shareholders and Lakota shall (a) file with
applicable regulatory authorities any applications and related documents
required to be filed by them in order to consummate the contemplated transaction
and (b) cooperate with each other as they may reasonably request in connection
with the foregoing.
8. CONDUCT OF AGM'S BUSINESS PRIOR TO THE CLOSING. The Shareholder shall
use their best efforts to ensure the following:
8.1 Operation in Ordinary Course. Between the date of this Agreement
and the Closing Date, AGM shall cause conduct its businesses in all material
respects in the ordinary course.
8.2 Business Organization. Between the date of this Agreement and the
Closing Date, AGM shall (a) preserve substantially intact the business
organization of AGM; and (b) preserve in all material respects the present
business relationships and good will of AGM and each of its Subsidiaries.
8.3 Corporate Organization. Between the date of this Agreement and the
Closing Date, AGM shall not cause or permit any amendment of its certificate of
incorporation or by-laws (or other governing instrument) and shall not:
1. issue, sell or otherwise dispose of any of its Equity Securities, or
create, sell or otherwise dispose of any options, rights, conversion rights or
other agreements or commitments of any kind relating to the issuance, sale or
disposition of any of its Equity Securities;
<PAGE>
2. create or suffer to be created any Encumbrance thereon, or create, sell
or otherwise dispose of any options, rights, conversion rights or other
agreements or commitments of any kind relating to the sale or disposition of any
Equity Securities;
3. reclassify, split up or otherwise change any of its Equity Securities;
d. be party to any merger, consolidation or other business combination;\
4. sell, lease, license or otherwise dispose of any of its properties or
assets (including, but not limited to rights with respect to patents and
registered trademarks and copyrights or other proprietary rights), in an amount
which is material to the business or financial condition of AGM and its
Subsidiaries, taken as a whole, except in the ordinary course of business; or
5. organize any new Subsidiary or acquire any Equity Securities of any
Person or any equity or ownership interest in any business.
8.4 Other Restrictions. Between the date of this Agreement and the
Closing Date, AGM shall not:
1. borrow any funds or otherwise become subject to, whether directly or by
way of guarantee or otherwise, any indebtedness for borrowed money;
2. create any material Encumbrance on any of its material properties or
assets;
3. increase in any manner the compensation of any director or officer or
increase in any manner the compensation of any class of employees;
4. create or materially modify any material bonus, deferred compensation,
pension, profit sharing, retirement, insurance, stock purchase, stock option, or
other fringe benefit plan, arrangement or practice or any other employee benefit
plan (as defined in section 3(3) of ERISA);
5. make any capital expenditure or acquire any property or assets;
6. enter into any agreement that materially restricts Lakota, AGM or any of
their Subsidiaries from carrying on business;
7. pay, discharge or satisfy any material claim, liability or obligation,
absolute, accrued, contingent or otherwise, other than the payment, discharge or
satisfaction in the ordinary course of business of liabilities or obligations
reflected in the AGM Financial Statements or incurred in the ordinary course of
business and consistent with past practice since the date of the AGM Financial
Statements; or
8. cancel any material debts or waive any material claims or rights.
9. DEFINITIONS.
As used in this Agreement, the following terms have the meanings specified
or referred to in this Section 9.
9.1 "Business Day" C Any day that is not a Saturday or Sunday or a day
on which banks located in the City of New York are authorized or required to be
closed.
9.2 "Code" C The Internal Revenue Code of 1986, as amended.
<PAGE>
9.3 "Encumbrances" C Any security interest, mortgage, lien, charge,
adverse claim or restriction of any kind, including, but not limited to, any
restriction on the use, voting, transfer, receipt of income or other exercise of
any attributes of ownership, other than a restriction on transfer arising under
Federal or state securities laws.
9.4 "Equity Securities" C See Rule 3aB11B1 under the Securities
Exchange Act of 1934.
9.5 "ERISA" C The Employee Retirement Income Security Act of 1974, as
amended.
9.6 "Governmental Body" C Any domestic or foreign national, state or
municipal or other local government or multi-national body (including, but not
limited to, the European Economic Community), any subdivision, agency,
commission or authority thereof.
9.7 "Knowledge" C Actual knowledge, after reasonable investigation.
9.8 "Person" C Any individual, corporation, partnership, joint venture,
trust, association, unincorporated organization, other entity, or Governmental
Body.
9.9 "Subsidiary" C With respect to any Person, any corporation of which
securities having the power to elect a majority of that corporation's Board of
Directors (other than securities having that power only upon the happening of a
contingency that has not occurred) are held by such Person or one or more of its
Subsidiaries.
10. TERMINATION.
10.1 Termination. This Agreement may be terminated before the Closing
occurs only as follows:
1. By written agreement of the Shareholders and Lakota at any time.
2. By Lakota, by notice to the Shareholders at any time, if one or more of
the conditions specified in Section 4 is not satisfied at the time at which the
Closing (as it may be deferred pursuant to Section 2.1) would otherwise occur or
if satisfaction of such a condition is or becomes impossible.
3. By the Shareholders, by notice to Lakota at any time, if one or more of
the conditions specified in Section 3 is not satisfied at the time at which the
Closing (as it may be deferred pursuant to Section 2.1), would otherwise occur
of if satisfaction of such a condition is or becomes impossible.
4. By either the Shareholders or Lakota, by notice to the other at any time
after January 31, 2000.
10.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 10.1, this Agreement shall terminate without any liability or further
obligation of any party to another.
<PAGE>
13. NOTICES. All notices, consents, assignments and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given when (a) delivered by hand, (b) sent by telex or facsimile (with receipt
confirmed), provided that a copy is mailed by registered mail, return receipt
requested, or (c) received by the delivery service (receipt requested), in each
case to the appropriate addresses, telex numbers and facsimile numbers set forth
below (or to such other addresses, telex numbers and facsimile numbers as a
party may designate as to itself by notice to the other parties).
(a) If to Lakota:
2849 Paces Ferry Road, Suite 710
Atlanta, GA 30339
Attn: Ken Honeyman, President
Facsimile (770) 433-9194
(b) If to the Shareholders:
c/o Cutler Law Group
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Facsimile No.: (949) 719-1988
Attention: M. Richard Cutler, Esq.
14. MISCELLANEOUS.
14.2 Expenses. Each party shall bear its own expenses incident to the
preparation, negotiation, execution and delivery of this Agreement and the
performance of its obligations hereunder.
14.3 Captions. The captions in this Agreement are for convenience of
reference only and shall not be given any effect in the interpretation of this
agreement.
14.4 No Waiver. The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
14.5 Exclusive Agreement; Amendment. This Agreement supersedes all prior
agreements among the parties with respect to its subject matter with respect
thereto and cannot be changed or terminated orally.
14.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original, but all of which
together shall constitute the same instrument.
14.7 Governing Law, Venue. This Agreement and (unless otherwise provided)
all amendments hereof and waivers and consents hereunder shall be governed by
the internal law of the State of California, without regard to the conflicts of
law principles thereof. Venue for any cause of action brought to enforce any
part of this Agreement shall be in Orange County, California.
<PAGE>
14.8 Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns,
provided that neither party may assign its rights hereunder without the consent
of the other, provided that, after the Closing, no consent of AGM shall be
needed in connection with any merger or consolidation of Lakota with or into
another entity.
IN WITNESS WHEREOF, the corporate parties hereto have caused this Agreement
to be executed by their respective offi-cers, hereunto duly authorized, and
entered into as of the date first above written.
LAKOTA TECHNOLOGIES, INC.
a Colorado corporation
/s/ Ken Honeyman /s/ M. Richard Cutler
________________________________ _______________________________
By: Ken Honeyman, President M. Richard Cutler
/s/ Howard Wilson /s/ Brian A. Lebrecht
________________________________ _________________________________
Attested to by Howard Wilson, Secretary Brian A. Lebrecht
/s/ Majed Jalali /s/ Vi Bui
________________________________ _________________________________
By: Majed Jalali, on behalf of the Vi Bui
Lakota Board of Directors
<PAGE>
EXHIBIT A
AGM SHAREHOLDERS
<TABLE>
<CAPTION>
<S> <C> <C>
COMMON STOCK AGM
NAME SHARES LAKOTA SHARES
- ---------------------- ------- -------------
M. Richard Cutler 133,000 1,330,000
Brian A. Lebrecht 28,500 285,000
Vi Bui 28,500 285,000
Albert Aimers 1,500 15,000
Carl Berg 500 5,000
Mary Berg 500 5,000
Julie Gately 500 5,000
Kelly Gately 500 5,000
Craig V. Butler 500 5,000
Steve Melanese 500 5,000
Katherin Melanese 500 5,000
Donna Parham 500 5,000
Hal Parham 500 5,000
Jeff Willmann 1,500 15,000
Elaine Arritt 1,000 10,000
Gerald Feldman 500 5,000
Cynthia Feldman 500 5,000
Susan Cutler Egbert 500 5,000
James Scott Egbert 500 5,000
Ryan James Egbert 500 5,000
Scott Cutler Egbert 500 5,000
Jonathan Samuel Egbert 500 5,000
James Stubler 1,500 15,000
Maria Destino 500 5,000
M. DeVerl Cutler 500 5,000
Geneal B. Cutler 500 5,000
Mark F. Skiba 500 5,000
Sherilynn Skiba 500 5,000
Bradley J. Skiba 500 5,000
Beckie Skiba 500 5,000
Jeffery Skiba 500 5,000
Stephanie Skiba 500 5,000
Andre Peschong 1,000 10,000
Jaime Ceniceros 2,500 25,000
William Lebrecht 500 5,000
Wilmadean Lebrecht 500 5,000
Mitchell Lebrecht 500 5,000
Karen Lebrecht 500 5,000
Urban Smedeby 1,000 10,000
Stephanie Crumpler 2,500 25,000
Thomas Judd 500 5,000
Suzanne Judd 500 5,000
Thomas Judd, Jr. 500 5,000
Merry Chris Judd 500 5,000
Jack Thompsen 1,000 10,000
Totals 220,000 2,200,000
</TABLE>
CONSENT OF INDEPENDENT AUDITORS'
--------------------------------
We hereby consent to the use in this Form 8-K of Lakota Technologies, Inc.,
of our audit report dated September 15, 1999 of Lakota Technologies, Inc. for
the year ended December 31, 1998 and the six months ended June 30, 1999, which
is part of this Form 8-K, and to all references to our firm included
in this Form 8-K.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
January 17, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001097618
<NAME> Lakota Technologies, Inc.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 97357
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 102842
<PP&E> 41652
<DEPRECIATION> (6087)
<TOTAL-ASSETS> 176558
<CURRENT-LIABILITIES> 195305
<BONDS> 0
0
0
<COMMON> 6348527
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 176558
<SALES> 155904
<TOTAL-REVENUES> 155904
<CGS> 114405
<TOTAL-COSTS> 4076641
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (784979)
<INCOME-PRETAX> (4809953)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4809953)
<EPS-BASIC> (.21)
<EPS-DILUTED> (.21)
</TABLE>
