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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
TO
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
ENTERPRISES SOLUTIONS, INC.
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(Name of small business issuer in its Charter)
Nevada 88-0232148
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
140 Wood Road, Suite 200, Braintree, Massachusetts 02184
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 781-356-4387
Securities registered under Section 12(b) of the Exchange Act:
NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No ____
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer had no revenues for the fiscal year ended December 31, 1999.
As of September 19, 2000, there were 4,724,282 shares of Common Stock
outstanding. The Common Stock has not traded on the OTC Bulletin Board since
March 30, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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FORWARD LOOKING STATEMENTS
This document includes forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934. These statements are based on the
Company's current expectations as to future events. In the light of the
uncertainties in the potential markets for the Company's planned products, the
forward-looking events and circumstances discussed in this document might not
occur and actual results could differ materially from those anticipated or
implied in the forward-looking statements.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Enterprises Solutions, Inc., a Nevada corporation (the "Company"), was
incorporated on September 16, 1987 under the name of Sedgewicke Business
Alliance, Inc. On December 21, 1994, the Company changed its name to American
Casinos International, Inc. ("ACII") and from that time focused its operations
on the gaming industry. In particular, ACII operated a casino in Venezuela. In
mid-1997, the Venezuelan government effectively shut down all casinos pending
relicensing under a much changed and restrictive law. Although the new law had
not yet been interpreted or clearly defined as to how it would ultimately be
implemented, ACII's casino could not reopen as it had previously operated.
In August, 1998, the Company capitalized $779,897 in shareholder loans
and accrued payroll expenses. The shareholders to whom the loan and payroll were
owed sold their shares to new investors and were allowed to keep the gaming
equipment in Venezuela as compensation for any and all liabilities associated
with the discontinued gaming operations. The Company also terminated a certain
licensing agreement and the rights to offer Internet bingo and casino games,
which the Company no longer considered part of its corporate business focus.
In March, 1999, the Company changed its name to Enterprises
Solutions, Inc. and, after being introduced to the merits of an engineering plan
to provide security products and a bondable (insurable) architecture for the
Internet, began to focus its endeavors on developing a suite of products and
solutions for Internet security.
Recent Developments
Securities and Exchange Commission Proceedings
Suspension in Trading of Common Stock. On March 30, 2000, the
Securities and Exchange Commission ("Commission") announced the temporary
suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934
(the "Exchange Act"), of trading of the Common Stock of the Company at 9:30 a.m.
on March 30, 2000 and terminating at 11:59 p.m. on April 12, 2000. The
Commission announced that it temporarily suspended trading in the securities of
the Company because of questions concerning the accuracy and completeness of
assertions made by the Company in its filings with the Commission, in its recent
press releases, and on its Internet website, including questions about the
identity of persons in control of the operations and management of the Company.
The Commission cautioned broker-dealers, shareholders, and prospective
purchasers that they should carefully consider the foregoing information along
with all other currently available information and any information subsequently
issued by the Company. Further, the Commisssion advised that brokers and dealers
should be alert to the fact that, pursuant to Rule 15c2-11 under the Exchange
Act, at the termination of the trading suspension, no quotation may be entered
unless and until they have strictly complied with all of the provisions of the
rule. If any broker or dealer has any questions as to whether or not he has
complied with the rule, he should not enter any quotation but immediately
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contact the staff of the Commission in Washington, D.C. If any broker or dealer
is uncertain as to what is required by Rule 15c2-11, he should refrain from
entering quotations relating to Enterprises Solutions, Inc. securities until
such time as he has familiarized himself with the rule and is certain that all
of its provisions have been met. If any broker or dealer enters any quotation
that is in violation of the rule, the Commission stated that it would consider
the need for prompt enforcement action.
Court Filing for Temporary Restraining Order and Other Relief. On April
6, 2000, the Commission filed in the U.S. District Court for the Southern
District of New York (1) a motion for Temporary Restraining Order, Order to Show
Cause and Orders Granting Other Relief against the Company and Herbert S.
Cannon, Defendants; (2) a Verified Complaint against the Company, Herbert S.
Cannon and John A. Solomon, Defendants, and Rowen House Ltd. and Montville Ltd.,
Relief Defendants; and (3) and an Ex Parte Application For Order Freezing
Assets, Order To Show Cause Re Preliminary Injunction and Other Relief against
the Company, Herbert S. Cannon, Rowen House, Ltd. and Montville, Ltd.
The Commission's application for Temporary Restraining Order requests a
Court order (i) freezing certain assets of relief defendants, Rowen House, Ltd
and Montville, Ltd., (ii) requiring these relief defendants to show cause why
preliminary injunctive relief should not be entered, and (iii) enjoining all
defendants and relief defendants from destroying evidence. As to the
Commission's application to freeze assets of the relief defendants, it requested
an immediate freeze, with specified provisos, on (i) all monies held in any
account name maintained at the brokerage firm of Wall Street Equities, in the
name of, for the benefit of, or over which account authority is held by relief
defendants Rowen House, Ltd. and Montville, Ltd., to the extent such funds
represent the proceeds from the sale of shares of stock of the Company, and (ii)
any shares of the Company's Stock contained in such account. The Commission also
applied for expedited discovery for an order that all defendants and relief
defendants, and specified persons associated with them, be restrained and
enjoined from destroying, mutilating, concealing, altering, or disposing of, in
any manner, an document (as defined in the Commission's application). The Court
granted the Commission's application for the above Temporary Restraining Order
on April 6, 2000.
The Commission's Verified Complaint alleged securities fraud in
violation of the Exchange Act Section 10(b) and Rule 10b-5 promulgated
thereunder and requested relief enjoining the Company, Herbert S. Cannon and
John A. Solomon from violating the Exchange Act, the aforementioned Section
10(b) and Rule 10b-5; ordering Herbert S. Cannon to account for and disgorge,
with interest, all profits he has realized from any sales of the Company's
Common Stock, including sales through brokerage firms over which he had any
direct or indirect control, including those of relief defendants, Rowen House,
Ltd. and Montville, Ltd.; imposing a constructive trust upon any and all
proceeds from the Company's Common Stock sales being held in the brokerage
accounts of relief defendants Rowen House, Ltd. and Montville, Ltd.; and
ordering Herbert S. Cannon and John A. Solomon to pay appropriate civil
penalties.
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The Commission's Ex Parte Aplication for Order Freezing Assets, Order
To Show Cause Re Preliminary Injunction and Other Relief supports its
application for an ex parte order (i) freezing certain assets of the relief
defendants Rowen House, Ltd. and Montville, Ltd., (ii) requiring these relief
defendants to show cause why preliminary injunctive relief should not be
entered, (iii) requiring these relief defendants to each provide certain asset
identifying information, and (iv) enjoining all defendants and relief defendants
from destroying evidence.
On April 12, 2000, the Commission and the Company reached an agreement
concerning the Temporary Restraining Order. The Commission agreed not to ask the
Court to extend the prohibitions placed on the Company on April 6, 2000. In
return, the Company has agreed that it will not destroy any document as that
term is defined in the April 6, 2000 Temporary Restraining Order. The agreement
reached with the Company applies also to the relief sought against John A.
Solomon, the Company's President and CEO.
Since the April 6, 2000 hearing, additional hearings were held by the
Court on April 14, 2000 and April 24, 2000, for the purpose of continuing the
temporary restraining order imposed against the relief defendants, Rowen House,
Ltd. and Montville, Ltd. Pursuant to the agreement reached with the Commission,
however, Enterprises Solutions, Inc. and John A. Solomon were not affected by
those hearings or the restraining order issued against the relief defendants.
The order entered by the Court on May 1, 2000 imposes a preliminary injunction
only against relief defendants, Rowen House, Ltd. and Montville, Ltd.
The Company and John A. Solomon have filed answers to the Commission's
verified complaint. Defendant Herbert Cannon filed a motion to dismiss and a
memorandum in which he denied the Commission's allegations. The case against Mr.
Cannon was not dismissed and, on June 21, 2000, the Commission filed an amended
complaint in this case. The parties are pursuing discovery at this time, and a
trial is scheduled for January 2001.
The Company is working actively to attempt to settle the above
proceedings with the Commission.
Termination of Teaming Agreement with Gemini Computers, Incorporated
On April 10, 2000, Gemini Computers, Incorporated ("Gemini") advised
the Company that, given the above-described actions by the Commission, it was
terminating the Teaming Agreement in effect between the parties effective
immediately and it had no intent to move forward with any transaction involving
the acquisition of Gemini by the Company.
Offshore Financing
On April 2, 2000, the Company executed a Deed Poll under the laws of
Switzerland in favor of the holders of notes issued pursuant thereto (the "Deed
Poll"). Upon application of Waltrag A.G., in exchange for a purchase price of
$5,000,000, the Company issued to Waltrag A.G., the initial holder, $5,000,000
principal amount of its Convertible Notes pursuant to the Deed Poll (the
"Notes", such term to include the additional note issued as described below). As
set forth in the Deed Poll, each Note is in registered form and in the minimum
denomination of $250,000 each, bearing a coupon interest rate of 10% nominal
interest per annum, payable monthly in arrears, and maturing April 2, 2001. The
Notes are convertible at the option of the holder into Common Stock of the
Company, on or before April 2, 2001, at a conversion price of 90% of the 22 day
moving average price of the Company's Common Stock, backdated from the time of
the conversion request. The Company received payment of the $5,000,000 purchase
price for the above Notes on April 4, 2000.
In connection with the issuance of the Notes, as a commission without
payment of additional consideration, Waltrag A.G. was also issued an additional
Note in the principal amount of $250,000, the terms of which Note are the same
as those of the $5,000,000 principal amount of Notes referred to above, and
warrants to purchase 50,000 shares of Common Stock of the Company on or before
April 2, 2003, exercisable at a price equal to 120% of the conversion price of
the Notes calculated as of April 2, 2000.
Under the Deed Poll, the holder(s) of the Notes and Warrants have
piggyback registration rights for the underlying shares of Common Stock with
respect to any registration statement under the Securities Act of 1933 filed by
the Company at any time. The Company has no right to redeem any of the Notes
prior to their maturity date of April 2, 2001. The holder of Notes may, within
28 days of first becoming entitled to voting shares of the Company such that any
further aquisition of voting shares by the holder, require the Company within a
21 day period to redeem the outstanding Notes. The holder of the Notes has the
express right to demand the redemption of its Notes.
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The Company is not restricted in future financings by the provisions of
the Deed Poll.
The Deed Poll provides for a minimum subscription price by an applicant
of $100,000. Each holder of notes issued pursuant to the Deed Poll has the
benefit of, and is entitled to enforce the Deed Poll, whether or not such holder
is or is not a party to the Deed Poll. The Company agreed to establish and
maintain in New York, N.Y., a Register of the holders of notes issued pursuant
to the Deed Poll, and to determine amounts, if any, of withholding tax
applicable to any payment in respect to a note.
Description of Business
The Company's business is in the developmental stage. The Company's
objective is to address what it perceives to be a lack of security in the
Internet as the result of the minimal platform integrity currently used to
support network services and eBusiness transactions. Based upon its research,
the Company believes that most of the computer systems and software currently
being used for Internet transactions are not adequately secured to support
business levels of assurance, and therefore inadequate to support liability
management.
The Company's management believes that the demand for trusted (secure)
network systems and products has grown significantly in recent years due to the
dramatic increase in the use of the Internet for electronic business
transactions, and the Internet's demonstrated vulnerability to attacks, as
evident by increasing incidents of break-ins. Further, while the current arsenal
of network security products may provide adequate defenses against specific
known vulnerabilities in isolation, and the use of such products in a layered
approach, may provide "acceptable" levels of vulnerability in some instances,
the Company management believes that improving the basic integrity of the
network platforms (workstations and servers) provides a more comprehensive and
effective approach to network security against all forms of attacks. To this
end, the Company's planned product line based on its Trust Architecture would
concentrate on establishing high assurance platforms, specifically workstations,
such that high levels of assurance in the security of the networking foundations
could be established, and that the integrity of the composed networks could be
sustained. By establishing secure network foundations through the use of
components having verifiable security properties, the Company believes that it
could enable liability management for eBusiness over the Internet.
The Company's planned network security architecture which it plans to
market through its developing products under the Bondable Network
Architecture(TM) (BNA) designation, would integrate a scalable number of high
assurance network components connected through existing media (both private and
public networks, such as the Internet) by reliably authenticated, trusted
sessions to compose secure virtual networks isolating the enterprise business
processes. The principal components of the BNA would include secure E-Commerce
Workstations and eBusiness Server Appliances. The Company intends that
such trusted network components based on its technology would transparently
integrate into the existing Internet environment without modification either to
the basic user applications or the prevailing workstation environments. The
Company's planned product line would support bondable networks satisfying a wide
range of E-Commerce business needs, while preserving current investments in
Internet and intranet technologies. In addition, the Company believes that the
demand for its products could give rise to a demand for significant security
related consulting, support and training services.
The Company sees three potential market segments which it expects would
be interested in purchasing its planned trusted network products and related
services: infrastructure providers, corporate consumers and governments. The
three main product areas which the Company plans to offer to these segments are:
(1) bondable hardware/software products that provide enhancements that extend
the basic platform architecture for a secure networking infrastructure; (2)
layered software applications and network services built upon secure server
platforms; and (3) support for consulting and integrator products which provide
hosted services to customers.
The planned family of high assurance network server appliances would
host trusted network services which would be required to support the Trust
Architecture, as well as enterprise-specific value-laden applications. The
Company's initial planned interim network appliance product, the EGuard, is a
secure virtual private network ("VPN") guard, which, subject to conclusion of
negotiations with a technology partner, it plans to develop and offer to
potential customers. There is no assurance, however, that the Company will be
able successfully to develop or market this planned product or any of its other
planned products discussed below. The planned premier ESI EGuard would provide a
secure node-to-node domain separating, gateway router with the distinguishing
ability to provide strong domain separation of communication channels for both
Internet and enterprise intranet application. The EGuard would be a precursor to
a trusted (or secure) Enterprise Authentication Server supporting pervasive
directory services. In addition to the planned EGuard, the Company plans to
produce a high assurance, Enterprise-specific Certificate Authority (CA) Server,
supporting a trustworthy PKI, and a trusted Web Server to support secure
Internet E-Commerce.
The critical component to the Company's BNA, however, would be its
eBusiness workstations (referred to as "clients"). The first of its client or
workstation offerings is the basis of a contract with an Internet gaming
company to develop and produce an integrated Sports Card Technology(TM) and
secure payment system that conforms to its BNA.
The initial technology for implementing the Company's trusted or secure
architecture would be based on existing high assurance security technologies
through acquisitions to optimize the engineering and evaluation efforts and to
shorten product time to market. The cancellation by Gemini of its Teaming
Agreement has forced the Company to pursue alternative technologies to support
the development of components to its BNA, and negotiations in that regard are
under way. While certain technologies of interest are important to the Company's
products, and essential to the timely implementation of its product line, the
Company believes that its planned product line would not be dependent on any one
specific technology provider. Assuming the availability of adequate financing
and successfully concluded negotiations with technology providers, the Company
estimates that, from the point in time at which these two conditions are
satisfied, it would require approximately six months to develop the first of its
interim network components and twelve to eighteen months for a rollout of its
initial BNA product line.
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Research and Development Expenditures
The Company has made no expenditures the past fiscal year on research
and development.
Government Regulation
The Company plans to acquire technologies for use in developing its
products which would enable them to leverage the prior evaluations and evidences
of the technology based on international security criteria. In order to maintain
these government ratings, the Company will have to continuously update its
products with evaluations and ratings. As an example, the Company will be
required to maintain am ITSEC evaluation level of E4 or above assurance level
for marketing in Germany. In addition, the Company will have to establish an
adequate technical basis for providing digital signatures per statues in several
US states.
In order to import/export any of its planned high assurance products
or any equipment containing encryption technology, the Company will have to
comply with the relevant regulations then in effect which are promulgated by the
various world governments and US Department of State and/or Commerce.
Industry and Market for the Company's Products and Services
The Need for Business Level Assurances of Protection
The Company's management believes that as more and more businesses come
to rely on the Internet as a means of communicating and conducting transactions
with suppliers, customers and business partners, the need for secure, trusted
network products will become critical. The market analysis in the 1998 Ernst and
Young Special Report on Technology in Banking and Financial Services presents
technology spending trends on a global basis. The report focuses on E-Commerce,
and the survey findings indicate that global commerce has, in general,
recognized the importance of the direct e-commerce channel and exposes the need
for critical infrastructure - the, as yet, unsolved problems posed by today's
technologies. Of the 100 institutions surveyed in 26 countries most plan to
allocate significant resources to develop the information infrastructure
required to exploit e-commerce. Management believes that this indicates that the
Internet has come of age as a viable
According to the Gartner Group, "...through the year 2008, enterprises
will continue to evolve into extended enterprises, where business processes
encompass their partners, alliances and suppliers as well as their customers."
In these so-called "value networks" (Ernst & Young), enterprises will use
Internet-derived technology to extend their business processes.
The Company believes that businesses will continue to extend their
internal business processes to their external business partners, essentially
redefining process boundaries to include the Internet, web server and browsers.
This extranet technology will encompass all major businesses. But as stated by
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Forrester, "...the explosive growth of the Internet raises new dimensions of
risk, in the form of [attacks]...that exploit a system's communication
capabilities." The Company believes that this is equally true of extranets.
The Company believes that an "open" Internet means an "exposed"
Internet, where the user is not protected. The Gartner Group has also stated
that "As businesses expose their internal process to customers and suppliers,
today's security is being rendered ineffective. Firewalls have reached their
limit - taxed by the growing onslaught of invasive applications and aggressively
outbound users." As one analyst has suggested, "What do you do when there are no
perimeters? If you succeed in making your Web site easier to use, then everybody
is an insider."
Gartner further states "A new model is needed to save companies from
security's crippling complexity and to enable increased openness." To do this,
Gartner suggests that enterprises "...must adopt tools that add identity and
policy to the extranet while delegating control across the business." The
Company believes this to mean that the business community must establish
liability, accountability and interoperability uniformly across the entire
E-Commerce networking environment which is just as reliable as in the
pen-and-paper based business world. Further, the Company believes that the BNA
will enable these capabilities.
Market Analysis
The market trends in the Ernst and Young 1998 Special Report on
Technology indicate significant changes from previous years, with the area of
greatest change being Information Technology (IT) project spending. Projections
contained in the report indicate that such spending will be more than twice its
historical levels over the coming two to three years. This increase has been
largely driven by mandatory initiatives, such as the Year 2000 computer problem
and European Union Mandates. In 2001, these mandatory requirements are
anticipated to decline dramatically. The Company believes, however, as
apparently do the analysts, that these budgets will not be cut but rather
reallocated to other areas even over budgetary constraints. Management further
believes that, due to competitive demands, there will be a surge of new
e-commerce budget monies after 2001 resulting from these reallocations.
The Ernst & Young survey also indicated that stated growth in
e-commerce spending is far out-stripping that of spending for new technologies
as a whole. Respondents indicated that in 1998 they allocated twice as much of
their technology budgets for e-commerce as they allocated in 1997. New
technology budgets are projected to double from 1992 to 2001. Respondents also
indicated that by 2001, they plan to expend 14% of their new technology budgets
on e-commerce, alone. From this survey, the Company believes, as do the
analysts, that during the next five years, there will be allocations of the new
technology budgets for developing the information infrastructure for supporting
e-commerce which will take precedence over technology upgrades.
Respondents expect to see discretionary funding return to historical
levels (around 31%) by the Year 2000. Additionally, revenue growth through
e-commerce activities, viz., more content provider services, network service
providers, and direct sales channels, continues to be the primary focus of IT
discretionary spending and is projected to remain so for the next three to five
years.
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In view of the survey findings, there are three aspects to the
Company's products and marketing potential to be considered.
First, according to the survey, sharp increases in IT funding,
primarily attributable to mandatory projects such as Y2K compliance, with no
corresponding reductions after the Year 2000, coupled with increases in
discretionary funding projected for the Year 2000 and after, suggest that key
project activities, such as security ("the number one concern" according to
Gartner Group) and building of the information infrastructure are projected to
receive a major share of the IT budget.
Secondly, based on the survey predictions of the IT budgets dedicated
for e-commerce and the expressed interests in public key cryptography and
digital certificate systems, the Company believes that a trusted PKI security
service would be positioned to compete for a significant share of this funding.
Finally, increases in discretionary funding and in discretionary
project budgets will likely address security apart from e-commerce, focusing
strictly on corporate security requirements.
The Company believes analysts reports, such as this Ernst & Young report,
clearly identify network security as a top concern of corporate IT departments.
As such, it believes that a comprehensive high assurance network architecture
such as its planned BNA would create a greater potential to capture the niche
security market share more rapidly when competing with the less comprehensive
add-on security products currently available.
Competition
The market in which the Company plans to compete is that of bondable,
business-to-business network platforms and services.
The Company believes that certain of these major operating systems are
in place and that competition in the industry for high assurance products will
accelerate. This would increase competition with the Company's planned products
and services and encourage other companies to enter the market. Many of these
companies currently in the market and entering the market in the future will be
far larger and have greater resources than the Company, and could thus achieve a
competitive advantage over the Company in product development and marketing.
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Employees
The Company currently has four employees, consisting of two engineers
and two executives. The Company plans to hire additional employees, particularly
engineers, to assist in the development of its products.
ITEM 2. PROPERTIES
The Company's executive headquarters is located Southeast of Boston at
140 Wood Road, Suite 200, Braintree, Massachusetts 02184. The office is leased
at a rate of $1,680 per month, initially for a 60-day term commencing May 1,
2000, and renewable on a month-to-month basis thereafter. The Company's
engineering and product development division is located at 50 Ragsdale Drive,
Suite 150, Monterey, California 93940. The Company has entered into a lease for
this facility which has a three year term commencing on September 15, 1999 and
expiring on September 14, 2002. The lease provides for a base rent of $5,919 per
month. Pursuant to the lease, the Company is also responsible for 21.37% of (1)
the operating expenses (estimated at $2,320 per month for the first year and
including real property and any public authority taxes), (2) the services and
utilities and (3) the Landlord's performance of Tenant Company's Covenants (if
applicable). The building is a two-story office building of approximately 4,735
square feet. The Company believes that the premises are adequately insured.
The Company has leased a corporate condominium located at 24525
Outlook Drive, #26, Carmel, California, 93923. The lease is for a period of one
year commencing on September 8, 1999 and expiring on August 31, 2000 at a
monthly rent of $2,250.
ITEM 3. LEGAL PROCEEDINGS
See "Item 1. Description of Business" for a description of pending
proceedings with the Securities and Exchange Commission.
Roger Schell and Richard Lee, former employees of the Company, filed
complaints with the Labor Commissioner, State of California, for nonpayment of
wages, bonuses, expenses and benefits. Mr. Schell's total claim is $361,172.01,
and Mr. Lee's total claim is $285,094.66. The Company filed answers denying any
liability to either Mr. Schell or Mr. Lee, and these complaints were dismissed
by the Labor Commission on September 5, 2000, for lack of jurisdiction. Mr.
Schell and Mr. Lee on September 21, 2000, filed complaints with the Superior
Court of the State of California, County of Monterey, for damages for breach of
contract, including unpaid salary, lost earnings, stock compensation and other
employee benefits; for interest on unpaid salary; for double damages as provided
by the California Labor Code; for penalties in the amount of plaintiff's daily
rate multiplied by thirty days pursuant to California Labor Code Section 203;
for punitive damages; and for reasonable attorneys' fees and costs of the suit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
Prior to March 30, 2000, the Company's securities traded on the OTC
Bulletin Board and in the over-the-counter market "pink sheets". The Company's
trading symbol is "EPSO". Over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commissions and may
not represent actual transactions. The following sets forth the range of high
and low bid information for the quarterly periods indicated as reported by the
National Quotation Bureau:
High Low High Low
---- --- ---- ---
1997: 1st Quarter .21875 .0625 1998: 1st Quarter .50 .25
2nd Quarter .21875 .03 2nd Quarter 2.25 .125
3rd Quarter .05 .03 3rd Quarter 5 2
4th Quarter .5625 .04 4th Quarter 6.50 4.50
1999: 1st Quarter 11.25 6 2000: 1st Quarter 21.50 1.50
2nd Quarter 15.125 11
3rd Quarter 14 13.50
4th Quarter 6 1
The foregoing bid information has been adjusted for the stock dividend
which occurred in June 1999.
Holders
As of September 19, 2000, the number of holders of record of shares of
common stock, excluding the number of beneficial owners whose securities are
held in street name, was approximately 79.
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Dividend Policy
The Company does not anticipate paying any cash dividends on its common
stock in the foreseeable future because it intends to retain its earnings to
finance the expansion of its business. Thereafter, declaration of dividends will
be determined by the Board of Directors in light of conditions then existing,
including without limitation the Company's financial condition, capital
requirements and business condition.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Comparison of the Year Ended December 31, 1999 and 1998
Revenues decreased $328 (100%) to $0 in fiscal 1999 as compared to $328
in fiscal 1998. The decrease resulted from the fact that the Company
discontinued its prior operations and has not yet generated any revenues from
its planned Internet security business.
Selling, general and administrative expenses increased $1,379,968 to
$1,503,535 in fiscal 1999 from $125,567 in fiscal 1998. The net loss for fiscal
1999 increased $1,378,296 to $1,503,535 from a net loss in 1998 of $125,239 due
to the foregoing.
Liquidity and Capital Resources
The Company's working capital at April 4, 2000 was $5,000,000. The
Company's primary sources of working capital have been from the offshore
financing from Waltrag, A.G. referenced in Item 1, Recent Developments.
Currently, the Company's primary cash requirements include the ongoing
cost of the development of its new business plan and the costs of maintaining
its administrative expenses.
ITEM 7. FINANCIAL STATEMENTS
Financial statements of the Company meeting the requirements of Regulation S-B
are filed on the succeeding pages as listed below:
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ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
13
<PAGE>
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
TABLE OF CONTENTS
PAGE NO.
--------
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT 16
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets 17
Statements of Operations 18
Statements of Shareholders' (Deficit) 19
Statements of Cash Flows 20
Notes to the Consolidated Financial Statements 21-24
14
<PAGE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
To the Shareholders of
Enterprises Solutions, Inc.
We have audited the accompanying consolidated balance sheets of Enterprises
Solutions, Inc., (A Development Stage Company) as of December 31, 1999 and 1998,
and the related consolidated statements of operations, shareholders' (deficit)
and cash flows for each of the two years in the period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Enterprises Solutions, Inc. as of December 31, 1999 and 1998, and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Enterprises Solutions, Inc. will continue as a going concern. As discussed in
Note 3 to the financial statements, the Company has suffered recurring losses
from operations and, at December 31, 1999, had a working capital deficiency of
$471,179 and a shareholders' deficit of $471,179 that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 3. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
April 9, 2000 /s/ Van Buren & Hauke, LLC
--------------------------
Van Buren & Hauke, LLC
15
<PAGE>
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
---------- ----------
<S> <C> <C>
Assets
Current assets
Cash $ 31,581 $ 38,974
---------- ----------
Total current assets 31,581 38,974
Loans and advances -- 125,000
---------- ----------
Total assets $ 31,581 $ 163,974
========== ==========
Liabilities and Shareholders' (Deficit)
Current liabilities
Accounts payable and accrued expenses $ 246,510 $ --
Demand loans 256,250 --
---------- ----------
Total current liabilities 502,760 --
---------- ----------
Commitments and contingencies
Shareholders' (deficit)
Preferred stock; $0.001 par value; 5,000,000 shares authorized;
148,500 and 100,000 shares issued and outstanding at
December 31, 1999 and 1998, respectively 148 100
Common stock; $0.001 par value; 25,000,000 shares authorized;
4,309,954 and 3,443,340 shares issued and outstanding at
December 31, 1999 and 1998, respectively 4,310 3,444
Additional paid-in capital 2,786,646 1,969,178
(Less) subscription receivable -- (50,000)
Retained (deficit) (1,633,509) (1,633,509)
(Deficit) accumulated during the development stage (1,628,774) (125,239)
---------- ----------
Total shareholders' (deficit) equity (471,179) 163,974
---------- ----------
Total liabilities and shareholders' (deficit) $ 31,581 $ 163,974
========== ==========
</TABLE>
See accompanying notes.
16
<PAGE>
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Years Ended
December 31,
----------------------------
1999 1998
----------- ----------
Revenues $ -- $ 328
----------- ----------
Costs and expenses
Bad debt expense, net 727,617 --
Salaries, wages and taxes 122,355 --
Professional/consultants fees 387,739 16,821
Rent 46,664 --
Insurance 31,144 --
Telephone 10,374 --
Office expenses 30,450 5,024
Relocation expenses 48,474
Stock transfer and related expenses 11,049 3,722
Abandonment of licensing agreement -- 100,000
Travel and promotion 87,669 --
----------- ----------
Total costs and expenses 1,503,535 125,567
----------- ----------
Net (loss) $(1,503,535) $(125,239)
=========== ==========
Net (loss) per common share $ (0.40) $ (0.10)
=========== ==========
Weighted average common shares 3,714,010 1,278,071
=========== ==========
See accompanying notes.
17
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April 9, 2000
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional Total
----------------------------------------------- Paid-In Retained Shareholders'
Shares Amount Shares Amount Capital (Deficit) (Deficit)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 317,340 $ 318 -- $ -- $ 859,772 $(1,633,509) $ (773,419)
1998 Activity:
Preferred shares issued -- -- 100,000 100 99,900 -- 100,000
Common shares issued 2,084,000 2,084 -- -- 243,916 -- 246,000
Common shares issued
in stock split 1,042,000 1,042 -- -- (1,042) -- --
Capitalize shareholder
loans and accrued
payables -- -- -- -- 786,397 -- 786,397
(Less) underwriting
expenses -- -- -- -- (19,765) -- (19,765)
(Less) subscription
receivable -- -- -- -- (50,000) -- (50,000)
Net (loss) -- -- -- -- -- (125,239) (125,239)
----------------------------------------------------------------------------------------------
Balance, December 31, 1998 3,443,340 3,444 100,000 100 1,919,178 (1,758,748) 163,974
1999 Activity:
Preferred shares issued -- -- 48,500 48 48,452 -- 48,500
Common shares issued 326,000 326 -- -- 802,174 -- 802,500
Common shares issued
in stock split 90,603 90 -- -- (90) -- --
Common shares issued
in cashless warrant
exercise 450,011 450 -- -- (450) -- --
Subscription receivable-
paid -- -- -- -- 50,000 -- 50,000
(Less) underwriting
expenses -- -- -- -- (32,618) -- (32,618)
Net (loss) -- -- -- -- -- (1,503,535) (1,503,535)
----------------------------------------------------------------------------------------------
Balance, December 31, 1999 4,309,954 $ 4,310 148,500 $ 148 $ 2,786,646 $ (3,262,283) $ (471,179)
==============================================================================================
</TABLE>
See accompanying notes.
18
<PAGE>
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Years Ended
December 31,
---------------------------
1999 1998
---------- -----------
Cash flows from operating activities
Net (loss) $(1,503,535) $ (125,239)
Adjustments to reconcile net (loss)
to net cash (used) by operating
activities
Bad debts 739,422 --
Operating assets and liabilities
Accounts payable and accrued expenses 246,510
---------- -----------
Net cash (used) by operating activities (517,603) (125,239)
---------- -----------
Cash flows from investing activities
Loans and advances (614,242) (125,000)
---------- -----------
Net cash (used) by investing activities (614,242) (125,000)
---------- -----------
Cash flows from financing activities
Demand loan proceeds 349,250 11,500
Loan repayments (93,000) --
Proceeds from issuance of shares
of common stock 802,500 246,000
Proceeds from issuance of shares
of preferred stock 48,500 100,000
Subscription receivable 50,000 (50,000)
Underwriting expenses (32,618) (19,765)
---------- -----------
Net cash provided by financing
activities 1,124,632 287,735
---------- -----------
Net (decrease) increase in cash (7,213) 37,496
Cash at beginning of year 38,794 1,478
---------- -----------
Cash at end of year $ 31,581 $ 38,974
========== ===========
Schedule of Non-Cash Financing
Transactions:
Additional paid-in capital upon
conversion of debt $ -- $ 786,397
========== ===========
See accompanying notes.
19
<PAGE>
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. GENERAL
Enterprises Solutions, Inc. (ESI) (Company), a Nevada Corporation, together
with its wholly-owned subsidiary, plans to provide both government and
commercial enterprises with high assurance security technology.
The Company is in the development stage and currently has no revenue of a
continuing nature. It is management's plans to develop and provide high
assurance security computer networks and related products and services.
The accompanying financial statements include the consolidated accounts of
ESI and its wholly-owned subsidiary (a non-operating company with no assets
or liabilities.) All material intercompany balances and transactions have
been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
Assets, liabilities, revenues and expenses are recognized on the accrual
method of accounting for financial statement presentation and for federal
income tax purposes.
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 the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes
At December 31, 1999, the Company has net operating loss carry forwards of
approximately $1,7 million available to offset future taxable income which if
unused, expire through 2019. Therefore, a provision for income taxes has not
been provided.
Net Loss Per Common Share
Net loss per common share has been computed by dividing the net loss by the
weighted average number of common shares outstanding during the period.
3. GOING CONCERN
Currently, the Company has neither substantial revenues of a continuing
nature nor sufficient working capital to sustain its limited operations.
Management is planning to raise equity to pursue its intended plan of
20
<PAGE>
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
operations. No assurance can be had that the Company will be successful in
raising additional funds or that any funding will be sufficient. The Company
has limited resources and has depended on outside financings. These
conditions raise substantial doubt about the Company's ability to continue as
a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
4. LOANS AND ADVANCES
The Company advanced $105,000 at December 31, 1999 to a company to develop an
Internet credit and clearing operation. At December 31, 1999 the advance was
considered worthless and was written off.
5. DEMAND LOANS
In 1999, the Company borrowed $349,250 from shareholders and others at no
interest, payable on demand, repaying $93,000 during 1999.
6. SHAREHOLDERS' (DEFICIT)
In 1999 and 1998 the Company issued 866,614 and 3,126,000 common shares,
respectively, in private placements, raising $1,048,500 in total.
In connection with certain of these offerings, the Company also issued,
during 1998, warrants to purchase 1,200,000 shares common stock at $2.50 per
share. In connection with the stock split declared in June 1999 these
warrants were adjusted. The new warrants are to purchase 1,800,000 shares of
common stock at $1.67 per share. The warrants expire in June 2003 and as of
December 31, 1999 none of the warrants had been exercised. During 1999
warrants were issued, in connection with certain common stock issuances, to
purchase 1,225,000 shares of common stock at $2.50 per common share, the
warrants had an expiration date of September 6, 2000. These warrants provided
the investors with a cashless exercise option where a reduced number of
common shares could be purchased with no additional cash payment. All of
these warrants were exercised, during 1999. In accordance with the cashless
exercise option, 811,680 shares of common stock were issued with no
additional proceeds being received by the Company.
The Company also issued to certain common shareholders 48,500 and 100,000
shares of preferred stock at $1.00 per share in 1999 and 1998, respectively.
In June 1998, the Company capitalized $786,397 of shareholders loan and
accrued payrolls as part of a transaction in which the shareholders to whom
these amounts were owed sold their entire interest in the company to new
shareholders. The Company's involvement in the exchange was to capitalize the
shareholders loans and accrued payrolls.
21
<PAGE>
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
In March 1999, the Company amended its certificate of incorporation to change
its name from American Casinos International, Inc. (ACII), to alter the
authorized number of common shares to 25,000,000 shares, par value $.001, and
to authorize 5,000,000 preferred shares, par value $.001, with the Board of
Directors authorized to determine, among others, the series, etc. These
changes were made retroactively in these consolidated financial statements.
In June 1999, the Company declared a 50% common stock split which totaled
1,238,383 shares. This adjustment was reported in these consolidated
financial statements as if it had occurred in December 1997.
The Company's preferred stock is 8% cumulative and redeemable at the
Company's option at 100%. In 1999 and 1998, the Company issued 48,500 shares
and 100,000 shares, respectively, at $1.00 per share.
7. STOCK OPTION PLAN
The Company grants stock options for a fixed number of shares to members of
the Board of Directors with an exercise price equal to the fair market value
of the shares at the date of grant. The options are to expire two years after
the resignation of a Director who has served in that capacity at least one
year, unless otherwise modified by an action of a majority of the Board of
Directors. These options are for a term of three years. As of December 31,
1999 and 1998 no options had been issued or exercised.
8. COMMITMENTS AND CONTINGENCIES
The Company leases facilities and equipment in both Florida and California.
The term of these agreements varies from a month-to-month basis to a
five-year term. The facilities in Florida are leased on a month-to-month
basis, with a monthly rental cost of $150. The facilities in California are
leased for a 36-month term, expiring in September 2002, with a monthly rental
cost of $5,919. The Company is responsible for annual operating expenses,
services and utilities.
The minimum lease payments for all of the above facilities and equipment are
as follows:
Calendar Year Amount
------------- ------
2000 $93,486
2001 87,286
2002 45,891
2003 4,468
2004 4,130
22
<PAGE>
ENTERPRISES SOLUTIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
9. SUBSEQUENT EVENT
On April 4, 2000, the Company received $5,000,000 from a financing
arrangement in Switzerland whereby the Company issued convertible notes with
interest at 10% per annum, due April 2, 2001. The notes are convertible at
the option of the holder into common stock of the Company, on or before April
2, 2001, at a defined conversion price. In connection with the financing, the
agent received a note in the amount of $250,000, the terms of which are the
same as those of the $5,000,000 principal amount of convertible notes. The
agent was also issued warrants to purchase 50,000 common shares on or before
April 2, 2003, at a price equal to 120% of the conversion price of the
convertible notes calculated as of April 2, 2000. The holder of the notes and
warrants have piggyback registration rights for the underlying shares of
common stock.
23
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Officers and Directors of the Company are as follows:
Name Age Title
---- --- -----
John A. Solomon 50 President and C.E.O*
Gary S. Baker 52 Executive Vice President-Engineering
Alfred T. Saker 52 Treasurer and Secretary*
Charles E. Bobbish 51 Director
* Indicates Directors
John A. Solomon has served as the Company's President and Chief
Executive Officer since September, 1999. Mr. Solomon also is a member of the
Company's Board of Directors. Prior to his appointment to his positions with the
Company, from 1979 to 1995, Mr. Solomon was the President and Chief Executive
Officer of Computer Engineering Associates, Inc. ("CEA"), a systems integration
and security technology company. In November, 1995 CEA filed a petition for
voluntary bankruptcy which resulted from cash flow problems CEA encountered
related to several bonded construction projects CEA performed. Because Mr.
Solomon personally indemnified the bonding companies who insured CEA's
construction projects, Mr. Solomon was forced to file for personal bankruptcy in
February, 1997. Mr. Solomon was discharged from his personal bankruptcy in May,
1999.
Gary S. Baker has served as Vice President and Director of Engineering
since August, 1999, and Executive Vice President-Engineering of the Company
since July, 2000. He was a Senior Engineer at Stratus Computer from 1993 to
1996, a Senior Engineer and Manager at Novell Computer from 1996 to 1998 and
Director of Engineering at Sistex from 1998 to 1999, a company affiliated with
Infotex Holdings, Ltd.
24
<PAGE>
Alfred T. Saker is the Treasurer and Secretary of the Company and was
elected a Director on June 29, 2000, to fill the vacancy in the Board created by
the resignation of Nina L. Cannon. Mr. Saker received a B.A. in Arts and
Sciences in 1971, and a M.S. in accounting in 1978, from Kent State University.
From 1996 to 1998, Mr. Saker was Finance Manager for International Shipholding
Corporation, a marine transportation company. From 1993 to 1996, he was
Treasurer for American Heavy Lift Shipping Company and, prior thereto, he held
various positions with BP Oil Company, his last position, from 1990 to 1993,
being Manager, Services and Control (Controller).
Charles E. Bobbish was elected a Director of the Company on July 6,
2000, to fill the vacancy resulting from the resignation of Wayne G. Kight. From
April, 1991, to April, 1995, Mr. Bobbish was a Senior Vice President of Mosaic
Data Systems, Inc., Bedford, Massachusetts, with responsibility for planning and
coordinating information systems implementation and integration. In 1995, Mr
Bobbish had a consulting business involving proposal and business development,
which was, in early 1996, incorporated into Qualserv, Inc., Burlington,
Massachusetts, a proposal writing and business development company, of which he
has served as President from that time to the present. In his present position,
Mr. Bobbish advises executives of large information technology companies on
market positioning and provides inputs to business strategies, directions and
proposals.
Promoter and Former Control Person
In recent years, Herbert S. Cannon acted as a general business
consultant to management pursuant to consulting agreements dated July 1, 1998,
and January 7, 2000. As a consultant, Mr. Cannon performed a significant
management role for the Company primarily with respect to raising capital for
the Company and in interviewing and selecting management candidates, including
Wayne B. Kight, the former CEO and President, and John A. Solomon, the current
CEO and President. Mr. Cannon's consulting agreement entitled him to the payment
of $3,000 per month and under both agreements provision is made for a total
award of 300,000 shares of common stock in exchange for his services. The
Company is evaluating its obligation to issue these shares to Mr. Cannon.
Through World Net Communications, of which Mr. Cannon is, to the knowledge of
the Company, the sole owner, Mr.Cannon owns 75,000 shares of common stock and in
1998 purchased warrants to purchase 150,000 shares of common stock. See
"Security Ownership of Certain Beneficial Owners and Management." Since January
1, 1999, the Company has paid Mr. Cannon approximately $111,257 in consulting
fees, expense reimbursements and other compensation (including a $16,000
reimbursement for a loan made by Mr. Cannon on behalf of the Company to Infotex
Holdings, Ltd. and including certain expenses incurred by the Company's
Monterey, California, office that Mr. Cannon paid for with his personal credit
card). The Company may have made other payments to entities controlled by
Herbert S. Cannon. Mr. Cannon may be deemed a "promoter" and/or a "controlling
person" of the Company, as those terms are defined under the Securities Act of
1933 and the Securities Exchange Act of 1934. John A. Solomon, the Company's
Chief Executive Officer, upon authorization of the Board of Directors,
terminated Mr. Cannon's consulting arrangement effective March 20, 2000.
Mr. Cannon also acted as a general business consultant to Infotex
Holdings, Ltd., which the Company agreed to acquire in March 1999. In July 1999,
the Company cancelled its agreement to acquire Infotex. In August 1999, certain
investors in Infotex were afforded the opportunity to participate in a private
placement of the Company's common stock at a low per share price. The Company is
evaluating the terms and conditions of that private placement in relation to
other private sales of common stock in that period. In the months preceding
October, 1999, certain unauthorized press releases concerning the Company were
issued. Mr. Cannon appears to have played a role in the drafting and
dissemination of these press releases. These press releases contained, among
other things, revenue projections and statements about contracts purportedly
awarded to the Company. The Company did not authorize the press releases, and
did not realize the projections nor was it awarded the contracts referred to
therein.
In addition, in a lawsuit described elsewhere (see "Legal
Proceedings"), the Securities and Exchange Commission has alleged, among other
things, that Mr. Cannon, through several offshore entities, including one listed
under the heading "Security Ownership of Certain Beneficial Owners and
Management", is a beneficial owner of more than 5% of the Company's outstanding
common stock. That issue is being litigated in court between the Commission and
Mr. Cannon. Mr. Cannon has denied these allegations. In August, 1987, the
Securities and Exchange Commission issued an order barring Mr. Cannon from the
securities industry. In 1988 and again in 1993, in separate civil cases brought
by the Commission, federal courts entered final judgments enjoining Mr. Cannon
from violating certain provisions of the federal securities laws. In addition,
in 1985, Mr. Cannon pleaded guilty to a charge of conspiracy to defraud the
United States in the collection of income taxes. In 1987, a New York state court
found Mr. Cannon guilty under that state's larcency statute while handling funds
from a chartered bank. He also pleaded guilty in that proceeding to two
misdemeanor counts of failure to file state tax returns. In 1988, Mr. Cannon
pleaded guilty to one count of conspiracy to defraud the federal government. In
1994, he was sentenced by the U.S. District Court, Newark, New Jersey, to five
years probation, and was ordered to pay $10,000 in court costs and engage in 500
hours of community service, for participation in a transaction which involved
the sale of fraudulent coal mine tax shelters to investors where the West
Virginia coal mines at issue did not engage in actual mining operations.
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Not applicable.
ITEM 10. EXECUTIVE COMPENSATION
During the fiscal year ended December 31, 1999, Mr. John A. Solomon was
paid, through ACG Inc., a company wholly owned by him, consulting fees of
$49,999.98, and expense reimbursements of $9,575.45; no salaries in excess of
$100,000 per year have been paid to any other executive officer or director of
the Company.
LONG-TERM INCENTIVE PLAN AWARDS
The Company has no Long-term Incentive Plan Awards currently in effect.
25
<PAGE>
STOCK AND OPTION COMPENSATION OF OFFICERS AND DIRECTORS
The Company has authorized the issuance to John A. Solomon of 75,000
shares of Common Stock (and a balance owing of 150,000 shares) at a nominal
price pursuant to Mr. Solomon's Employment Agreement with the Company. At the
Board of Directors meeting held on March 20, 2000, the Board authorized the
issuance to Mr. Solomon of options to purchase 100,000 shares of Common Stock at
a price of $6.25 per share.
Mr. Wayne B. Kight, a former Director and Executive Vice President of
the Company, purchased 10,000 shares at $.05 per share (adjusted to 15,000
shares by reason of the stock split in June 1999) in June, 1998. At the Board of
Directors meeting held on July 30, 1998, the Board authorized the issuance to
Mr. Kight of options to purchase 22,500 shares of Common Stock at a price of
$.67 per share and, as of July 30, 1999, options to purchase 15,000 shares of
Common Stock at $5.67 per share (both options being adjusted for the June 1999
stock split). At the Board of Directors meeting held on September 1, 1999, the
Board authorized the issuance to Mr. Kight of options to purchase 10,000 shares
of Common Stock at an exercise price of $7.50 per share. The Company has
authorized the issuance to Mr. Kight of 40,000 shares of Common Stock (and a
balance owing of 80,000 shares) at a nominal price pursuant to Mr. Kight's
Employment Agreement with the Company. At the Board of Directors meeting held on
March 20, 2000, the Board authorized the issuance to Mr. Kight of options to
purchase 25,000 shares of Common Stock at a price of $6.25 per share.
At the Board of Directors meeting held on September 1, 1999, the Board
authorized the issuance to Nina L. Cannon, a former Director of the Company, of
options to purchase 10,000 shares of Common Stock at an exercise price of $7.50
per share. At the Board of Directors meeting held on March 20, 2000, the Board
authorized the issuance to Ms. Cannon of options to purchase 25,000 shares of
Common Stock at a price of $6.25 per share.
All options referred to above issued to John A. Solomon, Wayne B. Kight
and Nina L. Cannon expire three years from their respective dates of issuance.
2000 Restricted Stock Plan
On August 7, 2000, the Board of Directors of the Company adopted the
2000 Restricted Stock Plan (the "Plan"), pursuant to which 1,000,000 shares of
common stock are reserved for issuance to eligible participants under the Plan.
Such eligible participants include any person who is an employee of or
consultant or advisor to the Company and who provides bona fide services for the
Company, where the services are not in connection with the offer or sale of
securities in a capital raising transaction and where the services do not
directly or indirectly promote or maintain a market for the Company's common
stock. In no case may an award be made under the Plan where the common stock
granted in the award is not eligible for registration pursuant to Form S-8 (or
any successor form promulgated for the same general purposes by the Securities
and Exchange Commission) under the Securities Act of 1933, as amended.
As of September 19, 2000, no awards of restricted stock had been made
under the Plan.
The Plan is administered by the Board of Directors of the Company.
Subject to the express limitations of the Plan, the Board has authority in its
discretion to determine the eligible persons to whom, and the time or times at
which, restricted stock awards may be granted, the number of shares subject to
each award, the time or times at which an award will become vested, the
performance criteria, business or performance goals or other conditions of an
award, and all other terms of the award. The Board also has discretionary
authority to interpret the Plan, to make all factual determinations under the
Plan, and to make all other determinations necessary or advisable for Plan
administration. The Board may prescribe, amend, and rescind rules and
regulations relating to the Plan. All interpretations, determinations, and
actions by the Board are final, conclusive, and binding upon all parties.
2000 Employee Stock Option Plan
On June 29, 2000, the Board of Directors of the Company adopted the
2000 Employee Stock Option Plan (the "2000 Option Plan"), which provides for the
issuance of options to purchase up to 2,500,000 shares of common stock. The 2000
Option Plan was presented to the stockholders of the Company for approval at the
Special Meeting of Stockholders, held on August 11, 2000, but was not approved
by the stockholders. Accordingly, pursuant to the provisions of the 2000 Option
Plan, if stockholder approval is not obtained within one year of the adoption
date of the 2000 Option Plan by the Board of Directors, the 2000 Option Plan
will not become effective. As of September 19, 2000, no options had been issued
under the 2000 Option Plan (any options issued prior to such required
stockholder approval would be subject to stockholder approval of the 2000 Option
Plan having being received within the year following its adoption by the Board
of Directors). The Company has no current plans to resubmit the 2000 Option Plan
for stockholder approval.
Under the Plan, options may be granted which are intended to qualify as
Incentive Stock Options ("ISOs") under Section 422 of the Internal Revenue Code
of 1986 (the "Code") or which are not ("Non-ISOs") intended to qualify as
Incentive Stock Options thereunder.
The 2000 Option Plan would be administered by the Board of Directors or a
committee (the "Committee") which would be appointed by the Board of Directors
from those of its members who are "non-employees" of the Company as defined in
Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act").
Subject to the provisions of the 2000 Option Plan, the Board of Directors, or
the Committee, if one is appointed, would have full authority to determine the
persons to be granted options under the Plan and the number and purchase price
of the shares represented by each option, the time or times at which the options
may be exercised, and the terms and provisions of each option, which need not be
uniform for all options.
Key employees of the Company or its subsidiaries, as determined by the
Board or Committee, and non-employee directors of the Company or its
subsidiaries would be eligible to receive awards under the 2000 Option Plan. The
2000 Option Plan authorizes the Committee to grant, over a ten-year period,
options to purchase up to a maximum of 2,500,000 shares of the Company's common
stock, subject to adjustment as described below. If any option expires or is
terminated prior to its exercise in full and prior to the termination of the
2000 Option Plan, the shares subject to such unexercised option would again be
available for the grant of new options under the 2000 Option Plan. Further, any
shares used as full or partial payment by an optionee upon exercise of an option
could subsequently be used by the Company to satisfy other options granted under
the 2000 Option Plan, subject to limitations on the total number of shares
authorized to be issued under the 2000 Option Plan. The 2000 Option Plan
provides that the purchase price per share may not be less than 100% of the fair
market value of the Common Stock at the time of grant. The purchase price is to
be paid in cash or common stock of the Company held for at least six (6) months
and with a market value equivalent to that of the shares being acquired or, in
the discretion of the Committee, any combination of these.
The term of each option would not be more than ten (10) years from the date
of grant. Options granted under the 2000 Option Plan may be exercised only
during the continuance of the Participant's employment with the Company or one
of its subsidiaries. The 2000 Option Plan permits an outstanding option to be
exercised after termination of employment only to the extent that the option was
exercisable on the date of termination but in no event beyond the original term
of the option (i) within one year by the estate or rightful heir(s) of the
optionee if the optionee's employment is terminated due to the optionee's death;
(ii) within one year after the date of such termination if the termination is
due to the optionee's Disability (as defined in the 2000 Option Plan); or (iii)
within three months after the date of such termination if the termination was
due to the optionee's Retirement (as defined in the 2000 Option Plan) or was for
reasons other than death or Disability and other than "for cause" (as defined in
the 2000 Option Plan). Upon termination of an optionee's employment "for cause,"
any unexercised options held by the optionee would be forfeited. In the event of
the dissolution, liquidation or sale of all or substantially all of the assets
of the Company, to the extent it has not been previously exercised an option
would terminate immediately prior to the consummation of such proposed action.
In the event of the merger of the Company with or into another corporation, the
option shall be assumed or an equivalent option shall be substituted by such
successor corporation or, if such successor corporation does not agree to
asssume the option or substitute an equivalent option, the Board is required to
provide for the option holder to have the right to exercise the option as to all
of the optioned shares, including shares as to which the option would not
otherwise be exercisable.
Options granted under the 2000 Option Plan would be, generally,
transferable only by will or by the laws of descent and distribution, and would
be exercisable during the lifetime of the optionee only by the optionee or by
his legal representative in the event of his Disability. In its sole discretion,
however, the Committee could permit an optionee to make certain transfers of
non-qualified stock options, provided that the transfers are to "family members"
and are not for value, as defined in the General Instructions to Form S-8 under
the Securities Act of 1933, as amended.
EMPLOYMENT CONTRACTS
The Company has entered into an employment agreement with John A.
Solomon, the term of which is for three years from September 15, 1999. The
agreement provides for Mr. Solomon's employment as the President and Chief
Executive Officer of the Company at an annual salary of $200,000, which would be
increased to $500,000 once the Company receives funding in the amount of
$10,000,000 (the "Funding Event"). The agreement provides for bonuses as
determined by the Board of Directors at the sole discretion of the Board, but
not less than 7% of the Net Before Tax corporate profits in each year of
employment. Under the agreement, Mr. Solomon is entitled to borrow up to
$750,000 from the Company on a secured basis, all loans being repayable within
10 years of the first loan being taken out, and with the Company's stock as
collateral in value at least equal to 125% of the loan amount, the amount of
stock to be held as collateral to be adjusted monthly based on the price for the
stock in the market. On June 2, 2000, Mr. Solomon borrowed $650,000 under this
provision. This loan bears interest at the rate of 7% per annum, is due ten
years from the drawdown date, with interest only payable monthly until maturity.
The loan is secured by the pledge of all shares of common stock of the Company
and options to purchase common stock held by Mr. Solomon. The agreement provides
for the issuance of 225,000 shares of common stock of the Company to Mr. Solomon
in three installments of 75,000 shares each at the end of each year of
employment completion; the right to the first installment vested as of execution
of the employment agreement and is to have been issued by December 31, 1999. As
of September 19, 2000, no shares had been issued under these provisions. Shares
issued thereunder are to be issued at no cost to Mr. Solomon and could be issued
as restricted stock or pursuant to the Company's 2000 Restricted Stock Plan. If
the Funding Event condition is satisfied, Mr. Solomon is entitled under the
agreement to be issued an additional 275,000 shares of common stock at the time
of the resulting increase in his salary.
The Company has also entered into an employment agreement with Gary S.
Baker. The agreement has a term of three years commencing on August 1, 1999. The
agreement provides for a base salary of $120,000 for Mr. Baker. The agreement
with Mr. Baker stipulates that he is entitled to purchase 100,000 shares
of common stock at a nominal price in three equal installments, commencing on
August 1, 2000, and on the next two anniversaries of that date.
26
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 3, 2000, information
concerning the beneficial ownership of the Common Stock of the Company by (i)
each person who is known by the Company to own beneficially more than 5% of the
Company's Common Stock, (ii) each director of the Company, and (iii) all
directors and executive officers of the Company as a group. See "Item 10.
Executive Compensation -- Stock and Option Compensation of Officers and
Directors" for information as to stock and options authorized to be issued to
directors and officers.
Approx.
Name and Address of Amount and Nature % of
Beneficial Owner(5) Of Ownership Class
-------------------- ----------------- -------
John A. Solomon(1) 75,000(2) 1.587%
Alfred T. Saker(3) -- --
Charles E. Bobbish(4) -- --
Rowan House Limited 244,168 5.168%
1 Corral Road, Suite 2A
EuroLife Building, Gibraltar
All directors and officers as a group 75,000 1.587%
(1) The address for Mr. Solomon is c/o the Company at 140 Wood Road, Braintree,
Massachusetts 02184.
(2) To be issued under Mr. Solomon's employment agreement.
(3) The address for Mr. Saker is 23 Welsh Road, South Easton, Massachusetts
02375
(4) The address for Mr. Bobbish is 82 Drake Road, Burlington, Massachusetts
01803.
(5) Through World Net Communications, Mr. Herbert S. Cannon owns 75,000 shares
of common stock. In 1998, World Net Communications purchased warrants
expiring June 2003 to purchase 150,000 shares of common stock at an exercise
price of $2.00 per share. See "Promoter and Former Control Person". Under
consulting agreements previously in effect with the Company, provision is
made for Mr. Cannon to be issued an aggregate of 300,000 shares of common
stock. The Company is evaluating its obligation to issue these shares to
Mr. Cannon.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omega Funding, Inc., a corporation that the Company is advised is 100%
owned by Nina L. Cannon, a former director of the Company and the daughter of
Herbert S. Cannon, made loans to the Company aggregating $94,500 in 1999, and an
additional loan of $23,000 on February 24, 2000. In December, 1999, Nina L.
Cannon also made a personal loan to the Company in the amount of $22,000, which
was repaid in January, 2000. In 1999, Omega Funding was also assigned an
additional loan made to the Company by ATM Site Locators Inc. in the amount of
$10,000. In connection with Ms. Cannon's resignation as a director, all of the
loans held by Omega Funding, Inc., aggregating $127,500, were repaid on June 29,
2000, with interest in the amount of $5,243, and the Company agreed to indemnify
Ms. Cannon in accordance with Nevada law against liabilities arising from her
having served as a director and officer of the Company.
Dr. Roger Raymond Schell, a former officer of the Company, is a
shareholder in Gemini Computers, Inc. with which the Company had a teaming
agreement.
On June 2, 2000, John A. Solomon, Chairman and Chief Executive
Officer, borrowed $650,000 from the Company pursuant to his employment
agreement. The loan bears interest at the rate of 7% per annum, is due ten years
from the drawdown date, with interest only payable monthly to maturity, and is
secured by all stock and options to purchase stock of the Company held by Mr.
Solomon.
See "Security Ownership of Certain Beneficial Owners and Management"
and "Executive Compensation" above.
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
10.8 Settlement Agreement, dated June 24, 2000, between the Company and
Nina L. Cannon.
10.9 Agreement, dated September 12, 2000, between Victor Chandler
International and the Company.
27
<PAGE>
The Company incorporates the following Exhibits by reference to the filings set
forth below:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION FILED AS EXHIBIT
----------- ----------- ----------------
<S> <C> <C>
3.1 Articles of Incorporation. 3.1 to Form 10-SB dated November 17, 1999
3.2 By-Laws 3.2 to Form 10-SB dated November 17, 1999
3.3 Amended and Restated By-Laws 3.3 to Amendment No. 1 to Form 10-KSB dated
May 15, 2000
4.1 Specimen Common Stock Certificate 4.1 to Amendment No. 1 to Form
10-SB dated January 3, 2000
4.2 Deed Poll dated April 2, 2000 4.1 to Form 8-K dated April 7, 2000
4.3 2000 Employee Stock Option Plan B to Definitive Proxy Statement filed July 18, 2000
4.4 2000 Restricted Stock Plan 4.5 to Form S-8 filed September 12, 2000
10.1 Lease for Carmel, California, Corporate Condominium 10.1 to Form 10-SB dated November 17, 1999
10.2 Lease for Monterey, California, Office Space 10.2 to Form 10-SB dated November 17, 1999
10.3 Employment Agreement by and between the Company 10.3 to Amendment No. 1 to Form 10-KSB
and John A. Solomon dated May 15, 2000
10.4 Employment Agreement by and between 10.6 to Form 10-SB dated November 17, 1999
the Company and Gary L. Baker
10.6 Employment Agreement by and between 10.6 to Form 10-KSB dated April 12, 2000
the Company and Wayne B. Kight
10.7 License Agreement dated May 1, 2000 for the 10.7 to Amendment No. 1 to Form 10-KSB
Company's executive offices dated May 15, 2000
21 Subsidiaries of Registrant 21 to Form 10-KSB dated April 12, 2000
</TABLE>
(B) REPORTS ON FORM 8-K:
The Company filed a Form 8-K on April 10, 2000.
28
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf the undersigned, thereto duly
authorized.
Dated: October 4, 2000
Enterprises Solutions, Inc.
By: /s/ John A. Solomon
-------------------------------------
John A. Solomon,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on October 4, 2000.
SIGNATURE CAPACITY
--------- --------
/s/ Alfred T. Saker Director
------------------------
Alfred T. Saker
/s/ Charles E. Bobbish Director
------------------------
Charles E. Bobbish
29
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
10.8 Settlement Agreement, dated June 24, 2000, between
the Company and Nina L. Cannon.
10.9 Agreement, dated September 12, 2000, between Victor
International and the Company.
