UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-SB/A-1
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
GREENLEAF TECHNOLOGIES CORPORATION
--------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Delaware 13-34291593
--------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8834 Capital Of Texas Highway North, Suite 150, Austin, Texas 78759
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(512) 343-1300
--------------------------------------------
(Issuer's telephone number, including area code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be registered each class is to be registered
N/A
------------------- ------------------------------
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
--------------------------------------------------------------------------------
(Title of class)
<PAGE>
PART I
------
Introduction
------------
Greenleaf Technologies Corporation (the "Company") is voluntarily filing
this General Form For Registration Of Securities on Form 10-SB in order for the
Company's $.001 par value common stock (the "Common Stock") to once again be
eligible for quotation on the OTC Bulletin Board (the "Bulletin Board"). Prices
for the Common Stock previously were quoted on the Bulletin Board until December
1, 1999, after which date the Common Stock was no longer quoted due to certain
rule changes for the Bulletin Board. These rule changes require companies whose
stock is quoted on the Bulletin Board to file current audited and unaudited
financial information with the Securities And Exchange Commission (the "SEC").
The filing requirement protects investors by ensuring that they have access to
companies' current audited and unaudited financial information when considering
investments in securities issued by those companies.
The Company currently is in the process of attempting to meet the new
reporting requirements. As part of the new requirements, on November 15, 1999
the Company filed a Form 10-SB with the SEC which contained a significant amount
of information regarding the Company, including audited financial statements.
The staff of the SEC then reviewed the Form 10-SB, and the Company is filing
this amended Form 10-SB to respond to the staffs' comments. The Common Stock can
again be quoted on the Bulletin Board only after the SEC's comments have been
addressed in the Form 10-SB to the satisfaction of the staff of the SEC.
The Company is including the following cautionary statement to make
applicable, to the extent possible, the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking statements made
by, or on behalf of, the Company. (It is important to note that the safe harbor
provisions do not apply to an entity, such as the Company, that issues penny
stock. The following cautionary statement also is made for the purpose of taking
advantage of any defenses that may exist under other laws, including common
law): Forward-looking statements include statements concerning plans,
objectives, goals, strategies, expectations, future events or performance and
underlying assumptions and other statements which are other than statements of
historical facts. Certain statements contained in this Form 10-SB are
forward-looking statements and, accordingly, involve risks and uncertainties
which could cause actual results or outcomes to differ materially from those
expressed in the forward-looking statements. The Company's expectations, beliefs
and projections are expressed in good faith and are believed by the Company to
have a reasonable basis, including without limitation, management's examination
of historical operating trends, data contained in the Company's records and
other data available from third parties, but there can be no assurance that
management's expectations, beliefs or projections will occur or be achieved or
accomplished. In addition to other factors and matters discussed elsewhere
herein, the following are important factors that, in the view of the Company,
could cause actual results to differ materially from those discussed in the
forward-looking statements: the ability of the Company to maintain its rights in
its intellectual property; the ability of the Company to obtain acceptable forms
and amounts of financing to fund operations, technology development, and
marketing as well as acquisitions and other expansion efforts; and the global
market for technology. Pursuant to Section 21E(d) of the Securities Exchange Act
of 1934, the Company has no obligation to update or revise these forward-looking
statements to reflect the occurrence of future events or circumstances. However,
2
<PAGE>
the Company hereby undertakes to include, in reports or statements that it may
be required to make in the future, such material information as may be necessary
to make required statements not misleading in light of the circumstances under
which the required statements are made.
Item 1. Description of Business.
--------------------------------
Background
----------
The Company was incorporated under the laws of the State of Delaware on
October 9, 1986, has been in the development stage since its inception and has
not yet realized any profits from operations. The Company has realized only
insignificant revenues and is not yet fully operational. It currently is
anticipated that the Company will become operational over the next several
years.
The Company was originally incorporated under the name Greenleaf Capital
Corporation. In August 1988, the Company consummated an initial public offering
(the "IPO") of 206,500 units at $1.00 per unit, with each unit consisting of one
share of Common Stock and a redeemable warrant to purchase two shares of Common
Stock. The Company was formed to attempt to begin operations in the garden,
agricultural nursery and greenhouse industry. Proceeds of the IPO were expended
for salaries and legal, accounting and administrative costs incurred in
connection with attempts to acquire a number of then-existing operating
companies or assets in that industry. However, none of these attempts was
successful due to the Company's lack of adequate working capital and the
unwillingness of potential sellers to accept the Company's stock in exchange for
interests in potential ventures.
For a period of approximately six months, beginning in November 1988, the
Company operated a California restaurant as a wholly-owned subsidiary of the
Company. The restaurant was unsuccessful and operations ceased in May 1989. The
Company did not realize any net income from the restaurant business.
The Company did not have any operations during the period from mid-1989
until mid-1994.
In mid-1994, the Company attempted to acquire a restaurant in Hollywood,
California. Negotiations and due diligence reviews in connection with this
proposed acquisition lasted for several months until, in mid-1995, the Company
decided not to acquire the business due to uncertainties created by rapid
changes in the restaurant industry.
Beginning in mid-1995, the Company determined to explore business
opportunities in technology-related industries. It then began its current
business of developing and marketing computer hardware and software encryption
products to the general software and entertainment industries. These products
are designed to prevent unauthorized access to data and software packages. The
Company's encryption products may be used to protect computer games, musical
recordings, video recordings and other software applications which are digitally
recorded on CD-ROM and DVD-ROM discs or which are contained on web-sites
accessed via the Internet.
3
<PAGE>
For example, the Company is currently party to a joint venture which was
formed to undertake the development and marketing of several computer games.
Software which controls these games is contained on CD-ROM computer discs, and
several games can be placed on one disc. After a potential customer loads the
disc into a personal computer, the customer may immediately access a
demonstration of the various games contained on the disc. However, the Company's
encryption devices prevent access to the full version of each game until a
special passcode is entered; each disc, and each game on each disc, is protected
by a separate, unique passcode.
In order to gain complete access to a game, the customer telephones the
Company's customer service center and provides payment by credit card. After the
Company has verified payment, the customer is given the passcode for the game or
games being purchased. The Company refers to this payment-verification-passcode
procedure as "unlocking" the game, and refers to each passcode as a "key".
Customers also may unlock products protected by the Company's encryption devices
by accessing a World Wide Web site over the Internet and entering credit card
payment information in exchange for a key.
As described below under "Computer Software And Hardware Products", one of
the Company's encryption products is fully developed, and one product is still
being developed.
The Company also intends to operate in the wireless communications industry
by selling access to specialized mobile radio ("SMR") frequencies and access to
a communications satellite. The Company has thus far obtained one
satellite-access license and two SMR licenses in connection with its acquisition
of Future Com South Florida, Inc. In connection with this acquisition, the
Company is in the process of obtaining approvals from the Federal Communications
Commission (the "FCC") pursuant to which Future Com will acquire an additional
two SMR licenses. Further information regarding this acquisition and the
communications licenses is detailed below in "Acquisition Of Communications
Business". The Company's communications business is expected to become
operational over the next several years.
History Of Losses
-----------------
Since its inception, the Company has incurred operating losses in each
fiscal year. Net losses for the year ended September 30, 1999 were approximately
$5,879,318 and for the year ended September 30, 1998 were approximately
$3,941,643. In addition, in some cases, the Company has been unable to meet its
obligations as they become due. During the fiscal year ended September 30, 1999,
the Company's total revenues were $28,501. For the nine months ended September
30, 2000, the Company had a net loss of approximately $10,870,960 and did not
have any revenues. There is no assurance that the Company's operations will
become profitable.
Development of Software and Technology Products
-----------------------------------------------
In mid-1997 the efforts of the Company were re-focused on the development
and marketing of software and computer-related products and, in December 1997,
the name of the Company was changed to Greenleaf Technologies Corporation in
order to reflect this change in focus.
4
<PAGE>
On December 15, 1997, Company entered into a five-year marketing agreement
with Daiichi Kosho U.S.A., Inc. ("DKI"). Pursuant to that agreement, the Company
granted to DKI the rights to use the Company's proprietary DigiGuard(TM)
encryption technology in connection with the electronic delivery of music for
use in karaoke sing-along products. The Company entered into the agreement
because the Company believed that it might eventually receive revenues as a
percentage of sales of DKI products containing the Company's technology. The
Company did not realize any revenues as a result of the agreement with DKI. In
March 1999 DKI ceased its U.S. operations, and the Company currently does not
anticipate further pursuing the activities contemplated by the agreement with
DKI.
On January 12, 1998, the Company entered into an agreement with MultiCom
Services LLC, which later reincorporated as MultiCom Corporation. The Company
entered into the agreement because the Company anticipated that it would require
a system which would enable end-users to unlock products protected by the
Company's encryption technology and that MultiCom could deliver such a system.
The January 1998 agreement called for MultiCom to provide the Company with a
basic system for credit card billing, capturing customer order information and
verifying credit card purchases on-line. The agreement also called for
MultiCom's Customer Service division to interact with software supplied by the
Company to generate unlock codes upon approval of credit card purchases. As
described below regarding the Company's potential transaction with MCSLink.Com,
Inc., the Company has tentatively agreed to acquire certain assets of MultiCom
which were used in connection with the January 1998 agreement with MultiCom,
including assets used to operate information centers and call receipt centers
for processing product orders.
On April 16, 1998, the Company paid $300,000 cash to purchase a 33.33%
ownership interest in NetHome Media, Inc. At that time, NetHome was a wholly
owned subsidiary of MultiCom. NetHome created and developed software products
which it referred to as "CyberScreen(TM)" and "Browser Butler(TM)". NetHome
subsequently ceased doing business and as of September 30, 1998, the Company's
ownership interest in NetHome had no market value. CyberScreen(TM) was designed
to filter text and restrict searches to provide a uniquely monitored, family
safe environment on the Internet. The Company invested in NetHome primarily to
obtain access to the Browser Butler(TM), which was a proprietary navigation aid
for use in browsing material on the Internet. The Company believed that its
investment would eventually result in the Company's encryption products being
packaged and marketed with the Browser Butler(TM). However, Browser Butler(TM)
never was commercially viable, and the Company has written off its investment in
NetHome.
On September 30, 1998, the Company consummated an agreement (the
"Acquisition Agreement") to acquire Gameverse, Inc. ("Gameverse"). At that time,
Gameverse was a wholly owned subsidiary of Cybermax Tech, Inc., which in turn
was a wholly owned subsidiary of Riverside Group, Inc. Pursuant to the
Acquisition Agreement, 14,687,585 shares of Common Stock were issued to
Cybermax, as well as options to purchase an additional 5,733,333 of its shares
at $0.25 per share until September 30, 2003 and options to purchase 1,581,249
5
<PAGE>
shares at $0.15 per share until September 30, 2003. The Acquisition Agreement
also provided Riverside with the right to appoint four directors to the Board of
Directors of the Company (the "Board").
The acquisition of Gameverse was based upon certain information obtained by
the Company during negotiations for Gameverse. At the time of consummation of
the Acquisition Agreement, the Company believed that Gameverse was an online
game development and web design company which marketed services to the
entertainment industry, and which also built web sites, including database
development and maintenance services, for businesses seeking to take advantage
of the web's advertising and e-commerce potential. However, subsequent to
consummation of the acquisition, the Company determined that the development of
Gameverse's products and business had not been accurately represented during
those negotiations. Because of these misrepresentations, the Company (i) on
September 28, 1999, rescinded the Acquisition Agreement and cancelled all shares
and options issued in connection with the acquisition, and (ii) filed, on
December 6, 1999, a lawsuit (the "Gameverse Lawsuit") seeking to recover damages
incurred by the Company in connection with the events involving the acquisition
of Gameverse.
By written agreement dated January 28, 2000, and without admitting fault or
liability, all but one of the parties to the Gameverse Lawsuit settled their
dispute and agreed to dismiss the suit. The one party who did not settle the
dispute was an individual defendant and, although this individual defendant did
not participate in the settlement, the other named defendants have agreed to
indemnify the Company against any costs or damages that may be incurred by the
Company in connection with claims that may be brought by the non-settling
defendant. For further information regarding the settlement and the Gameverse
Lawsuit, see "Part II - Item 2. Legal Proceedings".
On February 23, 1999, the Company announced that it had reached an
agreement with Accolade Inc., now known as Infogrames North America
("Infogrames") and Warner Advanced Media Operations ("WAMO"), a business unit of
Time Warner, Inc. (NYSE: TWX), to form a joint venture referred to as "WAG".
After Accolade changed its name to Infogrames, the joint venture has since been
referred to as "WIG" or "BIG WIG". Under the WIG banner, the three companies
have agreed to market multiple computer game titles on a single digital
versatile disc ("DVD") for distribution by the personal computer Original
Equipment Manufacturers ("OEM") market. The Company, utilizing its proprietary
"DigiGuard(TM)" security technology, encrypts the games contained on each DVD
and the DVDs are shipped to potential customers by manufacturers. For example,
the WIG joint venture has supplied encrypted DVDs to a manufacturer of laptop
computers. When a customer orders a laptop from the manufacturer, an encrypted
WIG DVD is included in the package containing the laptop and shipped to the
customer. The agreement calls for the Company to receive a percentage of net
revenues which result from the unlocking of games contained on WIG DVDs. To
date, approximately 100,000 WIG DVDs have been shipped to potential end users,
but the Company has not received any revenues from the WIG joint venture.
On August 30, 1999, the Company and BroadcastDVD, Inc. ("BroadcastDVD")
announced a three-year, exclusive partnership to include BroadcastDVD's
FILM-FEST, a video magazine that exposes viewers to prestigious film festivals
of the world, in the DVD disc packages to be marketed by the WIG joint venture.
6
<PAGE>
Currently, four issues of FILM-FEST are available for distribution on WIG DVDs,
with an additional issue to be made available by BroadcastDVD in August 2000. In
August and September 2000, BroadcastDVD also will make available content for two
additional DVDs. The additional titles are expected to include, respectively, a
progressive rock music magazine and an extreme sports magazine. The Company
entered into the agreement with BroadcastDVD so that the Company could include
FILM-FEST magazines in the WIG DVDs for immediate viewing by the end user at no
charge. The Company believes that the free materials would keep the consumers'
attention focused on the DVD. The Company believes that if a consumer samples
free materials, the consumer may then be more interested in previewing, and
eventually unlocking, games contained on the same disc. These unlocking
activities would result in revenues to the Company. No DVDs containing materials
provided by BroadcastDVD have been shipped, although the Company may determine
to include those materials in future disc shipments.
On May 12, 2000, the Company announced that it had entered into an
agreement with Vector OEM Content Ltd. of the United Kingdom. Pursuant to the
agreement, The Company and Vector agreed to create two new companies to promote
each party's products. One company, Vector North America, which has been formed
but is not yet active, has the exclusive right to distribute Vector's PC-based
software in the United States and Canada. It currently is anticipated that if
Vector North America becomes active, of which there is no assurance, the Company
will own 49% of Vector North America's outstanding equity interests. Vector will
own the remaining 51%. The other company, which has not yet been formed, will
have the exclusive right to sell and use the Company's encryption products in
Europe. It currently is anticipated that the Company will own 51% of the equity
interests in the newly created European-based company and Vector will own the
remaining 49%. The Company and Vector will share equally in any profits
generated by the new ventures. Nevertheless, these numbers are subject to
change.
On June 27, 2000, the Company announced that it had entered into an
agreement with CenterSpan Communications Corporation to be effective until
December 31, 2001. In that agreement, the Company received the right to package
CenterSpan's Socket software in BIG WIG DVDs. Socket is a program which enables
several people in different locations to play computer games with or against one
another via the Internet. The Company believes that the inclusion of a free
version of Socket on DVDs containing multi-player games will increase the
likelihood that a consumer will unlock those games, thereby creating revenues.
The Company has agreed to pay a percentage of each unlocking fee to Socket. No
DVDs containing Socket have been shipped, although the Company currently intends
to include Socket in future disc shipments, if any.
In July 2000, the Company tentatively agreed to acquire certain assets (the
"MCSLink Assets") in exchange for 750,000 shares of the Company's common stock.
This transaction also would require the Company to assume approximately $132,000
of MCSLink's liabilities. MCSLink is a newly formed entity created to operate
customer service call centers and related information tracking systems for
business clients but has not conducted any operations. The Company intends to
operate the MCSLink Assets in connection with the unlocking procedures described
above under "Background". The MCSLink Assets and the liabilities that may be
assumed by the Company were acquired by MCSLink from MultiCom. By July 2000,
MultiCom had incurred aggregate net losses of approximately $2,280,000. Also,
7
<PAGE>
the Company had previously forwarded funds to and on behalf of MultiCom,
including approximately $90,000 to cover MultiCom's payroll during Spring 2000
and approximately $70,000 towards liabilities incurred by MultiCom. Funds
advanced in connection with MultiCom's liabilities may offset the liabilities
ultimately assumed in the Company's proposed transaction with MCSLink. The
Company also has agreed that, if the transaction with MCSLink is consummated,
the Company will enter into employment agreements with two of MultiCom's
employees. Each agreement is proposed to be for a three-year term. If
consummated, one of the employees will receive a salary of $95,000 per year,
will be issued 250,000 shares of the Company's restricted common stock upon
entering the agreement, and will receive options to purchase up to 100,000
shares for $.75 per share until two years after entering the agreement. The
other employee will receive a salary of $80,000 per year, will be issued 25,000
shares of the Company's restricted common stock upon entering the agreement, and
will receive options to purchase up to 100,000 shares for $.75 per share until
two years after entering the agreement.
Acquisition Of Future Com South Florida, Inc.
---------------------------------------------
In September 1999, the Company entered into an agreement to acquire all the
outstanding shares of Future Com South Florida, Inc. ("Future Com") in exchange
for 4,000,000 shares of the Company's restricted Common Stock. The Company
completed the acquisition in November 1999. 2,000,000 of the shares were issued
to William Gale, the President and Chief Executive Officer of Future Com, and
the other 2,000,000 shares were issued to Warren Blanck, the Secretary and
Treasurer of Future Com. Future Com was formed by Mr. Gale and Mr. Blanck for
the purpose of acquiring and managing mobile communications radio licenses
and/or systems.
At the time that the Company acquired Future Com, Future Com entered into
agreements to acquire four SMR licenses in the 220-222 MHz range for a purchase
price of $175,000 per license. The FCC subsequently approved the transfer of
three licenses to Future Com; approval is pending on the remaining license. The
purchase price for each license, all of which have been paid by the Company,
consisted of 350,000 shares of the Company's restricted common stock plus
warrants to purchase 350,000 shares of common stock for $0.50 per share until
November 4, 2000.
Also at the time of closing of the Company's purchase of Future Com, Future
Com entered into an agreement to acquire a dedicated satellite communications
license at a total purchase price of $687,500, which includes amounts paid to
eliminate an encumbrance on the license. The FCC has approved the transfer of
the satellite license to Future Com. The purchase price for the satellite
license, which has been paid by the Company, is in the form of 1,375,000 shares
of restricted common stock. The Company also issued, to the seller of the
satellite license, warrants to purchase 75,000 shares of common stock at an
exercise price of $0.50 per share until November 4, 2002, and, to the holder of
the encumbrance, options to purchase 1,300,000 shares of common stock for $.50
per share until November 4, 2000.
In connection with the acquisition, Future Com entered into employment
agreements with each of Mr. Gale and Mr. Blanck which provided for each of them
to receive a salary of $96,000 per year. In addition, Future Com agreed to pay
each of Mr. Gale and Mr. Blanck an automobile allowance of $850 per month for
8
<PAGE>
use of their automobiles for business purposes. Future Com also agreed to repay
$150,000 advanced by each of Communications Concepts, Inc. ("CCI") and Uni-Call
Communications, Inc. ("Uni-Call"), for a total of $300,000, pursuant to
promissory notes issued by Future Com. These promissory notes provide for
payments of principal plus interest at the rate of eight percent per year at
such time that the Board Of Directors of Future Com determines that there are
sufficient funds available for payment, with the unpaid amount due upon demand
at any time after five years from the date of the closing of the acquisition.
Uni-Call and CCI are owned by Mr. Gale and Mr. Blanck, who serve as officers and
directors of those companies.
At the time of acquiring Future Com, the Company issued options to existing
employees of Future Com to purchase an aggregate of 400,000 shares of Common
Stock. These options are exercisable at a price of $0.50 per share until
November 4, 2000.
In connection with the acquisition of Future Com, the Company entered into
a registration rights agreement with Mr. Gale, Mr. Blanck, Mr. Leonard Berg, the
President and Chief Executive Officer of the Company, Mr. Richard Wachs, then
the President of the Company's wholly-owned Greenleaf Research and Development,
Inc. ("GRD") subsidiary and a Director of the Company, and Mr. Christopher
Webster, the Vice Chairman, Executive Vice President and a Director of the
Company. Pursuant to the registration rights agreement, the Company agreed to
register the transfer of the shares held by those individuals in any
registration statement filed by the Company to register the initial or secondary
offering of any securities of the Company.
After the acquisition of Future Com was completed, the Company entered into
letters of intent regarding the acquisition of three additional SMR licenses
from CCI. One of the additional licenses has been approved for transfer to
Future Com. The Company currently is considering whether it desires to proceed
with respect to the three possible additional licenses.
None of Mr. Wachs, Mr. Gale or Mr. Blanck currently is an officer or
director of the Company or of any of its subsidiaries.
Computer Software And Hardware Products
---------------------------------------
Beginning in late 1998, the efforts of the Company have been concentrated
on developing and marketing a line of proprietary computer software and hardware
to customers in the entertainment industry. As described below, the Company's
products are designed to facilitate sales transactions via electronic media,
including the Internet. The Company's line of data security and communications
solutions assists customers in protecting their intellectual property and
information assets from access by unauthorized parties. In addition, the
Company's products provide an alternative to traditional methods of bundling and
distributing software-based entertainment content through electronic media.
To date, the Company has developed the following proprietary software
products:
DigiGuard(TM). The Company's DigiGuard(TM) product consists of a suite of
software packages to support the locking, unlocking, and playing of
entertainment media and other software. DigiGuard(TM) protects data contained on
CD-ROMs and DVDs, allowing the Company's customers to securely bundle various
9
<PAGE>
entertainment content, such as games, music and movies, on a single disc or for
transmission via the Internet. DigiGuard(TM) encrypts a customer's software and
creates access keys which are used to unlock protected content. End users may
purchase a key to unlock content by providing credit card payment information to
the Company by telephone or over the Internet.
The DigiGuard(TM) product consists of the following components, all of
which are fully developed and operational:
MediaEncrypt - "Locks" or encrypts content so it may not be used until
the end-user purchases a key, as described above.
Media Maker - Software which bundles several "locked" programs onto a
single DVD-ROM or CD-ROM. Also can be applied to programs for
downloading via the Internet.
WebLink - Software which allows end-users to view selections available
for unlocking, including material associated with the product such as
detailed product descriptions, demonstrations, and brief video
previews.
MediaUnlock - Software which operates at the Company's unlocking
center and assists end-users in purchasing their unlocking keys.
Consists of two screens of fill-in-the-blanks (able to be completed
via the Internet or by phone) which capture credit card information
necessary to complete and verify the transaction. Upon completion of
the end-user's purchase request, the credit card information is
validated and the key is available to unlock the product for immediate
use and enjoyment.
The unlocking activity is performed only once, at the time of purchase.
Thereafter, whenever the customer plays the purchased product, the Company's
encryption technology automatically verifies unlocking and access to the
purchased product. This verification is invisible to the customer.
DigiGuardESD(TM)
----------------
The Company is in the process of developing an enhanced encryption, content
distribution and licensing system known as DigiGuardESD(TM). DigiGuardESD(TM),
which contains many of the features of the Company's DigiGuard(TM) product, is
intended to facilitate electronic commerce by providing a package which encrypts
software in such a manner that the software provider may restrict use of the
software as agreed with the end-user. This will enable software producers to
ensure that each copy of their software product is properly licensed and may not
be copied without prior consent. This is an important feature of the
DigiGuardESD(TM) system and allows for a friendly, convenient way to help the
end user comply with the software content publisher's licensing guidelines. The
DigiGuardESD(TM) package itself can be moved to another machine, or freely
redistributed - and each time it is executed on another machine it will provide
the user the opportunity to license or use the software or content contained in
the object.
10
<PAGE>
For example, a software provider may desire to sell its products so that
its programs may be run only on one specific computer at any given time. Under
this scenario, the program may be transferred from computer to computer but
cannot be copied and played on more than one computer unless the end-user
properly registers and licenses the additional copies. However, the software
provider also may program DigiGuardESD(TM) so that the end-user may run the
encrypted product on any specific number of separate machines.
DigiGuardESD(TM) also contains security measures which were developed by
the Company for a previously proposed product known as MusicLock(TM). Because
these features are contained in the DigiGuardESD(TM) product, MusicLock(TM) has
been discontinued as a separate product.
As of August 7, 2000, the Company has expended approximately $2,628,000 on
research, development and other costs associated with the DigiGuardESD(TM)
product.
The Company currently anticipates that the DigiGuardESD(TM) product will be
fully developed and operational by October 2000.
New Product
-----------
The Company currently is developing a group of additional products and
services which are intended to be a comprehensive package for the digital
delivery of video, audio, computer gaming and software packages, along with
high-speed Internet access. Each data package would be encrypted by the
Company's DigiGuardESD(TM) product to prevent unauthorized access.
The Company would derive revenues by charging end-users monthly access fees
and/or individual fees for certain data and content packages, as well as
revenues which the Company may realize from other business opportunities derived
from this model such as fees for advertisements that may be included with
packages.
As of August 7, 2000, the Company had expended approximately $115,000 on
research, development and other costs associated with this new product. The
Company has entered into an agreement with NIVIS, LLC regarding the development
of this new product. Pursuant to that agreement, NIVIS has agreed to develop and
deliver a prototype of the new product to the Company by November 2000. The
total fees to be incurred by the Company pursuant to the agreement are currently
estimated to be approximately $570,000.
Intense Competition
-------------------
The computer and communications industries are highly competitive, and the
Company competes or will compete with substantially larger companies in the
development of marketable computer software products, for the acquisition of
communications licenses and for sales of communications services. Many of these
companies have larger sales forces and more highly developed marketing programs
as well as larger administrative staffs, more available service personnel, and
greater financial resources available to develop and market competitive products
11
<PAGE>
and services. The presence of these competitors may be a significant impediment
to the ability of the Company to develop its business. In addition, many of
these companies have proven, successful operating histories, which the Company
lacks.
Reliance on Third Parties
-------------------------
The Company's products have been developed and maintained primarily by
Company employees. Because these software encryption products do not involve
traditional manufacturing processes, the Company is able to maintain development
and marketing efforts without relying on outside suppliers. Because the Company
is still in the development stage and has generated only immaterial revenues, it
is not dependent on any particular customers. However, the continuing operation
of the WIG joint venture is dependent upon the continuing cooperation of WAMO
and Infogrames, the Company's partners in WIG, of which there is no assurance.
Research & Development
----------------------
The Company has historically committed, and expects to continue committing,
significant capital and resources for the ongoing development of its software
products. The Company spent approximately $1,700,000 on research and development
activities during the fiscal year ended September 30, 1999 and $1,025,000 during
fiscal 1998.
Employees
---------
At August 7, 2000, the Company had a total of 29 employees, all of whom are
full-time employees.
Item 2. Management's Discussion and Analysis or Plan of Operation.
------------------------------------------------------------------
Plan of Operation
-----------------
The Company is marketing its encryption products to other businesses as
alternatives to traditional marketing devices. For example, if a manufacturer of
computer games did not have access to encryption devices, it would be faced with
the prospect of packaging only one game per CD-ROM disc; if an end user desired
to purchase additional games, the manufacturer would incur additional packaging
and shipping costs for each disc delivered. The Company's products are designed
to save packaging and shipping costs by allowing multiple games to be packaged
on a single CD-ROM disc. In addition, the Company's Internet-related encryption
devices allow games to be sold directly to the end user without incurring any
packaging or shipping costs.
The Company's strategy is to build strategic alliances with businesses
involved in the manufacture, marketing and distribution of products on computer
discs or over the Internet. The Company revenues would result from sales of its
encryption devices to those businesses. To this end, the Company has built
interlocking strategic relationships with product providers, distributors, and
support providers. The Company believes that the largest opportunity for its
products and services is the entertainment industry, and its strategic alliances
are aimed at capturing revenues by selling to businesses in that industry.
12
<PAGE>
The principal accountant's report on the financial statements for the past
fiscal year contains a statement to the effect that the Company has an
accumulated deficit at September 30, 1999, which raised substantial doubt about
the Company's ability to continue as a going concern. The continuation of the
Company as a going concern is dependent on its ability to generate sufficient
operating cash flows and/or equity or debt financing to meet its obligations and
sustain its operations. There can be no assurance that the Company will be
successful in raising any required additional financing.
As described above under "New Product" and "Acquisition Of Communications
Business", management of the Company has identified and intends to pursue new
business opportunities in the communications industry. Specific opportunities in
this area include the wireless high-speed delivery of data to end users via
satellite. For example, the speed of traditional data delivery is limited
because it is conducted through ground-based wires and cables. Because satellite
communications are not constrained by these physical limitations, data is
delivered much more quickly. Management believes that consumer demand for
digital entertainment, software products and high-speed Internet access is
strong and will increase as access systems, such as the Company's proposed new
product, become more widely available. There are no assurances, however, that
the Company will be able to successfully develop this new business.
The following is a discussion and comparison of the Company's financial
condition and results of operations as of and for the nine-month periods ended
June 30, 2000 and June 30, 1999. Also included is a similar discussion and
comparison as of and for the fiscal years ended September 30, 1999 and 1998.
These discussions should be read in conjunction with the Company's financial
statements, the notes related to the financial statements, and the other
financial data included in this Form 10-SB.
The nine months ended June 30, 2000 compared with the nine months ended
June 30, 1999.
----------------------------------------------------------------------------
Revenues
--------
The Company did not have any operating revenues for the nine months ended
June 30, 2000 or for the comparable period ending June 30, 1999.
Gross Profit
------------
The Company did not report any gross profits due to the absence of any
revenues during the reporting periods.
Compensation Expenses
---------------------
Compensation expenses totaled $1,460,792 for the nine months ended June 30,
2000, or an increase of $802,982 or 122% over the comparable period in 1999. The
increase was due to new employment contracts with current officers and
additional personnel hired during the period.
13
<PAGE>
Selling Expenses
----------------
Selling expenses for nine months ended June 30, 2000 decreased by $67,321
or 92% as compared with these expenses for the nine months ended June 30, 1999.
The decrease was principally due to a reclassification of travel expenses to
administrative expenses.
Administrative Expenses
-----------------------
Administrative expenses for the nine months ended June 30, 2000 increased
by $3,512,720, or 73%, as compared to the same category of expenses for the nine
months ended June 30, 1999. The increase was principally due to costs associated
with ongoing software development, such as increased spending for consulting
fees.
Other Income and Expense
------------------------
Other income and expense for the nine months ended June 30, 2000 amounted
to a net expense of $1,083,110 compared to a net expense for the nine months
ended June 30, 1999 of $6,080,175. The decrease of $5,117,065 in other income
and expense was primarily due to the equity in net loss of the Gameverse
subsidiary, which occurred in the first quarter ending December 31, 1998.
Interest income for the nine month period totaled $148,071 or an increase
of $143,734. The increase was due to interest earned on private placement
proceeds and from stock subscription notes receivable. Interest expense totaled
$61,181 as of June 30, 2000 or an increase of $61,046. The increase resulted
from interest accrued on the 4% convertible debentures and notes payable related
to Future Com of South Florida, Inc. Other expense for the period ending June
30, 2000, also includes $120,000 recorded for the settlement of a lawsuit
against the Company.
Liquidity and Capital Resources
-------------------------------
Greenleaf's cash position was $1,146,466 as of June 30, 2000 as compared
with $87,269 as of June 30, 1999, or an increase of $1,059,197.
Cash flows from activities during the nine month period used cash of
$14,969,199, which resulted from a net loss of $10,870,960 adjusted for
depreciation and amortization, a increase in assets of $2,526,853, offset by a
decrease in current liabilities of $52,090.
In addition, cash was used to purchase fixed assets totaling $270,173 and
for payments of $1,287,500 for investments.
The net cash provided by financing activities of $16,029,294 for the nine
months ending June 30, 2000, consisted of proceeds from the issuance of common
stock amounting to $11,756,006, a decrease in borrowing of $166,712 offset by
the issuance of long term debt totaling $4,440,000. These proceeds funded
operating activities during the nine month period.
14
<PAGE>
The fiscal year ended September 30, 1999 compared with the fiscal year
ended September 30, 1998.
---------------------------------------------------------------------------
Revenues
--------
The Company recorded $28,501 of revenues for the fiscal year ended
September 30, 1999 ("1999"). These revenues were derived primarily from web-site
design services provided by the Company's Gameverse, Inc. subsidiary. The
Company did not have any revenues for the fiscal year ended September 30, 1998
("1998").
Gross Profit
------------
Gross profit for 1999 amounted to $13,529 compared with no gross profit for
1998. The increase was due to gross profits associated with the web design
projects at Gameverse, Inc. Gross profit margin for 1999 was 47%.
Selling Expenses
----------------
Selling expenses for 1999 decreased by $230,530, or 75% as compared with
1998. The decrease was principally due to the reclassification of payroll and
related expenses to the general and administrative expense category.
General and Administrative Expenses
-----------------------------------
General and administrative expenses for 1999 increased by $2,397,138, or
66% as compared to the same category of expenses for 1998. The increase was
principally due to an increased number of personnel and costs associated with
ongoing software development.
Interest Expense
----------------
Interest expense for 1999 increased by $8,286 or 282% compared with
interest expense for 1998. The increase was due to additional borrowings during
the year.
Other Income and Expense
------------------------
Other income and expense for 1999 amount to a net income of $238,984
compared to a net expense for 1998 of $290,255. The increase of $529,239 in
other income and expense was the result of a net increase in interest income of
$117,419 from private placement proceeds and stock subscriptions and notes
receivable and the forgiveness of debt in connection with the settlement of the
Gameverse Lawsuit, which settlement is described below in "Part II. Item 2.
Legal Proceedings", totaling $111,820 compared with a loss of $300,000 in 1998
from the Company's investment in NetHome.
Liquidity and Capital Resources
-------------------------------
The Company's cash position was $86,372 as of September 30, 1999 as
compared with $68,423 as of September 30, 1998, or an increase of $17,949. Cash
flows from activities during 1999 used cash of $8,518,812, which resulted from a
15
<PAGE>
net loss of $5,879,318 adjusted for depreciation and amortization, a decrease in
assets of $3,045,648, offset by an increase in current liabilities of $370,664.
In addition, cash was used to purchase fixed assets totaling $27,753.
The net cash provided by financing activities of $8,564,514 for the year
ended September 30, 1999 consisted of proceeds from the issuance of common stock
amounting to $8,331,554, an increase in borrowing of $269,642 offset by the
purchase of treasury stock totaling $36,682. These proceeds funded operating
activities during the year.
The Company anticipates that it has sufficient capital resources to
continue current operations for the next twelve months; however, there is no
assurance that currently unforeseen cash requirements may not arise in the
future. During the next twelve months, the Company plans to satisfy any
currently unforeseen cash requirements through additional debt and/or equity
financing. There can be no assurance that the Company will be successful in
raising any required additional financing.
As of the date of filing of this Amendment No. 1 to the Company's General
Form For Registration Of Securities on Form 10-SB, there were no commitments for
material capital expenditures except the agreement with NIVIS described above in
the section entitled "New Product".
Impact of Recently Issued Accounting Pronouncements
---------------------------------------------------
The Company follows Generally Accepted Accounting Principles ("GAAP") in
its accounting methods. The impact of accounting standards which have been
released but not yet adopted into GAAP is required to be disclosed as part of
this "Item 2. Management's Discussion and Analysis or Plan of Operation". There
are no applicable disclosures required as of the date of filing this Amendment
No. 1 to the Company's General Form For Registration Of Securities on Form
10-SB.
Year 2000
---------
The Company's operations are highly dependent on various computer hardware,
software and electronic components. Traditionally, computer systems and other
electronic devices have used two digits rather than four digits to define an
applicable year. As a consequence, the Company previously was concerned that, at
12:00 a.m. on January 1, 2000, date sensitive systems might have recognized the
year 2000 as 1900 or not at all. The inability to recognize or properly treat
the year 2000 could have caused erroneous processing of information critical to
the Company's operations. This situation is referred to as the Year 2000 Issue.
During 1999, the Company assessed the impact of the Year 2000 Issue on its
computer systems, software and other equipment (collectively, the "Systems").
Based on its evaluations, the Company confirmed that its Systems were Year 2000
compliant and, in fact, the Systems performed without error after January 1,
2000. Also, because the Company does not rely on outside suppliers or vendors
whose products contain date-sensitive material, and because the Company has not
16
<PAGE>
yet recognized any sales of its products, the Company believed, and continues to
believe, that non-compliance of outside parties would not have a material
adverse impact on the Company's business as currently operated.
However, date sensitive systems may in the future encounter difficulties
with recognizing the year 2000 because accounting, operating and other systems
have not yet been required to reconcile dates prior to January 1, 2000 with
those on or after January 1, 2000. Therefore, there can be no assurance that our
evaluations of Year 2000 compliance matters will continue to be correct until,
at the earliest, January 1, 2001.
Because the Company's analyses of the Year 2000 Issue were performed by
regular employees of the Company, no material costs were incurred regarding the
Year 2000 Issue in excess of those associated with the day-to-day operation of
the Company's business. The Company also believes that, because it is compliant,
no material additional costs will be incurred in connection with the Year 2000
Issue. However, there can be no guarantee that the estimate of future costs will
be achieved and actual results could differ materially from the estimate due to
as yet unforeseen changes in circumstances.
There is no assurance that the Company's analyses of the Year 2000 Issue
are accurate. If the Company's analyses of the impact of the Year 2000 Issue are
erroneous, the Company's operations could be materially adversely affected.
Item 3. Description of Property.
--------------------------------
The Company leases its corporate offices located at 8834 Capital of Texas
Highway, Suite 150, Austin, Texas 78759 pursuant to a written lease agreement.
The lease agreement, which expires on June 30, 2003, currently provides for
minimum monthly payments of $13,848.
The Company also is party to a written lease agreement for office space
located at 75 Route 27, Iselin, New Jersey. Pursuant to the provisions of that
agreement the Company is responsible for minimum monthly payments of $5,587.58.
The Company has sublet the New Jersey office space to a third party who has
agreed to pay, and to date has paid, the minimum monthly payments.
Trademarks
----------
On October 26, 1998, the Company filed, with the U.S. Patent and Trademark
Office ("USPTO"), applications to register "DigiGuard", "MusicLock" and "GLFC"
as registered trademarks. Also on that date, the Company filed with the USPTO an
application to register "Greenleaf Technologies Corporation", in conjunction
with a unique design, as a registered trademark. The Company is continuing to
pursue its trademark applications.
Patents
-------
On March 3, 2000, the Company filed for, but has not yet received, a patent
to protect a proprietary broadband communications system which the Company may
ultimately use in connection with its proposed business operations described
17
<PAGE>
above under "New Product". The Company also intends to file for further patent
protection regarding other proprietary software and/or hardware components which
it is developing for use in connection with its business.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
-----------------------------------------------------------------------
As of August 4, 2000, there were 115,294,655 shares of the Company's Common
Stock outstanding. The following table sets forth certain information as of that
date with respect to the beneficial ownership of the Company's Common Stock by
each director and executive officer, by all executive officers and directors as
a group, and by each other person known by the Company to be the beneficial
owner of more than five percent of the Company's Common Stock:
<TABLE>
<CAPTION>
Name and Address Number of Shares Percentage of
of Beneficial Owner Beneficially Owned (1) Shares Outstanding
------------------- ---------------------- ------------------
<S> <C> <C>
Leonard Berg 15,918,734 (2) 13.8%
8834 Capital Of Texas Highway, Suite 150
Austin, Texas 78759
Christopher J. Webster 10,647,868 9.2%
8834 Capital Of Texas Highway, Suite 150
Austin, Texas 78759
Frank LoVerme 5,350,000 (3) 4.5%
8834 Capital Of Texas Highway, Suite 150
Austin, Texas 78759
Lon T. Berg 1,043,763 (4) *
8834 Capital Of Texas Highway, Suite 150
Austin, Texas 78759
William J. Hubert 611,100 (5) *
8834 Capital Of Texas Highway, Suite 150
Austin, Texas 78759
Robert A. Parsons 725,000 (6) *
8834 Capital Of Texas Highway, Suite 150
Austin, Texas 78759
Paul Trowe 575,000 (7) *
8834 Capital Of Texas Highway, Suite 150
Austin, Texas 78759
Gerald Warnero 1,500,000 (8) 1.3%
8834 Capital Of Texas Highway, Suite 150
Austin, Texas 78759
All Executive Officers and Directors as a 36,371,465 30.2%
Group (eight persons) (2)(3)(4)(5)(7)(8)
Cybermax Tech, Inc. 14,427,000 (9) 12.3%
7800 Belfort Parkway, Suite 100
Jacksonville, Florida 32256
</TABLE>
18
<PAGE>
----------
* Less than one percent.
(1) "Beneficial ownership" is defined in the regulations promulgated by the
U.S. Securities and Exchange Commission as having or sharing, directly or
indirectly (i) voting power, which includes the power to vote or to direct
the voting, or (ii) investment power, which includes the power to dispose
or to direct the disposition, of shares of the common stock of an issuer.
The definition of beneficial ownership includes shares underlying options
or warrants to purchase common stock, or other securities convertible into
common stock, that currently are exercisable or convertible or that will
become exercisable or convertible within 60 days. Unless otherwise
indicated, the beneficial owner has sole voting and investment power.
(2) Includes 1,500,289 shares owned by Thelma Berg, the wife of Leonard Berg;
Mr. Berg disclaims beneficial ownership of these shares.
(3) Includes options to purchase up to 3,000,000 shares at an exercise price of
$1.00 per share until March 30, 2005. Also includes 350,000 shares held by
Mr. LoVerme's wife; Mr. LoVerme disclaims beneficial ownership of these
shares.
(4) Includes currently exercisable options to purchase up to 300,000 shares for
$.25 per share until September 30, 2003, and currently exercisable options
to purchase up to 22,328 shares for $.15 per share until December 22, 2002.
(5) Includes currently exercisable options to purchase up to 10,000 shares for
$.75 per share until March 1, 2001; currently exercisable options to
purchase up to 88,536 shares for $.15 per share until December 15, 2002;
currently exercisable options to purchase up to 50,000 shares for $.15 per
share until September 30, 2003; currently exercisable options to purchase
up to 110,000 shares for $.50 per share until October 25, 2003; and
currently exercisable options to purchase up to 50,000 shares for $.50 per
share until January 26, 2003.
(6) Includes currently exercisable options to purchase up to 500,000 shares for
$.65 per share until April 24, 2003. Also includes options to purchase up
to 50,000 shares for $.35 per share until September 13, 2000.
(7) Includes currently exercisable options to purchase up to 300,000 shares for
$1.00 per share until April 24, 2005.
(8) Includes currently exercisable options to purchase up to 250,000 shares for
$.50 per share until December 25, 2002, and currently exercisable options
to purchase up to 250,000 shares for $1.00 per share until December 25,
2002.
(9) Includes currently exercisable options to purchase up to 2,000,000 shares
for $.25 per share until September 30, 2003. Also includes 3,000,000 shares
which are held in escrow pursuant to the written settlement agreement
regarding the Gameverse Lawsuit. For further information regarding the
settlement and escrow of these shares, see "Part II - Item 2. Legal
Proceedings".
19
<PAGE>
Item 5. Directors, Executive Officers, Promoters and Control Persons.
---------------------------------------------------------------------
The directors and executive officers of the Company, their respective
positions and ages, and the year in which each director was first elected, are
set forth in the following table. Each director has been elected to hold office
until the next annual meeting of stockholders and thereafter until his successor
is elected and has qualified. Additional information concerning each of these
individuals follows the table.
<TABLE>
<CAPTION>
Name Age Position with the Company Director Since
---- --- ------------------------- --------------
<S> <C> <C>
Leonard Berg 76 Chairman Of The Board; December 1995
Chief Executive Officer;
President; and Director
Christopher J. Webster 28 Vice Chairman; Executive October 1998
Vice President; and Director
Frank LoVerme 55 Chief Operating Officer; and Director August 2000
Robert A. Parsons 42 Chief Financial Officer - -
Lon T. Berg 39 Vice President of Marketing - -
Paul Trowe 29 Vice President of Business Development - -
William J. Hubert 46 Secretary; and Treasurer - -
Gerald Warnero 44 Chief Executive Officer and President - -
of the Company's Greenleaf Research
And Development Subsidiary
</TABLE>
Leonard Berg has served as the Chairman Of The Board, Chief Executive
Officer and President of the Company since April 1999 and also previously served
as President of the Company from November 1995 to December 1997. From December
1997 to March 1999 he was a consultant to the Company on general business
matters. Beginning in August 1994 until March 1995 Mr. Berg was a Survey Manager
for The Gallup Organization.
Mr. Berg has over forty years of experience in the finance industry. His
corporate experience includes owning, managing and financing real estate
properties, as well as financial and operating experience in the commercial real
estate business. In 1949, Mr. Berg founded Berg Enterprises. He served as
co-chairman of the board, officer, director and shareholder of Berg Enterprises
for 33 years. During its operation, Berg Enterprises was listed on the American
Stock Exchange and was primarily involved in the real estate and mortgage
banking business. Mr. Berg helped to successfully operate the company until it
became a subsidiary of the Primerica Corporation in 1982. Since 1982, Mr. Berg
has owned and consulted with numerous companies in the entertainment, finance,
and real estate industries. Mr. Berg also founded and served as a Lifetime
Director and General Campaign Chairman for the John F. Kennedy Medical Center in
Edison, New Jersey, and was responsible for that center's merger with the Robert
Wood Johnson (J. & J.) Rehabilitation Center. In addition, Mr. Berg has
previously served as Chairman Of The Board of each of United Plastics and
Metalique Industries.
20
<PAGE>
Christopher J. Webster has served as Vice Chairman of the Company since
February 2000 and as Executive Vice President of the Company since August 1997.
In that capacity Mr. Webster has been an integral participant in development of
the Company's long-term strategies and development. From February 1995 to August
1997 he was the Vice President and a director of Clearview Technologies, Inc.
Previously, from October 1996 to August 1997, Mr. Webster was the Senior Vice
President for Marketing/Acquisitions of Flatline Studios, LLC ("Flatline").
While at Flatline, he was responsible for acquiring venture capital for the
development of the game "Alien Intelligence" and later negotiated a
multi-million dollar royalty contract with Interplay Products to bring "Alien
Intelligence" to market.
In May 1993, Mr. Webster co-founded WebEver Productions, Inc. ("WebEver"),
one of the first advertising agencies devoted to the Internet. From that time
until October 1996, he served as the Chief Executive Officer of WebEver, where
he developed Internet and Intranet sites for companies such as Microsoft, Texas
Instruments and IBM.
Frank LoVerme has served as the Company's Chief Operating Officer since
March 2000 and is responsible for the operations of the Company and its
subsidiaries. From April 1995 until March 2000, Mr. LoVerme was the Vice
President of Sales and Marketing at WAMO, where he directed business development
efforts. Mr. LoVerme was a principal of Personics Corporation, a pioneer of
customized delivery of music copyrights, until Personics was acquired by Time
Warner in October 1991. Mr. LoVerme has over 30 years of sales and marketing
experience, including 11 years as the head of LoVerme and Associates, Inc., an
advertising and sales promotion agency which he founded in 1980.
Robert A. Parsons has served as the Company's Chief Financial Officer since
April 2000 and is responsible for overseeing the Company's financial operations.
From January 1990 through August 1998, Mr. Parsons was Senior Systems
Analyst/Project Manager at Union Texas Petroleum Corporation where he oversaw
the implementation of Lawson Financial, an ERP software solution, with a primary
emphasis on General Ledger and Activity Management for that company's
international offices. Mr. Parsons was Project Lead at Dynegy Corporation from
October 1998 through October 1999 where he was custom development team leader
for cross commodity applications. From October 1999 to April 2000, Mr. Parsons
was Project Lead manager for Proviso Consultants where he managed the team
converting Atlantic Ritchfield's Petrochemical Corporation into Lyondell's
Petrochemical Company. Mr. Parsons has over 18 years of experience in oil and
gas and service businesses. His specific areas of expertise include Financials,
Land Lease, Contract Administration and Gas Measurement Applications.
Lon T. Berg has served as the Company's Vice President of Marketing since
August 1999. Mr. Berg spearheads the development of new marketing alternatives
and distribution outlets for the Company's proprietary products and clients.
From November 1997 to March 1999, he was an Advertising Account Executive for
Westland Associates, where he was responsible for securing new accounts from
automotive dealerships, advising them on marketing their service department's
advertising initiatives and expanding their customer base. Beginning in October
1995 until August 1997, Mr. Berg was the West Coast Area Manager of AucNet USA,
21
<PAGE>
Inc., where he obtained new accounts for training and consulting on marketing
issues with automotive dealers and manufacturers in the western half of the
United States. In this position, Mr. Berg was involved in a new product launch
of satellite-based automotive auctions for manufacturers such as Mitsubishi,
Toyota and Lexus throughout the western United States. From June 1993 to August
1995, Mr. Berg was a Sales Representative for Panorama Sales, Inc., a retailer
of new and used automobiles.
Paul Trowe has been the Company's Vice President of Business Development
since May 1, 2000. From January 2000 through April 2000, Mr. Trowe was the
President and CEO of Evolution Consulting Group, which exclusively advised
Infogrames regarding marketing and sales strategies. From July 1999 until
January 2000, he was the Director of Business Development at Infogrames
Entertainment. Mr. Trowe was the OEM Sales Manager at Gremlin Interactive from
June 1998 until July 1999, when Gremlin Interactive was purchased by Infogrames
Entertainment. Between April 1997 and May 1998, he was a Producer at Activision,
Inc. in Santa Monica, California. Prior to his employment with Activision, Mr.
Trowe was an Associate Producer at Sierra On-Line, Inc. in Oakhurst, California.
Mr. Trowe worked at Sierra for a total of 10 years, beginning in 1985 as a
software tester.
William J. Hubert has been the Secretary and Treasurer of the Company since
July 1999 and was the office manager of the Company from August 1997 to July
1999. Previously, from February 1996 until August 1997, Mr. Hubert was an
Executive Assistant and Office Manager for Clearview Technologies, Inc., where
he was responsible for day-to-day operations in the Austin, Texas office. From
January 1995 to February 1996, Mr. Hubert was an executive assistant at Flatline
Studios, LLC where he assisted in obtaining financing for several films to be
produced by Texas-based production companies, as well as financing for the
studio itself.
Gerald Warnero has been Chief Executive Officer and President of the
Company's Greenleaf Research And Development subsidiary since October 1999. From
July 1987 until October 1999, Mr. Warnero was the Director of DVD-ROM Technical
Development for WAMO in Olyphant, Pennsylvania. While at WAMO, he also
represented Time Warner, Inc. in the DVD Verification Task Force. The task force
sets industry standards for DVD testing, including discs, playback media,
manufacturing standards and players. Mr. Warnero also was in charge of DVD
quality standards at WAMO's Verification Lab.
None of the Company's directors or officers is a director of any other
entity that has securities registered under the Securities Exchange Act of 1934,
as amended. Mr. Leonard Berg is the father of Mr. Lon T. Berg. There is no other
family relationship between or among the above directors and officers of the
Company.
Item 6. Executive Compensation.
-------------------------------
Summary Compensation Table
--------------------------
The following table sets forth in summary form the compensation received
during each of the Company's last three successive completed fiscal years by
Leonard Berg, the Chief Executive Officer, President and Chairman Of The Board
of the Company, and by Richard Margulies, the former President and a former
director of the Company (together, the "Named Executive Officers"). No executive
22
<PAGE>
officer of the Company, including its Chief Executive Officer, or of any of the
Company's subsidiaries received total salary and bonus exceeding $100,000 during
any of the last three fiscal years. The figures in the following table are for
the fiscal years ended September 30, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------------
Awards Payouts
------------------------------- -------
Securities
Other Annual Underlying LTIP All Other
Name and Fiscal Salary Bonus Compensation Restricted Stock Options/SARs Payouts Compensation
Principal Position Year ($)(1) ($)(2) ($)(3) Award(s)($)(4) (#)(5) ($)(6) ($)(7)
------------------ ------ ------ ----- ------------ ---------------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leonard Berg, Chairman of 1999 $96,000 -0- $5,820 $296,833 2,187,072 -0- -0-
the Board, President, 1998 $96,000 -0- $3,880 $ 62,500 1,500,000 -0- -0-
Chief Executive Officer, 1997 -0- -0- -0- $384,430 -0- -0- -0-
and a director
Richard Margulies, former 1999 $48,000 -0- -0- $125,000 (8) -0- -0- -0-
President and former 1998 $48,000 (9) -0- -0- $ 62,500 -0- -0- -0-
director (8) 1997 -0- -0- -0- $ 88,129 (9) -0- -0- -0-
</TABLE>
(1) The dollar value of base salary (cash and non-cash) earned during the year
indicated.
(2) The dollar value of bonus (cash and non-cash) earned during the year
indicated.
(3) The dollar value of compensation not properly categorized as salary or
bonus, including perquisites and other personal benefits, securities or
property, earned during the year indicated. The amounts shown represent
allowances granted to the named person in order to cover automobile-related
expenses.
(4) The dollar value (net of any consideration paid by the person named in the
Summary Compensation Table) of awards of restricted Common Stock.
(5) The sum of the number of shares of Common Stock to be received upon the
exercise of all stock options granted.
(6) The Company does not have in effect any plan that is intended to serve as
incentive for performance to occur over a period longer than one fiscal
year.
(7) All other compensation received that the Company could not properly report
in any other column of the Summary Compensation Table including annual
Company contributions or other allocations to vested and unvested defined
contribution plans, and the dollar value of any insurance premiums paid by,
or on behalf of, the Company with respect to term life insurance for the
benefit of the Named Executive Officer, and, the full dollar value of the
remainder of the premiums paid by, or on behalf of, the Company.
(8) Mr. Margulies, who previously was a director of the Company, was appointed
President of the Company on August 6, 1998. Mr. Margulies resigned as
President and director of the Company effective as of April 1, 1999. On
June 2, 1999, Mr. Margulies was issued 500,000 shares of Common Stock,
valued by the Company at $125,000, in connection with an agreement pursuant
to which Mr. Margulies' services on behalf of the Company were terminated.
(9) During fiscal 1998, prior to becoming President of the Company, Mr.
Margulies also received $45,428 in payment of fees for consulting services
provided to the Company.
23
<PAGE>
Option Grants Table
-------------------
The following table sets forth information concerning individual grants of
stock options made during the fiscal year ended September 30, 1999 to each Named
Executive Officer.
<TABLE>
<CAPTION>
% of Total Options
Options Granted to Employees Exercise or Base Expiration
Name Granted (#) in Fiscal Year Price ($/Share) Date
---- ----------- -------------- --------------- ----
<S> <C> <C> <C> <C>
Leonard Berg 2,187,072 60.3% $.15/Share 9/30/03
Richard Margulies -0- - - - - - -
</TABLE>
Aggregated Option Exercises And Fiscal Year-End Option Value Table
------------------------------------------------------------------
The following table indicates exercises of stock options during the fiscal
year ended September 30, 1999 by the Named Executive Officers, and also sets
forth information concerning the fiscal year-end value of unexercised options
held by each Named Executive Officer.
<TABLE>
<CAPTION>
Aggregated Option Exercises
For Fiscal Year Ended September 30, 1999
And Year-End Option Values
Number of Value of
Unexercised Unexercised
Shares Options In-The-Money
Acquired on Value at Fiscal Options at Fiscal
Name Exercise (#)(1) Realized ($)(2) Year-End (#) Year-End ($) (3)
---- --------------- --------------- ------------ ----------------
<S> <C> <C> <C> <C>
Leonard Berg 3,000,000 (4) $2,634,375 3,687,072 (5) $596,632
Richard Margulies 3,000,000 (4) $2,634,375 -0- - -
</TABLE>
----------
(1) The number of shares received upon exercise of options during the fiscal
year ended September 30, 1999.
(2) With respect to options exercised during the Company's fiscal year ended
September 30, 1999, the dollar value of the difference between (A) the
exercise price of the option, and (B) the market value of the option shares
purchased on the date of the exercise of the options as determined by
averaging the high and low prices for the Common Stock on that date as
reported on the OTC Bulletin Board.
(3) For all unexercised options held as of September 30, 1999, the aggregate
dollar value of the excess is the market value of the stock underlying
those options over the exercise price of those unexercised options. For
purposes of this table, the market value used for the Common Stock is the
average of the high and low prices for the Common Stock on that date as
reported on the OTC Bulletin Board.
(4) Consists of shares underlying options exercised on October 2, 1998 to
purchase 900,000 shares at $.25 per share and options exercised on February
12, 1999 to purchase 2,100,000 shares at $.25 per share.
24
<PAGE>
(5) Consists of options to purchase 1,500,000 shares for $.25 per share and
options to purchase 2,187,072 shares for $.15 per share, all of which were
exercisable at September 30, 1999.
Compensation Of Directors
-------------------------
All the members of the Board also are employees of the Company. Beginning
in May 2000, each member is entitled to receive, as compensation for serving as
a director of the Company: $12,500 annually, to be paid on a monthly basis;
$2,500 for each Board meeting attended in person; $1,000 for each Board meeting
attended telephonically which lasts for more than 30 minutes; and $500 for each
Board meeting attended telephonically which lasts for less than 30 minutes.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
------------------------------------------------------------------------
Effective as of December 15, 1997, the Company entered into a written
agreement with Leonard Berg (the "Berg Agreement") pursuant to which Mr. Berg
was to provide services to the Company. Pursuant to the Berg Agreement, which
was for an original term of five years, Mr. Berg was entitled to compensation of
$8,000 per month. Effective as of January 10, 2000, the Berg Agreement was
amended to (1) extend the term of the agreement until December 14, 2007, and (2)
increase Mr. Berg's compensation to an aggregate of $250,000 per year. If Mr.
Berg is unable to perform his duties under the Berg Agreement due to physical or
mental disability or death, he or his estate is entitled to 12-months'
compensation. If the Company is in default of the Berg Agreement, Mr. Berg is
entitled to immediate payment of full compensation for each month remaining in
the term of the Berg Agreement.
Also effective as of December 15, 1997, the Company entered into a written
agreement with Christopher Webster (the "Webster Agreement") pursuant to which
Mr. Webster was to provide services to the Company. Pursuant to the Webster
Agreement, which also was for an original term of five years, Mr. Webster also
was entitled to compensation of $8,000 per month. Effective as of January 10,
2000, the Webster Agreement was amended to (1) extend the term of the agreement
until December 14, 2007, and (2) increase Mr. Webster's compensation to an
aggregate of $250,000 per year. If Mr. Webster is unable to perform his duties
under the Webster Agreement due to physical or mental disability or death, he or
his estate is entitled to 12-months' compensation.
In addition, the Company has entered into written employment agreements
with seven other employees, including a three-year employment contract,
effective March 30, 2000, with Frank LoVerme, the Company's Chief Operating
Officer and a director of the Company, at an annual salary rate of $195,000.
25
<PAGE>
The Company also has agreed to reimburse each of these persons for
business-related expenses and to provide each with all benefits that are
generally available to executive officers of the Company, including life and
health insurance.
As described above in "Item 1. Description Of Business", each of Messrs.
Wachs, Gale and Blanck have resigned from all positions with the Company and its
subsidiaries. The employment agreements previously entered into with those
individuals have been terminated.
Item 7. Certain Relationships and Related Transactions.
-------------------------------------------------------
Leonard Berg has loaned money to the Company for use by the Company as
working capital. These loans accrued interest at the rate of nine percent per
year. At September 30, 1999 a total of $191,794.91 was owed to Mr. Berg. Since
that time, the Company has repaid all monies owed to Mr. Berg.
In January 2000, the Company agreed to issue to each of Leonard Berg and
Christopher J. Webster options to purchase shares of the Company's common stock
(the "January 2000 Options"). The January 2000 Options provided that Mr. Berg
could purchase up to 7,000,000 shares for $.10 per share until January 10, 2003,
and that Mr. Webster could purchase up to 7,000,000 shares for $.10 per share
until January 10, 2003. Each of Messrs. Berg and Webster subsequently exercised
all of the January 2000 Options as well as all other options held by each of
them. Mr. Berg paid the exercise price for all of his January 2000 Options and
his 2,187,072 other options by delivering to the Company a promissory note in
the face amount of $1,403,060.80 with interest at the rate of eight percent per
year, as well as 226,248 shares of common stock owned by him. Mr. Webster paid
the exercise price for all of his January 2000 Options and his 258,603 other
options by delivering to the Company a promissory note in the face amount of
$738,790.45 also with interest at the rate of eight percent per year as well as
26,752 shares of common stock owned by him. None of the shares of stock
delivered towards the exercise price of the options consisted of shares
purchased upon exercise of the options. The shares issued upon the exercise of
options have been placed in escrow (the "Option Escrow"). Shares in the Option
Escrow may be released pro rata from the Option Escrow upon payment of the
promissory notes; that is, if a portion of a promissory note is paid, then the
corresponding number of shares may be released. Mr. Berg and Mr. Webster retain
the right to vote shares held in the Option Escrow for their benefit.
On February 12, 1999 and October 2, 1998, certain of the Company's
directors and officers, as well as a beneficial owner of more than five percent
of the Company's Common Stock, exercised options to purchase shares of Common
Stock. In all cases, promissory notes were used in payment of the exercise price
for the options, and the shares received upon exercise were subject to the
Option Escrow provisions described above. Each of the notes bears interest at
the rate of six percent per year. Following is a schedule of each exercise:
26
<PAGE>
<TABLE>
<CAPTION>
Face value of
promissory note in Payment of
Exercise Number of shares favor of the Company in note due
price received upon payment of exercise on or
Name Date of exercise per share exercise price before
---- ---------------- --------- -------- ----- ------
<S> <C> <C> <C> <C> <C>
Leonard Berg 02/12/99 $.25 2,100,000 $525,000 08/01/01
10/02/98 $.25 900,000 $225,000 04/02/01
Christopher J. Webster 02/12/99 $.25 1,467,908 $366,977 08/01/01
10/02/98 $.25 225,000 $56,250 04/02/01
Richard E. Wachs (1) 02/12/99 $.15 1,700,000 $255,000 08/01/01
Richard Margulies (2) 02/12/99 $.25 2,100,000 $525,000 08/01/01
10/02/98 $.25 900,000 $225,000 04/02/01
</TABLE>
----------
(1) As of October 13, 1999, Mr. Wachs resigned from all positions with the
Company and its subsidiaries.
(2) At the time of this transaction, Mr. Margulies was a beneficial owner
of more than five percent of the Company's outstanding Common Stock.
As of August 7, 2000, Mr. Margulies has paid a total of approximately
$122,500 towards the notes issued by him in connection with the option exercises
described in the preceding table, and the shares corresponding to the amounts
paid by Mr. Margulies have been released to Mr. Margulies out of the Option
Escrow. Except as described above regarding Messrs. Berg and Webster, all the
other shares issued upon the exercise of options described in the preceding
table remain in the Option Escrow.
The following schedule details, for the fiscal years ended September 30,
1998 and 1999, respectively, and for the period indicated from the fiscal year
ending September 30, 2000, issuances of Common Stock valued at greater than
$60,000 for services performed on the Company's behalf by the Company's
directors, executive officers and each other person known by the Company to be
the beneficial owner of more than five percent of the Company's Common Stock:
October 1, 1999 to August 7, 2000:
Date of # of Closing price per share
Name transaction shares issued on date of transaction
---- ----------- ------------- ----------------------
Christopher J. Webster (1) 10-19-99 500,000 $.435
Christopher J. Webster (1) 3-28-00 1,000,000 $2.375
Leonard Berg (2) 4-28-00 500,000 $1.26
Lon T. Berg (3) 3-24-00 100,000 $2.52
27
<PAGE>
Fiscal year ended September 30, 1999:
Date of # of Closing price per share
Name transaction shares issued on date of transaction
---- ----------- ------------- -----------------------
Leonard Berg (2) 7-6-99 286,673 $.51
Leonard Berg (2) 2-2-99 258,292 $1.312
Thelma Berg (4) 2-2-99 459,708 $1.312
Christopher J. Webster (1) 4-8-99 1,000,000 $1.187
Lon T. Berg (3) 2-2-99 300,000 $1.312
Richard Margulies (5) 6-29-99 500,000 $.56
Fiscal year ended September 30, 1998:
Date of # of Closing price per share
Name transaction shares issued on date of transaction
---- ----------- ------------- -----------------------
Leonard Berg (2) 11-19-97 500,000 $.25
Thelma Berg (4) 11-19-97 350,000 $.25
Richard Margulies (5) 11-19-97 500,000 $.25
----------
(1) Mr. Webster is the Vice Chairman, Executive Vice President and a
director of the Company.
(2) Mr. Leonard Berg is the Chairman Of The Board, Chief Executive
Officer, President and a director of the Company. Leonard Berg is the
father of Lon T. Berg, the Company's Vice President of Marketing.
(3) Lon T. Berg is the Company's Vice President Of Marketing and is the
son of Leonard Berg the Chairman Of The Board, Chief Executive
Officer, President and a director of the Company.
(4) Thelma Berg is the wife of Leonard Berg.
(5) At the time of these transactions, Mr. Margulies was a beneficial
owner of more than five percent of the Company's common stock.
Except as described above, during the past two years there were no
transactions between the Company and its directors, executive officers or known
holders of more than five percent of the Company's Common Stock in which the
amount involved exceeded $60,000 and in which any of the foregoing persons had
or will have a material interest.
Item 8. Description of Securities.
----------------------------------
The Company's authorized capital consists solely of 300,000,000 shares of
$.001 par value Common Stock.
Each share of the Common Stock is entitled to share equally with each other
share of Common Stock in dividends from sources legally available therefore,
when, as, and if declared by the Board and, upon liquidation or dissolution of
the Company, whether voluntary or involuntary, to share equally in the assets of
the Company that are available for distribution to the holders of the Common
Stock. Each holder of Common Stock of the Company is entitled to one vote per
share for all purposes, except that in the election of directors, each holder
shall have the right to vote such number of shares for as many persons as there
are directors to be elected. Cumulative voting shall not be allowed in the
election of directors or for any other purpose, and the holders of Common Stock
have no preemptive rights, redemption rights or rights of conversion with
respect to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable by the Company. The Board is authorized to issue
additional shares of Common Stock within the limits authorized by the Company's
Certificate Of Incorporation and without stockholder action.
28
<PAGE>
All shares of Common Stock have equal voting rights and voting rights are
not cumulative. The holders of more than 50 percent of the shares of Common
Stock of the Company could, therefore, if they chose to do so and unless subject
to a voting agreement to the contrary, elect all the directors of the Company.
PART II
-------
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Stockholder Matters.
---------------------------------------------------------------------------
Prices for the Company's Common Stock were quoted on the OTC Bulletin Board
(the "Bulletin Board") until December 1, 1999, after which date the Common Stock
was no longer quoted due to certain new requirements for the Bulletin Board. The
Company is attempting to meet the new requirements, and, as described above in
"Part I - Introduction", the Company currently is in the process of responding
to comments by the SEC staff. After the Company has satisfactorily addressed all
comments, it will reapply for listing on the Bulletin Board. Continued listing
on the Bulletin Board requires that the Company remain current in its required
annual (Form 10-KSB) and quarterly (Form 10-QSB) reports.
The Company currently anticipates that it will regain its Bulletin Board
listing by the end of Summer, 2000. However, there is no assurance that
quotation on the Bulletin Board will occur by that date or at all. It currently
is anticipated that the Common Stock will be quoted on the "pink sheets" during
the time period that its stock is not quoted on the Bulletin Board.
The Company had 115,294,655 shares of Common Stock issued and outstanding
as of August 4, 2000, and these outstanding shares were held by approximately
180 stockholders of record.
Market Price Of The Common Stock
--------------------------------
The following table sets forth the range of high and low sales prices per
share of the Common Stock as reported by Bloomberg quotation services for the
periods indicated.
Year Ended September 30, 1998 High Low
----------------------------- ---- ---
First Quarter $.75 $.10
Second Quarter $3.375 $.10
Third Quarter $2.063 $.50
Fourth Quarter $1.438 $.313
Year Ended September 30, 1999 High Low
----------------------------- ---- ---
First Quarter $2.563 $.313
Second Quarter $2.563 $.625
Third Quarter $1.625 $.375
Fourth Quarter $.563 $.29
29
<PAGE>
Year Ending September 30, 2000 High Low
------------------------------ ---- ---
First Quarter $1.125 $.25
Second Quarter $3.09 $.39
Third Quarter $2.45 $.97
Fourth Quarter $1.62 $.27
(through August 4, 2000)
Dividends
---------
The Company has not declared or paid any cash dividends on its Common Stock
since its formation and does not presently anticipate paying any cash dividends
on its Common Stock in the foreseeable future.
Item 2. Legal Proceedings.
--------------------------
The Company is currently involved in certain legal proceedings.
On August 5, 1999, three individuals associated with a non-active
corporation filed a complaint in the 53rd Judicial District Court, Travis
County, Texas. The defendants in that suit are the Company, one of its officers,
two other employees, and an attorney for the Company. Plaintiffs allege that
defendants misappropriated assets and trade secrets allegedly belonging to the
non-active corporation. Plaintiffs seek unspecified monetary damages and also
request an injunction seeking to prevent further use of the allegedly converted
corporate assets and trade secrets. The Company and the individual defendants
have answered the complaint and intend to vigorously defend against the
plaintiffs' claims. No discovery proceedings have been completed at this time.
On April 11, 1997, a complaint was filed against National Capital
Corporation ("NCC"), a former subsidiary of the Company, and against the former
President of NCC, by an individual who previously lent money to the former
President of NCC. The complaint was filed in the 200th Judicial District Court,
Travis County, Texas. Plaintiff contends that approximately $86,000 was
illegally converted by NCC and/or the former President of NCC, who has since
declared bankruptcy. This claim has been partially settled through the
application of proceeds from a sale of the former President's property by the
bankruptcy trustee. The Company believes that its potential liability in this
matter could be approximately $50,000.
On July 7, 2000, a former employee of the Company filed suit in the 201st
Judicial District Court, Travis County, Texas, against each of the Company,
Leonard Berg, Christopher Webster, Richard Margulies, and Richard Wachs. The
former employee alleges that (1) in July 1998 he entered into a settlement
agreement in connection with his termination of employment by the Company, and
(2) the Company breached the alleged settlement agreement. The former employee
seeks approximately 34,782 shares of the Company's common stock, options to
purchase approximately 44,268 shares, and unspecified monetary damages alleged
to have been suffered. The Company intends to vigorously defend against the
former employee's claim.
On October 18, 1999, the Company filed a petition for declaratory judgment
and injunctive relief in the 201st Judicial District Court, Travis County,
Texas, against two defendants. One defendant is a former at-will employee of the
30
<PAGE>
Company who was employed by the Company for less than two weeks. After the
Company terminated its at-will employment of the first defendant, that defendant
sent the Company a letter which demanded that the Company pay him cash, shares
of common stock and options to purchase common stock pursuant to an alleged
three-year employment agreement. The Company did not enter into any such
agreement with the first defendant. After the first defendant was terminated by
the Company, the second defendant also sent the Company a letter alleging that
the Company agreed to employ him for three years and that he was an employee of
the Company. The Company never employed the second defendant and did not enter
into any agreement to employ the second defendant. In the second defendant's
letter to the Company, he also demanded that the Company pay him money, shares
of common stock and options to purchase common stock. The Company seeks return
of proprietary information improperly retained by the first defendant, a
declaration that the employment agreements alleged by the defendants are
unenforceable, and an injunction preventing the defendants from providing
Company information to any other persons. The Company has filed a motion for
summary judgment in this matter which currently is expected to be considered by
the court in August 2000.
The Company currently does not believe that adverse rulings in any of these
proceedings would have a material adverse effect on the Company's operations.
In a lawsuit filed in the 261st Judicial District Court, Travis County,
Texas, on January 14, 1999, a former officer of the Company and a former
consultant to the Company alleged that the Company breached employment and/or
service agreements. In May 2000, this matter was settled by the Company agreeing
to pay $50,000 in cash as well as issue an aggregate of 3,000,000 shares of
restricted stock to the claimants plus an aggregate of 100,000 shares in payment
of legal fees. An additional 3,000,000 shares of common stock were issued in the
claimants' names but are being held in escrow until May 6, 2001. After that
date, the shares in escrow will be distributed to the Company if the average
closing price for the Company's common stock for the 90-day period ending on May
5, 2001 (the "May 2001 Average Price") is at least $1.00 per share. If the May
2001 Average Price is less than $1.00 per share, the claimants will receive that
number of shares equal to 3,000,000 multiplied by the difference between $1.00
and the May 2001 Average Price, and any remaining shares will be returned to the
Company.
As described above in "Development of Software and Technology Products",
the Company filed the Gameverse Lawsuit on December 6, 1999. The Gameverse
Lawsuit was filed in the United States District Court for the District of New
Jersey against Riverside Group, Inc., Cybermax, Jared Nielsen, Catherine Gray
and J. Stephen Wilson. At the time the Acquisition Agreement was entered into,
Gameverse was a wholly-owned subsidiary of Cybermax, and Cybermax, in turn, was
a wholly owned subsidiary of Riverside Group, Inc. ("Riverside"). The three
individual defendants were officers and/or employees of Cybermax and/or
Riverside at all times relevant to the Gameverse Lawsuit. In the Gameverse
Lawsuit, the Company sought formal rescission of the Acquisition Agreement,
return of all payments made by the Company (including all common stock and
options to purchase common stock issued to Cybermax), compensatory and punitive
damages, interest, and all costs incurred by the Company in connection with the
31
<PAGE>
Gameverse Lawsuit. By written agreement dated January 28, 2000, all the parties
to the Gameverse Lawsuit except Jared Nielsen settled their disputes without
admitting fault or liability and agreed to dismiss the suit.
The material terms of the Gameverse Lawsuit settlement consisted of the
following:
o Cybermax retains options to purchase 2,000,000 shares of the Company's
common stock for $.25 per share until September 30, 2003;
o All other options issued to Cybermax in connection with the
Gameverse acquisition are cancelled;
o Cybermax retains 10,000,000 shares previously issued in connection
with the Gameverse acquisition;
o 1,687,585 shares previously issued to Cybermax are cancelled;
o 3,000,000 shares are held in escrow (the "Gameverse Escrow");
o Shares held in the Gameverse Escrow are to be sold and the
proceeds used to fund a mutually agreeable, equally owned,
joint venture by the Company and Riverside for the marketing
of technology and Internet-related products. If, after
utilizing their best efforts and negotiating in good faith,
the Company and Riverside are unable to agree on the form
and operation of the joint venture, the proceeds from the
Gameverse Escrow shares will be distributed equally to the
Company and Riverside;
o The Company receives an option to purchase up to five percent of the
outstanding equity interests in Cybermax for $1,000,000 until
September 30, 2003;
o Riverside appoints the Company as its exclusive vendor for
encryption-related products on an as-needed basis at fair market
value;
o Riverside agrees to retain Future Com, the Company's wholly-owned
subsidiary, for the use of satellite air time and related technology
on an as-needed basis at fair market value;
o Riverside forgives and discharges $111,820 previously owed by the
Company to Riverside in connection with employee-related expenses
incurred in the acquisition of Gameverse; and
o The defendants who participated in the settlement have agreed to
indemnify the Company against any costs or damages that may be
incurred by the Company in connection with any claims that may be
brought by Mr. Nielsen regarding Gameverse.
Item 3. Changes in and Disagreements with Accountants.
------------------------------------------------------
Not applicable.
Item 4. Recent Sales of Unregistered Securities.
------------------------------------------------
During the past three years, the Company has issued shares of its common
stock, warrants to purchase shares of its common stock, and convertible
debentures in the transactions described below which were not registered under
the Securities Act of 1933 (the "1933 Act"). These securities were issued in
reliance on the exemption from registration provided by Section 4(2) of the 1933
Act and/or by the provisions of Regulation D promulgated under the 1933 Act. In
relying on these exemptions, the Company believed that the individuals and/or
32
<PAGE>
entities to whom the securities were issued are either (1) sophisticated
investors who were knowledgeable about the Company's operations and financial
condition at the time of receipt of the securities and were able to evaluate the
risks and merits of receipt of the securities, or (2) accredited investors, as
that phrase is defined in Rule 501 of Regulation D. In some instances, stock was
issued to certain persons in exchange for services performed for the benefit of
the Company and each of those persons agreed to accept the shares as
compensation for the designated portions of the services they had performed. For
additional information regarding shares issued to employees and/or directors of
the Company, see "Item 7. Certain Relationships and Related Transactions". The
transactions included the following:
o Between October 1, 1999, and May 15, 2000, the Company raised a total
of $4,440,000 through private placement sales of its 4% Subordinated
Convertible Debentures. The terms of the private placement sales were
negotiated during September and October 1999, during which time the
market price for the Company's common stock was between $.40 and $.50
per share. The debentures accrue interest at the rate of four percent
per year and are convertible into shares of the Company's common
stock. Unpaid principal and interest on $1,750,000 of the debentures
may be converted into shares at a rate equal to the lesser of (i) 80
percent of the average closing bid price for the Company's common
stock for the five trading days immediately preceding conversion, or
(ii) $.25. Unpaid principal and interest on $2,690,000 of the
debentures may be converted into shares at a rate equal to the lesser
of (i) 80 percent of the average closing bid price for the Company's
common stock for the five trading days immediately preceding
conversion, or (ii) $.20. The Company utilized the services of Best
Holdings, Ltd. and J.P. Carey Securities, Inc. as placement agents in
connection with the placement of the debentures. The Company has
agreed to pay each placement agent cash compensation in an amount
equal to 10 percent of all debentures sold by that placement agent.
The Company also has agreed to issue to the respective placement
agents, for each $1 million of debentures sold by that placement
agent, a five-year warrant to purchase up to 200,000 shares of common
stock for $.50 per share.
o During the period from October 1, 1999 to August 3, 2000, an aggregate
of 10,545,805 shares were issued in private placement transactions to
59 persons in exchange for aggregate cash consideration of $3,179,225.
An aggregate of 5,831,200 shares, valued by the Company at $5,783,213,
were issued to 14 employees and/or directors of the Company for
employment-related services on behalf of the Company. Also, separate
issuances were made to seven persons, none of whom was a director or
executive officer of the Company, of an aggregate of 3,312,379 shares,
valued by the Company at $1,894,746, as compensation for services
performed on behalf of the Company.
o In July 2000 the Company sold to an investor an aggregate of 4,370,356
shares of common stock in exchange for a total cash investment of
$1,090,589. This investor originally desired to purchase 4%
Subordinated Convertible Debentures described above. However, the
Company determined that the potential sales of common stock described
in this paragraph would be more desirable to the Company, and it was
able to negotiate these terms. This investor may ultimately invest up
to a total of $6,000,000 as negotiated with the investor based on the
33
<PAGE>
investor's original inquiry regarding the possibility of acquiring
debentures. In initial negotiations, the Company and the investor
agreed on a $4,250,000 investment for shares of common stock at the
rate of $.25 per share. The investor later desired to increase its
investment, and the additional $1,750,000 of the investment was agreed
for shares of common stock at the rate of $.30 per share, which price
was negotiated based on an increase in the market price of the
Company's common stock after the initial negotiations with the
investor. The Company utilized the services of GPS, Ltd. as placement
agent in connection with this transaction, and has agreed to pay the
placement agent compensation in an amount equal to 10 percent of the
investor's total investment pursuant to this transaction.
o In May 2000, the Company sold to an investor an aggregate of 1,200,000
shares of common stock and warrants to purchase up to 1,200,000 shares
of common stock at an exercise price of $.50 per share until May 11,
2002, in exchange for a total cash investment of $600,000.
o During the Company's fiscal year ended September 30, 1999, an
aggregate of 9,005,000 shares were issued in private placement
transactions to 28 persons in exchange for aggregate cash
consideration of $1,513,200. Also during this period, 4,000,000
shares, valued by the Company at $750,000, were issued in connection
with the Company's acquisition of Future Com. An additional 14,687,785
shares, valued by the Company at $5,875,034, were issued in connection
with the Company's acquisition of Gameverse. For further description
of these acquisitions, see "Item 1. Description of Business". In
addition, separate issuances were made to 19 persons, none of whom was
a director or executive officer of the Company, of an aggregate of
3,689,188 shares as compensation for services performed on behalf of
the Company. The total amount owed by the Company for these services
was $1,864,765. An additional 2,000,000 shares, valued by the Company
at $938,000, were issued to a consultant in exchange for the
consultant's commitment to enter into an agreement to provide
professional services to the Company. Finally, an aggregate of
2,449,356 shares, valued by the Company at $1,611,980, were issued to
seven employees and/or directors of the Company for employment-related
services on behalf of the Company.
o During the Company's fiscal year ended September 30, 1998, an
aggregate of 5,244,999 shares were issued in private placement
transactions to 13 persons in exchange for aggregate cash
consideration of $1,548,999. Also during this period, an aggregate of
8,765,069 shares were issued to 21 holders pursuant to an employment
agreement between the Company and Richard Wachs, who then was an
officer and director of the Company. (As described above in "Item 1.
Description Of Business", Mr. Wachs has since resigned from all
positions with the Company and its subsidiaries.) In addition,
separate issuances were made to 25 persons, none of whom was a
director or executive officer of the Company, of an aggregate of
3,450,200 shares as compensation for services performed on behalf of
the Company. The total amount owed by the Company for these services
was $991,737. In addition, an aggregate of 1,215,000 shares, valued by
the Company at $167,500, were issued to 13 employees and/or directors
of the Company for employment-related services on behalf of the
Company.
34
<PAGE>
o During the Company's fiscal year ended September 30, 1997, an
aggregate of 302,113 shares were issued in connection with the
acquisition of BCI. Also during this period, separate issuances were
made to 18 persons, none of whom was a director or executive officer
of the Company, of an aggregate of 4,139,082 shares as compensation
for services performed on behalf of the Company. The total amount owed
by the Company for these services was $1,335,335. In addition, an
aggregate of 100,000 shares, valued by the Company at $50,000, were
issued to two employees of the Company for employment-related services
on behalf of the Company.
Item 5. Indemnification of Directors and Officers.
--------------------------------------------------
The Delaware General Corporation Law provides for indemnification by a
corporation of costs incurred by directors, employees, and agents in connection
with an action, suit, or proceeding brought by reason of their position as a
director, employee, or agent. The person being indemnified must have acted in
good faith and in a manner that the person reasonably believed to be in or not
opposed to the best interests of the corporation.
In addition to the general indemnification section, Delaware law provides
further protection for directors under Section 102(b)(7) of the General
Corporation Law of Delaware. This section was enacted in June 1986 and allows a
Delaware corporation to include in its Certificate Of Incorporation a provision
that eliminates and limits certain personal liability of a director for monetary
damages for certain breaches of the director's fiduciary duty of care, provided
that any such provision does not (in the words of the statute) do any of the
following:
"eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under section 174 of this Title
[dealing with willful or negligent violation of the statutory provision
concerning dividends, stock purchases and redemptions], or (iv) for any
transaction from which the director derived an improper personal benefit.
No such provision shall eliminate or limit the liability of a director for
any act or omission occurring prior to the date when such provision becomes
effective ..."
The Board is empowered to make other indemnification as authorized by the
Certificate Of Incorporation, Bylaws or corporate resolution so long as the
indemnification is consistent with the Delaware General Corporation Law. Under
the Company's Bylaws, the Company is required to indemnify its directors,
officers, and other representatives of the Company for costs incurred by each of
them in connection with any action, suit, or proceeding brought by reason of
their position as a director, officer, or representative.
Beginning on April 27, 2000, the Company has maintained directors and
officers insurance that provides protection for directors and officers of the
Company against personal liability for certain acts.
35
<PAGE>
PART F/S
--------
GREENLEAF TECHNOLOGIES CORPORATION
(A Development Stage Company)
Index To Financial Statements
-----------------------------
Financial Statements For The Nine Months Ended June 30, 2000
------------------------------------------------------------
Balance Sheet at June 30, 2000 and June 30, 1999.......................FQ-1
Statements Of Operations - Consolidated for the quarter
and nine months ended June 30, 2000 and June 30, 1999..................FQ-3
Statement Of Cash Flows - Consolidated for the nine months
ended June 30, 2000 and June 30, 1999..................................FQ-5
Notes To Financial Statements..........................................FQ-7
Financial Statements For The Fiscal Years Ended September 30, 1999 and September
30, 1998
--------------------------------------------------------------------------------
Auditor's Report........................................................F-1
Consolidated Statements Of Financial Position -
September 30, 1999 and 1998..........................................F-2
Consolidated Statements Of Operations & Accumulated Deficit -
Year ended September 30, 1999 and 1998...............................F-3
Consolidated Statements Of Cash Flows
Year ended September 30, 1999 and 1998...............................F-4
Statement Of Changes In Stockholders' Equity
Inception Through September 30, 1999.................................F-5
Notes To Financial Statements...........................................F-6
36
<PAGE>
GREENLEAF TECHNOLOGIES CORPORATION
(A Development Stage Company)
BALANCE SHEET - Consolidated
June 30, 2000 and 1999
June 30, June 30,
2000 1999
---- ----
ASSETS
CURRENT ASSETS
Cash and Equivalents $1,146,466 $ 87,269
Prepaid Expense 163,344 19,490
Stock Subscriptions and Interest Receivable 4,941,007 2,734,055
---------- ----------
TOTAL CURRENT ASSETS 6,250,817 2,840,814
EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Net 371,385 126,547
OTHER ASSETS
Organization Expense - Net 0 1,719
Loans Receivable 50,000 0
Security Deposits 8,281 3,501
Investment in SMR Licenses 1,237,500 0
Advances and Unsecured Loans 466,000 15,000
---------- ----------
TOTAL OTHER ASSETS 1,761,781 20,220
---------- ----------
TOTAL ASSETS $8,383,983 $2,987,581
========== ==========
See accompanying notes to financial statements
FQ-1
<PAGE>
GREENLEAF TECHNOLOGIES CORPORATION
(A Development Stage Company)
BALANCE SHEET - Consolidated
June 30, 2000 and June 30, 1999
June 30, June 30,
2000 1999
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 35,139 $ 360,694
Accrued Expense and Taxes Payable 138,070 131,077
Accrued Interest Expense 44,400 0
Due to Related Parties 87,165 173,945
Loans Payable 424,218 0
------------ ------------
TOTAL CURRENT LIABILITIES 728,992 665,716
LONG-TERM LIABILITIES
4% Convertible Debentures 4,440,000 0
------------ ------------
TOTAL LONG-TERM LIABILITIES 4,440,000 0
STOCKHOLDERS' EQUITY
Common Stock, $.001 par value, 300,000,000 shares
authorized and 109,619,769 and 63,261,530 shares
issued and outstanding, respectively 109,620 63,262
Additional Paid In Capital 24,074,049 16,530,032
Less Cost of Treasury Stock, 489,093 shares (36,682) 0
Accumulated (Deficit) (20,931,996) (14,271,429)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,214,991 2,321,865
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,383,983 $ 2,987,581
============ ============
See accompanying notes to financial statements
FQ-2
<PAGE>
<TABLE>
<CAPTION>
GREENLEAF TECHNOLOGIES CORPORATION
(A Development Stage Company)
Statement of Operations - Consolidated
Three Months Ended June 30, 2000 and June 30, 1999
June 30, June 30,
2000 1999
---- ----
<S> <C> <C>
REVENUES $ 0 $ 0
COST OF SALES 0 0
------------ ------------
GROSS PROFIT 0 0
------------ ------------
OPERATING AND ADMINISTRATIVE EXPENSES
Compensation 536,059 185,033
Selling Expenses 440 14,481
Administrative 1,055,041 2,258,039
------------ ------------
1,591,540 2,457,553
------------ ------------
OTHER INCOME EXPENSE:
Interest Income 76,342 2,158
Interest Expense (51,849) 30
Settlement of Lawsuit Expense (60,000) 0
Equity in Net Loss of Subsidiary, NetHome Media 0 (228,416)
Equity in Net Loss of Subsidiary, FutureCom, Inc. 0 0
Equity in Net Loss of Subsidiary, Gameverse, Inc 0 19,073
------------ ------------
(35,507) (207,155)
------------ ------------
NET LOSS (1,627,047) (2,664,708)
Accumulated (deficit) - beginning (19,304,949) (11,606,721)
------------ ------------
Accumulated (deficit) - ending $(20,931,996) $(14,271,429)
============ ============
Earnings Per Share - basic $ (0.016) $ (0.043)
============ ============
See accompanying notes to financial statements
FQ-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GREENLEAF TECHNOLOGIES CORPORATION
(A Development Stage Company)
Statement of Operations - Consolidated
Nine Months Ended June 30, 2000 and June 30, 1999
June 30, June 30,
2000 1999
---- ----
<S> <C> <C>
REVENUE $ 0 $ 0
COST OF SALES 0 0
------------ ------------
GROSS PROFIT 0 0
------------ ------------
OPERATING AND ADMINISTRATIVE EXPENSES
Compensation 1,460,792 657,810
Selling Expenses 6,168 73,489
Administrative 8,320,890 4,808,170
------------ ------------
9,787,850 5,539,469
------------ ------------
OTHER INCOME AND (EXPENSE)
Interest Income 148,071 4,337
Interest Expense (61,181) (135)
Settlement of Lawsuit Expense (120,000) 0
Equity in Net Loss of Subsidiary, Net Home Media 0 (228,416)
Equity in Net Loss of Subsidiary, FutureCom, Inc. (1,050,000) 0
Equity in Net Loss of Subsidiary, Gameverse, Inc. 0 (5,855,961)
------------ ------------
(1,083,110) (6,080,175)
------------ ------------
NET LOSS (10,870,960) (11,619,644)
Accumulated (deficit) - beginning (10,061,036) (2,651,785)
------------ ------------
Accumulated (deficit) - ending $(20,931,996) $(14,271,429)
============ ============
Earnings Per Share - basic $ (0.118) $ (0.204)
============ ============
See accompanying notes to financial statements
FQ-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GREENLEAF TECHNOLOGIES CORPORATION
(A Development Stage Company)
STATEMENT OF CASH FLOWS - Consolidated
Nine Months Ended June 30, 2000 and 1999
June 30, June 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net Income (Loss) $(10,870,960) $(11,619,644)
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 38,377 20,377
(Increase) decrease in prepaid expenses 968 15,000
(Increase) decrease in other assets 0 1,316,414
Increase (decrease) in accounts payable (273,525) 187,162
Increase (decrease) in accrued liabilities 443,618 (1,841)
Increase (decrease) in deferred taxes payable 0 389,833
(Increase) decrease in stock subscriptions rec. (2,061,521) 0
(Increase) decrease in advances & unsecured loans rec. (466,000) 0
Increase (decrease) in payroll taxes payable (222,183) 0
Undistributed (earnings) loss of affiliate 0 (178,948)
(Increase) decrease in security deposits (300) 0
------------ ------------
Total adjustments (2,540,566) 1,747,997
------------ ------------
Net cash provided (used) by operating activities (13,411,526) (9,871,647)
------------ ------------
Cash flow from investing activities:
Cash payments for the purchase of property (270,173) (21,430)
Cash payments for investments (1,287,500) (15,000)
------------ ------------
Net cash provided (used) by investing activities (1,557,673) (36,430)
Cash flow from financing activities:
Proceeds from issuance of common stock 11,756,006 12,497,185
Net borrowings from stockholders' (166,712) (2,569,345)
Proceeds from issuance of long-term debt 4,440,000 0
------------ ------------
Net cash provided (used) by financing activities 16,029,294 9,927,840
------------ ------------
See accompanying notes to financial statements
FQ-5
</TABLE>
<PAGE>
GREENLEAF TECHNOLOGIES CORPORATION
(A Development Stage Company)
STATEMENT OF CASH FLOWS - Consolidated
Nine Months Ended June 30, 2000 and 1999
June 30, June 30,
2000 1999
---- ----
Net increase (decrease) in cash and equivalents 1,060,095 19,763
Cash and equivalents, beginning of year 86,371 67,506
---------- ----------
Cash and equivalents, end of period $1,146,466 $ 87,269
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest expense $ 61,181 $ 135
See accompanying notes to financial statements
FQ-6
<PAGE>
GREENLEAF TECHNOLOGIES CORPORATION
(A Development Stage Company)
Notes To Financial Statements
Nine Months Ended June 30, 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Greenleaf Technologies
Corporation (GTC) is presented to assist in understanding the Company's
financial statements. The financial statements and notes are representations of
the GTC's management, who is responsible for the integrity and objectivity.
These accounting policies conform to generally accepted accounting principles
and have been consistently applied in the preparation of the financial
statements.
Nature of Operations
--------------------
GTC was incorporated as Greenleaf Capital Corporation in the state of Delaware
on October 9, 1986. On December 3, 1997, a certificate of amendment was filed
with the State of Delaware changing the name of the corporation to Greenleaf
Technologies Corporation.
GTC is a Security Software Provider which provides new marketing opportunities
via DVD and the Internet that creates new revenue possibilities for its
customers. Examples include GTC's DigiGuard(TM) applied to the OEM (original
equipment manufacturer) distribution of encrypted games and interactive games
linked to virtually any digital intellectual property.
GTC is considered to be in the development stage as defined in Statement of
Financial Accounting Standards No. 7. There has been minimum income producing
operations since inception.
Use of 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 financial statements and
reported revenue and expenses during the reporting period. Actual results could
differ from those estimates.
Depreciation
------------
GTC's equipment and leasehold improvements are depreciated using primarily the
straight-line method.
Amortization
------------
The organization expense of GTC will be amortized over a five-year term using
the straight line method. Purchased goodwill of GTC has been written off and
$1,050,000 was charged to amortization expense.
FQ-7
<PAGE>
Advertising and Promotion
-------------------------
GTC expenses advertising and promotion costs as they are incurred. Advertising
and promotion expenses for the nine months ended June 30, 2000 were $6,168.
Earnings Per Share
------------------
Computed by dividing the net loss by weighted average number of shares
outstanding during the year. Earnings per share diluted is not presented since
such would be anti-dilutive.
Deferred Income Taxes
---------------------
Income taxes are provided for the tax effects on transactions reported in
financial statements and consist of taxes currently due plus deferred taxes
related primarily to the difference between bases of certain assets and
liabilities, depreciation of property and equipment, and charitable
contributions, for financial reporting and income tax reporting. The deferred
taxes represent the future tax return consequences of those differences, which
will either be taxable or deductible when the assets and liabilities are
recovered or settled. Deferred taxes also are recognized for operating losses
that are available to offset future federal income taxes.
For income tax reporting, GTC uses accounting methods that recognize
depreciation sooner than for financial statement reporting. As a result, the
basis of property and equipment for financial reporting exceeds its tax basis by
the cumulative amount that accelerated depreciation exceeds straight-line
depreciation. Deferred income taxes have been recorded for the excess, which
will be taxable in future periods through reduced depreciation deductions for
tax purposes.
Product and Development Costs
-----------------------------
GTC charges product and development costs which are not incurred in conjunction
with contractual obligations to expense as incurred. During the nine months
ended June 30, 2000, product and development costs are recorded as part of
Administrative Expense.
Consolidation Policy
--------------------
The consolidated financial statements include all the accounts of GTC and
controlled entities. GTC accounts for its investments in consolidated
subsidiaries on the equity method.
NOTE B - BASIS OF PRESENTATION
The accompanying financial statements have been prepared on the going concern
basis, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. As shown in the financial
statements, GTC has experienced substantial operating losses. The continuation
of GTC as a going concern is dependent on its ability to generate sufficient
cash flows to meet its obligations and sustain its operations.
FQ-8
<PAGE>
GTC's cash requirements for the balance of the year is estimated to be
approximately $1,350,000 and management believes it has sufficient cash on hand
or has the ability to raise the necessary capital meet that requirement.
However, there can be no assurances that it can.
NOTE C - EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are carried at historical cost.
Expenditures for maintenance and repairs are charged against operations.
Renewals and betterments that materially extend the life of assets are
capitalized. Depreciation of equipment and amortization of leasehold
improvements is calculated by the straight-line method for financial reporting
purposes at rates based on the following estimated useful lives:
Years
-----
Office Equipment 5
Furniture and Fixtures 7
Leasehold Improvements 7
The modified accelerated cost recovery system is used for federal income tax
purposes.
Equipment and leasehold improvements are summarized by major classifications as
follows:
June 30, 2000
-------------
Office Equipment $ 379,894
Office Furniture 72,415
Leasehold Improvements 4,459
---------
456,768
Less Accumulated Depreciation (85,383)
---------
$ 371,385
=========
NOTE D - INCOME TAXES
Operating Loss
--------------
GTC, as of June 30, 2000 has loss carryforwards totaling $20,931,996 that may be
offset against future taxable income.
FQ-9
<PAGE>
Components - Current and Deferred
---------------------------------
The provision for income taxes consist of the following components:
June 30, 2000
-------------
Current taxes $ 0
Deferred (7,102,393)
-----------
$(7,102,393)
===========
Based on management's present assessment, GTC has not yet determined it to be
more likely than not that a net deferred long term tax asset of $7,102,393
attributable to the future utilization of $20,931,996 of net operating loss
carryforwards as of June 30, 2000, will be realized. Accordingly, GTC has
provided 100% allowance against the net deferred tax asset in the financial
statements as of June 30, 2000. GTC will continue to review this valuation
allowance and make adjustments as appropriate. Net operating loss carryforwards
will expire as follows.
Year Ended Deferred
September 30, Tax Asset
------------- ---------
2012 $ 84,854
2013 1,340,159
2014 1,996,350
2015 3,681,030
-----------
$ 7,102,393
===========
Net deferred tax benefit $ 7,102,393
===========
NOTE E - LEASING ARRANGEMENTS
GTC conducts its Austin operations from facilities that are leased under a five
year noncancelable operating lease from Colina West Limited with 36 months
remaining before expiring on June 30, 2003. The monthly minimum rental
obligation amount to be paid to Colina West Limited is $12,405.50. After July 1,
1999, the monthly rental obligation amount will be $12,982.50. After July 1,
2000, and for subsequent years, the monthly rental obligation amount will be
$13,848.00.
FQ-10
<PAGE>
The following is a schedule of future minimum rental payments required under the
above operating lease as of June 30, 2000.
Year Ended
September 30, Amount
------------- ------
2000 $ 41,544
2001 166,176
2002 166,176
2003 124,632
--------
$498,528
========
GTC formerly conducted its New Jersey operations from facilities that are leased
under a renewed three year noncancelable operating lease from MRC Holdings, Inc.
with 45 months remaining before expiring on March 15, 2004. The monthly minimum
rental obligation amount to be paid to MRC Holdings, Inc. is $5,659.92. The
facilities are currently subleased with no monthly payment shortage obligation
by GTC. The current tenants pay the monthly minimum rental obligation directly
to MRC Holdings, Inc.
The following is a schedule of contingent future minimum rental payments
required under the above operating lease as of June 30, 2000.
Year Ended
September 30, Amount
------------- ------
2000 $ 16,980
2001 67,919
2002 67,919
2003 67,919
2004 33,960
--------
$254,697
========
GTC has leased a corporate apartment to house its out of town business guests in
Austin, Texas, under a six-month noncancelable operating lease from Riata
Apartments. The lease takes affect April 1, 1999 and will have 6 months
remaining before expiring on September 30, 2000. The monthly minimum rental
obligation amount to be paid to Riata Apartments is $2,200. Additional future
minimum rental payments under the above operating lease as of June 30, 2000 are
$6,600.
GTC executed an operating lease with Great America Leasing Corporation for a
Toshiba 1710 copier at the Austin office. The terms of the lease call for 36
monthly rental payments of $95.37 including tax. The lease was executed March 3,
1998. On March 1, 2000, the lease was paid in full, exercising an option to
purchase the equipment. No additional future minimum rental payments are
required under the above operating lease as of June 30, 2000.
FQ-11
<PAGE>
GTC executed an operating lease with SecurityLink Corporation for a five-zone
security system and monitoring services at the Austin office. The terms of the
lease call for 60 monthly rental payments of $25.70 including tax. The lease was
executed May 1, 1998. The following is a schedule of future minimum rental
payments required under the above operating lease as of June 30, 2000.
Year Ended
September 30, Amount
------------- ------
2000 $ 77
2001 308
2002 308
2003 180
--------
$ 873
========
NOTE F - NOTES RECEIVABLE
GTC issued 29,708,583 restricted shares of common stock to various directors,
officers, employees and other individuals for notes receivable that are
collateralized by promissory notes receivable which are payable in 30 months at
6% and 8% per annum as follows:
Cumulative Cumulative
Number Notes Principal Accrued Total
of Shares Receivable Reduction Interest Note
--------- ---------- ----------- ---------- ----------
Officers and
Directors 22,638,583 $3,220,788 $ 0 $ 118,886 $3,339,674
Employees 100,000 25,000 0 2,279 27,279
Other 6,970,000 1,572,500 453,903 130,395 1,248,992
---------- ---------- ---------- ---------- ----------
Total 29,708,583 $4,818,288 $ 453,903 $ 251,560 $4,615,945
========== ========== ========== ========== ==========
NOTE G - VALUATION OF STOCK ISSUED FOR SERVICES AND ADDITIONAL EMPLOYEE
COMPENSATION
The Board of Directors from time to time has authorized the issuance of common
stock in payment of services provided by non-employees and as additional
compensation to employees.
Statement of Financial Standards No.123, Accounting for Stock-Based
Compensation, (SFAS 123) establishes a fair value method for accounting for
stock-based compensation plans either through recognition in the statements or
disclosure.
GTC applies SFAS 123 to report the issuance of common stock in payment of
services provided non-employees and as payment of additional compensation to
employees, using fair value method to account for such transactions.
FQ-12
<PAGE>
All stock issued was restricted stock and the related services or employee
compensation was recorded in the financial statements at 50% of the market value
at the time services were received or additional compensation paid.
NOTE H - LONG TERM DEBT
On October 1, 1999, GTC entered into an agreement with Best Holdings, Ltd.
whereby Best Holdings, Ltd., will be responsible for the placement of up to
$4,440,000 in denominations of $10,000, 4% subordinated convertible debentures,
pursuant to a private placement under Regulation "D" of the U.S. Securities Act
of 1933, as amended. The Holders of these debentures are entitled to convert the
debentures into that number of fully-paid and non-assessable shares GTC Common
Stock calculated in accordance with the following formula: Number of shares
issued upon conversion equals (Principal + Interest)/Conversion Price, where
Principal equals the principal amount of the Debenture(s) to be converted.
Interest equals Principal times (N/365) times .04 (less the amount of any
interest previously paid), where N equals the number of days between (i) the
date of issuance of the debenture, and (ii) the applicable date of conversion
for the Debenture for conversion is being elected, and Conversion Price equals
the lessor of (x) 80% (The "Applicable Discount") of the Closing Bid Price for
GTC's Common Stock for the five (5) trading days immediately preceding the Date
of Conversion, as defined below or (y) $0.20. The term "Closing Bid Price" means
the closing bid price of GTC's Common Stock as reported on the OTC Bulletin
Board (or, if not reported thereon as reported by such other principal exchange
or market where traded).
GTC agreed to pay Best Holdings, Ltd. a consulting fee of 10% of all capital
raised. GTC also agreed to issue for each one million dollars raised a five year
warrant to purchase 200,000 shares of GTC common stock exercisable at $0.20 per
share.
As of June 30, 2000, $4,440,000 has been received towards the issuance of the
subordinated convertible debentures. The exact issue date and final terms of the
Debenture were not finalized until May 5, 2000.
The $4,440,000 is reported on GTC's balance sheet under Long-Term Liabilities.
Interest expense in the amount of $44,400 has been accrued and reported on these
financial statements.
FQ-13
<PAGE>
NOTE I - COMMITMENTS AND CONTINGENT LIABILITIES
1. GTC has employment contracts with the following directors and employees:
Annual Date of Length of
Position Name Compensation Agreement Time
-------- ---- ------------ --------- ----
Off W. Hubert $ 55,000 01/26/00 3 Yrs. to 01/26/03
Off/Dir. X R. E. Wachs $ 96,000 12/15/97 5 Yrs. to 12/15/02
Off/Dir C. J. Webster $250,000 12/15/97 10 Yrs. to 12/14/07
Off/Dir L. Berg $250,000 12/15/97 10 Yrs. to 12/14/07
Off G. Warnero $110,000 10/01/99 5 Yrs. to 10/01/04
Off L. Berg $ 85,000 08/01/99 5 Yrs. to 08/01/04
Off/Dir F. LoVerme $195,000 03/30/00 3 Yrs. to 3/30/03
Off Y W. Gale $ 96,000 11/04/99 5 Yrs. to 11/04/04
Off Y W. Blanck $ 96,000 11/04/99 5 Yrs. to 11/04/04
X Terminated 10/13/99
Y Terminated 02/24/00
Each of the above is also entitled to be reimbursed for proper business
expenses, and any other benefits offered by GTC, either currently existing
or adopted at a later date. These benefits will include, but will not be
limited to, health and accident insurance, life insurance and stock option
plans if any.
2. Under the terms of the five year noncancelable operating lease with Colina
West Limited, GTC has provided a Letter of Credit in the amount $67,304
drawn on Bank of America. Conditioned upon GTC's performance of the lease
without default, such letter of credit shall be reduced by $16,826 per year
at the anniversary of the lease term.
The amount $13,271 of the letter of credit shall serve as security deposit.
Bank of America has guaranteed the letter of credit pursuant to GTC
maintaining a certificate of deposit in equal amount of the letter of
credit. The $68,282 certificate of deposit is reported in cash and
equivalents.
3. Under terms of a merchant credit card agreement with Payment Tech Merchant
Services, Inc. dated June 25, 2000 and expiring on August 10, 2001, GTC has
provided a Letter of Credit in the amount of $50,000 drawn on Bank One.
Bank One has guaranteed the Letter of Credit pursuant to GTC maintaining a
certificate of deposit in an amount equal to the Letter of Credit. The
$50,000 certificate of deposit is reported in cash and equivalents.
4. Under terms of a guaranteed purchase agreement dated August 10, 2000 with
IV Hill expiring on December 31, 2000, GTC has provided a Letter of Credit
in the amount of $35,000 drawn on Bank One. Bank One has guaranteed the
Letter of Credit pursuant to GTC maintaining a certificate of deposit in an
amount equal to the Letter of Credit. The $35,000 certificate of deposit is
reported in cash and equivalents.
FQ-14
<PAGE>
At June 30, 2000, there were five lawsuits or claims pending against GTC.
1. Corporate Express, Inc. vs. Greenleaf Technologies, Inc. Case No 716.570 -
Civil Court Harris County, Texas
---------------------------------------------------------------------------
This legal matter involves the collection of $14,400 for office furnishings
provided to GTC offices located in Austin, Texas. The Matter was settled on
August 17, 1999 whereby the Company agreed to pay Corporate Express $14,400
over a six month period at $2,400 per month, beginning September 15, 1999.
The final payment on account was recorded in accounts payable on February
29, 2000. The balance owed to Corporate Express, Inc. on June 30, 2000 is
zero.
2. Elizabeth Xan Wilson vs. Greenleaf Capital Corporation and Related
Corporations and Corporate Officers Leonard Berg and Nicholas Soriano. Case
no. 97-04423 - Judicial District Court Travis County, Texas
---------------------------------------------------------------------------
This legal matter involves the Plaintiff, Elizabeth Xan Wilson, claiming
that National Capital Corporation (NCC) (previously a wholly owned
subsidiary of GTC and Nicholas Soriano (President of the former NCC)
fraudulently converted over $80,000 from her in a fraudulent lending
scheme. GTC believes that exposure for Nicholas Soriano is great, but is
unable to assess GTC's liability. Because the claim was partially settled
by the sale of Mr. Soriano's stock by the Bankruptcy Trustee in a separate
matter, however, there can be no assurances. GTC anticipates that it will
be able to settle the matter with the issuance of restricted stock. A final
settlement is pending as of the date of the financial statement. No
provision for this matter has been provided in the financial statements for
the nine months ended June 30, 2000.
3. Darrel and Gabriel McEver vs. Greenleaf Technologies Corporation Case No.
99-00490 District Court of Travis County, Texas
---------------------------------------------------------------------------
Legal matter involving GTC's refusal to issue stock and severance benefits
pursuant to employment agreement with Darrel and Gabriel McEver. A
settlement was reached in May, 2000, whereby, GTC paid to the McEvers
$50,000 cash, 3,000,000 shares of restricted common stock and an additional
3,000,000 shares that are in escrow and may be released to the McEvers in
May 2001 depending on GTC's stock price at that time. GTC recorded a
$120,000 provision for this matter in the financial statements for the nine
months ended June 30, 2000.
GTC also issued 100,000 shares of restricted common stock in payment to
counsel for legal fees.
FQ-15
<PAGE>
4. Case No. 99-09044. Judicial Court Travis County, Texas, Kennith McGowan vs.
Richard Wachs.
---------------------------------------------------------------------------
On August 5, 1999, three individual shareholders of a non-active
corporation filed suit against an officer, Richard Wachs, two other
employees and corporate counsel. The cause of action alleges that the above
individuals misappropriated assets and trade secrets belonging to the
non-active corporation. Plaintiff's seek unspecified damages and request an
injunction seeking to prevent any further use of the converted assets and
trade secrets. GTC does not expect that any significant liability will be
imposed on itself or its officers and employees.
5. Greenleaf Technologies Corporation vs. David Mendelow and Paul A. Forgue,
Case No. 99-1222 District Court of Travis County, Texas
---------------------------------------------------------------------------
This legal matter involves the alleged breach of an alleged employment
contract with David Mendelow and Paul Forgue, The controversy involves
whether or not GTC had contracts with Mr. Mendelow and Mr. Forgue to issue
stock and pay them compensation for services. One individual was employed
for less then a week before he was terminated. The other individual never
was employed by GTC. There is no signed employment agreement for either
individual.
Since the case is in the early discovery stage, the Company is unable to
express an opinion on the anticipated outcome of the lawsuit.
NOTE J - ACQUISITIONS
1. On July 17, 1998, GTC formed a wholly owned subsidiary, Greenleaf Research
and Development, Inc., which was incorporated in the state of Delaware.
Greenleaf Research and Development, Inc. was inactive and had no assets as
of September 30, 1998. For the year ended September 30, 1999, and nine
months ended June 30, 2000, Greenleaf Research and Development, Inc. is
part of the consolidated financial statements.
2. On April 13, 1998, GTC acquired 500 shares of common stock of NetHome
Media, Inc. This represented a 33-1/3 percent ownership interest at a cost
of $300,000. NetHome Media, Inc. ceased doing business and as of September
30, 1998, the stock had no market value. The entire investment of $300,000
was deemed worthless and charged to expense.
3. GTC acquired 100% of the outstanding common stock of Gameverse, Inc. from
Cybermax, Inc. which is a wholly owned subsidiary of Riverside Group, Inc.
based in Jacksonville, Florida. GTC has accounted for the acquisition using
the purchase method of accounting and carries the investment using the
equity method. GTC acquired Gameverse because of the potential agreement
between WAMO\Accolade and GTC to market multiple computer game titles on a
single DVD for distribution through the personal computer Original
Equipment Manufacturers (OEM) market. The Gameverse network was viewed as
another distribution avenue for the DVDs.
FQ-16
<PAGE>
In payment for the Gameverse acquisition, GTC agreed to issue to Cybermax
14,687,585 shares of GTC common stock. In addition, GTC granted options to
purchase, no later than September 30, 2003, 5,733,333 shares at $0.25 per
share, and 1,581,249 shares at $0.15 per share.
On December 6, 1999, GTC filed a complaint with the United States District
Court, District of New Jersey, whereby GTC alleged that Riverside Group,
Inc., Cybermax and certain other involved individuals made numerous
misrepresentations to GTC to induce GTC to enter into an agreement for the
purchase of Gameverse. These misrepresentations included Cybermax's claim
that it had developed an expansive Internet network throughout the United
States that included numerous "points of presence" (POP's). GTC alleged
that Gameverse did not have the POP's that Gameverse represented it had.
GTC also alleged that Gameverse represented to have adequate resources and
experience to complete the development of various projects that were
underway when, in fact, they were inexperienced and inadequate.
Additionally, GTC alleged that Gameverse claimed to have owned or
controlled at least 27 Internet services throughout the United States when,
in fact, these representations were false. GTC also alleged that Gameverse
knew or should have known that it lacked the capacity to meet obligations
set forth in various contracts it was party to. Finally GTC claimed that a
misleading business plan and other materials were presented by Gameverse to
corroborate the various misrepresentations noted.
As a result of the complaint, a settlement agreement was made as of January
28, 2000 whereby Cybermax retained 10,000,000 of the GTC shares and
2,000,000 GTC options exercisable at $.25 cents each. A total of 1,687,585
GTC shares and 5,314,582 of GTC options were canceled by GTC without
payment to Riverside or Cybermax. Also, 3,000,000 GTC shares were placed in
escrow to be sold upon mutually agreeable terms. The proceeds will fund a
mutually agreeable joint venture for the marketing of technology and
Internet related products to be owned in equal amounts by GTC and
Riverside. Additionally, Riverside agreed to forgive and discharge GTC's
current indebtedness to Riverside in the amount of $111,820, representing
reimbursement for employee expenses paid by Riverside subsequent to the
closing of the Purchase Agreement. Riverside also made certain other
concessions to GTC as part of the settlement agreement.
The approximate market value of the GTC shares given up under the original
terms, exclusive of the value of the options, was in excess of $5,000,000.
The financial condition of Gameverse at the time of the acquisition showed
a net worth of $21,977.
The Directors of GTC believed that valuable intangible assets existed
within Gameverse, but shortly after the acquisition concluded that such
intangibles did not exist or were seriously impaired.
Due to the facts noted above, the acquisition of Gameverse has been
recorded by GTC under the purchase method using the net worth of $21,977 of
Gameverse at the time of acquisition, thereby not attaching any value to
intangible assets.
FQ-17
<PAGE>
4. On February 23, 1999, GTC announced that it signed an agreement with
Infogrames, Inc. and Warner Advanced Media Operations, a business unit of
Time-Warner, Inc. to form a joint venture called
Warner/Infogrames/Greenleaf. The three companies are marketing multiple
computer games on a single DVD for distribution through the personal
computer Original Equipment Manufacturers (OEM) market. No expenses or
income has been generated by the joint venture.
5. On November 4, 1999, GTC acquired all the outstanding shares of Future Com
of South Florida, Inc. (FCI) in exchange for 4,000,000 shares of GTC's
restricted common stock. FCI intends to pursue acquisition of radio
licenses and systems and has already entered into agreements to acquire
four Specialized Mobile Radio (SMR) frequency licenses in the 220-222 MHZ
range at the purchase price of $175,000 per license. The purchase price for
each license is to be paid in the form of 350,000 shares of restricted
common stock.
In addition, GTC has agreed to issue warrants to purchase the same number
of shares at $0.50 per share until November 4, 2000. FCI has also entered
into agreement to acquire a dedicated communication satellite license at a
purchase price of $687,500, which price includes amounts to be paid to a
non-affiliated entity in order to eliminate an encumbrance on the license.
The purchase price to be paid in the form of 1,375,000 shares of GTC's
restricted stock plus warrants to purchase 75,000 shares of common stock at
an exercise price of $0.50. GTC also agreed to issue, to the holder of the
encumbrance, options to purchase 1,300,000 shares of common stock at a
price of $0.50 per share until November 4, 2000. The GTC shares, options
and warrants to be issued in connection with the SMR licenses and satellite
license will be delivered to the sellers and the holder of the encumbrance
when the Federal Communications Commission approves the transfer of the
respective licenses to FCI.
In addition to the purchase price, GTC has agreed to repay $300,000 owed by
FCI pursuant to two promissory notes issued. These notes accrue interest at
the rate of eight percent per year and payment of all accrued and unpaid
principal and interest is due and payable on demand at any time after
November 4, 2004. In addition, the notes provide that any payments on the
notes prior to November 4, 2004 will be made only at such time the Board of
Directors of FCI determines that sufficient funds are available for
payment. The existing employees of FCI were issued 400,000 options to
purchase GTC common stock at $0.50 per share until November 4, 2000.
6. On June 26, 2000, GTC agreed to acquire all the outstanding shares of
MCSLink.Com Corporation subject to final closing of the acquisition
agreement. The agreement calls for the exchange of 750,000 shares of GTC's
common stock for all issued and outstanding shares of MCSLink.Com
Corporation common stock. MCSLink.Com is a next generation virtual call
center offering end-to-end communication solutions to call centers,
Internet service providers, Competitive Local Exchange Carriers ("CLEC")
and various web based e-commerce companies. MCSLink.Com provides help with
interoffice messaging, dispatching sales and service staff, customer
service, after hours customer support and receptionist services.
FQ-18
<PAGE>
NOTE K - SUBSEQUENT EVENTS
On August 9, 2000, the Company reported that it signed an agreement with Exodus
Communications, Inc., a publicly traded NASDAQ company, to place one or more of
their servers in Exodus' locations.
On August 16, 2000, the Company reported that it had entered into a contract
with NIVIS, LLC to develop a prototype of the Company's Entertainment Portal
device. Pursuant to that agreement, NIVIS has agreed to develop and deliver a
prototype of the new product to the Company by November 2000. The total fees to
be incurred by the Company pursuant to the agreement are currently estimated to
be approximately $570,000.
FQ-19
<PAGE>
Gerald Brignola, C.P.A., P.A.
CERTIFIED PUBLIC ACCOUNT.
A Professional Corporation
One University Plaza, Suite 505 o Hackensack, NJ 07601
201-343-8130 o Fax 201-343-9224
GERALD BRIGNOLA MICHAEL CHASE
ANTHONY CAPRICUSO MICHAEL J. NARDINO
INDEPENDENT AUDITORS' REPORT
The Board of Directors
And Stockholders
Greenleaf Technologies Corporation
8834 Capitol of Texas Highway
Suite 150
Austin, TX 78759
We have audited the accompanying consolidated statement of financial position of
Greenleaf Technologies Corporation and subsidiaries as of September 30, 1999 and
the statement of financial position of Greenleaf Technologies Corporation as of
September 30, 1998, and the related consolidated statements of income, changes
in stockholders' equity and cash flows for the year ended September 30, 1999 and
the related statement of income changes in stockholders' equity and cash flows
for Greenleaf Technologies Corporation for the year ended September 30, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of Greenleaf Technologies
Corporation and subsidiaries as of September 30, 1999 and Greenleaf Technologies
Corporation as of September 30, 1998, and the results of their operations and
their cash flows for each of the years ended September 30, 1998 and September
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 has suffered recurring losses from operations
and, as of September 30, 1999, has a net capital deficiency that raise
substantial doubt about its ability to continue as a going concern. Management's
plan in regard to these matters is also described in Note 3. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Gerald Brignola
GERALD BRIGNOLA, CPA, PA
Hackensack, New Jersey
March 22, 2000
F-1
<PAGE>
GREENLEAF TECHNOLOGIES CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
September 30, 1999 and September 30, 1998
September 30 September
1999 1998
---- ----
ASSETS
CURRENT ASSETS
Cash in bank $ 86,372 $ 68,423
Notes & interest receivable 2,879,486
Prepaid expenses 164,312
------------ ------------
Total Current Assets 3,130,170 68,423
PROPERTY & EQUIPMENT - net 139,590 145,494
OTHER ASSETS
Organization expense - net 1,833
Security deposit 7,981 6,131
------------ ------------
7,981 7,964
------------ ------------
TOTAL ASSETS $ 3,277,741 $ 221,881
============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable $ 308,664 $ 254,243
Loans payable 25,000
Accrued expense & taxes 360,255 44,012
Due to related parties 253,877 9,235
------------ ------------
Total Current Liabilities 947,796 307,490
STOCKHOLDERS' EQUITY
Common stock, $.001 par value
100,000,000 shs authorized &
67,461,016 & 25,938,933 shs
issued & outstanding,
respectively 67,461 25,939
Additional paid in capital 12,360,202 4,070,170
Treasury stock (489,093 shs) (36,682)
Accumulated (deficit) (10,061,036) (4,181,718)
------------ ------------
TOTAL STOCKHOLDERS'
EQUITY (DEFICIENCY) 2,329,945 (85,609)
------------ ------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY (DEFICIENCY) $ 3,277,741 $ 221,881
============ ============
See accountants' report and notes to financial statements
F-2
<PAGE>
GREENLEAF TECHNOLOGIES CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS & ACCUMULATED DEFICIT
Year ended September 30, 1999 and September 30, 1998
September September
1999 1998
---- ----
REVENUE $ 28,501 $ 0
COST OF SALES 14,972 0
------------ ------------
GROSS PROFIT 13,529 0
------------ ------------
SELLING EXPENSES 75,019 305,549
OPERATING & ADMINISTRATIVE EXPENSES
Compensation 1,037,682 654,175
Administrative 5,007,902 2,688,722
Interest 11,228 2,942
------------ ------------
6,131,831 3,651,388
------------ ------------
OTHER INCOME & (EXPENSE)
Interest Income 127,164 9,745
Forgiveness of debt 111,820
Loss in investments (300,000)
------------ ------------
238,984 (290,255)
------------ ------------
NET LOSS (5,879,318) (3,941,643)
Accumulated (deficit)-beginning (4,181,718) (240,075)
------------ ------------
Accumulated (deficit)-ending ($10,061,036) ($ 4,181,718)
============ ============
Earnings per share - basic (.080) (.152)
============ ============
See accountants' report and notes to financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
GREENLEAF TECHNOLOGIES CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended September 30, 1999 and 1998
Inception
1999 1998 To Date
---- ---- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($ 5,879,318) ($ 3,941,643) ($10,061,036)
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 33,657 13,348 47,005
Amortization 1,833 458 2,291
Prepaid expenses (164,312) 0 (164,312)
Notes receivable (2,755,727) 0 (2,755,727)
Notes receivable - interest earned (123,759) 0 (123,759)
Security deposit (1,850) (6,131) (7,981)
Accounts payable 54,421 254,243 308,664
Accrued expenses & taxes 316,243 44,012 360,255
Interest in other assets 0 0 (2,291)
------------ ------------ ------------
Net cash provided by operating activities (8,518,812) (3,635,713) (12,396,891)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in NetHome Media (300,000) (300,000)
Write-off of investment in NetHome Media 300,000 300,000
Purchase of fixed assets (27,753) (158,842) (186,595)
------------ ------------ ------------
Net cash used by investing activities (27,753) (158,842) (186,595)
CASH FLOWS FROM FINANCING ACTIVITIES
Loans payable 25,000 0 25,000
Due to related parties 244,642 (50,765) 253,877
Purchase of treasury stock (36,682) 0 (36,682)
Issuance of common stock 8,331,554 3,913,775 12,427,663
Net cash provided by financing activities 8,564,514 3,863,010 12,669,858
------------ ------------ ------------
Net increase in cash and cash equivalents 17,949 68,445 86,372
Cash - beginning of year 68,423 (32) 0
------------ ------------ ------------
Cash - end of year $ 86,372 $ 69,423 $ 86,372
============ ============ ============
SUPPLEMENTAL DISCLOSURES
Interest Paid $ 11,227 $ 5,862 $ 17,089
Income Taxes Paid $ -0- $ -0- $ -0-
See accountants' report and notes to financial statements
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Greenleaf Technologies Corporation and Subsidiaries
(A Development Stage Company)
Statement of Changes In Stockholders' Equity
Inception Through September 30, 1999
Capital In Retained
Common Excess Of Earnings
Shares Amount Par Value (Deficit)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Loss Prior Years $ (240,075)
Cash In Private Offering 206,500 $ 206 $ 206,294
Stock Issued in Exchange For Berg Companies 902,961 902 --
Stock Issued in Exchange For Clearview Industries 8,964,881 8,965 --
Sale Of Stock 6,216,269 6,217 1,567,849
Conversion Of Warrants/Options 942,908 943 140,494
Shares Issued For Services 8,685,414 8,686 2,150,553
Stock Issued In Payment Of Liabilities 20,000 20 4,980
Net Loss For Year -- -- -- (3,941,643)
------------ ------------ ------------ ------------
Balance Sept. 30, 1998 25,938,933 25,939 4,070,170 (4,181,718)
Stock Issued For Purchase Of Gameverse Inc. 11,500,000 11,500 10,477
Stock Held In Escrow For Future Acquisition
By Gameverse & Greenleaf Technologies 1,500,000 -- --
Conversion Of Warrants/Options 12,092,908 12,092 2,810,135
Stock Returned From Director (489,093)
Stock Returned From Vendor (1,000,000) (488,000)
Sale Of Stock 8,764,000 8,764 1,463,736
Stock Issued For Services 9,154,268 9,154 4,493,684
Rounding $ 12
Net Loss For Year -- -- -- (5,879,318)
------------ ------------ ------------ ------------
Balance Sept. 30, 1999 67,461,016 $ 67,461 $ 12,360,202 $(10,061,036)
Table continues on following page.
F-5
<PAGE>
Greenleaf Technologies Corporation and Subsidiaries
(A Development Stage Company)
Statement of Changes In Stockholders' Equity
Inception Through September 30, 1999
(Continued)
Treasury Stock Total
--------------------------- Stockholders
Shares Amount Equity (Deficit)
------------ ------------ ----------------
Net Loss Prior Years $ (240,075)
Cash In Private Offering $ 206,500
Stock Issued in Exchange For Berg Companies 902
Stock Issued in Exchange For Clearview Industries 8,965
Sale Of Stock 1,574,066
Conversion Of Warrants/Options 141,437
Shares Issued For Services 2,159,239
Stock Issued In Payment Of Liabilities 5,000
Net Loss For Year -- -- (3,941,643)
------------ ------------ ------------
Balance Sept. 30, 1998 -- -- (85,609)
Stock Issued For Purchase Of Gameverse Inc. 21,977
Stock Held In Escrow For Future Acquisition
By Gameverse & Greenleaf Technologies --
Conversion Of Warrants/Options 2,822,227
Stock Returned From Director 489,093 (36,682) (36,682)
Stock Returned From Vendor
Sale Of Stock 1,472,500
Stock Issued For Services 4,502,838
Rounding $ 12
Net Loss For Year -- -- (5,879,318)
------------ ------------ ------------
Balance Sept. 30, 1999 489,093 $ (36,682) $ 2,329,945
See accountants' report and notes to financial statements
F-5(a)
</TABLE>
<PAGE>
Note 1. The Company and Nature of Operations
--------------------------------------------
Greenleaf Capital Corporation was incorporated in the State of Delaware on
October 9, 1986. On December 3, 1997, a certificate of amendment was filed with
the State of Delaware changing the name of the corporation to Greenleaf
Technologies Corporation.
Greenleaf Technologies Corporation (GTC, or the Company) is a Security
Software Provider. GLFC provides new marketing opportunities via DVD and the
Internet that creates new revenue possibilities for its customers. Examples
include GTC's DigiGuard applied to the OEM (original equipment manufacturer)
distribution of encrypted games, interactive games linked to commercial TV shows
and to virtually any digital intellectual property.
The Company is considered to be in the development stage as defined in
Statement of Financial Accounting Standards No. 7. There has been minimum income
producing operations since inception.
Note 2. Summary of Significant Accounting Policies
--------------------------------------------------
(A) This summary of significant accounting policies of Greenleaf Technologies
Corporation is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of GTC's
management, who are responsible for the integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and
have been consistently applied in the preparation of the financial
statements.
(B) Furniture, Equipment and Depreciation: Furniture and equipment are carried
at cost. Depreciation is computed on the straight-line basis over periods
of five to seven years, which corresponds to the useful lives of the
assets.
(C) Earnings Per Share: Computed by dividing the net loss by the weighted
average number of shares outstanding during the year. Earnings per share
diluted is not presented since such would be anti-dilutive.
(D) Product and Development Costs: The Company charges product and development
costs which are not incurred in conjunction with contractual obligations to
expense as incurred. During the years ended September 30, 1999 and 1998,
$2,025,779 and $6,552, respectively, were charged to Administrative
Expense. The financial statements for September 30, 1998 contained an item
referred to as "Product & Development Costs". Subsequent to the issuance of
the financial statements, the Company determined that such expenses are
actually administrative expenses. Therefore, the September 30, 1999 and
September 30, 1998 comparative statements reflect the September 30, 1998
"Product & Development Costs" as part of Administrative Expenses.
(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
dates during the reporting periods. Actual results could differ from these
estimates.
(F) Amortization: Organization costs, including legal fees, are expensed as
incurred. Organization costs charged to operations total $-0- for September
30, 1999 and $1,822 for September 30, 1998.
(G) Consolidation Policy: The consolidated financial statements include all the
accounts of GTC and controlled entities. The company accounts for its
investments in consolidated subsidiaries on the equity method. All
intercompany transactions are eliminated.
(H) Advertising and Promotion: GTC expenses advertising and promotion costs as
they are incurred. Advertising and promotion expenses for the years ended
September 30, 1999 and 1998 was $15,662 and $31,487, respectively.
F-6
<PAGE>
Note 3. Basis of Presentation:
------------------------------
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. As shown in the financial
statements, the Company has experienced substantial operating losses. The
continuation of the Company as a going concern is dependent on its ability to
generate sufficient cash flows to meet its obligations and sustain its
operations.
The Company has received in the six-month period from October 1, 1999 through
March 31, 2000, $5,425,875 from various private placement of its securities.
The Company plans to use this capital for general corporate purposes, working
capital and continued research and development.
The Company's cash requirements for the balance of the year was estimated to be
approximately $2,000,000 and the Company believes it has sufficient cash on hand
or has the ability to raise the necessary capital to meet that requirement.
However, there can be no assurances that it can. (Refer to subsequent events
Note 15 (2).
Note 4. Equipment and Leasehold Improvements:
---------------------------------------------
Equipment and leasehold improvements are carried at historical cost.
Expenditures for maintenance and repairs are charged against operations.
Renewals and betterments that materially extend the life of assets are
capitalized. Depreciation of equipment and amortization of leasehold
improvements is calculated by the straight-line method for financial reporting
purposes at rates based on the following estimated useful lives.
Years
-----
Office Equipment 5
Furniture and Fixtures 7
Leasehold Improvements 7
The modified acceleration cost recovery system is used for federal income tax
purposes.
Equipment and leasehold improvements are summarized by major classifications as
follows:
September 30, 1999 September 30, 1998
------------------ ------------------
Office Equipment $ 131,615 $ 108,297
Office Furniture 50,521 46,177
Leasehold Improvements 4,459 4,459
Less Accumulated Depreciation (47,005) 13,349
--------- ---------
$ 139,590 $ 145,494
========= =========
F-7
<PAGE>
Note 5. Income Taxes:
---------------------
Based on management's present assessment, the Company has not yet determined
that a net deferred long term tax asset of $3,421,363 attributable to the future
utilization of $10,061,036 of net operating loss carryforwards as of September
30, 1999, will be realized. Accordingly, the Company has provided 100% allowance
against the net deferred tax asset in the financial statements as of September
30, 1999. The Company will continue to review this valuation allowance and make
adjustments as appropriate. Net operating loss carryforwards will expire as
follows.
Year Amount
---- ------
2012 $ 84,854
2013 1,340,159
2014 1,996,350
----------
$3,421,363
==========
Note 6 - Leasing Arrangements:
------------------------------
The Company conducts its Austin, Texas operations from facilities that are
leased under a five year noncancelable operating lease from Colina West Limited
with 45 months remaining before expiring on June 30, 2003. Prior to July 1,
1999, the monthly minimum rental obligation amount to be paid to Colina West
Limited was $12,405.50. After July 1, 1999, the rental obligation amount is
$12,982.50. After July 1, 2000, and for subsequent years, the rental obligation
amount will be $13,848.00.
The following is a schedule of future minimum rental payments required under the
above operating lease as of September 30, 1999:
Year Ended
September 30 Amount
------------ ------
2000 $158,387
2001 166,176
2002 166,176
2003 124,632
--------
$615,371
========
The Company formerly conducted its New Jersey operations from facilities that
are leased under a three-year noncancelable operating lease from MRC Holdings,
Inc. with 18 months remaining before expiring on March 15, 2001. The monthly
minimum rental obligation amount to be paid to MRC Holdings, Inc. is $5,587.58.
The Company currently subleases the facilities with no monthly payment shortage
obligation.
The following is a schedule of contingent future minimum rental payments
required under the above operation lease as of September 30, 1999.
Year Ended
September 30 Amount
------------ ------
2000 $ 67,051
2001 33,525
--------
$100,576
========
Greenleaf Technologies Corporation executed an agreement with SecurityLink
Corporation for a five-zone security and monitoring service at the Austin
office. The terms of the agreement call for 60 monthly payments of $25.70
including tax. The agreement was executed May 1, 1998. The following is a
schedule of future minimum payments required under the above agreement as of
September 30, 1999.
F-8
<PAGE>
Year Ended
September 30 Amount
------------ ------
2000 $ 308
2001 308
2002 308
2003 180
------
$1,104
======
Greenleaf Technologies Corporation executed an operating lease with Great
America Leasing Corporation for a Toshiba 1710 copier at the Austin office. The
terms of the lease call for 36 monthly rental payments of $95.37 including tax.
The lease was executed March 3, 1998. The following is a schedule of future
minimum rental payments required under the above operating lease as of September
30, 1999.
Year Ended
September 30 Amount
------------ ------
2000 $1,144
2001 572
------
$1,776
======
Note 7. Notes Receivable:
-------------------------
The Company issued 11,709,908 restricted shares of common stock to various
directors, officers, employees and other individuals for notes receivable that
are collaterized by promissory notes which are payable in 30 months at 6% per
annum as follows:
Number Notes Accrued Total
Of Shares Receivable Interest Note
----------- ----------- ----------- -----------
Officers &
Directors $ 4,692,908 $ 1,173,227 $ 52,554 $ 1,225,781
Employees 47,000 25,000 1,150 26,150
Other 6,970,000 1,572,500 70,055 1,642,555
----------- ----------- ----------- -----------
Total $11,709,908 $ 2,770,727 $ 123,759 $ 2,894,486
=========== =========== =========== ===========
Note 8. Valuation of Stock Issued for Services and Additional Employee
Compensation:
----------------------------------------------------------------------
The Board of Directors from time to time has authorized the issuance of common
stock in payment of services provided by non-employees and as additional
compensation to employees.
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, (SFAS 123) establishes a fair value method for accounting for
stock-based compensation plans either through recognition in the statements or
disclosure.
The Company applies SFAS 123 to report the issuance of common stock in payment
of services provided by non-employees and as payment of additional compensation
to employees, using a fair value method to account for such transactions. All
stock issued was restricted stock and the related services or employee
compensation was recorded in the financial statements at 50% of the market value
at the time services were received or additional compensation was paid.
F-9
<PAGE>
Note 9. Commitments and Contingent Liabilities:
-----------------------------------------------
(A) The Company has employment contracts with the following directors
and stockholders:
Annual Date of Length of
Position Name Compensation Agreement Time
-------- ---- ------------ --------- ----
Off/Dir.x R.E.Wachs* $ 96,000 12/15/97 5Yrs.to 12/15/02
Off/Dir. C.J.Webster* $250,000 12/15/97 10Yrs.to 12/14/07
Off/Dir. L.Berg* $250,000 12/15/97 10Yrs.to 12/14/07
*Stockholders
xTerminated 10/13/99
Each of the above is also entitled to be reimbursed for proper business
expenses, and any other benefits offered by the Company, either currently
existing or adopted at a later date. These benefits will include, but will
not be limited to, health and accident insurance, life insurance and stock
option plans, if any.
(B) Under the terms of the five year noncancelable operating lease
with Colina West Limited, GTC has provided a Letter of Credit in
the amount of $84,130 drawn on Bank of America, conditioned upon
GTC's performance of the lease without default. Such letter of
credit shall be reduced by $16,826 per year at the anniversary of
the lease term. The amount of $13,271 of the Letter of Credit
shall serve as security deposit.
Bank of America has guaranteed the Letter of Credit pursuant to
GTC maintaining a certificate of deposit in an equal amount equal
to the Letter of Credit. The $67,304 certificate of deposit is
reported in cash and equivalents.
Note 10. Legal Matters:
-----------------------
(A) Corporate Express, Inc., vs. Greenleaf Technologies, Inc. Case
No. 716.570 Civil Court Harris County, Texas
-----------------------------------------------------------------
This legal matter involves the collection of $14,400 for office
furnishings provided to GTC offices located in Austin, Texas.
Matter was settled on August 17, 1999 in which the Company agreed
to pay Corporate Express $14,400 over a six month period at
$2,400 per month, beginning September 15, 1999. The amount of
$14,400 was recorded in accounts payable as of September 30, 1998
and a balance of $12,000 remains unpaid as of September 30, 1999.
(B) Elizabeth Xan Wilson vs. Greenleaf Capital Corporation and
Related Corporations and Corporate Officers Leonard Berg and
Nicholas Soriano. Case No. 97-04423 - Judicial District Court
Travis County, Texas
-----------------------------------------------------------------
This legal matters involves the plaintiff, Elizabeth Xan Wilson,
claiming that National Capital Corporation (NCC) (previously a
wholly owned subsidiary of GTC) and Nicholas Soriano (President
of the former NCC) fraudulently converted over $80,000 from her
in a fraudulent lending scheme. GTC believes that exposure for
Nicholas Soriano is great, but is unable to assess GTC's
liability. Since the claim was partially settled by the sale of
Mr. Soriano's stock by the Bankruptcy Trustee in a separate
matter, GTC anticipates that it will be able to settle the Matter
with the issuance of restricted stock. A final settlement is
pending as of the date of the financial statement.
F-10
<PAGE>
(C) Kenneth McGowan vs. Richard Wachs Case No. 99-0944, Judicial
Court Travis County, Texas
-----------------------------------------------------------------
On August 5, 1999, three individual shareholders of a non-active
corporation filed suit against a then officer, Richard Wachs, two
other employees and corporate counsel. The cause of action
alleges that the above individuals misappropriated assets and
trade secrets belonging to the non-active corporation. Plaintiffs
seek unspecified damages and request an injunction seeking to
prevent any further use of the converted assets and trade
secrets. GTC believes potential damages to GTC are minimal.
(D) Darrel & Gabriel McEver vs. Richard Wachs Case No. 99-09044
Judicial Court of Travis County, Texas
-----------------------------------------------------------------
This legal matter involves GTC's alleged refusal to issue stock
and severance benefits pursuant to an employment agreement with
Daniel and Gabriel McEver. The attorney for the McEver's has
indicated that he is seeking to withdraw from representing the
Plaintiff's. It is not expected that a significantly unfavorable
outcome is likely.
(E) Greenleaf Technologies Corporation vs. Daniel J. Mendelow and
Paul A. Forgue Case No. 99-1222, District Court of Travis County
Texas.
-----------------------------------------------------------------
This legal matter involves the alleged breach of employment
contract on behalf of David Mendelow and Paul Forgue. The
controversy involves whether or not GTC had contracts with Mr.
Mendelow and Mr. Forgue to issue stock and pay them compensation
for services. Mr. Mendelow was employed for less then a week
before he was terminated. Mr. Forgue never was employed by GTC.
There is not a signed employment agreement for either individual.
Because the case is in the early discovery stage, GTC is unable
to express an opinion on the outcome of the lawsuit.
Note 11. Acquisitions:
----------------------
(A) On July 17, 1998, GTC, formed a wholly owned subsidiary,
Greenleaf Research and Development, Inc., which was incorporated
in the State of Delaware. The Company was inactive and had no
assets as of September 30, 1998. For the year ended September 30,
1999, Greenleaf Research and Development, Inc. is part of the
consolidated financial statements.
(B) On April 13, 1998, GTC acquired 500 shares of common stock of
NetHome Media, Inc. This represented a 33-1/3 percent ownership
interest at a cost of $300,000. NetHome Media, Inc. ceased doing
business and as of September 30, 1998, the stock had no market
value. The entire investment of $300,000 was deemed worthless and
charged to expense.
(C) GTC acquired 100% of the outstanding common stock of Gameverse,
Inc. from Cybermax, Inc. which is a wholly owned subsidiary of
Riverside Group, Inc. based in Jacksonville, Florida. GTC has
accounted for the acquisition using the purchase method of
accounting and carries the investment using the equity method.
GTC acquired Gameverse because of the potential agreement between
WAMO\Accolade and Greenleaf to market multiple computer game
titles on a single DVD disc for distribution through the personal
computer Original Equipment Manufacturers (OEM) market. The
Gameverse network was viewed as another distribution avenue for
the DVDs.
F-11
<PAGE>
In payment for the Gameverse acquisition, GTC agreed to issue to
Cybermax 14,687,585 shares of common stock. In addition, GTC
granted options to purchase, no later than September 30, 2003,
5,733,333 shares at $.25 cents per share and 1,581,249 shares at
$.15 cents per share.
On December 6, 1999, GTC filed a complaint with the United States
District Court, District of New Jersey, whereby GTC alleged that
Riverside Group, Inc., Cybermax and certain other involved
individuals made numerous misrepresentations to GTC to induce GTC
to enter into an agreement for the purchase of Gameverse. These
alleged misrepresentations included Cybermax's claim that it had
developed an expansive Internet network throughout the United
States that included numerous "points of presence" (POP's). GTC
alleged that Gameverse did not have the POP's that Gameverse
represented it had. GTC also alleged that Gameverse represented
to have adequate resources and experience to complete the
development of various projects that were underway when, in fact,
they were inexperienced and inadequate.
Additionally, GTC alleged that Gameverse claimed to have owned or
controlled at least 27 internet services throughout the United
States when, in fact, these representations were false. GTC also
alleged that Gameverse knew or should have known that it lacked
the capacity to meet obligations set forth in various contracts
it was a party to. Finally, GTC claimed that a misleading
business plan and other materials were presented by Gameverse to
corroborate the various misrepresentations noted.
As a result of the complaint, a settlement agreement was made as
of January 28, 2000 whereby Cybermax retained 10,000,000 of the
GTC shares and 2,000,000 GTC options exercisable at $.25 cents
each. A total of 1,687,585 GTC shares and 5,314,582 of GTC
options were cancelled by Greenleaf without payment to Riverside
or Cybermax. Also, 3,000,000 shares were placed in escrow to be
sold upon mutually agreeable terms. The proceeds will fund a
mutually agreeable joint venture for the marketing of technology
and internet related products to be owned in equal amounts by GTC
and Riverside. Additionally, Riverside agreed to forgive and
discharge GTC's current indebtedness to Riverside in the amount
of $111,820, representing reimbursement for employee expenses
paid by Riverside subsequent to the closing of the Purchase
Agreement. Riverside also made certain other concessions to GTC
as part of the settlement agreement.
The approximate market value of the GTC shares given up under the
original terms, exclusive of the value of the options, was in
excess of $5,000,000. The financial condition of Gameverse at the
time of acquisition showed a net worth of $21,977. The Directors
of GTC believed that valuable intangible assets existed within
Gameverse, but shortly after acquisition concluded that such
intangibles did not exist or were seriously impaired.
Due to the facts noted above, the acquisition of Gameverse has
been recorded by GTC under the purchase method using the net
worth of $21,977 of Gameverse at the time of acquisition, thereby
not attaching any value to intangible assets.
(D) On February 23, 1999, GTC announced that it signed an agreement
with Infogrames, Inc. and Warner Advanced Media Operations, a
business unit of Time-Warner, Inc. to form a joint venture called
Warner/Infogrames/Greenleaf. The three companies will market a
multiple of computer games on a single DVD disk for distribution
through the personal computer Original Equipment Manufacturers
Market. No expenses or income has been generated by the joint
venture.
F-12
<PAGE>
Note 12. Due to Related Parties:
--------------------------------
Notes payable have been generated by transactions with related parties
which are detailed as follows:
9/30/98 9/30/99
-------- --------
Stockholders, Directors and Officers 9,235 $165,192
Stockholders 0 88,685
-------- --------
$ 9,235 $253,877
======== ========
Promissory Notes due to related parties, having various dates, are
payable on demand at an interest rate from 6% to 8% per annum.
Note 13. Issuance of Common Stock:
On November 23, 1988 the principal shareholders of Greenleaf Capital
Corporation who owned directly and beneficially a total of 1,177,250 shares of
common stock of Greenleaf Capital Corporation at $.001 par value, sold 971,250
share to three purchasers. The three purchasers, all of whom became directors,
and two of whom continued to be directors at September 1998, paid $14,065 or
$.0145 per share for 971,250 shares of common stock.
Note 14. Subsequent Events:
---------------------------
(1) November 1999 - GTC entered into an agreement to acquire all the
outstanding shares of Future Com South Florida, Inc. in exchange
for 4,000,000 shares of GTC's restricted common stock. Future Com
intends to pursue acquisition of radio licenses and systems and
has already entered into agreements to acquire four SMR licenses
in the 220-222 MHz range at the purchase price of $175,000 per
license. The purchase price for each license is to be paid in the
form of 350,000 shares of restricted common stock. In addition,
GTC has agreed to issue warrants to purchase the same number of
shares at $.50 per share until November 4, 2000. Future Com also
has entered into an agreement to acquire a dedicated
communication satellite license at a purchase price of $687,500,
which price includes amounts to be paid in order to eliminate an
encumbrance on the license. The purchase price is to be paid in
the form of 1,375,000 shares of GTC restricted common stock, plus
warrants to purchase 75,000 shares of common stock at an exercise
price of $.50 per share. GTC also agreed to issue, to the holder
of the encumbrance, options to purchase 1,300,000 shares of
common stock at a price of $.50 per share until November 4, 2000.
The GTC shares, options and warrants to be issued in connection
with the SMR licenses and satellite license will be delivered to
the sellers and the holder of the encumbrance when the Federal
Communications Commission approves the transfer of the respective
licenses to Future Com.
GTC entered into an employment contract with both officers of
Future Com, who also were the only shareholders. Each officer
will receive annual compensation of $96,000 plus automobile
expenses of $850 per month. These officers subsequently resigned
from all positions and the agreements were terminated.
F-13
<PAGE>
In addition to the purchase price, GTC has agreed to repay
$300,000 owed by Future Com pursuant to two promissory notes.
These notes accrue interest at the rate of eight percent per year
and payment of all accrued and unpaid principal and interest is
due and payable on demand at any time after November 4, 2004. In
addition, the notes provide that any payments on the notes prior
to November 4, 2004 will be made only at such time that the Board
of Directors of Future Com determines that sufficient funds are
available for payment. Also, the existing employees of Future Com
were issued options to purchase 400,000 shares of GTC's common
stock at $.50 per share until November 4, 2000.
(2) October 1999 - GTC entered into an agreement with Best Holdings,
Ltd. Best Holdings, Ltd. will be responsible for the placement of
up to $5,000,000 pursuant to a Private Placement under Regulation
"D" of the Securities Act of the United States.
GTC agrees to pay Best Holdings Ltd. a consulting fee of 10% of
all capital raised. The company also agrees to issue one five
year warrant for 200,000 shares, for each one million dollars
raised exercisable at $.50 per share.
F-14
<PAGE>
PART III
--------
Items 1 and 2. Index to and Description of Exhibits.
----------------------------------------------------
The following is a complete list of Exhibits filed as part of this
Registration Statement, which Exhibits are incorporated herein.
Number Description
------ -----------
2.1 Agreement with Cybermax Tech, Inc. regarding acquisition of
Gameverse, Inc. (1)
2.2 Stock Exchange Agreement regarding acquisition of Future Com South
Florida, Inc. (1)
3.1 Certificate Of Incorporation filed with the Delaware Secretary Of
State on October 9, 1986. (1)
3.2 Certificate Of Amendment to the Certificate of Incorporation filed
with the Delaware Secretary Of State on December 3, 1997. (1)
3.3 Certificate Of Amendment to the Certificate of Incorporation filed
with the Delaware Secretary Of State on May 1, 2000.
3.4 Amended And Restated Bylaws (1)
4.1 Specimen Common Stock Certificate (1)
10.1 License And Revenue Sharing Agreement regarding BroadcastDVD, Inc.
(1)
10.2 License Agreement regarding Accolade, Inc. and Warner Advanced Media
Operations (1)
10.3 Agreement regarding NIVIS, LLC (2)
11.1 Statement re: computation of per share earnings- Incorporated by
reference to the financial statements included in Part F/S of this
Amendment No. 1 to the Registrant's General Form For Registration Of
Securities Of Small Business on Form 10-SB
37
<PAGE>
21.1 Subsidiaries of the Registrant (except as otherwise noted, all are
100% owned):
Greenleaf Research And Development, Inc., a Delaware corporation
Future Com South Florida, Inc., a Florida corporation
Gameverse, Inc., a Florida corporation
Greenleaf Ventures, Inc., a Delaware corporation (inactive)
ByteCast.com, Inc., a Delaware corporation (inactive)
Dotcom.com, Inc., a Delaware corporation (inactive)
Vector North America, Inc., a Delaware corporation (inactive)
o It currently is anticipated that when Vector North
America, Inc. becomes active, if ever, the Company will
own 49% of the outstanding equity interests in Vector
North America, Inc..
24.1 Power of Attorney (included on signature page of this Registration
Statement)
27 Financial Data Schedule
--------------
(1) Incorporated by reference from Registrant's General Form For
Registration Of Securities Of Small Business on Form 10-SB filed
with the Commission on November 15, 1999.
(2) Incorporated by reference from Registrant's Quarterly Report on Form
10-QSB for the period ended June 30, 1999, filed with the Commission
on August 22, 2000.
38
<PAGE>
SIGNATURES
----------
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
GREENLEAF TECHNOLOGIES CORPORATION
Date: August 28, 2000 By: /s/ Leonard Berg
--------------------
Leonard Berg, Chief Executive Officer
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and directors
of the Registrant, by virtue of their signatures appearing below to this
Registration Statement hereby constitute and appoint Leonard Berg and
Christopher J. Webster, and each or either of them, with full power of
substitution, as attorney-in-fact in their names, place and stead to execute any
and all amendments to this Registration Statement in the capacities set forth
opposite their name and hereby ratify all that said attorney-in-fact and each of
them or his substitutes may do by virtue hereof.
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Signatures Title Date
---------- ----- ----
/s/ Leonard Berg Chairman Of The Board; Chief August 28, 2000
-------------------------- Executive Officer; President; and
Leonard Berg Director
/s/ Christopher J. Webster Vice Chairman; Executive August 28, 2000
-------------------------- Vice President; and Director
Christopher J. Webster
/s/ Frank LoVerme Chief Operating Officer; August 28, 2000
-------------------------- and Director
Frank LoVerme
39
